Bloomberg News

Spain Plans Budget Law as Drug Firms Owed $8.4 Billion by States

January 26, 2012

Jan. 26 (Bloomberg) -- Spain pledged to set spending limits for regional governments in a new law tomorrow as the country’s pharmaceutical lobby said the regions owe companies $8.4 billion for drugs.

The People’s Party Cabinet plans the budget-stability law to flesh out a constitutional amendment that the party helped the former Socialist government pass in September. Budget Minister Cristobal Montoro said “early warning” and “automatic correction” systems will be set up to prevent overspending and sanctions will be strengthened.

“The aim is to guarantee the budget stability of all administrations, boost confidence and strengthen Spain’s commitments to the European Union,” Montoro told a parliamentary committee today in Madrid.

Spain’s PP government, in power since December, is trying to convince investors it can reduce its budget deficit by almost half in 2012 even as the economy suffers its second recession in two years. The law aims to increase discipline in the regional governments, which have accumulated unpaid bills after they were shut out of public debt markets and saw their tax revenues collapse.

Spain’s 17 regions owed pharmaceutical companies 6.37 billion euros at the end of 2011, lobby group Farmaindustria said today in a statement. That debt has risen 36 percent from a year earlier as payments were delayed by an average of 525 days, according to the group, which has urged Prime Minister Mariano Rajoy to sell bonds backed by the unpaid bills in a program that would be guaranteed by the government.

Credit Line

As regions including Valencia suffer from a liquidity squeeze, Montoro has offered the states a credit line to allow them to pay unpaid bills. The government will seek tighter deficit plans in return, he said.

The budget law will prevent spending rising more than projected economic growth, while giving debt redemptions and interest payments priority over other public spending. The ratio of debt to gross domestic product will be limited to 60 percent, Montoro said.

The PP or its allies govern in most of Spain’s 17 regions, strengthening the government’s hand to reorder public finances. The regions, which missed their combined budget goals in 2010 and 2011, control about a third of public spending and hire half of the countries’ public workers.

“We have seen the willingness of all the regional governments that Spain should have a new budget-stability law,” Montoro said today.

--Editors: Fergal O’Brien, Andrew Atkinson

To contact the reporter on this story: Emma Ross-Thomas in Madrid at erossthomas@bloomberg.net

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net


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