Autonomy of Public Debt Management Offices

Besides the sole level of indebtedness the structure as well as the comprehensive management of public debt are crucial for the sustainability of a country’s public finances. While these tasks used to be allocated among various public organizations and the involved highly technical operations were oftentimes executed by the Central Bank, in the past 25 years more and more countries have designed new Debt Management Offices (DMOs), inside and outside of the Ministry of Finance, to which all public debt management (PDM) related tasks have been delegated. This development was deemed necessary in order to assure the credibility of monetary policies and to cope with the increasing technical challenges of financial markets. To fulfil effectively the public borrowing needs while minimizing borrowing costs with simultaneously assuring an adequate risk portfolio, DMOs have been granted not only operational but also organizational leeway to actively manage public debt with higher market orientation.   However, this worldwide phenomenon bears substantial risks for the public finances as well as the well-functioning of monetary policies. On the one hand, the intensified orientation towards liberalized financial markets influences a country’s fiscal vulnerability adversely towards exogenous shocks. Thus, DMOs’ strategic PDM decisions are closely linked to fiscal and budgetary policies. In this context, the autonomy of the DMOs with respect to their parental Ministry of Finance might necessarily imply a lack of political and democratically legitimized control over crucial undertakings of public finances. On the other hand, the effectiveness of monetary policy of Central Banks can be offset by PDM decisions of DMOs. Depending on the debt’s maturity structure the usefulness of short-term monetary instruments might fundamentally be distorted. Consequently, the autonomy of the DMOs in relation to Central Banks plays a central role for a country’s monetary framework.    Even though these tremendously important implications of the autonomy of DMOs are well known there is no systematic investigation of their actual degree of autonomy to date. Motivated by this, our paper provides an empirical analysis of DMO-autonomy with respect to their parental Ministry of Finance and the Central Bank in several OECD countries. We account for the multidimensional and multilevel concept of autonomy by examining the nested dimensions of managerial, policy, structural, financial, legal, and interventional autonomy. Consequently, we replicate the levels of DMO-autonomy towards the two institutions and scrutinize whether there are substantial differences observable.   Our study contributes to the examination of organizational autonomy of the public sector and extends the mapping of the state administration and the study of the form and extent of stateness. Furthermore, existing research on the relationship of agencies to their parental ministries often focus on single national contexts when analyzing agency autonomy. Therefore, an internationally comparative study on agency autonomy which we conduct adjusts this bias. Additionally, our analysis of the institutional arrangement of DMOs bears also substantial relevance for the PDM literature as it clarifies the DMOs’ role within public debt policy-making and contributes to the current discussion about the robustness of the separation between PDM and monetary policy.