Italy Considers Mini-BOTs To Pay Gov’t Vendors, Igniting Debate

Amid rising scrutiny over government debt and longer payments to contractors, Italy has churned up debate with its consideration of so-called mini-bills to pay state debts, a proposal that has critics worried about the potential ramifications of such a plan.

Reports in Reuters on Sunday (June 9) said Italy’s mini-BOT scheme, developed by the League party and endorsed by Parliament in May, would create small-denomination bills that don’t expire in order to pay the state’s debts. The name BOT stems from the Buoni Ordinari del Tesoro, the name of the Italian Treasury bill, reports said.

Separate reports in Bloomberg explained the notes would range in value from one to 500 euros, and could also be issued as credit for as much as 25,000 euros.

“Like an IOU from the government, mini-BOTs would pay no interest and have no due date,” the publication said. “They would be guaranteed by the state and would be accepted by the government for the payment of taxes. There would be no obligation for third parties to accept them.”

Euro Fears

The plan to create mini-BOTs has attracted criticism, with some warning that the initiative could offer Italy a way out of the euro, reports said, and is “akin to creating a parallel currency.”

Prime Minister Giuseppe Conte acknowledged that mini-BOTs raise “several difficult issues,” and said he would meet with League Leader Matteo Salvini as well as Five-Star Leader and Deputy Prime Minister Luigi Di Maio to discuss ongoing disputes between the two parties.

But Reuters reported that Salvini issued a statement over the weekend urging the country to find a solution to its unpaid supplier debts, calling the situation “urgent.”

“It is a question of justice,” he said.

According to the news outlet, Italy‘s Treasury is exploring ways to address its unpaid invoices, citing data that the government pays its vendor invoices an average of 59 days after they are issued. Law requires payment within 60 days, reports noted. That compares to two years ago, when Italy averaged just 16 days to pay invoices, according to the Treasury.

European Commission Action

The mini-BOT proposal has also reignited controversy over Italy’s current standing with the European Commission, which has threatened to take action against Italy for its public sector debts.

The European Commission issued a statement in December 2017 announcing that it had referred Italy to the Court of Justice over its late supplier payment practices, alleging the member state breached rules under its Late Payments Directive, under which the 60-day payment requirement falls.

“More than three years after the launch of the infringement procedure, the Italian public authorities still take [an] average of 100 days to settle their invoices, with peaks which can considerably exceed this figure,” the EC said in its announcement.

It is unclear, however, why the Italian Treasury says two years ago it averaged 16-day payment terms, and why the discrepancy between the Treasury and European Commission figures is so large.

According to Bloomberg, the mini-BOTs could be a way around European Commission limits on government debt, but European Central Bank President Mario Draghi issued a statement late last week arguing that the instruments would be considered money and therefore illegal in the eurozone. Otherwise, he said, the mini-BOTs would be classified as another form of debt and therefore inflate the state’s current obligations (League economic advisor Claudio Borghi, however, argued that the mini-BOTs would rather securitize existing debt). Italy’s own Finance Minister Giovanni Tria expressed similar sentiment to the European Central Bank.

Procure-to-pay experts say the public sector and government vendor payment practices can act as a model for the private sector. Recent data from Atradius suggests that delayed supplier payments are not isolated to the government: according to its October 2018 report, Italy ranks as the latest-paying country in Western Europe, with the private sector averaging 74 DSO on invoices. Nearly half of outstanding invoices were past-due at the time the report was released, researchers found.