A Vatican Observer Vatican Finances, what is going on? The Vatican City State Administration

May 21, 2020

Plans for a "Vatican Asset Management" outfit were laid out almost as soon as Pope Francis created the new Secretariat for the Economy.  The VAM was supposed to be a centralized office that managed all Vatican investments. The proposed management outfit would have responded to two needs: that of generating revenues to support the expenses of the Holy See / Vatican City State; and, that of keeping investments under better control (because each dicastery had some funds that it managed independently).

The proposal met with a decidedly mixed reaction in the Vatican, as well as – it is fair to say – a good bit of pushback. The President of the Council of Superintendence of the Institute for Religious Works, Jean Baptiste de Franssu, claimed in 2015 that the project would not touch the IOR, for example, but only the Vatican dicasteries. In any case, the proposal was put aside.

De Franssu's cool early reaction also makes it even more interesting to note that the Institute for Religious Works has recently expressed support for the idea that there is need to centralize investments.

Centralization of investments was at the center of the institutional crisis that arose with the IOR's complaint regarding the Secretariat of State's purchase of a luxury property in London. The IOR did not want to give the Secretariat of State a loan to support the acquisition, and complained about the operations. However, observers have also noted in the Institute's resistance the desire directly to manage the money involved.

Current cirscumstances

The ongoing debate tells a lot about the Vatican balances and current positions. The idea is still being explored. It was also discussed in the last meeting of Pope Francis with the heads of Vatican ministers on May 4, 2020.

During that meeting, Vatican officials saw three economic outlooks for the Vatican. More than a "best, middle, worst" trio, the three outlooks were better characterized as "devastating, catastrophic, apocalyptic". The Holy See's balance sheet is in the red, and the financial situation worsened with the coronavirus crisis.

According to the first scenario, income would drop by 30 to 50 percent, while the debt would go up by 28 percent.

The second scenario foresees a reduction in revenues between 50 and 60 percent. This should lead to a corrective intervention on wages, with an 83% increase in the deficit.

The third scenario foresees a reduction in revenues between 50 and 80 percent and an increase in the deficit by 175 percent.

The Secretariat for the Economy tends to believe that the first scenario will occur. In this case, the Institute for Religious Works and the Governorate would decrease the contribution to the Holy See. The scenario 1 limits the deficit to 30-40 percent.

In 2019, the Holy See had introits of roughly €270 million, and spent €320 million. Forty-four percent of expenses concerned  approximately 3 thousand employees. Other items of expenditure were the maintenance of nunciatures, the management of real estate assets, and property taxes.

The Holy See delivers €24 million a year in charitable works. The figure does not include the charity works financed by Peter's Pence and by other charitable foundations under Vatican control.

Deficit, by the way, is nothing new for the Holy See.

In 1979, the first year of John Paul II's pontificate, it closed with a shortage of 19 billion lire – the then Italian currency. In 1980, the deficit was 31 billion lire, some 27,5 billion euros today. Between 2001 and 2015, the consolidated financial statements of the Holy See closed ten times in the red and only six times in the black.

Short version: structural changes need to happen, and yesterday is already too late.

The APSA proposal

The study also suggests strengthening the financial position of the Administration of the Patrimony of the Apostolic See. Salaries are paid through the APSA.

How to strengthen the APSA financial position?

The study by the Secretariat for the Economy suggests moving the investments currently controlled by curial departments into the APSA, transferring whatever dicastery-held liquidity is in foreign financial institutions to the APSA, and also moving dicastery-held liquid assets now deposited with the IOR into the APSA.

According to the study, it would be positive to arrive at the creation of a "single specialized service center on which the financial resources of the Bodies converge" to "improve the proceeds from the financial management to be made available to the Holy See."

This is, in short, the revival of Vatican Asset Management. Cardinal Pell's proposal never took root entirely precisely because it was going to take away managerial autonomy from the various dicasteries. Now, however, the circumstances are dire enough to warrant a second look.

Transparency and Opacity

The issue of purchasing the London apartment also brought to light situations that Cardinal Pietro Parolin called "opaque". The Financial Intelligence Authority had subsequently cleaned up the operation. Still, the presence of Vatican officials on the boards of the companies involved in the purchase transactions, highlighted by the Catholic News Agency, shows that there were at least questionable operations and reformed.

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That was precisely the meaning of the reforms launched by the Financial Intelligence Authority. Seen from this perspective, Pope Francis's decision to cut loose both the President of the Authority, René Bruelhart, and the director, Tommaso Di Ruzza, who were the architects of the financial reform that earned the Holy See great international credit, is inexplicable.

Cardinal Pell thought he was going to break this system of small interests (someone would say corruption) with a Vatican Asset Management outfit set up and controlled from outside the old power structure, brought out of the Vatican, and by the influence of some circles. The auditing contract signed with Pricewaterhouse Cooper in 2016 also came from that rationale. The agreement was then renegotiated so that the sovereignty of the Holy See would be preserved.

The role of the APSA

APSA is regarded as a central bank and is the institutional-governmental investor of the Vatican City State. It operates exclusively on behalf and in the interest of the organs of the Holy See or of the State itself.

Economic reform has taken many steps back and forth.

The reform began in 2014 with the motu proprio Fidelis Dispensator et Prudens, which led to the formation of the Secretariat for the Economy, the Council for the Economy, and the Vatican Auditor General.

The new Vatican pension fund statutes of May 29, 2015, stipulated that the president of the Fund's administration would no longer be the president of APSA, but would instead be appointed.

In October 2016, even the Administration of the Patrimony of the Apostolic See underwent a small reform that had changed the functions of its consultors, which had become part of a "supervisory board".

This reform brought to a tilt in the Vatican system. The reform seemed to treat APSA like a bank, although it was not.

Until 2016, the APSA had accounts of only 23 people (15 members of the clergy and eight laypeople). For this reason, it also came under the jurisdiction of the Vatican Financial Intelligence Authority for a period. The closure of the accounts ended in 2016. Therefore the APSA no longer came under the jurisdiction of the AIF, as highlighted in the third progress report of the Committee of the Europe Council MONEYVAL.

Now, it will be a question of whether the centralized investment fund being discussed will be a sovereign wealth fund linked to the "central bank" or whether it will be treated as an external fund, as was the initial proposal.

Until now, the work done by Archbishop Pena Parra, deputy of the Vatican Secretariat of State, has been to break the old circles of power while maintaining the sovereignty of the Holy See.

A clear example was Monsignor Rolandas Makrickas at the helm of the administration of the Secretariat of State. Monsignor Makrickas is the first non-Italian to take up that position and is totally outside of any circuit until now had managed the operations.

What future?

It is all about understanding what the underlying philosophy of the reforms will be.

The reform of the Curia was also born with the idea of ​​reducing staff, and it is no coincidence that a freeze on hiring has been in place since 2014. The Secretariat for the Economy also spoke of flexibility in the remuneration system and of providing more significant opportunities for employees.

However, it would be a matter of changing an entire mentality, which is the most complex work. The success of the financial reform of Pope Francis will be played on these issues. Set aside the problematic reform of the administrative ranks, the new investment funds remain the only option.

So will there be only one investment fund? By whom or what will it be managed? With what criteria?

These are some of the burning questions,.

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This is the third of a series of three pieces on Vatican finances. The first piece can be found here. The second piece can be found here.