Minister Replies On Overseas Borrowing

Press, Volume CV, Issue 31002, 7 March 1966, Page 11

Minister Replies On Overseas Borrowing

A misconception concerning the I.M.F. drawing of £22.4m, and the recent announcement of a loan of 20 million dollars from the Eurodollar market is indicated in a letter to the editor of “The Press” signed R. Saxon, says the Minister of Finance (Mr Lake) in his reply. The correspondent writes: “Mr Lake’s statement on overseas borrowing makes £22.4 million sound like pin money and not to be tied up with overseas debt. He makes it sound as if Father Christmas is going to pay it back for us. How much money has his Government borrowed since it took over in 1960, and how much interest will we have paid by the time all the debts are repaid (if and when)? I know he has a tough job making the money spin out. Don’t we all?” Minister’s Reply

“The first transaction is essentially an exchange of currencies,” says Mr Lake. “A member country making a drawing purchases foreign currencies from the fund and pays for them in its own currency. Repayment (call repurchases) of a drawing is usually made within three to five years. “Several countries, including Australia, the United States and Great Britain, have already used these

drawing rights to ‘iron out’ fluctuations in overseas exchange receipts. The cost is quite small—a J per cent service charge on the whole transaction, and interest charged at 2 per cent (from three to 18 months) up to 3) per cent (for two years and a half to three years). “The Eurodollar loan of 20 million dollars is for a different purpose—-to help meet part of the cost of the overseas content of the Government’s national development programme. This programme is aimed at increased growth and at extra production which will improve our overseas earnings, including the servicing of overseas loans. “The overseas debt of the New Zealand Government in March, 1960, was £136.7m, and in the five years to December 31, 1965, had increased by only £24m to £ 160.8 m that is less than £sm a year. The 20 million dollar Euro-doilar loan will add £7.lm this year, making a total of £3lm net increase in six years (or just over £sm a year). “During this six-year period the Government will have spent on capital works and national development a total of £444m, or an average of £74m a year; with the great bulk of it financed from our own resources,” says Mr Lake.