Loan Raising Troubles

Press, Volume CVI, Issue 31082, 10 June 1966, Page 3

Loan Raising Troubles

(N.Z. Press Association) WELLINGTON, June 9. New Zealand was warned by the Minister of Finance (Mr Lake) today that in spite of the Government’s success in raising loans for capital development over recent years, it could be difficult to secure overseas finance to the same extent in future.

He said in an economic review released today that further Government borrowing overseas would be necessary to maintain the flow of essential imports and to support the net overseas assets at an adequate level.

“Our main problem is the deterioration in balance of payments—due mainly to the rising demand for imports of capital goods and raw materials,” he said. “A better relationship between internal expenditure and our overseas earning capacity is essential to reduce the pressure on the balance of payments.” Mr Lake said Britain and

the United States were both experiencing balance of payments problems, and had introduced stringent measures to reduce the outflow of capital to other countries.

“As a consequence we have not been able to raise loans on the United States’ capital market for some time and recent policy changes in Britain could lead to an adverse change in the net flow of private capital to New Zealand."

Such restrictions on overseas borrowing made it even more essential to ensure the demand for goods and services from overseas were reduced

“A developing country such as New Zealand can achieve a faster rate of economic growth by supplementing its overseas earnings with external loans for capital development.

New Zealand’s external debit totalled £167 million at March 31—or 14.8 per cent of the total public debt of £ll2B million. Interest charges paid overseas in 1965-66 were £7.7 million—the equivalent of 2 per cent of export earnings in that period. In 1965-66, loans raised

overseas totalled £27.5 million, £18.9 million of which was used to repay maturing loans.

“During the last 10 years the interest on the external public debt has not at any time exceeded 2 per cent of annual export income,” said Mr Lake. “In recent years the raising of Government external loans for capital development has been a material factor in the rapid expansion of primary and manufacturing industries and without external borrowing it would not have been possible to maintain an adequate rate of economic growth.

“The deterioration in the balance of payments which began in 1964 has become more marked in the last 12 months and is the most serious economic problem facing the country at the present time. “While it is difficult to forecast export, prices, the pressure of internal demand on the balance of payments may continue for some time with the likelihood that the current account will again incur a substantial deficit.”