I.M.F. Loans “Would Cost Less”

Press, Volume C, Issue 29517, 19 May 1961, Page 12

I.M.F. Loans “Would Cost Less”

(N.Z. Preu Association)

WELLINGTON, May 18. Short-term borrowing from the International Monetary Fund would cost less than borrowing from other sources, the Minister of Finance (Mr Lake) said today. He was commenting on a reported statement by the Leader of the Opposition (Mr Nash) that New Zealand could get all the money it required at a cheaper rate than that offered by the fund.

“The cost of borrowing from the LM.F. is definitely lower as is shown by the following comparison of rates on short-term borrowing from other sources in 1958 with the rates on similar borrowings from the 1.M.F.,” said Mr Lake.

“In 1958 loans of £ 16.500.000 were raised from a group of American bankers headed by J. P. Morgan and Company. By pledging our gold reserves the Government was able to get £ 12,400.000 of this for three years at an effective rate of more than 31 per cent. The remaining £4,100,000, which was not secured on gold, cost 44 per cent, although it was only for one year. “From the 1.M.F., however, the total cost of an initial borrowing of this amount of £16,500,000 for three years would work out at an effective rate of It per cent. “In 1958 the Reserve Bank arranged a credit of £8 million with the Australian Commonwealth Bank. It was

repaid in 1959 and coat 41 per cent. “With a further loan of £8 million from the 1.M.F., the interest rate- on total borrowings of £24.500.000 would be less than If per cent. "In 1958 a stand-by credit for £lO million was arranged with the Midland Bank in London at the rate of g per cent, per annum. The cost for a similar stand-by arrangement with the I.M.F. would be 1 per cent. “There can be no doubt that borrowing from the I.M.F. would be cheaper,” said Mr Lake. “These calculations are based on a quota of £35.700,000 or more with the I.M.F. and a gold subscription of £8.900,000."