Hopes For Low Interest On £22.4m Loan

Press, Volume CIV, Issue 30892, 27 October 1965, Page 1

Hopes For Low Interest On £22.4m Loan

(from Our Parliamentary Reporter)

WELLINGTON, October 26. The Government hopes to secure the minimum effective interest rate of 1.25 per cent on the £22.4 million loan it is seeking from the International Monetary Fund.

The actual interest rate payable will, however, depend on the term of the loan and that is indeterminate.

Financial authorities say the borrowing will be for a minimum of one and a maximum of five years.

New Zealand will have to undertake to repay the advance within either three years or five years but the actual timing of the repayment —or progressive , repayments—will depend on the circumstances and the amount of overseas funds available from time to time.

The formal request—for which I.M.F. approval is expected to be virtually automatic—is expected to be considered in Washington later this week.

The drawing is the first made by New Zealand since it joined the fund a little more than three years ago. The Government hopes the fund will be regarded as a first-line source of credit abroad, rather than a last resort. since the main advantage lies in low interest rates. Once uplifted, it will bring to some £39.1 million the amount te Government has borrowed oversee, so far this year—excluding instalment on a World Bank loan for harbours development. on which the Government acted as agent for local harbour boards Extra £2.9m The Government will also today have to find an extra £2.9 million in overseas funds

to finance the gold portion of an expanded subscription to the I.M.F.

The increased subscription will carry with it increased drawing rights, not available in time for the current drawing.

Had arrangements for the increase in quotes been completed in time, the first two i drawing rights which New Zealand is now exercising together would have been for an amount of £2B 2 million. Besides flotations in London and New York recently, the Government also repaid £l7 million which fell due in London on September 1. Repayment was achieved with the help of a net realisation of about £4 million in Treasury-held London securities, which form the second line of available reserves abroad. The front line reserves, in currency, are the net overseas assets of the banking system, which last week slipped by £700.000 to £56.2 million—compared with £Bl.B million a year ago and £75.6 million two years ago. Down to £4om Government economists have predicted that without the injection of funds from the 1.M.F., net overseas assets would, at their seasonal low point about mid-Decem-be?, plunge to only £4O million.

At the present rate of Gov-

ernment and private importing the amount represents less than six weeks’ imports. High interest rates in London are one of the reasons which deterred New Zealand from borrowing more there, as originally planned earlier this year. They are also one of the reasons why the Prime Minister (Mr Holyoake) has hinted that the Government may reinvest temporarily at least some of its I.M.F. advance in London securities.

Before the Minister of Fis nance (Mr Lake) told Parlia- . ment yesterday afternoon i- that the Government would s seek £22.4 million from the J fund, the Reserve Bank ani. nounced that the current acr count overseas exchange transactions deficit for the e first quarter of the present i- import year was £24.1 mil s lion. t Ir 1964. the comparable det licit was £14.4 million, in 1963, I- £14.2 million and in 1962, . £3.3 million.