N.Z. May Spread Its Overseas Borrowing

Press, Volume CVIII, Issue 31765, 23 August 1968, Page 22

N.Z. May Spread Its Overseas Borrowing

(from BRUCZ KOHN, N.Z.f.A. Staff Correspondent J

The outcome of the visit planned by the Minister of Finance (Mr Muldoon) to London and European financial centres will be watched closely by bankers and economists in Britain.

There is speculation that his visit presages a more active participation by New Zealand in the European money market, particularly in Germany, and possibly Switzerland. Such ■ move would be seen in Britain as a logical step. The London market is extremely tight and the prospects of the situation improving soon are not rated highly. The possibility has raised questions which they expect will be answered as events unfold in coming months. The first concerns the possibility of New Zealand running down its sterling holdings in the “negative” way practised by Australia. NOT REPLACED Rather than make a straight “withdrawal" of part of its' holdings, Australia, it seems, has tended to let them run down by not replacing sums used for normal transactions. Loans raised in the United States have been held there, with the result that about 30 per cent of Australia’s reserves are now in America and only 60 per cent in England. Thia Australian policy is 1 favoured by the banking world. It sees the diversion of : a portion of reserves to the ■ United States as wise, in view : of the monetary uncertainty surrounding sterling. It is said to be “good housekeeping” to hold funds i in the country where heavy liabilities have been in- i curred and the bankers sup- : port thia means of lowering :

reserve sterling holdings as being probably the least disruptive to the pound. In New Zealand’s case a similar policy could be followed, economists say, with fresh loans raised in Europe being held there, or at least that portion of them which may not be required for the servicing of short-tenn debt. Many bankers now rate the Deutschmark next to the dollar as the most popular issue currency in the world. Its popularity is said to be not as well received by the West German Government as might have been expected, largely because it feels investment funds are needed for the development of Germany’s infrastructure. On the other hand, considerable pressure has been exerted on the Germans to re-value the Deutschmark. They do not want to take this step and tend to the belief that at least the flow of funds to foreign loans softens the pressure. SHARP RISE From 1957 to March, 1968, 56 foreign Deutschmark bond issues to a value of about 8970 m were offered on the German market Since March, the total has risen more than one third. The German Government has consistently opposed moves which might turn the Deutschmark into a reserve currency. It does seem unlikely, however, that New Zealand would find much difficulty in holding there at least a portion of any loan, or loans, it might raise. Speculation in London centres on the belief that Mr Muldoon aims to do a public relations task, assuring top

bankers and financiers that New Zealand’s long-term position is sound, and at the same time investigating for himself the prospects for more New Zealand Deutschmark bond issues. MORE PUBLICITY There is a suggestion, too, that increased New Zealand loan activity in Europe could well carry with it moves to increase direct European investment. A decision to seek more loan money there is considered to almost automatically carry with it a need for a country as distant as New Zealand to promote its image and prospects. Properly done such an exercise is thought likely to stir a heightened interest in private investment possibilities, as well as smoothing the path for bond issues. New Zealand’s recent economic troubles, coupled with the mining boom enjoyed by Australia, have tended to divert prospective British and European investors to Australian possibilities. An executive of a bank in London with considerable interests in both countries said today that 99 per cent of Australian and New Zealand investment inquiries received at his bank now concerned Australia. This had not always been the case.