Overseas Borrowing Programme Outlined

Press, Volume CIX, Issue 32253, 23 March 1970, Page 18

Overseas Borrowing Programme Outlined

“There are still many people in all walks of life in this country who see something inherently wrong in overseas borrowing, but who see nothing wrong in borrowing by a business, or more specifically borrowing for housing by a private citizen,” the Minister of Finance (Mr Muldoon) said in Christchurch on Saturday.

“In principle there was no difference. II simply enabled an asset to be acquired earlier, and in the case of a productive asset it would be paid for by the sale of its production.” Mr Muldoon told a Chartered Institute of Secretaries seminar. “Because of the phenomenal performance of our exports during the last year, we have continued to run increasing record surpluses on current account, but this position is not likely to continue through the target period,” said Mr Muldoon. “Indeed, I expect the surpluses to run down during the course of the current year, although at a much slower rate than I was predicting even a year ago. Some additional capital inflow by way of external borrowing will be necessary, and with the tight international capital market, it is necessary for us to get it when we can, even though in the short term it simply goes into reserves." There would continue to be a moderate Government external borrowing programme, both to provide against this expected deficit, and also to re-pay maturing loans as they fell due. “We have no major loans maturing this year, but in the

J following two years some S73m matures, and this must be provided for. Fortunately J we can, by prudent management of our external reserves, i invest whatever we get at the ! present time in such a way as to cover the cost of I interest, and the greater part i of our external reserves are I today invested at the current ] very high international I interest rates.” High Trade Ratio I Overseas trade—exports plus imports as a percentage of New Zealand’s gross national product—was about 40 per cent, said Mr Muldoon. This was one of he highest figures in the world. The United States figure was j about 10.5 per cent. ! “The imported content of i capital development, then, is I very significant, and has to be I financed not simply in terms | of the internal economy, but ’also in external funds,” Mr | Muldoon said. “A rough rule I of thumb that has been used •over the years is that every I S 4 of internal activity re- | quires the support of $1 of ; external funds, but my own view is that in recent times this figure might be nearer to S 5 to SI. However, if the figure is -84 to $l, and our] capital formation for the cur-; rent year is at say Slosom, the external content of that capital formation would be say 8260 m. “External Government borrowing of about Ssom or about one-fifth of the export

content, would not then be unreasonable. The balance of the external content would be financed by current external earnings, and from the point of view of any business, a similar ratio would be a very sound one. World Bank “One of the cheapest sources of external capital available to us is the World Bank, and as a result of my discussions with Mr Robert McNamara, the president of the Bank, in Washington last year, and a recent visit from a team from the bank, I am hopeful that bank funds will be made available to us for part of our development programme. “Fields that the team looked at with some favour were railway re-equipment, where we have already had bank loans; port development; forestry: possibly electricity: and possibly industry through such an organisation as the Development Finance Corporation. “I would not be adverse to seeing the Development Finance Corporation built up in| size and activity as a means of channelling World Bank money into appropriate industries in the private sector. Naturally we would have to concentrate on industries with an export potential, but there may well be an avenue for activity there in line with the over-all aims of the National Development Conference,” Mr Muldoon said.