Loan facility explained

Press, 20 April 1981, Page 17

Loan facility explained

PA Wellington The $5OO million loan facility announced last week is an overdraft facility which the Government can draw on if necessary, says the Prime Minister (Mr Muldoon). He told a press conference that there had been some “misunderstanding” about the nature of the facility. It was, he said, simply an overdraft, and. the Government would only pay interest on the.money when it actually went into overdraft.

The Leader of the Opposition (Mr Rowling) had put an interest rate figure on the loan, Mr Muldoon said, but it was impossible to do that until the money was actually drawn.

“When we draw we pay one-quarter of 1 per cent above L.1.8.0.R. — the London Inter-Bank offering rate,” Mr Muldoon said. “Mr Rowling put a rate of interest alongside it. You cannot put a rate of interest alongside it until it is drawn. We are not drawing at this moment, therefore today’s rate of interest is entirely irrelevant. “One of the reasons we are getting it is that last year the markets were somewhat chaotic,, and we did not want to go on the market. The alternative was to let our external reserves run down — not to a dangerous level — but to run down, rather than borrowing regularly externally. We are now starting to borrow again. But it is only what we borrow that incurs current rates of inter-

est in the currency we borrow.”

The overdraft facility gave the Government a backstop, should it be needed, Mr Muldoon said.

The interest rate applicable was one of the lowest, he said.

“It is the lowest spread for this kind of facility that you can get, and it simply indicates that our credit internationally is on the top line.

“When the Labour Government did this its spread was four times as great — it was a l per cent spread. We have it at one-quarter of 1 per cent spread, and it pays the rate of interest at the time it is borrowed, plus a quarter of 1 per cent. “At present we are not borrowing on it, and we will not borrow on it assuming the market settles down and we get our requirements in the normal way,” Mr Muldoon said.