Junta will have trouble borrowing foreign cash

Press, 17 June 1982, Page 8

Junta will have trouble borrowing foreign cash

NZPA-Reuter London Argentina's difficulty in raising medium-term foreign loans, exacerbated by the Falklands crisis, will remain once the conflict is settled, banking sources say.

Some SUS7OOO million (SNZ924O million) in loan repayments were due this year, bankers said. Argentina had hoped to help meet these obligations through new loans, notably by refinancing half the money on longer maturities. But the Falklands crisis had drawn banks' attention to Argentina's economic and political troubles and its market return would be marked by higher interest on shorter maturity loans, the sources said. “All this crisis has done is to ' focus . attention on the problems." one British banker said. “It crystallised thoughts on the nature of Argentina's debt, which .stands at some $U535,000 million ($NZ46,200. million), much of it nearing maturity.”

For example, in June, 1981, the Bank for International Settlements noted that, the $23,00Q ($NZ30,360

million) Argentina owed to Western banks. SUSII,BOO million ($NZ15.576 million) fell due within a year. During the crisis Argentina had succeeded in rolling over some of this debt on a short-term basis, bankers said, especially with loans from United States and Japanese banks. But soon it must return to the medium term market, where banks have grown wary of their Latin American exposures. Government sources say it is too early to tell when financial sanctions will be ended. ' Britain froze Argentine assets, restricted new financial credits and introduced a trade embargo supported by several other Western countries. Steps by Argentina included the delay of direct loan repayments to British banks.

The financial and military battles had effectively exeluded Argentina from the medium term market. One credit about to be signed was also caught in the cross-fire, the $2OO million' (SNZ264 million) loan for the utility, Segba, which was postponed, the bankers’.noted.-' '

Recapturing the Falklands has cost the British an estimated £l2OO million (SNZ2B32 million), but Government economists say that the tab will have little impact on the country's struggling economy. The Treasury has not yet put an official price tag on the war. But defence analysts and London stockbrokers say the campaign has cost at least £7OO million (?NZ1652 million) — about 5 per cent of the total defence budget of £14,000 million ($NZ33,040). If. the current cost- of replacing the ships, planes and helicopters lost in the South Atlantic is added — an estimated £517.2 million(sNZl22o.s9 million) — the bill totals £1220 million ($NZ2879.2 million). The Treasury officials emphasised that thb economy had been able to absorb the

unexpected shock of the Falklands by an exceptionally . large contingency reserve of E 2400 million ($NZ5664 million) and a £2OOO million (SNZ472O million) undershoot on last year’s public borrowing re- • quirement. But one Cabinet Minister,

John Biffen, leader of the House of Commons, said that the campaign would probably bring some belGtightening.

"National honour can rarely be redeemed on the cheap. There's a price in blood and a price in treasure," he said.

Treasury Ministers said that the cost of the fighting would not deflect Mrs Margaret Thatcher’s monetarist strategy to revamp Britain’s economy. But it will likely dash hopes of modest tax cuts before the General Election expected next year.

Mr Biffen and the Treasury Minister (Mr Leon Brittan) have indicated that the Government may have to impose a special tax to cover the costs of the Falklands campaign. Other officials have suggested a slow-down in spending programmes. A tax hike of one penny in the pound would ' raise around £lOOO million (SNZ236O million) a year, the approximate cost of the war.. , The long-term cost is likely to mount because Mrs Thatcher has said that Britain will need to maintain ' a .military force bn the islands. :