Govt securities may be sold by tender

Press, 5 April 1983, Page 31

Govt securities may be sold by tender

PA Wellington The Government may decide to sell Government securities by auction or tender, the Prime Minister, Mr Muldoon, has announced. The present system is that the Government fixes interest rates for its security issues and the private sector decides how much it wants to buy. Under a tender system, the Government would fix the quantity of securities to be issued and let the market determine the interest rates needed to reach the desired level of sales. Mr Muldoon said in a statement that the system would give the Government a better chance of achieving its monetary objectives than the present arrangement, which makes it difficult to predict accurately the amount of stock which will be sold. “Under a tendering system the risk of substantial overselling or underselling

of securities would be avoided,” he said. No firm commitment to go ahead with the idea has been made, but Mr Muldoon said he has asked officials from the Reserve Bank and Treasury to start a detailed investigation of the system, and to consult with likely participants in the private sector on how it could be brought in. The proposal would not affect securities such as Kiwi Stock or inflationproof bonds, which will continue to be sold as they are now. “If the results of the investigations and consultations are satisfactory, we would be thinking of implementing the tender system in a few months time. “I expect that the private sector will welcome this initiative — it has benefits for them as well as for the Government — but there are a lot of technical questions to look at before we

can be sure that tendering can be successfullj' introduced.” The New Zealand Bankers’ Association did welcome the Prime Minister’s announcement that government securities might be sold by tender. The chairman of the association, Mr W. J. Shaw, while supporting the idea, said the scheme would need investigation, which the banks would be willing to help authorities undertake. “The system has worked successfully in the United Kingdom for many years, and any scheme which allows market forces to operate will have benefits for the finance sector,” said Mr Shaw. “How the scheme would operate in a small financial market like New Zealand would need investigation, and the banks would be willing to join with the authorities in such a study,” he added.