asked the Minister for Finance if he will state, with reference to his Budget speech statement relating to steps which the Central Bank proposed should be taken in the matter of credit, whether the Central Bank since took any steps in the matter; if so, the nature thereof and advices given by them; what consultations he has had with that bank and other banks; and if he will make a statement on the matter.
Ceisteanna—Questions. Oral Answers. - Provision of Credit.
6.
The Central Bank has given advice to the Associated Banks to the effect that during the nine months ending 31 December, 1965, the aggregate amount of their lending by way of bills, loans and advances should not expand, in relation to their resources within the State, as rapidly as during the year ended 31 March, 1965, and that, in considering applications for credit, they should give priority to applications related to purposes of a productive nature and, within that category, to purposes directly related to the expansion of exports of goods and services. The Government were informed by the Central Bank before this advice was issued and they expressed their acquiescence in and support for the bank's advice, subject to interim review in October, 1965.
The reasons for the Government's attitude were outlined in my Budget Statement. Total expenditure has tended recently to rise faster than the output of goods and services and the availability of external capital. As a result, external reserves have fallen. It is important for continued steady progress of the economy towards the targets of the Second Programme that the balance of payments deficit be kept within manageable limits. The immediate aim is not to let the deficit rise much above last year's level of £31 million. This report requires a slower expansion of credit this year, a growth of savings in all forms, including bank deposits, and an improvement in the competitiveness of our goods and services.
The credit situation is being kept under review by the Central Bank in consultation with the Associated Banks both as a group and individually and it may be taken that the need for careful and gradual adjustment in order to avoid unnecessary disturbance to productive activity is fully appreciated.
Will the Minister say whether money for house building is regarded as being for a productive purpose?
It is, yes.
Is the Minister further aware that the banks are in fact refusing to lend money for house building?
I am not so aware.
It is a fact.
I suggest that the Minister should make further inquiries.
Yes, I can look into that.
7.
asked the Minister for Finance if he will state, having regard to difficulties being experienced by many businesses by reason of restrictions in credit being enforced by banks and to the damage to the economy resulting from such restrictions, what steps he proposes to take in the matter.
I do not accept the suggestion in the Deputy's question that the temporary moderation in the rate of expansion of credit is resulting in damage to the economy. On the contrary, it is necessary and desirable in order to preserve our capacity to finance a steady future growth of the economy.
Corrective action abroad, especially in the United Kingdom and the United States, has reduced the net intake of external capital so that the rise in bank resources has become increasingly inadequate to meet the greater demands for bank accommodation. This development at a time when the rise in imports is not matched by higher exports makes it essential that priority for credit facilities be given to purposes of a productive nature, especially to purposes directly related to the expansion of exports of goods and services. It is in the national interest that applications for credit for less essential purposes receive a lower priority so that more essential needs can be met from the resources available.
Is the Minister aware that several respectable businesses of long standing which have had permission over the years to have a certain limit on overdrafts have now been told that that overdraft limit must be cut down to half, in some cases to a quarter and in others, abolished? Would the Minister agree that this is a new restriction which is an embarrassing circumstance for respectable businesses?
I am not aware of the rate of reduction required by the banks in regard to their specific customers but undoubtedly in advising their customers, they have regard to the advice given to them by the Central Bank, that is, to ensure that the resources available are diverted mainly towards productive purposes. I do not know what the individual businesses to which the Deputy refers are.
Is the Minister aware that as the result of the inability of certain firms to pay bills due to foreigners who supplied goods, the standard of this country, financially and in business, is being impaired because of this credit squeeze?
Again, this is something I am not aware of but I can make inquiries about it.