asked the Minister for Finance why the Government had to borrow £25 million from the Irish commercial banks in March of this year at 8½ per cent interest; and whether he considers this a proper rate for a conversion stock maturing in 1973.
Ceisteanna — Questions. Oral Answers. - Government Borrowing.
24.
The transaction to which the Deputy refers formed part of the financing of the public capital programme, 1969-70, which is set out in the Capital Budget, 1970. The £25 million 8½ per cent Conversion Stock, 1973, was purchased by the banks on 31st March, 1970 at 98? giving a yield to redemption of £8 19s which was in line with the yields of three year stocks at that time.
Surely the Minister realises that when moneys are borrowed from the commercial banks a completely different situation arises as compared with when they are borrowed from ordinary people? Is the Minister not old enough to realise how the last war was financed by all the major belligerents at ½ per cent? What do the Government mean by financing a short-term loan at 8½ per cent when the true rate, the cost to the banks, should be about 2½ per cent? I am talking about the true rate, the cost to the banks of the deposits, or of the part of that that might go back on deposit. All the banks have to do is to make entries in their books.
As I have indicated, the yield to redemption was in line with the yields of three year stocks at the time the banks took up this loan. The fact of the matter is that when the Government are raising money from the banks they have to pay the going rate, and that was the going rate.
May I ask the Minister whether the Government know anything about the method that they should adopt to finance the situation? We have a Bill before us which reads "Owing to the grave difficulties——"
That is not in the question before us.
I am only asking the Minister a question. It is a disgrace for the Government to borrow £50 million in the last financial year. The Minister says in answer to me——
We cannot have a discussion on the whole matter while dealing with this question.
This loan was for the capital programme of 1969-70. In other words the Government borrowed in March to finance the fag end of the last year's programme, not for this year's programme at all.
It is not quite clear what precisely the Deputy has in mind, but I think he is suggesting an interesting but rather well-known approach to the whole basis of economics and monetary policy. It is interesting but it was not applied when the Deputy had some say in what policy should be applied by the Government.
It was applied more than it is today.
Would the Minister not admit that deliberate Government policy is responsible for the high rate of interest today despite the fact that in the past the Government promised they could get money for housing at 2½ per cent, and that is on record in this Dáil?
The Deputy is talking nonsense.