Written Answers. - Currency Exchange Rates.
9 Dr. O'Hanlon asked the Minister for Finance the action, if any, he proposes to take to protect jobs threatened by the punt/sterling currency situation; and if he will make a statement on the matter. [17907/95]
24 Mr. Andrews asked the Minister for Finance the reason a new market development fund for sterling area exporters cannot be put into place under the EU Cohesion definition. [16866/95]
32 Mr. Killeen asked the Minister for Finance his views on the setting up of a contingency fund to assist exporters in the event of a currency crisis; and if he will make a statement on the matter. [14098/95]
Michael P. KittQuestion:
35 Mr. M. Kitt asked the Minister for Finance if, as some forecasters suggest, sterling depreciates against the Deutsche Mark with consequent implications for the Irish currency, he will consider the ESRI proposal of an introduction of a temporary package of Government measures to counter any immediate threat to employment vis-à-vis our export business with the United Kingdom. [15170/95]
47 Mr. B. Smith asked the Minister for Finance his views on the setting up of a contingency fund to assist exporters in the event of a currency crisis. [14062/95]
49 Mr. Kirk asked the Minister for Finance the discussions, if any, he has had with representatives of the business and farming communities in view of the high level of the punt against sterling; the plans or proposals, if any, he has to help alleviate some of the difficulties being experienced by Irish exporters exporting to the United Kingdom; and if he will make a statement on the matter. [17903/95]
66 Mr. B. O'Keeffe asked the Minister for Finance if he intends to set up a sterling stabilisation fund. [17684/95]
67 Mr. Killeen asked the Minister for Finance if he intends to introduce a market development fund. [14147/95]
68 Dr. O'Hanlon asked the Minister for Finance if his attention has been drawn to the ESRI report recommending support for exporters disadvantaged by the ratio of the Irish Punt to Sterling; the action, if any, he proposes to take; and if he will make a statement on the matter. [14743/95]
I propose to take Questions Nos. 9, 24, 32, 35, 47, 49, 66, 67 and 68 together.
I am conscious of the concerns of exporters to the UK about the impact of the higher exchange rate of the Irish pound against sterling. As Deputies will be aware, I met the Irish Business and Employers Confederation, IBEC, earlier this year to discuss the effects of the Irish pound's rise in value against sterling. My Department has stayed in touch with IBEC about the matter since. In addition, various meetings at official and ministerial level will be held as usual with business and farming interests in the coming weeks and I have no doubt that their concerns about the currency situation will be reiterated in that context.
While I appreciate these concerns, I think it is necessary to put the currency developments of 1995 in perspective. Over recent years the Irish economy has achieved very strong economic growth and increased employment against a background of low inflation, a balance of payments surplus and firm control of the public finances. This strong performance has been achieved at a time of significant appreciation of the Irish pound against sterling. In addition, while the Irish pound has undoubtedly risen more quickly against sterling this year, that appreciation has essentially been produced by the markets themselves and should be providing offsetting benefits for some firms, in terms of lower import costs. Moreover, the Irish pound has depreciated against the Deutschemark and certain other currencies, a factor which should generally be of advantage to exporters to various EU member states other than the UK.
I would also point out that a stable exchange rate, flowing from our participation in the zone of stability which the ERM represents, has helped to underpin the policy approach within which low inflation has been achieved in recent years. This low inflation is central to our longer-term strategy, based on moderate wage developments and continuing improvement in the public finances, to strengthen our employment performance. At 2.4 per cent year on year, the most recent Irish inflation figure compares favourably with the UK figure of 3.2 per cent and should confer a key competitive advantage on Irish industry. Low inflation is also very important in the maintenance of low interest rates over time: in this context, I would emphasise that key UK interbank interest rates are about one percentage point above corresponding Irish rates.
A number of Deputies have raised the question of setting up a fund to assist exporters, some mentioning a recent ESRI report. I take it that this is the summer 1995 ESRI quarterly economic commentary, and I quote the relevant extract from that document:
While the responsibility for protecting themselves against the risk of currency fluctuations lies primarily with the companies concerned, circumstances can be envisaged which could justify a temporary package of government measures to counter any immediate threat to employment. To permit such a response in the unlikely event that it is needed, and to cover any other unforeseen problems which might arise, it is desirable that some flexibility is retained in the 1996 budget balance. Preferably, this should be in the form of an explicit contingency reserve, with the hope that it would not prove necessary to use it.
As Deputies will see from this quotation, the ESRI commentary did not recommend support for exporters disadvantaged by the then current value of the Irish pound against sterling, which was not substantially different from its present level. Rather the commentary referred to the possibility of a further sterling depreciation in 1996 and said that circumstances could be envisaged which could justify a temporary package of Government measures to counter any immediate threat to employment. To permit such a response in the unlikely event that it would be needed, and to cover any other unforeseen problems, the commentary recommended the retention of some flexibility in the 1996 budget balance, preferably in the form of an explicit contingency reserve.
While Deputies will obviously have to await budget day 1996 for details of my 1996 budget, I have no plans to provide for a contingency fund along the lines suggested in the ESRI commentary or to introduce special measures to aid exporters to the UK, either in the form of a renewed market development fund or otherwise. As the ESRI commentary itself says, the responsibility for protecting themselves against the risks of currency fluctuations lies primarily with the companies concerned.
In addition, the present circumstances are quite different from those which gave rise to the establishment of the market development fund in 1992. In particular, I would draw attention to the fact that while at times during the 1992/93 currency crisis Irish interbank interest rates were at extraordinary high levels, they are now significantly below corresponding UK rates. In any event, establishing either a contingency fund or a market development fund now would involve a significant commitment of funds at a time when the Government has set itself a tight ceiling for expenditure and when commentators including the ESRI, and IBEC, are calling for expenditure restraint. Finally, it is very likely, to say the least, that the European Commission would, on competition grounds, refuse to agree to the establishment of a State fund specifically aimed at helping exporters.
In this context, I would refer specifically to Deputy Andrew's proposal that a new market development fund be established under the cohesion definition. In fact such action does not come within the scope of the actions envisaged under the Maastricht Treaty for the promotion of economic and social cohesion which are aimed, and I quote, "at reducing disparities between the levels of development of the various regions".
It is of course true that the Government has a responsibility for ensuring that the economic environment is as conducive as possible to economic activity, including exporting. The Government already provides a substantial measure of support in the form of the 10 per cent rate of corporation tax for manufacturing industry, the provision of grants, the activities of An Bord Tráchtála and the implementation of the National Development Plan. In addition, the present economic climate is characterised by sound public finances, low inflation, interest rates close to historically low levels, wage moderation under theProgramme for Competitiveness and Work and high levels of economic growth. Furthermore, as Deputies will be aware, the small business loan fund, which was extended this year to a sum of £208 million, in providing business loans for small businesses, including the services sector, at a fixed rate of 6.5 per cent: this measure ought to be of benefit to small firms affected by the exchange rate situation.
Finally, as the House will be aware, my 1995 budget contained measures, including improvements in income tax, PRSI and corporation tax, which were aimed at further improving the economic climate for industry, including exporters. These measures were, in part, specifically aimed at helping those indigenous Irish firms with traditional markets in the UK. The improvements in income tax and employee PRSI serve to underpin the moderate wage developments enshrined in theProgramme for Competitiveness and Work. The employer PRSI measure is of special importance to firms in the export sector: the increase in the income threshold below which the lower 9 per cent rate of employer PRSI applies will support some 170,000 existing jobs and will help to reduce labour costs in employment-intensive sectors which are particularly dependent on the UK market.