asked the Minister for Finance if his attention has been drawn to a report of a speech by the Governor of the Central Bank of Ireland indicating that Ireland has avoided a reduction in her reserves by increasing her foreign liability; and if he will make a comprehensive statement on the position in this regard.
Ceisteanna—Questions. Oral Answers. - Central Bank Governor's Speech.
50.
I am aware of a speech made by the governor of the Central Bank in which he mentioned that we had avoided a reduction in the external reserves in 1969 by increasing the country's foreign liabilities.
In the normal course an external deficit reduces our external reserves. In past years, however, substantial capital inflows have cushioned the effect of deficits on the reserves. In 1969, capital inflows exceeded the deficit and external reserves rose. These inflows have consisted principally of State and State-guaranteed borrowing to meet the needs of the public capital programme, and inflows through the banks.
Inflows of capital that are used for productive investment are welcome, especially investment that will boost export or tourist earnings and thus improve the balance of payments position. Inflows that directly increase consumption expenditure are, however, undesirable, and cannot but adversely affect the balance of payments position. It follows, therefore, that we must be circumspect as to the extent and purposes for which we rely on imported funds.