(Limerick West) asked the Minister for Finance if he will take the necessary steps to enable the lending agencies to reduce to realistic levels the rates of interest on loans to farmers.
Ceisteanna — Questions. Oral Answers. - Interest on Loans to Farmers.
12.
The Central Bank have primary responsibility for interest rate policy. Following the easing of the upward pressures on interest rates experienced in the early part of the year, significant reductions in interest rates have taken place in recent weeks. The rates charged by the banks to farmers had fallen by up to four percentage points by the end of last week, and a further round of cuts is now in process. Rates charged by ACC, which had not risen to the same extent as those of the banks, have also been reduced. In addition, the Government have introduced through the Associated Banks and the ACC two exchange rate guarantee schemes to provide working capital to farmers at particularly favourable rates.
Would the Minister not agree that in most member states farmers enjoy a much lower rate of interest and the competitiveness of our farmers is greatly hampered by the excessive rates they have to pay?
I have agreed on a number of occasions in the House with Deputies who have suggested that our interest rates at the moment are undersirably high from the point of view of the productive sector. I have done all I can, in consultation with the appropriate authority, the Central Bank, to bring rates in a downward direction. The Deputy will be aware that even this week a further downward movement in rates is actually occurring. It is interesting, however, to make a comparison with other countries. Our real rate of interest, that is when the rate of inflation for the previous year is subtracted, is not significantly higher than the average obtaining in most other Community countries because other Community countries have had lower rates of inflation. The difference between their rate of inflation and their rate of interest is in most cases around the same gap as is ours.
Is the Minister aware that the recent ACOT report on the corporate plan, 1986-91, clearly indicated that with regard to some of the most popular lines of farming, intensive beef production and tillage, unless those involved can develop within their own resources it will not pay them to borrow? Will the Minister agree that farmers have difficulty in being competitive not to talk about having to pay the interest rates which are higher than in other countries?
As the Deputy will be aware, real and high interest rates are a feature all over Europe and all over the world at present. It is not something that is happening only in Ireland. However, it is in marked contrast to what obtained in Ireland, and all over the world, five or ten years ago when we had negative interest rates — interest rates below the rate of inflation. In the face of that many people borrowed on a scale that was probably not justified by the enterprise they were engaged in or the uses they were putting the funds to. As a result those people found themselves in considerable difficulty when interest rates moved from being negative to being real. Clearly, at present it is prudent to be sure that any investment one undertakes with the aid of borrowing will earn a sufficient profitability not only to pay the interest but also to provide a reasonable income for the farmer over and above the payment of interest involved.
We have had 12 months of very inclement weather, milk production is down about 15 per cent, cattle prices are down and feedstuffs for the long winter will cost farmers a lot of money and in view of that will the Minister agree that farmers deserve a subsidised loan or an interest subsidy in some form?
That is precisely why the Government decided to introduce a scheme whereby £135 million worth of money can be borrowed from a country where interest rates are lower on an exchange risk guaranteed basis to assist farmers with their current interest difficulties, to reduce the interest rate to them and also to introduce liquidity into the market with a view to general easing the upward pressure on rates.
Will the Minister agree that there is a reluctance on the part of the Central Bank to reduce interest rates, because of our budget deficit and foreign borrowings? Will the Minister agree there is little point in talking about low inflation when we have high interest rates? Will the Minister agree that there is no relation between low inflation and interest rates? It is not right to compare our inflation of one year with European inflation and interest rates because European rates are lower than Irish rates. Irish farmers and industrialists are operating at a disadvantage because of that. This represents a form of tax.
I am delighted that the party opposite have recognised that there is a connection between borrowing by the Government and high interest rates. This is something their Leader did not seem to realise when he used the term monetarism as a term of abuse in the House in the past. He now realises that creative financial policies involving borrowing money by the Government do result, as they have done here, in unduly high interest rates for the productive sector. The solutions to our economic problems advocated by the Deputy's party, even as recently as at their Ard-Fheis some months ago, are directly designed to increase interest rates even further because they would involve further borrowing by the State.
The Minister has not answered my question.
Mr. O'Kennedy rose.
I am moving to the next question.
Please do move to the next question. I would not like to upset the Chair by standing up.
On a point of order, I must point out that the Minister did not answer my question.
I am calling on the Minister to answer Question No. 13.
This is a most serious matter and we have not received a satisfactory reply from the Minister.
The Deputy should resume his seat. The House is being brought into disrepute.
May I ask a question?
I am concerned about high interest rates.
If the Deputy does not resume his seat I will have to invoke Standing Orders.
I do not want the Chair to do that.
I am asking the Deputy to resume his seat. I have warned him of what the consequences will be if he does not resume his seat.
I have always been courteous to the Chair and I had hoped that the Chair would treat me in the same way.
I hope we can have courtesy all round. We are not school boys.