NZ may lend extra US$1 bln to IMF

NZ signs up to new US$1 billion IMF credit line on top of quota and 2010 credit line; Takes IMF commitments to NZ$4.2 billion

19th Jun 12, 9:37am by Alex Tarrant

By Alex Tarrant

New Zealand is set to lend up to an extra US$1 billion (NZ$1.26 billion) to the International Monetary Fund (IMF) after a number of Group of 20 nations agreed to expand the IMF's warchest.

Funds were not required immediately, Finance Minister Bill English said in a statement. The new arrangement brings New Zealand's total IMF commitments, if they were to be fully drawn upon, to the equivalent of NZ$4.21 billion.

In April, Interest.co.nz reported New Zealand was watching what other small countries would do before deciding whether to commit to a doubling of the IMF's resources pushed for by some G-20 nations.

The new credit line is on top of New Zealand's initial quota with the IMF and a credit line introduced in 2010 called the New Arrangements to Borrow (NAB). See all our articles on New Zealand's NAB and quota commitments here.

New Zealand's IMF quota is for the equivalent of NZ$1.74 billion, on today's exchange rates. Generally 25% of a nation's quota is paid in to the IMF at any one time, while the remaining 75% represents promissory notes for the IMF to call upon. New Zealand has currently got 31.5% of its quota (the 25% plus another 6.5%) lent to the fund.

Our NAB facility is a credit line equivalent to NZ$1.21 billion. New Zealand is currently lending the equivalent of NZ$124 million through the NAB facility. See article: NZ lending to IMF for Eurozone bailouts jumps in 2012; Now lending NZ$125 mln through new credit line to Greece, Portugal.

See New Zealand's current financial position at the IMF here.

IMF arrangements are denominated in 'Special Drawing Rights' (SDRs). SDRs represent a basket of US dollars, British pounds, yen and the euro.

See the announcement from Finance Minister Bill English below:

New Zealand has joined other countries in extending its financial commitment to the International Monetary Fund so it has the capacity to deal with any significant disruption to the global economy, Finance Minister Bill English says.

The extra commitment, agreed by Cabinet yesterday, will be made through a US$1 billion (NZ$1.26 billion) standby loan facility, which will be called on if needed. New Zealand will not provide any funds immediately.

The IMF will repay New Zealand any amount it draws down, with interest. The extra resources will be available for all IMF members and will not be earmarked for any particular region.

“New Zealand is one of the most indebted developed countries in the world and has a significant proportion of its economy involved in trade, so it’s important that we support institutions like the IMF,” Mr English says.

“As a small, open economy, we benefit significantly from a stable and prosperous global economy.

“Many countries including the United Kingdom, Australia, Japan, Singapore and Eurozone countries have already announced extended commitments to the IMF, and there are likely to be more contributions announced around this week’s G20 meeting.

“It’s our expectation that Europe will continue to find solutions to its own problems, but the IMF has a role in underpinning global certainty.”

In April, a number of G20 countries announced additional commitments to support the IMF in making bilateral loans if required. New Zealand was formally approached last week to confirm it would also support this programme.

The new loan facility will be recorded as a contingent liability in the Government’s financial statements for the year to 30 June 2012. However, it will have no impact on the Government’s track to surplus.

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41 Comments

by gelous | 19th Jun 12, 10:05am 1340057119

"It’s our expectation that Europe will continue to find solutions to its own problems..."

Does that mean Bill actually believes that Europe has been finding solutions to its problems in the recent past? Scary analysis.

"However, it will have no impact on the Government’s track to surplus."

Would like to see a caveat at the end of that sentence to the effect of "...unless the facility is drawn down by the IMF." A very real prospect now that I see Key is already planting the seed of blame on the EZ crisis as the primary cause of the Government 'maybe' failing to return to surplus in 2014/15.

by David George | 19th Jun 12, 10:16am 1340057775

Gotta keep the global ponzi going, eh Bill.

This money isn't going to be used to build a power station, or port, or rail way, or develop farms or factories or anything that will bring a return on the investment. It will be used to pay the interest from previous borrowings. That's it. We've reached the point where the global economy is borrowing to pay the interest bill. Bill.

Can anyone tell me how this works out OK. Roger Kerr? Anyone?

by Amanda Morrall | 19th Jun 12, 3:32pm 1340076740

Interestingly enough, Canada and the U.S. are keeping their wallets closed over this bail-out.

by David B | 19th Jun 12, 3:46pm 1340077578

Well that's becuase the Canadians and the Americans aren't a stupid soft touch.

by Justice | 19th Jun 12, 10:33pm 1340102008

So Amanda, I lost track on whether or not you went for a mortgage living in Auckland ? What was the decision in the end or......still undecided ?

by Ralph | 19th Jun 12, 3:43pm 1340077406

Well most of the debt in NZ is held by the private sector. That's you and me choosing, not the politician.

by economist | 19th Jun 12, 10:30am 1340058605

UNBELIEVABLE...yet strangely I'm not surprised... I wonder how much the next increase will be?

by KH | 19th Jun 12, 10:39am 1340059150

I can not think of one reason why New Zealand would do this.

by scarfie | 19th Jun 12, 10:49am 1340059789

It is all a bloody merry go round. Think of it this way though, there is no way we are ever going to get any money back that we lend, but we will also default on all the money we owe. On that basis why don't we get charitable and lend them $100B? We could solve the Spanish Banking problem all on our own.

by Ralph | 19th Jun 12, 5:56pm 1340085387

How can this become a liability befor it is drawn down .

Because it is a contigent liability. This is a simple accouting term that is not supposed to confuse.

If certain circumstances occur then we must front with the money, if those circumstance do not occur then we don't.

Sort of like a guarantee on your kid's mortage - you'll only have to pay if something goes wrong. But you signed the doc and if it does go wrong .....

by Smitho7 | 19th Jun 12, 11:05am 1340060735

So,it becomes a contingent liability? What is the other side of the deal? The asset? My kids future? Probably. Who owns that now? Bankers Gome Wild, that's who.

We don't have this money anyway. So we'll just print it and do some swaps with the Federal Reserve. Print, print print...

by Ralph | 19th Jun 12, 5:58pm 1340085532

I think it says the loan is a US$1 billion dollar line - so we can't print it we would have to buy it.

by David George | 19th Jun 12, 11:09am 1340060945

The weak are dragging down the stronger countries. So where are we? Not in great shape ourselves but forced into bailing out messed up economies on the other side of the world. You couldn't make it up.

This is what Germany has long been afraid of and is now their reality. Bill Gross.

"this kick the can environment adds liabilities to the German balance sheet day after day. They have what they call it a target 2 type of liability where they assume constant liabilities from Spain, Italy, and others as they move to the German Bundesbank. Increasingly, as the months move on, Germany becomes more and more liable for the euro balance sheet despite the possibility that Greece departs. Germany to me is a credit risk and certainly in terms of its tight shirt and shrinking shirt at the sleeves, is not an attractive market.”

by Kunst | 19th Jun 12, 12:39pm 1340066372

Tuesday, 19^th of June 2012

..helps to stabilise the global economy

by Gummy Bear Hero | 20th Jun 12, 12:49pm 1340153380

...... a global economy this old still needs training wheels ?

by Chris_J | 19th Jun 12, 2:06pm 1340071570

Why Bill, Why??

by Christov | 19th Jun 12, 2:11pm 1340071869

Keeping the lines of borrowing open Chris J....hard to do when the ratings agencies ask the IMF,.... who's been a good boy then....?

by Christov | 19th Jun 12, 2:51pm 1340074306

No ...I wasn't being flippant......Billy Bob has to play his part as a good Global citizen....the rewards while tenuous, allude to a promise of access to lendings, report card dependent.

Imagine if you will a scene from One Flew Over the Cukoo's Nest...where the hesitant homosexual (latent) was found dithering over his cards and feeling a little peculiar,,,,,then one by one the lunatics begin to harass him ......to play the game...play the game.....Play the F*%*ing Game....the scene decends into utter chaos......

not the first time life imitates art.

By the way anybody catch Juila Gizards comments when addressing the World Business leaders Conference yesterday.....telling them to follow Australia's lead when addressing economic models in need of overhaul.

http://www.smh.com.au/opinion/political-news/gillard-urges-business-leaders-to-follow-australias-example-20120618-20j7e.html

Ha ....too funny and a little embarrassing at the same time...!

by David B | 19th Jun 12, 4:00pm 1340078434

Well I've said it before and I'll say it again. Tell the Europeans to go and get stuffed! That's $400 for every man women and child in this country, and for what? So we can sell some more of our lamb, beef and butter into the Eurozone? Yeah right. We bailed out South Korea during the Asian financial crisis and where did that get us? They won't even give us a FTA!

The socialists have made their beds in southern Europe, let em lay in it. Do you know what the difference is between New Zealand and Greece? I'll tell you. A National Government. Don't say you haven't been warned, New Zealand.

by philthy | 19th Jun 12, 10:27pm 1340101667

Allowing your political colours to cloud your judgement DavidB?

If National are so sharp financially why do they normally run up so much debt when they are in power?

Or if not racking up debt, doing incredibly stupid things like causing the country billions with a leaky building disaster.

Their next sterling effort will probably be to allow some biosecurity leak in that also costs the country billions in ruined agriculture, the way they are playing Russian roulette with biosecurity.

All to probably save a few measly thousand somewhere, that’s really good value in the long term.

by Christov | 19th Jun 12, 4:29pm 1340080184

Do you know what the difference is between New Zealand and Greece? I'll tell you. A National Government. Don't say you haven't been warned, New Zealand.

David

Well " that National Government" just committed us to further indebtedness unless we have the undrawn part of our commitment just lazing around somewhere.So I don't see an aversion to borrowings on the part of Billy Bob, and yes we could hark back to previous Administrations borrowing spree's but what good is that going to do us....right here...right now...uh..?

Billy couldn't say no...an offer you can't refuse.....capich..?

by David B | 19th Jun 12, 4:46pm 1340081178

I think you're comparing apples with oranges there, with respect Christov. The deep seated structural economic problems that have arisen in Greece have taken decades of very careful socialist/left-wing govt. nurturing to develop, aided and abetted I might add by a very willing public happy to take the socialist’s largesse but not to pay for it. Sounds like anyone you know? I don't think you can compare that situation to Bill English’s borrowing of an extra billion that might, and only might, get sent to the IMF.

by David B | 19th Jun 12, 5:31pm 1340083864

It's the private sector debt we need to be most worried about, and that blew out on Labour's watch because they allowed the property bubble to form, as opium for the masses. Look at what has happened to both Spain and Ireland, brought to their knees by an imploding property sector.

Of course, New Zealand’s deficit wouldn't be as bad as it is now were it not for the interest free student loans and working for families. Instead of investing New Zealand's surpluses into income generating assets and improvements, Labour spent them and more by bribing elections to stay in power through tossing welfare at the grasping complicit masses. And now that we are no longer in surplus we are still stuck with paying out huge sums on this socialist junk. And get this; we even have immigrants now marching through the streets of Auckland demanding more welfare! And you really think that this country isn’t the Greece of the South Pacific! Vote Labour-Greens back into power and you'll soon find out!.

by Justice | 19th Jun 12, 5:59pm 1340085595

Holy s...! We agree on something and totally on the money

by Ralph | 19th Jun 12, 6:05pm 1340085916

Ah yes - but all the voters wanted ...

1. A "free" education for all - (please won't somebody think of the children!)

2. Housing for all - who could be against the poor???

by Justice | 19th Jun 12, 6:21pm 1340086896

ohh yes......some self responsibility must be taken by the naive NZ voter who love government bells & whistles until.......they find out it's being paid for via their own pockets even if we borrow

by Ralph | 19th Jun 12, 6:36pm 1340087811

Personally I think the education thing was just a bad idea in the absence of any better thinking - but then voters aren't very interested in hard yards.

On the housing, if you read Hugh P.s site (if you haven't already) you will discover there are other serious options in reducing the cost of housing. But for a government it is easily to make finance cheap - especially when the rest of the western world is doing the same.

by Justice | 19th Jun 12, 6:48pm 1340088520

What the public need to realize is the hard yards come regardless, particularly when taking on debt. particularly when the debt becomes inflationary on a massive scale like it did in housing/property.

Only now do many see the results of their decisions. Some still don't

Governments, including ours are now controlled by the banks, "Too big too fail"

by Justice | 19th Jun 12, 6:12pm 1340086367

Now we see where our sovereignty really lies. It's a goner. The IMF controls our purse strings via credit threat

by Justice | 19th Jun 12, 6:23pm 1340086995

Why doesn't the IMF just borrow from the US FED? ;-)

If it gets 'called on', that EXACTLY where we will be getting the $$$$ from!

by Alter Ego | 19th Jun 12, 7:39pm 1340091542

The IMF is not talking to the Fed...they is so fed up with em it ain't true.

A dollar down and a dollar a weak.

I have a true solution, that makes sense to the IMF.

Just get Key to give em a coupla billion or trillion derivatives and a second hand BMW 730I to carry the trade ................in.

He can spare it from his derisive, derivative, stage and his pontification prime munnyster fiscal drive.

That way, then they can trade in the BMW, on-sell the derivatives and Bobs yer uncle , Fannies yer Aunt.

ergo...No debt, no dishonour.....eurowed...nuffin.

(That is Fannies in Fannie May, not Fanny will, and a Bob each way on a Facebook enterprise).

What a loooooooooooooooooad...of crap these people talk.

I just might join em.....

DOH....I just did.

Its My Forte. (IMF)....will forgive one of a kind, and one for the pot...

It is probably why they put hime here.

Double or quits.

Any chance of a job as a Derivative Salesman.....pretty please....I am begging you.

Any fool can talk nonsense. I hope I may be forgiven too.

by Alter Ego | 19th Jun 12, 7:43pm 1340091839

PS...They do not care......THEY IS PUTTING YOU IN DEBT......not them.

by Christov | 19th Jun 12, 9:04pm 1340096683

Well that picked up a bit now didn't it.....! .....there we go but for the grace of.... The IMF..??

By the way update on Julia G's outburst ...now making news around the EU......very rude was the description...followed with 'why would any E.U. Country listen to the Australians.....oh dear.! that could have gone better now .......couldn't it Julia.

by Gummy Bear Hero | 20th Jun 12, 9:49am 1340142569

Count , dear Count ....... that was not our beloved P.M. Julia Gizzard they were slagging off , those ingrate European socialists ...... it was an un-named Canadian journalist , who had the temerity to ask them some Econ 101 questions ....... stuff about not spending more than you earn , silly nonsense like that .....

..... no , dear Count ..... not a stain upon the hallowed financial reputation of Ms Julia .....

Have you Kiwis got a mining superprofits tax , or a carbon tax ? ..... we could teach you about that .......

by Christov | 20th Jun 12, 11:29am 1340148548

GBH my good man , far be it from me to question the little stir in Mexico but here it is in the Australian Press.

http://www.theaustralian.com.au/national-affairs/foreign-affairs/no-solution-at-summit-as-europe-baulks-at-free-advice-from-g20-leaders/story-fn59nm2j-1226401743525

As to the unknown kauck journo...bravo !! should be more like him / her....no doubt now doing the rounds of what's happening in Saskatchewan.

by Gummy Bear Hero | 20th Jun 12, 11:46am 1340149592

........ well , if you will believe in the scribblings of second rate hacks over at Rupert Murdoch's extreme right wing rags ......

Stick with Fairfax , friend , for an unbiased view of the brouhaha , extolling the virtues of our wonderful leader , Ms Gizzard ......

by Christov | 20th Jun 12, 12:18pm 1340151538

Well of course I have faith in alternative press GBH...I come here don't I...? I mean would you trade a Simon Benson for a Gareth Vaughn......no way hoseB...Gareth's the man here...! honest , hardworking, loyal. and not afraid to pose the sticky question after he's had a couple............ but I did think to provide you with Murdochs take on it

http://www.dailytelegraph.com.au/news/national/europe-furious-at-julia-gillards-nagging-over-economic-management/story-e6freuzr-1226401649109

Now ya just can't let that dingo...? dingess..? run loose telling people how to look after their babies.

Hey that Gina Rinehart been dowing the doughnuts lately at the board meeting tearooms..? I heard she was doing an undercover boss episode.....or the new Michellin tyre ad...not too sure.

by Gummy Bear Hero | 20th Jun 12, 12:48pm 1340153288

..... cobberdiggercount ..... the funniest thing was a resplendent Christine Lagarde telling our Julia that she was looking well dressed ! ..The Aussies lapped it up .. .. Ms Gizzard done up in an orange & brown outfit ....

Well ..... I suppose that some people do love their Jaffers ....

by Christov | 20th Jun 12, 1:24pm 1340155460

Two critical paragraphs GBH......that denote G20 Summit my ass.

While Washington has insisted Europe has enough resources to resolve its problems itself, it is also clear that the deeply divided Congress is in no mood, given the US economic problems, to contribute rescue funds for others.

The IMF chief said in a statement on Tuesday: "Countries large and small have rallied to our call for action, and more may join. I salute them and their commitment to multilateralism. As a result, total pledges have risen to $456bn, almost doubling our lending capacity.

Paragraph 1backs up my call that the Americans don't want to be involved in the Euro's resurection ....and have the sense to spot a pledge drive when they see one, thanks to P.B.S.

Paragraph 2 ....she specifically chose the word multilateralism for the Americans....I still think they were hoping for a different outcome..and may yet get their wish.

But the spin there is hilarious.."rallied to a call of action, and more may join"

Translation...I reminded them of of their potentially delicate position (lines of credit wise) and some of them are yet to get back to me, ( but they will, oh they will)

by Gummy Bear Hero | 20th Jun 12, 1:33pm 1340156030

..... across the Eurozone , government spending as a % of GDP has risen from 45 % in 2000 , to 49 % in 2011 ....

These guys are spending up so much , they should all get knighthoods , as our very own Sir Michael did ....

.... austerity ? ..... PIIGS jolly bum it is ....

by Alter Ego | 20th Jun 12, 5:57pm 1340171863

Seems we are to assume that Greece and the Eurowed is out of the mire and a few Pacific Islands.

(NZ has come to the rescue).

Seems we are to assume that Key has our interests at heart.

(Flogging orf our heritage and the Maori voted for the wrong PARTY....ha ha...not)

Seems we are to assume that Winsome Peters knows what he is talking about.

(Yeah right)

Seems that all Key can do is have a laugh.....at everyones expense.

(What we idiots pay the big bucks for)

Seems like that no one will get serious about our serious situation.

(Especially parlia-meant)

Seems we are as green as grass, pure as the driven fonterror TAF white stuff.

(Except f-luent)

I have eased my quantities, voted with all my might and I still cannot blow the house down.

(But there is some doozeys of bankruptcies out there, they even have their very own festival)

But a simple TVNZ7 No-Zealand station for a mere 16 million a year to educate the populace...

(So it doesn't happen again).

PRICELESS.

and on another Note....

Buy the way Amanda.....WINZ would never cough up for that "Litttle House on the Prairie"

And they would not let anyone build it here.................McCmansions only.....and no more leaky self builds. (We have enough)

Thought that you might have known that.....it has leaked out over all of No Zeal-and...and funnily enough.......they still do.