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Repayment of external debt

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EMBARGO 4.00 pm, Monday, 26 September 1988 Berlin 1.00 am, Tuesday, 27 September 1988 AEST C O M M O N WEALTH PARLIAMENTARY LIBRARY

C. I. S.



Today I will be finalising arrangements to give effect to the Government's commitment to use this year's record budget surplus to repay Australia's external debt. As a result of today's initiatives the Commonwealth expects to retire the equivalent of about $A800 million of our debt.

These repayments continue the major debt retirement program I commenced in 1987-88 and form part of the Government's overall strategy of using budget surpluses to repay both foreign currency and domestic debt.

In 1987-88 the Government repaid $A1.6 billion of overseas debt and $2.2 billion in Treasury bonds. This was the first time in the 35 years for which comparable records have been kept that a Commonwealth Government has repaid both external

and domestic debt in the same year.

In 1988-89 the budgetted surplus of $5.5 billion will allow a sharp lift in the Government's program of debt repayment. Total foreign debt repaid in 1988-89 will amount to around $A3.0 billion, while net domestic debt repayment will total

around $2.5 billion.

The repayment of overseas debt in 1988-89 is to be achieved through the exercise of early call options on a variety of securities, repurchasing some existing holdings and by not refinancing maturing debt. For the second consecutive year the Commonwealth will not borrow any funds from international markets.

In a meeting today with senior representatives of the Union Bank of Switzerland, Credit Suisse and Swiss Banking Corporation, I will make arrangements for the following debt retirement initiatives:

. an offer to all noteholders of the Commonwealth's 4 3/4 per cent $F300 million issue due in 1992 to redeem their stock early at a price of 102; and


. give notice that the Government proposes to exercise its early call option on the Commonwealth's 5 7/8 per cent $F200 million issue taken out in 1985, which would not otherwise be repayable until 1992.

In addition the Commonwealth's 5 1/2 per cent $F300 million issue maturing in March 1989 and the Commonwealth's 3 5/8 per cent $F210 million maturing in April 1989 will not be refinanced.

Altogether this amounts to $F1010 million which is equivalent to about $A800 million.

As a result of overseas debt repayments, the Commonwealth Government's foreign currency debt will fall to only 3 per cent of GDP by June 1989. This means that the Commonwealth will have nearly halved the ratio of its external debt relative to GDP in the space of two years.

By repaying debt the Commonwealth is also generating very substantial on-going budgetary savings in the form of lower public debt interest outlays.

In this year alone public debt interest will be $210 million lower than last year and there will be further savings next year.

By paying back debt Australia is not only strengthening our national sovereignty but we are also cutting back the interest payments which have burdened the Commonwealth budget for more than a decade.

BERLIN (WEST) 26 September 1988