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Loan Council arrangements for infrastructure financing

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The Chairman of the Australian Loan Council, Mr John Howard,

announced today that the Loan Council had adopted new guidelines

for consideration by it of proposals for special additions to

the normal annual " semi-government" borrowing programs and for

overseas borrowings by authorities.

These new arrangements relate only to borrowings by statutory

authorities. Borrowings by such authorities are governed by the

Gentlemen's Agreement between the Commonwealth and State

Governments. The new arrangements represent, in effect, an

extension of that Agreement. They do not relate to' borrowings

by Governments themselves, which are subject to the Financial

Agreement. .

Mr Howard said that adoption of the new guidelines by the Loan

Council was a culmination of two years of intensive study

and discussion.

The Loan Council had not infrequently in the past approved special

additions to the normal "semi-government" borrowing programs to

meet exceptional requirements that arose in particular States.

However, there had been concern that planning and

implementation of future major projects of importance for


development, with financing requirements which could not be accommodated

within normal programs, might be unduly impeded unless arrangements of a

systematic and flexible kind concerning special additions were developed.

The Loan Council has now accepted the principle of a separate category

of borrowings comprising special additions to "semi-government" programs,

including forward approvals thereof, subject to such additions being · I

confined to exceptional cases which:

. could not be reasonably accommodated within resources normally I

available to the Government and the authority, under "normal"

Loan Council programs;

. are for the provision of services ,of kinds normally provided

by Government or public utility enterprises;

. have special significance for development; and

. require outlay within a relatively short time span.

Each proposal for a special addition will be carefully examined by the

Loan Council, including as to the viability of the proposed project, its

special significance to the economic development of Australia, and

importance and urgency, the extent to which the project will be funded from

resources otherwise available to the authority concerned, and the need for the

special addition. In view of the Commonwealth's overall economic management

responsibilities, it is recognised that the Chairman may take into account

the implications of a proposal for the Commonwealth's fiscal and monetary .

policy objectives. Approval by the Loan Council of a special addition requires

the agreement of a simple majority including the Commonwealth.

The new guidelines provide that, where the Loan Council has '

approved a special addition to a government1s semi-governmental


program, the government and authority concerned shall use their

"best endeavours to obtain the funds within Australia. However, in

exceptional cases if, because of inability of the domestic market to

provide the funds on satisfactory terms or because of advantages to

be derived from project financing involving a mix of local and overseas

funds, the government concerned considers it desirable to arrange an

overseas borrowing by the authority, it may seek the approval of the

Loan Council for such a borrowing. ,

t '

Loan Council approval may also be sought for an overseas borrowing

under a normal semi-governmental borrowing program where the

government concerned can demonstrate that that program cannot be

raised in Australia on satisfactory terms because of domestic market

conditions. ■ · . .

Overseas borrowings by authorities will be limited to certain forms,

primarily borrowings from or through commercial banks and other approved

financial institutions, which will avoid any adverse competition between ■

the Commonwealth Government and authorities (which would be detrimental

to all parties) but will nevertheless ensure that authorities have access

to a large pool of funds at satisfactory cost.

In considering any proposal for an overseas borrowing, either under a

special addition or a normal semi-governmental borrowing program, the

Chairman, in view of the Commonwealth’s overall economic management

responsibilities, may take into account the implications of the proposed

borrowing for the Commonwealth's domestic monetary policy and external


The Loan Council's review of semi-government borrowing arrangements

also encompassed arrangements for trade credit financing of capital

equipment purchased overseas.

Loan Council also agreed on arrangements for the funding of stocks

held overseas by marketing authorities through short term overseas

borrowings from approved financial institutions.

CANBERRA ACT 23 June 1978