HUGE COST OF NEW LOAN AS O’NEILL CUTS PS PAY

MICHAEL J PASSINGAN

Prime Minister Peter O’Neill’s planned new $US500 million loan is gong to be one of the most expensive borrowings in PNG history. And it comes at a time when his mad economic policies are hurting public servants even more. 

National Department of Health doctors’ last pay and entitlements have been cut by about 50% More Public Servants are facing pay and entitlement cuts. O’Neill has even short-changed police. What next – Defence Force? The loan will help ease the foreign exchange shortage, but is only a stop-gap. In the long run it will make the nation’s economic and financial problems worse.

 O’Neill has destroyed the country’s economic reputation overseas and now unscrupulous lenders are moving in for the kill as they realize how desperate the Prime Minister and his kon men cronies are. The syndicated loan being sought from Credit Suisse (yes ANOTHER Swiss bank) is set at 7% interest rate on US dollars. The standard inter-bank interest rate (known as LIBOR) is about 1%. Concessional lending for countries like PNG is usually Libor plus a small margin for costs, so about 1-1.5%. Credit Suisse is charging a margin of 6% for costs, plus risk and profit. They will be making millions, while Papua New Guineans fall deeper into poverty and misery.

 But never mind, it’s $US500 million more for our kon Prime Minister to steal and spend on useless roads and buildings to benefit his cronies. Treasury Secretary Daire Vele, PM advisor Jakob Weiss and central bank chief Loi Bakani don’t have a clue what they are doing. They’ll agree to anything the PM tells them. They have even lied to NEC to make the proposal more attractive. The loan submission states that the interest rate is 3.5% in the last two years. This is not true. 

They have divided the interest payment by the wrong value for the principal. The interest rate is 7% throughout. Vele, Weiss and Bakani have hidden the real cost to PNG. Assuming the kina continues to depreciate at its current rate of 16% a year, the Kina cost would be 23% over the first 12 months. In terms of the Budget, a $250 million drawdown would be K790 million. The first year’ interest payment would be about K60 million, increasing as the Kina depreciates. 

 If the Kina depreciates to say US25 cents over the next few years, and IF it stabilises there and doesn't fall further, then the principal repayments would be K1 billion for each $250 million tranche (so K2 billion in total). Therefore the effective interest rate in Kina would be about 12% (or higher if the Kina keeps falling!) 

Thanks, Peter.

 THE LEAKED LOAN DOCUMENT
LOAN DOCUMENT

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