Currency devaluation and foreign debt
O'Kennedy asked about the effect of EMS devaluation on foreign debt, interest payments and the economy. Bruton said the adjustment protected competitiveness and jobs; O'Kennedy warned of a heavier debt and budget burden, with brief procedural interjections.
asked the Minister for Finance the total in (a) Exchequer foreign debt; (b) total State foreign debt; and (c) annual interest repayments in Irish currency as a direct consequence of the unilateral devaluation of our currency in the EMS; and if he will make a statement on the consequences for the economy generally.
Comment on this
The need to seek a downward adjustment of the central rate for the Irish pound in the EMS on 1 August 1986 arose from the sharp drop in the value of both sterling and the US dollar. The depreciation of these currencies had resulted in an unsought appreciation of the value of the Irish pound which, if maintained, would have seriously damaged our competitive position and would have given rise to a danger of significant loss of output and jobs in Ireland.
The downward adjustment has improved the competitive position of Irish industry, particularly in relation to continental European countries. It has prevented the loss of output and employment which would otherwise have occurred.
The exchange rate change increased the Irish currency equivalent of
(a) Exchequer foreign debt by £550 million,
(b) total State foreign debt by £676 million, and
(c) interest payments on State foreign debt by £25 million in 1986 and £56 million in 1987.
As regards the increase in foreign debt in Irish currency terms, this will have to be met only when the debt is paid off. Given the volatility of international exchange rates, the rates at the time of repayment may well differ considerably from those prevailing in early August. For example, the depreciation of the US dollar over the year preceding the August adjustment had reduced the Irish currency equivalent of the then outstanding dollar denominated State debt by over £750 million.
Comment on this
Is it any wonder that our total national debt has risen to over £23 billion? Because of the length of the Minister's reply I have no more time but could the Minister let me have a written reply to Question No. 43 which will show that next year's budget will be overloaded by at least £300 million?
