Opposition Leader Don Polye today took Prime Minister Peter O’Neill to task saying the new $US500 million (K1.5 billion) loan will cost PNG.
Polye said in the short run, the loan will ease foreign exchange shortage but in the long run, it will make PNG’s economic and financial problems worse. He highlighted this during a media conference at Parliament house today.
He said O’Neill had destroyed PNG’s economic reputation overseas and had made unscrupulous lenders realise how desperate the Prime Minister is adding that the Credit Suisse loan is set at 7% interest in US dollars and the standard inter-banking 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 cost, plus risk and profit.”
“Treasury Secretary Daire Vele, PM advisor Jakob Weiss and Central Bank Chief Loi Bakani lied to NEC to make the proposal attractive and that the loan submissions states that the interest rate is 3.5 % in the last two years which is not true,” Polye said.
The dollar interest rate IS 7% in $US and with Kina depreciating at its current rate of 16% a year, the Kina cost is 23% over the first 12 months. The first year’ interest payment will be about K60 million, increasing as the Kina depreciates.
If the Kina depreciates to US25 cents over the next few years, the principal repayments would be K2 billion making the effective interest rate in Kina be about 23%.
“Our country will suffer,” Polye said.
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