Today I announce the formal commencement of the Guarantee of State and Territory Borrowing.
This Guarantee is critical to ensuring that State and Territory Governments maintain their nation building infrastructure investment.
Pulling back on critical nation building infrastructure investment now would hinder a recovery from the global recession, resulting in slower growth and higher unemployment into the future.
On 25 March 2009, the Rudd Government announced that it would be taking action to support jobs and protect vital infrastructure development from the global recession by providing a time-limited, voluntary guarantee over state and territory government borrowing.
The global recession has severely constricted liquidity in state government bond markets. Supporting liquidity in these markets is critical to maintaining the capacity of state and territory governments to deliver on nation building investments.
From today State and Territory governments will be able to apply to the Reserve Bank of Australia, as the administrator of the Guarantee, for a guarantee over their eligible borrowings. The Reserve Bank will process applications and details of those securities which are covered by the Guarantee will be published on the website www.stateguarantee.gov.au.
States and Territories will have 28 days from when they first apply to the Reserve Bank to use the Guarantee to decide whether to cover their existing securities. This will allow States and Territories time to assess market conditions before determining whether they need to use the Guarantee.
The Guarantee will cover securities of a length up to 15 years including indexed securities and those that have cross default clauses. This will cover the majority of the States and Territories' actively traded stock and will support liquidity in the secondary bond market.
Securities in foreign currencies, or those that are deemed to be complex, will not be able to be guaranteed. Guidance as to what is considered complex will be available on the website.
The Guarantee will continue to be offered until market conditions normalise. Securities covered by the Guarantee will continue to be guaranteed until either they mature or are bought back and extinguished by the issuer.
By supporting liquidity in these markets, the Government is ensuring that the state and territory governments maintain the capacity to deliver on nation building investments.
The Deed of Guarantee, Scheme Rules and other supporting documentation can be found on the website www.stateguarantee.gov.au.
24 July 2009