“This will help solve the government’s cash flow problems,” he said.
The president defended the new law against critics who claimed that it will increase the country’s indebtedness.
“It will not supplement the budget nor increase our country’s debts,” he said.
Toribiong said the measure will help the government gradually pay its debts to local vendors using borrowed money.
“I would rather that the government owes money to lending institutions than to local vendors,” he added.
The new line of credit authorizes the president to negotiate for, execute all documents relating to, and obtain a revolving line of credit for no more than three years with a lender in the maximum amount of $3 million.
Funds drawn from the line of credit “shall be used solely for state block grants, national scholarship fund, purchase or services authorized under specific grants (the provision of which requires reimbursement from the grantor to the Republic) and payment of all current and past due debts owed to local vendors.”
The president earlier called for a five-year extension, but the final version of the bill approved by both houses of the national legislature, the Olbiil Era Kelulau, only approved up to three years.
The three-year extension, the legislators argued, allows for more efficient use of the government’s credit than the current one-year term while preserving the fiscal policies required to pay off a short term loan.
To further enhance the government’s financial health, minimize long-term debt, the new law requires the president to issue a cash management policy for all budget activities.
The cash management policy “shall be communicated to all budgeted entities and shall be applied equally to all budget activities, except those specifically exempted by law.”
