Labor wasn't asked to top up reserve

Glenn Stevens. Picture: Michael O'Brien/The West Australian

Neither Wayne Swan nor Chris Bowen was asked to inject almost $9 billion of borrowed money into the Reserve Bank, previously confidential documents reveal.

Letters between Reserve governor Glenn Stevens and Labor's two treasurers, released to The West Australian under Freedom of Information laws, show the Reserve asked only to retain profits to rebuild its special reserve fund.

New Treasurer Joe Hockey has decided to give the Reserve $8.8 billion, which has to be borrowed, to rebuild the bank's reserve fund.

The cost of interest on the borrowing has been estimated at almost $300 million annually.

But the fund has been hit by the strong Australian dollar. After a $8.8 billion profit in 2008-09, the bank posted losses of $3 billion and $4.9 billion.

In deciding to give the $8.8 billion to the Reserve, Mr Hockey said the cash "should have been allocated by the Labor Party".

Yet in seven letters to Mr Swan and Mr Bowen between July 2011 and July this year, Mr Stevens did not ask for the whole amount.

“It is the board’s strong view that distributable earnings should be transferred in full to the Reserve Bank Reserve Fund, until it is replenished,” he wrote to Mr Bowen on July 11 this year.

At that time, Mr Stevens said the fund would stand at $2.5 billion and be short of the Reserve’s ultimate target by $4.1 billion.

The same letter notes that the run down in the special fund lost $5.5 billion in 2009-10 and the following year because of large losses “resulting from the appreciation of the Australian dollar”.

Two weeks later Mr Bowen agreed to transfer all of the bank’s profits for 2012-13 to the special fund.

The West Australian’s access to one letter between Mr Stevens and Mr Hockey, from October 12 this year, was denied under cabinet-in-confidence laws.

The letters also show the impact of the dollar on the Reserve’s operations. In April this year the bank was expecting to make a loss of $189 million but it ended up making a $4.3 billion profit.

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