UK Public-Sector Finance: An end to ultra-cautious lending
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UK Public-Sector Finance: An end to ultra-cautious lending

Remember Allerdale, Waltham Forest, Hammersmith and Fulham? The failure of international banks almost a decade ago to force these UK local authorities to pay out on their swaps contracts and loan guarantees has held back the development of municipal finance in the UK. While municipal bond markets have grown up in many other European countries and even emerging markets, banks' sour memories have hampered the UK private finance initiative (PFI), designed to encourage private financing of large infrastructure projects, including new road building, since its official launch several years ago.

The new Labour government is keen to set the record straight. But before it can launch its partnership with the private sector and open a market in local government finance that could be worth £5 billion ($8 billion) a year, it has to clear up a legal mess that has been rumbling for nearly 15 years.

Local authorities need roughly £8 billion a year in capital investment, while schools need some £20 billion to modernize. In the three years from 1997/98 to 1999/2000 the UK treasury expects there to be some £10 billion of private capital investment. The British Bankers Association believes there is sufficient interest to meet this appetite.

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