From the House, Minute No. 59, Tuesday 12 October 2004.

- Motion by Prince Tu'ipelehake for government to form a committee to draft a Bill making it possible for Tonga to have a referendum. At the moment no referendum can take place because there is no legal framework for it. He proposed for members of the committee to be selected from the Nobles' Representatives and the People's Representatives. The motion was carried 10-11.

- Debate started on a new Financial Institutions Bill.

Speaker - said that there were two big bills that had been tabled by the Minister of Finance, but before they proceeded with one of these Bills he gave the floor to Prince Tu'ipelehake.

Prince Tu'ipelehake - asked the Speaker for a permission for him to present an oral motion to the House.

Speaker - Called for votes to allow the Prince to make an oral motion. It was carried 14-0.

Prince Tu'ipelehake - he said that he wanted to make an appeal motion to the House. He said that following the rejection by the House of the Petition by the People's Representatives for government to hold a referendum it was discovered that what should have been done first was to present a Bill for the House, outlining the legal framework, which would make it possible for such an exercise to be carried out.

He said that the motion is from the Table of the Nobles for Government to establish a National Committee with members from the tables of the Nobles and People's Representatives to observe and make changes if necessary to laws and regulations of how the Country has been governed.

Governor of Ha'apai - said that he had a restless night, thinking about the Bill for the House's pension scheme. He said he kept thinking about the percentage rate of their contribution. He wanted to comment on Clause 20 of the Bill, but it had already been passed and so he was very concerned about how the House conducted its operation. He said that he was aware that the Bill had been passed but he was concerned over the fact that he could not make a comment of the Bill.

Minister of Education - also expressed his surprised when he discovered that the Bill had already been passed.

Speaker - said that that was why members should attend sessions so that they knew what was going on in the House.

He called for votes on the motion by Prince Tu'ipelehake. It was carried 11-10. Against were the Minister of Defence, Acting Minister for Foreign Affairs, Minister of Works, Minister of Finance, Acting Minister of Health, Minister of Land and the Acting Prime Minister, Minister of Education, Attorney General, governor of Ha'apai and the Governor of Vava'u.

He dissolved the House into the Whole House Committee and the Chairman of the Committee Prince Tu'ipelehake took his Chair.

Chairman - called for proceeding to continue with 'Etuate Lavulavu's Private Member's Bill on Security.

'Etuate Lavulavu - said that there were 10 clauses in the Bill. He said that the intention of the Bill was to bring security services under the control of the Police Department, which in turn enabled the Minister of Police to authorise security officers to carry out certain policing duties.

(After lunch and after the House had spend hours on a poorly drafted Bill, the member finally agreed to withdraw his Bill for further amendment).

Chairman - called on the Minister of Finance to brief the House on a Bill for the Establishment of Financial Institutions.

Minister of Finance - he said that the new Bill was to replace the existing act passed in 1991. He said that one of the reasons for the new Bill was to try and secure the deposits of the people in domestic retail banks. He said that by August the total deposits in commercial banks amounted to 176.7 million, the deposits by the Private Sector amounted to $157.2 million. He said that between 70-80% of the population have bank accounts, it was therefore the responsibility of government to secure the deposits of people.

He gave an example of the difference between the Bill and the existing Act. Under the existing Act to apply for a banking licence, first you apply to the Treasury, then from the Treasury to the Reserve Bank, then it went back from the Reserve Bank to the Treasury and then to Privy Council to finalise the decision. Under the Bill, the Reserve Bank processed and made the final decision. The Treasury and the Privy Council were no longer involved.

The Minister also told the House that the minimum capital requirement by a bank, which was in line with International Convention was 8% of the new bank's total assets. The other important clause in the Bill that the Minister raised was the authority given to the Reserve Bank to intervene and assist if the bank needed assistance.

Sunia Fili - wanted to know if private money lenders in the villages would come under the jurisdiction of this Bill.

Minister of Finance - said no because they did not accept deposits, they were just lending.

Trevor Guttenbeil - wanted to know if the Offshore Banking Act still existed.

Minister of Finance - said that the Offshore Banking Act was repealed some time during 2001-02.

Noble Vaha'I - asked the Minister to explain something about Offshore Banking, because though Tonga had stopped licensing Offshore Banking but countries like Switzerland were still operating Offshore banking.

Minister of Finance - said that during the 1980s and 1990s many countries operated offshore banks, but big countries with big economies did not like it so they compiled two black Lists of Offshore Banks and of countries that were tax havens. He said that Tonga was on the Off-shore Banking Black-list in 2001, but after our Offshore Banking Act was repealed our name was taken off the list.

With regards to minimum starting-up capital for new bank, he said that $2 million was the minimum amount, but authorised capital could be as high as $200 million.

Dr Feleti Sevele - wanted to amend sub-clause (a) of Clause 20 which allowed banks to give out credit ratings. He said that the credit rating of a client of the bank should be given out by the bank only with the consent of the client or his lawyer, and otherwise not to be given out. The the bank should issue a copy to the client if requested.

Minister of Finance - agreed with the Member and requested to allow him to amend the Clause.

'Etuate Lavulavu - expressed his concern over the high interest rates which are currently being charged by the commercial banks.

Minister of Finance - said that at the beginning it was only the Bank of Tonga, and the purpose for allowing in two more commercial banks, was to create competition and to lower the interest rate, but it did not work, and that was why they were looking at bringing in new banks.

'Akilisi Pohiva - said that since government was one of the shareholders in the Westpac Bank of Tonga, it should influence the bank to lower its interest rate.

Minister of Finance - said that it could be done but there would be a conflict of interest because at the moment government collected annually $2 million dividends from the bank, but a lower interest rate would mean a lower dividend for government.