Evening Post. MONDAY, JULY 1, 1935. OUR NAME IN LONDON

Evening Post, Volume CXX, Issue 1, 1 July 1935, Page 8

Evening Post. MONDAY, JULY 1, 1935. OUR NAME IN LONDON

New Zealand lias every reason for gratification with the terms on which a conversion loan of £8,000,000 has been underwritten in London. The rate of 5 per cent, lias been changed to 3 per cent. /The issue price is £98 10s and subscribers will receive a cash payment of £1 10s representing this difference. Reckoned over the whole period of the loan this will raise the cost a fraction above 3 per cent.; but even so the price compares very favourably with recent gilt-edged issues in London. More-

over it is made on a market which has shown a hardening tendency lately. It may not be quite so favourable as the conversion loan arranged last week by the Glasgow Corporation at 3 per cent.—presumably at par as no discount was mentioned— but the New Zealand loan is for 17-20 years and a mortgage loan would probably be for a much shorter period. Investors naturally ask for better terms for a long period when the trend of the money market is upward. English Press comments are as pleasing as the loan terms. Generally they ascribe the success of the underwriting to the reputation which New Zealand has maintained for financial soundness and the energy with which the Dominion has attacked the depression problem. It would be unwise, however, to accept these flattering tributes as a complete statement of the case. One fact of the utmost importance wliich the British Press does riot mention is that New Zealand has not attempted to apply to its external debt the methods by which reduction of interest on the internal debt was secured. The Minister of Finance steadfastly refused to consider such methods and the wisdom of his action is now shown. Whereas the "voluntary" conversion (under threat of penalty) of internal debt before maturity date placed the whole of this debt on a 4 per cent, basis, New Zealand by waiting and adherence to financial contracts has been able to obtain conversion of the part of external debt which has matured at a fraction over 3 per cent. Another factor which cannot be disregarded is that' New Zealand is finding £2,135,800, and the £1 10s per cent, discbunt (another £120,000) in cash. The redemption of part of the loan must result in a keener demand for the balance which is offered for renewal, and with a keener demand the borrower can cut the terms to the finest point. This borrowing advantage is not, however, secured. without paying the price. Owing to the high exchange New Zealand, to make a payment of £2,255,800 (redemption plus discount) in London must find approximately £2,819,700 in New Zealand. The opinion of Mr. A. D. Park, then Secretary to the Treasury,' upon transactions of this kind was stated in his addendum to the report of the Economic Committee; / " To maintain such rate while it remains artificial, he wrote of the high exchange proposal, it is suggested in the xeport that the accumulation of London funds resulting from the unnecessary restriction of imports could be ; used for redeeming debt abroad. Apart from the fact that doing this would be very costly at a high rate of exchange, the operation would in my opinion be impracticable at a time like the present, owing to the difficulty of borrowing in New Zealand the additional funds required for such redemptions. The Government has no revenue surpluses with which to cover the London debt that is to be redeemed. It must, therefore, have made, or have in view, a plan to raise about £2,800,000 in the Dominion. It is exchanging London debt for an amount of local debt which will be 25 per cent, greater. For the present this may not make much difference, for 25 per cent, exchange must be added to the 3 per ceiJt. interest payable in London and this is the same as adding 25 per cent, to the amount of the loan in New Zealand. But the 25 per cent, added to interest can be removed by reducing the exclxange rale, and the 25 per cent, addition to the . capital sum of domestic debt will remain until the loan is repaid. Arising from this there are several points which Mr. Coates may have explained in London but which have not been made clear in New Zealand. A statement from the Acting Minister of Finance' should throw some light upon them. In the first place, how is the transferred debt to be covered in New Zealand, by Treasury bill or long-term loan, and on what terms? How will this affect the admittedly easy financial position on the local money market? We do not doubt that £3,000,000 can be obtained, but the absorption of this sum by Government borrowing must help lo harden the market for the private borrowers lor whom the Government is anxious lo maintain.

low lending rates. The Acting Minister of Finance might also explain the public statement attributed to Mr. Coates: We not only succeeded in closing the year 1934 with a satisfactory surplus, but we have liquidated the whole of the deficits accumulated in the recent difficult years. So far as can be ascertained from llie Budgets and official statements the deficits from 1931-32 to 1934-35 totalled £2,850,097, and the surpluses and balances brought forward for the same period were only £1,944,743. The difference should be explained to the public. Further, in case this glowing statement of achievement should lead to a public demand for greater expenditure, ihc Acting Minister should explain that even this result deals only with revealed deficits, obtained by taking into account reserves, Highways j Funds, and similar credits which are not strictly revenue and also the "windfalls" of gold profits and death I duties. Another explanation which the Acting Minister should also make is how the Government can find over £2,000,000 in addition to normal requirements in London exchange when Mr. Coates claimed that the surplus credits were being reduced and the Governor of the .Reserve Bank claimed that'the correctness of the rate was shown by the fact that it had - been maintained without i pressure. . The use of funds to re-1 deem London debt suggests that it is= J necessary to put a bigger weight in the balance to prevent credits growing as they are seen to have grown \ when Reserve Bank and trading bank holdings are reckoned together.