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COLONIAL LOANS.

MR BEEVES ON IMPERIAL GUARANTEES. (From Our Special Correspondent.) LONDON, February 5. The Hon. W. P. Reeves, who, during Ids twelve years' occupancy of the posts of Agent-General and High Commissioner for New Zealand, had a pretty thorough grounding in high finance, has little to say in favour of Mr Peake's proposal for Imperial guarantees for colonial loans. Mr Reeves, who is now director of the London School of Economics, and also acts as Financial Adviser to the N.Z. Government, pointed out to mc during the course of an informal gossip the other day, that though in times past the Imperial authorities had given such guarantees as Mr Peake apparently desired, the circumstances under which such guarantees were given were quite exceptional. In the case of New Zealand the Imperial authorities guaranteed some 40 years ago a loan of £1,000.000. But the colony was then young and suffering from the effects of a prolonged war, the Imperial troops were being withdrawn and it was felt that the colony had very substantial claims to Imperial backing, without which it would have been practically impossible for New Zealand to raise money for any purpose save at preposterous rates of interest. It may be mentioned that that guarantee never cost the Imperial authorities a penny piece, and the loan was finally paid off about two

years ago. In the case of the West Indies and the Transvaal, the circumstances were also extraordinary. The one was a Crown colony in dire straits, peopled largely by coloured folk to whom the Imperial authorities stand in loco parentis, the other a newly-erected self-governing colony devastated by war, and with practically an empty exchequer. As regards Imperial guarantees for the loans of self-governing colonies in the present position of Australia, New Zealand or Canada, Mr Reeves pointed out that a less favourable time for introducing such a proposition to the Imperial authorities could hardly have been chosen. The Chancellor of the Imperial Exchequer is face to face with the prospects of a very considerable deficit, and of finding large sums of money in the near future for a variety of purposes which may entail broadening the present basis of taxation.

Apart from the financial position at Home, there is of course the question as to whether the Imperial Government would be prepared to even discuss the question of guarantees with the Governments of individual Statee of the Commonwealth. Mr- Reeves' view is apparently that the condition precedent insisted upon by the Imperial authorities would be that any guaranteed loan should be, bo far as Australia is concerned, a Commonwealth loan, and he pointed out that even if the Imperial authorities gave a sympathetic ear to Mr Peake'e proposal, they would certainly insist on conditions that would reduce the borrowing colony to the position of local bodies at Home desiring to raise, money under the aegis of the Pub! : o Works' Loan Board. The Imperial Government would undoubtedly stipulate that no loan guaranteed or non-guaranteed should be issued without its consent—i.e., it would demand the right" of veto in rolntion to all public borrowings of the colony or State which desired to borrow under the Imperial guarantee. In the next place, the Imperial authorities would most certainly insist on the establishment of a Sinking Fund in connection with any loan guaranteed by them. This would mean that whilst, perhaps the loan might be rawed at a half per cent lower rate than would be possible with no Imperial guarantee, the tax-payer of to-day would have to find just as much yearly interest as he would in tho case of a non-guarnnteed loan. Posterity, of course, would benefit, but the present generation of tax-payers would not.

Mr. Reeves' three main points against Mr. Peake's proposals may be briefly 6ummed up as follows:— 1. The 43.A. Treasurer's proposal amounts to asking for something the Imperial authorities are not in the least likely to give. 2. If the proposition met with Imperial favour, the borrowers under guarantee would be placing themselves financially under the thumb of the Imperial authorities as Tegarde all public borrowings. 3. No immediate relief would accrue to taxpayers, and only "ungrateful posterity" would' benefit. Mr. Reeves pointed out, of course, that the Imperial Guarantee to-day is by no means of the samo value that it was in the years prior to the admission of Colonial Stocks to the list of securities available for the investment oi trustee funds, and that every new financial burden, real or prospective, accepted by the Imperial Government means a diminution of the value of her guarantee. The value of the Imperial Guarantee to-day may easily be gauged by the following quotations: — A Tear To-day. Ago. 2i per cent S3J .. BCB Transvaal 3 p.c. guaranteed 9GJ .. 074 Irish Land Loan 2* p.c MJ .. S8& Local Loana 07 .. MJ Canada »0 .. 0U New South Wales, 3 p.c... 87J .. fiO New Zealand, 3 p.c 87J .. 80 South Australian, 8 p.c... 84J .. 83 At the present price consols aT,e practically at three per cent investment proposition, whilst the Transvaal guaranteed loan at 96J represents a return to the investor of about £ 3 2/- per cent; the Irish Land Loan a return of a little over £3 4/- per cent; Local Loans fractionally less than £3 2/- per cent; Canadian Threes, £3 C/ 8 per cent; New South Wales and New Zealand three per cente, £3 8/3 per cent; and South Australian Threes, £3 11/2 per cent.

It will be seen from these figures that the Imperial guaranteed Transvaal Loan stands very little higher in the estimate of investors than Canada three per cents, and plough at present the margin in favour of the Transva-al stock over Australian and New Zealand issues ie considerable, the difference was not so great a year ago. And providing the Antipodean States do not borrow largely in the near future, it is tolerably certain that there will be a still closer approximation of the values of Imppria! guaranteed and Colonial non-guaranteed stocks. On the whole, it would nppear that Mr. Reeves' view that the Colonies should preserve their financial inclependence is the one. especially seeing that, apart from any question of financial suzenainty. the fact of the Tmperial authorities further Increasing to any appreciable extent their loan responsibilities -would inevitably have the effect of raising the price of ioan money against the Imperial Government..

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COLONIAL LOANS. Auckland Star, Volume XL, Issue 63, 15 March 1909

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