SINKING FUNDS ON PAPER.

Auckland Star, Volume XLI, Issue 135, 9 June 1910, Page 2

SINKING FUNDS ON PAPER.

<To the Editor.) Sir. —Xo country that owes an external debt and maintains prosperity by eternally borrowing from foreign sources can ever hope to pay off its outside creditors by means of an internal sinking fund. It is time that Ministers should cease to stuff tlieir constituencies with financial piffle—the mere man in the street could argue on the utter folly of setting aside a paper sinking fund, and at the same time searching the London market for a loan, annually, of millions. How long would a bank manager keep going a customer who, increasing his overdraft by two thousand pounds each, year, handed a couple of hundred out of that sum back by way of paying off capital and interest? Yet, en a large scale, that is precisely what our Premier suggests might l)e done, aa a remedy for the Dominion's borrowed troubles. Kngland cvves some seven hundred millions to herself, whereas Xew Zealand is indebted one-tw«lfth of that amount to outsiders. Therein lies the difference, and that it is a difference with a vengeance she will some day learn to her cost.

Now, supposing, as suggested by Sir Joseph, the Government set aside each year one-sixth of a million to be loaned out for the purpose of accumulating at compound interest, and granted that £ 175,000 a year placed at compound interest (44 per cent?) will in 75 years produce £60,000,000, or sufficient to pay off the Dominion's public indebtedness, in "what form could this amount be handed over to her creditors, the European financiers? Certainly not in the shape of coin, because an export of onetenth that sum would most probably, even in the year 1955, denude the Dominion of coin in the bank and in circulation, specie being an item tha-t, out here, docs not increase in proportion to the love we all have for it. The only hope (not for the paper extinguishment of external debt, which is a chimera of the Premier's imagination) of cessation from borrowing outside is that the Dominion may, in the future, be in a position to negotiate her own paper, and this can only be brought about by opening up and cultivating the waste Maori spaces, by encouraging jmnuErration of the right type, and by assuring to the colonial capitalist a fair run for his money.

The Government Afforestation scheme, so ably expounded in your leader of Saturday's is-sue, would be a feasible way of, iv the future, paying, by means of timber export, a portion of our foreign obligation, a desideratum that a sinking fund on paper could never accomplish, for the simple reason that internal revenue never can liquidate a country's external debts, unless backed up by a balance of exports in excess of imports sufficient to pay the amount due. To talk about establishing an internal sinking fund, on the one hand, and borrowing twelve times the amount from the European money-lender, on the other, is, well, just about the limit.— I am, etc., H. J.