The Press. SATURDAY, MAY 29, 1897. HOW OUR DEBT IS INCREASED.

Press, Volume LIV, Issue 9739, 29 May 1897, Page 6

The Press. SATURDAY, MAY 29, 1897. HOW OUR DEBT IS INCREASED.

During every year it is stated, that ouc debt is increased by what are termed conversion operations. We are afraid the general public do not quite appreciate what "conversions" mean. If they did we doubt if tbe financial operations conducted under the name of " conversions " would be approval. During the past two yea_s these operations have not been extensive, but from them we may gather what our Treasury does and how our debt increases. We may state thai , the conversion account deals with two distinct operations. It deals with conversion proper, and with tbe redemption of debentures. For example suppose a loan was due in 1896, the repayment of tbe loan would be found under the Conversion account. We have an annual DrawingLLoathen —the Consolidated Loan Act of 1867—that is every year of the debentures uapaid there is a certain number drawn for repayment. When the loan was floated it was understood that tbe Sinking Fund that was to be paid each year on the total amount= of tbe loan —one per cent. —would pay off the debentures drawn. Wa have not done that for a long time. Since 1894 we have ceased paying a sinking fund for tbb loan, and we pay off the drawn bontls by issuing fresh debentures at 3£ pet cent., with *a forty or fifty years* currency. When we, therefore, see an entry of debentures redeemed Consolidated Loan Act, 1867, £44,656, it «. not really a conversion transaction, but a payment off of -.44,656 and the iss-3 of the same amount in fresh debentures to pay that . off. We give this caution to reader*! of the conversion account, so that they may appreciate the distinction between a conversion proper and a redemption transaction. Taking the two past years, however, we get several example- of conversion transactions, and we purpose to state what they were, ana shall ask our readers to say whether they have been sound and prcM financial transaction*". The only conversion-! proper for 1895-96 were ths following :— I*DAMS. Ano~J*£ Ctonsolidated Loaa Aot. 1867 ... £_£$*. New Zealand Loan Act, 1863 ... 2f-g? Otago Loan Act • . .„ ... *»*5. Distriot Railways Act ... »• J?i|K' Bank of New Zealand Stock .. 600,0t» There were other transactions caUed conversion*), but in all these so-eaife? conversions tbe loans were due dating the current year. They should have been properly classed as redemptionsThe Bank of New Zealand Stock was due in December, 1896, so that all that was done was that in lien of the'B J percent, debentures that were hew, inscribed stocks were given at 8£ p« c cent, some months before they were due. Let us look at the other conversion transactions. The first, the Coasolidafced Loan Act, 1887. This is, f we have explained, a drawing loan. * 6 bears 5 per cent, interest. *»c holders who gave up their delieatares for 8| per cent, inscribed stock might have had to aeeept cash next. /ear. Their debentorss , might have been redeemed. Seeing the risk they ran they said to tbs Treasury in effect, " We will gtva yo« up our debentures if you will g"^ 8 for our -859,700, -£68,195." _ Thi* transaction eosfe us therefore in PJ 6 : miunu -58485, Xt cost us more re-U?i

for we had to pay expenses m the conversion operations amounting to £3525 but that was not all the cost. We gave £63,195 of 3* per cent. bribed stock, but our 3J per vents. were standing at £5 to £7 premium. What the holders, therefore, got was a present of another £3500 at tho least. _ Now, £7000 in round numbers ia a big price to pay to holders of debentures who choose to exchange their debentures, which might have been redeemed in a tear or two. Is this a good financial operation? The colony has thrown away £1000. The nest transaction is the New Zealand Loan Act, 1863. This loan is repayable in 1914. It had therefore eighteen years to run. We gave to the holders of this parcel of . debentures we have named, premiums, 'some at the rate of 14 and some at 14 J per cent., in all £3517. That is for ' the £24,900 debentures due in 1914 and bearing 5 per cent, interest, we K ave £28,417 of 3£ per cent, debentures, payable in fifty years ! But, as we have said, our 3* per cents, were from 5 to 7 per cent, premium, so that the next day after conversion the fortunate holders could have got at least, £80,117 for their converted stock. We j lost by that transaction about £5200. j The stock was converted at about 20 j per cent, premium. The Otago Loan of 1862 was the iiext transaction. It is redeemable in 1898. The interest is 6 per cent. We gave 3J per cent, stocks, and a premium of G per cont. —£150 in all. We gave for the £2500 £2650 in 8* per cents., but, as we have said, our 8£ per cents, were at a premium of from £5 to £7 per cent., say £6. The fortunate holders could have got the flay after conversion £2809 for their stocks. They made a profit of £309 out of the colony. What did we save? Wβ saved in appearance the difference between 5 per cent, and 8£ per cent, for two years, or £75 I Was this a financial transaction of which the Treasury should feel proud? The District Railways Act Loan £1000 was redeemable in 1905, and bore 4 per cent, interest. We got it converted without apparent premium, but as our 8£ per cents, were at 6 per cent, premium we lost £60 over that conversion. We gained, it is true, the I per cent, for nine years=£4s, bat we gave the .% per cents, for fifty years with interest falling. If interest falls to 2 or 21 in 1905 what will be thought of our financiers ? In 1896-97 we had four conversion transactions proper— [11 Consolidated Loan Act, 1867 ... £26,200 $) N.Z. Loan Act, 1863... ... 1,400 (3) Otago Loan Act, 1862 .„ 1,600 {A) Land for Settlement Act .- 24,200 For the first the premiums paid were £2, £8, and £4 per cent. In all we paid £861. We gave 3$ per cent. Inscribed Stock, and we repeat this was a Drawing Loan, and tho bonds might have been drawn next; year, 1 Pot exchange we gave 8$ P Ol cenb* stocks, which stood at 6 per cent, premium, so that we lost altogether £2485 by the transaction, besides the absurd operation of giving fifty years' bonds with a falling interest market. In the matter of the Hew Zealand Loan Act, 1868, which, as we have said, is due in 1914, we gave 11 per cent, premium and S£ per cent, stocks, then at 6 per cent, premium. We lost £247 besides 'giving stock with such a currency. For the Otago Loan,, due July 1898, we gave 3£ per cent, premium, and 8$ per cent, bonds which stood at 6 per cent, premium. Was there ever a more wanton waste of money ? The laet conversion transaction for the year will show how our finance is dealt with. We issued in 1894-95 £10,100 worth of debentures under The Land for Settlements Act, 1894, at 4 per cent., redeemable in 1926, And in 1895-96 £163,200 at 4 per cent., redeemable in the same year, 1926. This issue was made in the lOolouy. At the time we were getv jiag Consols at 3£ per cent, in the colony and our 4 .per cent, inscribed Wock was in London from 7 to 10 per cent, premium. It was a bad financial transaction to issue 4 per cents, for thirty years at par. What we have 3one now is to convert £24,200 of tbia Stock into 8 per cent, inscribed stock at £10 per cent, premium. It has cost us £2420 to do this. Our 8 per cents, are at par. The Treasury has lost £2420 by this translation, besides expenses. Thus ifl our debt heaped up. Wβ t&ye in interest during the current thirty years, but we have given 8 per -.Cents..for fifty years, and seeing that Imperial Consols' will be reduced to 2£ jxr'ce&t. (they are now 2|) in a few yearj, and that the Consols are now 18 per cent, premium, we may expect iutoreafc down to 2 per cent, before the year 1928. We may therefore easily calculate what \ve have lost. No person who knew anything of finance 'would be guilty of the fatuity of our Treasurer in issuing in 1895-96 4 per cents, for thirty years at par, and then a year later having to convert the loan into a 8 per cent. fifty years loan at £10 per oent. premium J It is by silly transactions uke this one that our debt is increased. We suppose the excuse given was that we did not wish to go directly to the liondon market, but this secret way of . getting money from London financiers costs \is money. We have on this "nail transaction of £24,200 thrown *way. ut leaet —counting stamp duty, ;xpens«3, &c, &c, over £3000. Why -wj we So it? The answer is inevitable. If we wiU have ignorant men eealing with our finances we cannot •spect good results. Wβ liiave shown how our conversions • J*e carried on. They do not redound to our credit, and they would be condemned by any one knowing the alphaBet of what J3 termed "high finance." *«c greatest authority on conversion *>, perhaps, the editor of the French •Lcononiigt, and our conversions violate **cry rule that he has laid dowa tor sai;e and prudent conversions, ac coudemns utterly thirty, forty, ?* fifty years' loans. Hβ thinks **° ot fifteen long enough, and tie condemns a j so payment of large PfcßUutns for conversion. He, how•JWf views the mattor from a financial and there our Treasurer ■w never reached. If, however, the ooiony iriii have financial incomrwtfs in charge, we ppeaunte many F"*" I *** conversion. opexstioxis -will