The Press THURSDAY, FEBRUARY 3, 1938. Great Britain Resumes Lending

Press, Volume LXXIV, Issue 22317, 3 February 1938, Page 10

The Press THURSDAY, FEBRUARY 3, 1938. Great Britain Resumes Lending

The announcement by the Chancellor of the Exchequer, Sir John Simon, that the British Government proposes to relax the restrictions on British overseas lending which have been in force since Great Britain went off the gold standard will be welcomed if only because it indicates that the three-Power currency agreement of 1936 has been a success. The restrictions imposed in 1931 were designed primal il> for the protection of the currency against flights of capital, so that presumably the British Government regards the emergency period as over and looks forward with some confidence to increasing stability in the area covered by the 1936 agreement—Great Britain, France, the United States, the Dominions and India, and the Scandinavian countries. But the resumption of foreign lending by Great Britain is something more than an indication of improved economic conditions; it is also a positive contribution of the greatest importance to British prosperity and to the movement for reviving international trade. It is usually estimated that the total of British overseas investments is about £4,000,000,000 and that about onetwentieth of Great Britain’s national income is derived from the interest and dividends on her investments abroad. “ Foreign investment “as a whole,” said the “Economist” recently, “ is the nation’s greatest single industry.” The significance of Great Britain’s creditor position is fairly obvious. It means that Great Britain can buy enormous quantities of foodstuffs and raw materials without having to pay for them in exports; it means, in other words, that she can have a substantial import surplus without having to worry about it. From this it follows that any contraction in the volume of British overseas investment must sooner or later be reflected by a restriction of her import trade. And there is some evidence that in recent years such a contraction has been taking place. Sir Robert Kindersley has .estimated that in 1935 and 1936 new overseas issues fell short of repayments of capital by about £76,000,000 and that the return on foreign investments in 1935 was £ 167,900,000, compared with £230,000.000 in 1929. But if the benefits of overseas lending are obvious, the dangers and difficulties are equally obvious. It is generally true that at the present time the countries most willing to borrow ' are the worst risk. Germany, Italy, and Japan are desperately short of capital; and Italy at any rate is offering specially favourable terms to foreign lenders. Put all three countries are carrying a load of debt which must ultimately di'ive them into some form of repudiation. Moreover, commercial considerations apart, it is not wise to finance the rearmament of potential enemies. The return on British money invested in certain European countries may be dividends, and then again it may be bombs. The only politically and commercially safe outlets for British capital at the present time are the Dominions, India, the Colonial Empire, and parts of South America. Sir John Simon’s statement would make better reading if he showed a keener appreciation of these limits.