BORROWINGS BY THE STATE

Press, Volume LXXIV, Issue 22464, 27 July 1938, Page 12

BORROWINGS BY THE STATE

* 'OPINION OF RESERVE BANK DIRECTORS (“SHOULD BE SECURED ON l CONSOLIDATED FUND” ; FINANCE OF MARKETING SCHEME IFrom ■ Our Parliamentary Reporter.] WELLINGTON, July 26. The extent to which finance has been provided by the Reserve Bank for the marketing policy of the Government Is the subject of comment in the annual report of the board of directors of the bank, which was tabled in the House of Representatives to-day by the Minister for Finance (the Hon. W. Nash). There is a suggestion of criticism against the absence of any arrangement to secure the overdraft arising from the first season’s operations under the guaranteed price scheme. The opinion is also expressed that all advances should be secured on the Consolidated Fund. j-’The report states that advances are fiow made to the Primary Products JVlarketing Department so as to include nny overdraft on the internal marketing account, as well as overdraft on the dairy industry account. At the fclose of the financial year 1936-37 the Overdraft on the dairy industry account |tood at £6,225,908; but by March 31, *938, the total of the combined overdrafts was smaller to the extent of >£1,025,059. Detailed figures are given Showing the monthly advances to the dairy industry account, and the internal marketing account. The balance of advance outstanding in the jormer account at March 31 this year *vas £5,144,000, whereas the overdraft Jn the internal marketing account was £56,000. The overdraft oh the dairy Industry account represented the Amount then outstanding on account tf the purchase of dairy produce in Respect of the current year’s produciion, and in addition the deficit of approximately £300,000 resulting from the first year’s operations. « “No Specific Security” « “In accordance with the provisions trf* the legislation,” the report continues, “all moneys .derived from the sale of produce by the department must be paid into one or other’of these two accounts, and thus be applied in reduction of any overdraft which may be outstanding on the relative account at that time. The measure of protection which is thereby afforded to the bank does not constitute specific security for the overdrafts, inasmuch as the produce is neither hypothecated to nor controlled by the bank. Moreover, the proceeds may fall short of the total cost, including administrative and other expenses. ' “It is understood that the deficit in Respect of the first year’s operations on the dairy industry account is the responsibility of the Government, and not of the dairy farmer; but as no provision has yet been made as to the source from which that portion of the overdraft is to be met. it is not secured either directly or indirectly. “In view -of the prohibition of unsecured loans or advances, the bank appeared to be acting ultra vires in granting overdrafts on the two Demounts of the Primary Products Marketing Department; but the statutory position in this matter has now been ’regularised by an amendment which provides that advances in aid of accounts shall not be deemed to be or 4o« have been unsecured. "Nevertheless, the hoard. Is of opinion that all borrowing by the State, > whether or not wholly or partly covered by other assets, should be secured fin the Consolidated Fund, in accordance with, the usual practice.”