The Press FRIDAY, MAY 16, 1941. The Conversion Scheme

Press, Volume LXXVII, Issue 23330, 16 May 1941, Page 8

The Press FRIDAY, MAY 16, 1941. The Conversion Scheme

The Government’s scheme for converting £21,000,000 of public debt domiciled in New Zealand, announced by the Minister for Finance yesterday, is somewhat unusual in that the largest issues involved—two totalling £ 13,673,870 and bearing interest at 3J per cent, and 4 per cent. —do not mature until Inarch, 1943. Nevertheless, the scheme is as wise as it 'is bold and will be welcomed as evidence that the Government, having thus far met its wartime financial problems by a series of makeshifts and expedients, has at last begun to look ahead and work out a long-term programme. The conversion has, presumably, two main purposes. The first is to check the inflationary trend inevitable in war finance. In present circumstances, repayments of maturing loans could be made only by a use of Reserve Bank credits; and already the total of the Reserve Bank’s advances to the State is unhealthily large. The second purpose is to keep interest rates low and to regularise an interest market which, partly owing to the issue of a variety of small loans on widely different terms, has become somewhat confused. In this connexion it should be noted that the Government is still paying the penalty of its earlier financial recklessness in an interest rate on securities which is substantially higher than comparable rates in Great Britain and Australia. Applicants for conversion under the scheme announced yesterday have a choice between 3i per cent, stock maturing in 1957-60, at the rate of £lO3 of new stock for every £ 100 of old, and 3 per cent, stock maturing in 1946-48 at par. The return to investors on the long-term stock, allowing for the premium, is £3 9s 3d per cent., which is about the same as the return on the recent national development loan. According to the latest figures in the Reserve Bank’s Statistical Summary, approximately comparable stocks are yielding 2.94 per cent, in Australia and 2.89 in Great Britain. Basically, New Zealand’s economic position is not worse than Australia’s or Great Britain’s; and if the Government can reestablish confidence in its financial wisdom and farsightedness there is no reason why it should not borrow as cheaply as any other part of the Commonwealth; It is possible to hope that holders of the stocks affected will regard conversion as a patriotic duty and a means of assisting the Government to plan war finance. If the scheme is a -success, the country as a whole will gain in financial stability and the prospect for future loans will be greatly improved; if it fails, the Government will be driven back on financial methods which have already involved it in serious difficulties and caused maladjustments in the country’s econo.mic life. The Government should,, however, remember that one of the essentials of a successful’ conversion operation is vigorous and skilful publicity. More than six months ago the Economic Stabilisation Conference, discussing the war savings campaign, recommended to the Government that “ a far greater amount “of attention be given to the publicity used.” The recommendation' was largely ignored. 'The manner ,in ..which the Minister ’ for ’ Finance announced his conversion scheme suggests that the Government is still lamentably unaware of the need’for a better technique of publicity.