IS IT WISE?

Evening Post, Volume CIX, Issue 151, 30 June 1925, Page 6

IS IT WISE?

BORROWING IN AMERICA

WHY NOT LOCAL LOANS?

, SOME BANKING OPINIONS.

"*■;■ Ought Aiistralian States to Jncur financial obligations to a foreign country, viz., the" United States? .'-..This-was the.ques-, tion'put to: several ■'. banking/authorities by "The Post'v to-day. : It was '.based upon 'a cablegram from London to the effect '.that botli; the -pommonwealth and the States? _bf Australia will in .the near future raise loans ,in America; further-,, more,-this would' be done with the ■ full approval of the British ./Government. and the Bank of.: England. . ;The : reason given for.' so; unexpected: a course was that money is nofc at available in-London :to meet Dominions' requirements, : although. it could .be found if the terms;were;made:sufficiently/attractive, but: that : would be. at the expense of - other '.undertakings. -:':. A - simpler reading of the dispatch would be : "London can't' lendvto.you,: just .now,'at rates you expect to.pay,; try..New York." . .

A banker,.when .asked; his opinion; on the matter...regretted..that he had ;hot been, able, to fully consider ;the :matter.' He,.had seen the. announcement, in the paper, but ; it required thinking.over.:He " thouglit" tHe -exchange', position ;; might have something .to do' with^ the concur-. ! rence : 6f:;.tlie';lmperial ' Government and ithojßank.of England in refeiTing borrow-, ing; Dominions:to ■: America. -However, the .British ■ Goyernment^itself,had;made arrangements in" the; United. States i for bank -.- credits": amounting , to ,300,000,000 dollars/^- These ; credits-:-were -riot .loans; but ■ commitments'""" enabling .jloans : to '■■ be . hacl if:'desired,'; and they.:were;probably ■established in,connection witli stahilisa-": tion' of "dollar-sterling::exchange.'rates.',: IN PRINCIPLE U

;:::Another;opinion was.to the .effect that; :it' -was; "undesirable in priricipie: for any: -British; Dominion ;to.;, go. t0..,- a:. foreign : t cpuntry.,;rfo'r. loans!; .True, there .were' precedents* furnishedß:by; Queensland .arid; New.: South "Wales ,• :"but:".the : principle ;held;,good. ;:;;The;: exchange;rate: was ;vir- ■' 'tually : at; par,; hut 'if ;;the'j pound sterling: declined/iii New York ,(as; it ■ultimately:, 'might)' the .meeting i-of Athij: interest \ due and payable" there would ""be■,"" a serious matUr: ior:th"e;;,borrowing"; "Dominion." The:' only/ ;way;':tie; interest J;payments coiildf be-'-iriet*,'would;:-be 1' by.";export of goods, but":the}UmtedOStates,' balance ~-so';far, as: New Zealand.is concerned— -. is;"a.gaii!st ,us '; arid :likely to: : be;: against us.;:',:'lt:is;,the same in .-Australia.; ,: ;;

BRITISH MONEYS FOR FOREIGN

COUNTRIES

;/:A; third/opinion: was, that ■ the'/unfor-; tunate reception given to; the last -New- : Zealand-/^loan, ■■• -■■■ and, t; other»'Dominion loans;.'raised :in London -'.had given .■■underwriters .much/to'.■think'over.:" They ; would; havei got^ rid -< of '/the' -i. loans,-: •of course, by ■ this, /but/it ■ was evident that ■London—for!the ;presehtr-was"'disinclin--ed to absorb further;,- Australian issues. ; Yet/it :was: strange /;hpw'riiuch' British money i;was -available for' investment dh ■ioreignV.countHeS;l overseas '■—: Argentina arid', Brazil; 'for '< r instance.;' '"•■ Of cpurse, those/investments .'gave' ai. higher;/yield,, their terms were more' attractive, and labour trpublesj.were;probably less-acute: in ; the; South,: American [countries than; in, ,say,.; Ausfcralia.":-:/But Londonv gets; back vail, it. lends ';tp;: 'the /; Dominions/ Probably, Lombard Street felt it 'wanted ; a rest,■ and;;so iliaspreferred Anstralia'.to New-York' for any supplies itimayneed' in the meantime; '■■-. ■'■: -v ; ■.',;"--// ;7-// lf:// ■>lEW ZEALAND^LaVt-LOAN i; / ;. Another,banker thought;it 'regrettable that; a British /Dominion-should - have: to .go■to • a foreign country; for: supplies;.' 1 here .was no doubt about it, tlieu-ecent reception'■> of Australian and the .:• last New' Zealand.;loans floated in,.London were .chilly, to say':the least of: it. .The; last - New', Zealand;: loan, Svas-- not good' 'business.'for this 1 country. '..-';■'. The .heavy percentage of the; issue left iori-.under-vvriters'. hands wasas xinfortunate ; for as for -them/: Moreys'o ipjvkoiir reputa-.tion,.-because/thVunderwriters had/ways arid, means of: disposal ,of such .investments 'as. -the;, public does .not 'fall' over ■itself ;to -take up when subscription lists /are, opened. : /';-; ~:V//-":''-'-,/' > .;: '; ■ -.'. ':■ ./The/total , 'General Government, and /local authority indebtedness of New: Zea ,land ■: is. exceedingly. heavy, and -the an- . hualv. interest; bill, ;.? payable: : overseas, amounts.■ t0..£5,064,000 for 'the 'Government and over.,£soo,ooo';for'local bodies. If we cannot,'and if Australia- cannot, borrow' in .-London then it. should make every endeavour... to ■: raise ; its requirements locally. "■--.'■' '■■;■ ■;:■.;.•:; , .. ■..: .'-"I am quite, sure that' the last New •Zealand .loan,'which proved a:'frost' in London,.could have been raised here at, say> 5J per., cent., issued. at,; say, ; £99.. ■It was offered .iriXondon^at^j per cent.,; and. issurd at .£95. -We could have .done better heroj.ttherloan would; have cost less-f.toVraise; the- interest 'would I have;.circulated in the Dominion. There ! is plenty of money; available for. invest- ! ment. . Look at the position; occupied ,by Government war loan and other gilt- ! edged securities, as .they appear in the Stock Exchange, lists.... ; . ;;; "And if : .':wo .cannot raise all- we ask for here, then 'let us. cut our coat according to our cloth, "and; refrain from going-to London for a year or two. If we cannofc raise our six or seven, or more millions in New Zealand, then, we must raise 1, what we can, and ciirtail. Government and local expenditure accordingly. London probably feels ii needs a rest—. from. Dominions loans :kt any, rate. But that is not to say '-that wo should rush ..off:, to:. New .York. .: On the contrary, there are many objections, . financial as well as sentimental, -why we should not do-so. '■We. may rely upon it, -1.-think, that we.. shall not get money any cheaper in New York than, in London ; most probably we should have,to pay more." '