GOVERNMENT LOAN POLICY

Evening Post, Volume CVII, Issue 10, 12 January 1929, Page 8

GOVERNMENT LOAN POLICY

■The ■Government .has every reason for gratification: with, the success that has attended the 'flotation of its £7,QOOjOQO loan. We were advised yesterday that this had been over-subscribed. As applications for the conversion.loan do hot close for a fortnight, we hav<e no report yet regarding the response to .that, offer, but we may assumo that this will also bo good. The terms, though slightly less favourable than those ...offered to subscribers of new money, should prove attractive. When Mr.. Downie Stewart made his conversion offer last year, the return to tho investor was £4 16s lOd compared with £4 19s 8d for for the cash loan— a difference of 3s lOd. This year the conversion loan will return £4 15s 3d .compared with £.1 IBs 4d for thewew, money. It should be.notod, however, that tho calculation, of; the new cash loan return made by Sir Joseph Ward yesterday allows for/redemption of, the discount over the longer period of "9 ■■yqarsV-, It' redemption were undertaken. in 19 years the; return would be slightly higher. Sir Joseph ; Wai'd does not state exactly tho cost' of these loans toVtho Dominion, allowing for .underwriting, charges. The; figures supplied are of-returns to the. investor. But those are sufficient justification, for his claim that ','the country's high credit has again merited the confidence of, the London market." Admittedly the market is easier now-than a year ago, but there were factors, such as tho impending big British conversions, which might have had an adverse influence on proposals from a borrowing 'nation having a less stable basis of confidence.'

The information given by the Prime •Minister concerning this and other transactions has been supplied with reasonable promptitude, and so far as the borrowing transactions are concern, ed is complete save for ono point. Sir Joseph expresses surprise that members of Parliament should havo pressed him for information earlier. We did not support the request for particulars at the»time, : realising that the Minister of. Finance, on whom the main burden of responsibility rested, must bo .■ the judge of how much could be safely divulged.. But it must bo admitted that those who did. urge a fuller disclosure were ■ possibly led to do so by, the voilod-. reference to "important London,transactions." The terms might have covered something more far-reach-ing than the i>roposals which had been under consideration by the Beforni Minister of Finance. : Sir Joseph him-, self stated subsequently that they involved '' a marked departure from what has been tho usual courso in London finance.". Possibly this referred to the' fact that tho cash loan was to cover requirements to 31st March, 1930; but iii has been the practice for some years now for Dominions' loans to bo spaced at regular intervals over the year. The point upon which further information would bo welcomed concerns tlio arrangement- made for a local loan of £2,000,000 for State Advances purposes, Sir Joseph Ward stated in December that he "had already; arranged

for two millions of fresh money at a satisfactory rate." In the statement issuod yesterday ho said:— I had tentatively arranged,'if required, to obtain an additional £2,----000,000 locally, to ensure that all purposes that I had publicly laid clown in the policy as submitted to tho country would bo provided foi\ Are wo to liuderstand from this that the local funds may not be used, since London has supplied the £7,000,000 desired, or is the local loan to be taken up in any case to strengthen State Advances finance? And, if the latter, what aro the terms of this local loan? This brings us to the point at which the Prime Minister's statement, informative though it is in other respects, is not as complete as could be desired —that is, the purposes to ' which the new capital is to bo applied, Sir Joseph stated yesterday: I decided to increase the loan from £5,000,000 to £7,000,000 for public works, including railway construction and improvements and hydroelectric schemes.

This means that all of the London money is to be used for public works, including the new lines of railway enumerated by tho Prime Minister previously, the hydro-electric schemes which are being carried out on a time schedule, the railway improvements, and other general constructional works. In these circumstances the local market funds (tho £2,000,000 loan tentatively arranged) will bo required for State Advances, and the total borrowing will bo £9,000,000. This will be more than tho Reform Minister of Finance proposed, but if tho increase is a temporary break from loan-tapering in order to overtake State Advances arrears and finish authorised works at an earlier date, great exception cannot be taken to it. If, however, borrowing for public works is to continue at this rate' and tho State. Advances capital is to be still further augmented, there is a danger of creating an artificial boom prosperity. . >

The Prime Minister complained yesterday of the unfair criticism of "some people who put polities before everything" and of the misrepresentation that £70,000,000 was to be borrowed in one year. Wo doubt ■if the idea of raising £70,000,000 in one year were ever widely held, and no one has any excuse for holding it now; but there are other points in which the absence of complete information may result in criticism which the facts do not warrant. This possibility can bo best met by elucidation of the doubtful points, and . particularly tho point regarding the borrowing scale for the future, \f» do not believe that a financier with Sir Joseph Ward's experience would think of persisting in the proposal to borrow at the rate of £6,000,000 a year for State, Advances alone if his investigation of the position showed that. this would raise the total annual loans to £12,000,000 or more. Nor do we think it would bo advisable to make constant applications to the local money market. But the position would be better understood by all concerned' if the Prime Minister would supplement the statement already issued by an explan-ation-of the attitude of London to State Advances loans (whether this money must be obtained locally or overseas), an estimate of the loan capital required for land settlement and public works apart from the main railway lines, and a calculation of the borrowing which is required to complete the whole programme. The majority of the people in New Zealand are, we believe, sincerely anxious to help Sir Joseph Ward, in, the .operation of a progressive but;;:cautious' policy, 1 and they will be glad'to have tho information which will- assume, them of the progress and caution ,bf ; the,iGovcrnment.