LONDON LOAN

Evening Post, Volume CXIII, Issue 80, 5 April 1932, Page 10

LONDON LOAN

FUNDING OF BILLS PURPOSE EXPLAINED ONE MILLION FOR WORKS . The terms and purposes of the £5,000,000 New Zealand loan underwritten in London, were outlined this afternoon by the Minister of Finance (the Hon. W. Downie Stewart). The bulk of the new money is to be used ■ for the redemption of outstanding Treasury bills, and the remain-ing £1,000,000 will be employed in. fin.anCing capital works. ' Mr. Stewart said the issue price was . £98 10s, the rate of interest's per cent., and the ■ stock would mature on November, 1971, but thoGovern"inent would have the option of repaying the loan wholly or in part on or after Ist November, 1956, on* giving three months', notice. The return to investors with redemption at par at the maturity date was £5 Is 9d per cent., and the cost about £5 5s 5d per cent. * "Owing to ;the longer term," said the Minister/""this cost is much lighter than. the cost of the short term bonds issued last year, and it]is approximately the same as for the 1930 London loan. Having regard to present economic conditions, and tho unsettled state of financial affairs-generally, the underwriting of a loan on these terms is highly satisfactory,'and demonstrates that the faith of the London money market in the Dominion is unimpaired, notwithstanding qur temporary financial difficulties." . THE EXCHANGE QXTESTIOK". Without. ! entering into controversy on the exchange question, I may mention as a matter of general interest that a message received from London stated that London financial circles never expected that any other course on the exchange question would be taken - by New Zealand, for' they believed that New Zealand realised that any other action would have spelt disaster as far as our credit and future borrowing were concerned. This view is emphasised to indicate its importance in connection with future loans maturing in London. = ■ .'■ £4,000,000 of-the new loan will be ; used.for funding the £4,000,000 of Treasury bills which mature in Jane . next. To this extent the new loan I will not Increase the Public Debt, atJ : all that is involved is a substitution) of long-term-stock for short-term j ■ Treasury bills. ■ ; Incidentally, it may be mentioned that the bills arose out of arrangements made last year, with the approval of the London authorities, to avoid exchange costs by paying off debt in New Zealand and issuing redemption, bills dn London.' Thus, neither the issue of > the bills nor the present funded loan (to the extent of £4,000,000) involved any increase in the Public Debt. It did "result in transferring that much debt . abroad, although had the London money market remained normal this would only have been temporary. - ■] FINANCING CAPITAL WORKS. [j " The remaining £1,000,000 of tiie t ■ loan represents 'new money, and will { , be used in financing the much reduc- S ed programme of capital works. "I agree with those -who hold thafij we should aim at an early cessation, oi 1 oversea Tjorrowing. But at the same I time a sudden cessation, particularly on jj iop of a severe contraction in nationpEe income from the fall in prices, Js ,n< i f in the best interests of the country; J di; owing to our good credit, we can ea fcje the shod; at a reasonable cost we shoi tV& ■do so. .-,-•• / . ... : . . *.'' "In their recent report the Econcijaeists' Committee recognise this, and gaff that while oversea borrowing should lvo gradually eliminated, this should yittt preclude recourse,to the London 'ftiai;ket for the purpose of completing c sisi - ing public, works and- easing the'v fordcess of adjustment." ■