NOW IN DEFAULT

Evening Post, Volume CXV, Issue 148, 26 June 1933, Page 9

NOW IN DEFAULT

THE LEAGUE LOANS

SIX NATIONS INVOLVED

SEASONS FOE ADVANCES

Every now and then we hear talk of League Loans, .There is talk now because Missions from the League of Nations have been visiting both Bui-, garia and Greece. Public memories being short, there are very few probably who could give a concise answer to such matters as what those loans are; by whom they were lent, and to whom; what tho aims of the League Loaiis Committee are, and what reasons there may be for special treatment of these particular loans (writes Leonard J. B,eid in tho "Financial Times"). Tho so-called Deaguo Loans were all issued under aegis and with the encouragement of the League of Nations. None of them carries tho financial guarantee of the League. They were all made after exhaustive inquiries by independent experts connected with the League, and the purpose in cycry case was to provide some war-strickon Stato with, the means of financing some scheme of economic or social recuperation, of which the League of Nations- Financial Committee, and, indeed, the League Council itself, approved, and over which tho international experts maintained supervision. Tho loans falling within these categories are as follows:—• Amount Amount outI>alo issued (in standName of loan. .orissue, millions), ing. £ £ 1. Austrian ,6% Guaranteed June, 1923 32.7 23.3 2. Bulgarian 7% Eefusea Dec, 1928 3.1 3.1 3. Bulgarian "%% Stabilisation Not., 1928 5.4 5.4 4. Greek 7% Refugee Dec, 1924 12.2 11.6 5. Greek 6% Stabilisation Feb., 1928 7.5 7.3 6. Hungarian 7%% ' ■ Reconstruction July, 1924 14.2 11.0 •7. Danzig 7% ■ (Municipality) April, 1925 1.5 1 2 *8. Danzig , (Free , ..,-.■. ; City) 6Ms% June, 1927 i.9 1.7 •9. Estonia 7% ... June, 1927. 1.5 1.5 Total of all League loans (outstanding) GC.I *>fot In default. ,Of these nine loans, .of which together there-are £66,1 millions outstanding, six art) in various stages of default, and the capital at stake. in these represents nearly £62,000,000. It is only the last three in the above list—namely, the loans in Danzig arid Estonia—on which the regular service has been maintained. CAUSE OF DEFAULT. It is important to notice that in every case default is as recent as 1932. It was this epidemic in default, caused by the continued sharp fall in commodity prices and the deepening of world depression, which provided the occasion for the formation, of the League Loans Committee. There is only one of these loans ■which enjoys a guarantee by any Government or "third .party" other than the borrowing Government itself. That is the first of the loans to be issued under tho encouragement of tho League—namely, tho Austrian 6 per cent. Guaranteed Loan, issued in 1923, of which the British portion was £14,000,000, and the payment of principal' and interest is guaranteed in almost equal proportions by Britain'; France, and, Czechoslovakia, with a very small guarantee liability resting on- Belgium, Sweden, Denmark, Holland," and" Spain. ■~ . ■'■ In connection with this and the other loans the borrowing GovernTnents have granted as security, in almost, every case a first charge on certain principal Budget revonues. in most cases also the trustees in the issues can call for additional security if the yield of the ( revenue assigned falls below a figure substantially greater1 than that which is actuallyrequired for the provision of interest and 'amortisation on- the outstanding stock. OLD DANGER. . The list of tho purposes to which the proceeds of the loans were devoted would, if printed verbatim, recall vividly to the mind of any close observer of post-wa? Europo some of principal' problems and dangers of the period 1923-28. Tor instance, the Austrian Loan was an integral part" of the League's scheme for the restoration of financial and monetary stability. ■ .. . . In the case of Greece and Bulgaria, the first loans arranged for each country -were designed to finance the settlement of refugees who, 'before the war, had been domiciled mainly in Asia Minor and Macedonia* In each country the enormous repatriation of nationals presented a very critical problem. Tho .second, loans, advanced to Bulgaria, and Greece formed thebasis of plans for budgetary and currency No more need be said to prove that every one of these loans was designed, after competent and impartial scrutiny of tho problems in hand, to meet a very urgent need, to lay the foundation stone in some corner of tho structure of European recovery, or to avert some pressing and menacing danger of tho outbreak of chaos. * Eacli of these loans has served very good purposes at very crucial moments. With every sympathy in the world for . the present anxieties of the bondholders, it is impossible not to look back with gratification at tho efforts which enabled these loans to bo floated. IS IT RESPONSIBLE? The League itself, as I have said, ,has no definite legal responsibility to the bondholders, but that it has/a moral responsibility cannot be denied. Had it not been- for the definite en-' couragemeut and the definite pressure exerted by the League Council it would have been impossible for those States to raise the money from the pockets of investors in London and other centres. As regards the British, portion of these loans, their successful subscription was in no small measure due to the open exhortation in their favour made by responsible British' Ministers at the time. Those who were instrumental in float-, ing the loans and obtaining their subscription -n-cre, led to believe that the success of the issue was vital to the'recovery of Europe, and that reasons of public advantage demanded their support. For theso rather formidable reasons, holders of these important securities seem to havo considerable ground for regarding themselves as Mititled to somewhat special consideration. Let us look at the point of view of the holders of other bonds issued by the same States. They may argue, and with some force .in certain cases, thiit they lent their money first, and' have at least equal claim, if not a stronger and a prior claim, upon such financial consolation as those States are now able in their difficult plight to provide. One answer to that contention is that jf it had not been for the loans which were provided after tho war under tho authority of the League and through the Treasury and public authorities, chaos in these countries would havo boen so great that pre-war bondholders could havo had no hope of recovering any part of their money, nor eoulO. later loans ever have been made. AIMS OF THE COMMITTEE. It is far from being the aim of tho League Loans Committee in London, of which ftj« sftraStfl flfcMlWtaiiL is the (

chairman, to press the claims of League Loan bondholders to the disadvantage of bondholders of other classes. On tho contrary, the only reasonable policy for the Committee to pursue, and one which I have reason to believe it is pursuing with all the means at its disposal, is to help to create in-the borrowing countries ■. a ' state of affairs which may redound to the advantage of all tho bondholders. It is. not its policy to press tho. League Loans claims to the extent of Emptying the coffers whence legitimate payments might otherwise havo been made to other bondholders.

It is its probable intention to emphasise to all tho borrowing States what it regards to bo the wise course ft public firiance, and at the same time to urge upon tho finaucial organs and Council of the League of Nations the necessity of rendering every possible assistance to the States in setting their financial house in ordeiv