The Evening Star MONDAY, AUGUST 29. NEW ZEALAND’S CREDIT.

Evening Star, Issue 21193, 29 August 1932, Page 8

The Evening Star MONDAY, AUGUST 29. NEW ZEALAND’S CREDIT.

The mission on which Messrs Downie Stewart and Park have proceeded to London is one of very vital interest to the New Zealand taxpayer. It is one which has been consistently advocated in these columns for a number of months, and when the great British loan conversion scheme was announced the time appeared ripe for New Zealand to make some move for interest reduction at London's hands. Last year’s Financial Statement contained the following under the heading ‘ London Loan, 1931 ’“ To provide the necessary funds for essential public works during the current financial year a loan of £-1,000,000 was raised in London on June 8, 1931, by moans of 5 per cent, bearer bonds, a further £1,000,000 being added to the issue for redemption purposes. The bonds were issued at £99, and are repayable at par on July IG, 1934, the Government having the option, however, to redeem at par, either in whole or in part, on or after July 16, 1932, on the giving of three months’ notice. Including redemption of discount over the period of the loan, the return to investors is £5 7s 3d per cent., and the cost to the State after allowing for expenses amounts to £6 Is 3d per cent. This is certainly dear money, but the dominion on this occasion had to go on the inarket in the face of complex and adverse circumstances, among which might bo mentioned our heavy adverse exchanges and reactions from happenings in Australia. In addition, the general uncertainty brought about by the worldwide slump in prices seems to have made investors somewhat reluctant in the meantime to make further investments overseas. As evidence that the rate was by no means excessive under tho circumstances, the underwriters were left with approximately CS per cent, of the loan, and after issue the market price of the bonds fell temporarily to 97J per cent., but later recovered to the issue price.” In the year which has intervened a good deal has happened. It is true that commodity prices have not yet emerged from the slump area. It is also true that, in respect of payments to London, wc arc still burdened with a heavy adverse exchange rate. But it is also true that Australian stocks, after reaching very low levels, largely from political causes, have made rather sensational recoveries. And it is true that Now Zealand, by very .stringent taxation <:n greatly reduced income, is carrying a henry unemployment relief l.sndeii v. About icumrsu to borrowing

afresh. As a consequence wo are told from London that our credit, which never sank very much, now stands as measured by a rate of 41 per cent, chargeable on loans raised in London. What it is most urgent to know is whether such a concession, if obtained, would operate before the earliest date for redemption. It is somewhat disappointing to learn that, whereas the British investor hastens to renew with his own Government at 3$ per cent., ho thinks 4| per cent, a reasonable amount to ask in the case of the New Zealand Government. It may bo that our debt per capita is high, but New Zealand (until the slump in prices set in and our imports wore cut down to restore the balance of trade) stood very high internationally in respect of annual trade per capita. It should bo tho duty of Messrs Stewart and Park to seek to improve on tho terms suggested by leading London financial papers. In normal times Britain looks for a return of her loans abroad in the form of purchase of her manufactured goods. Proceedings at Ottawa emphasised afresh how vital it is for her to expand her markets for her exports, and indirect results of Ottawa, which had obviously been envisaged from the start, are discernible already in the anxiety of Denmark and the Argentine to conclude trade agreements with Britain. The more onerous London makes its loan terms to her dominions the less they will be able to assist her export trade. Apart from business, there is the sentimental side, and it has not escaped mention by writers of financial columns in English periodicals, who have noticed tho straits of producing countries in meeting interest obligations because of the fall in raw material prices, and have suggested that the British investor sl\ould “ do his bit ” also and not insist on his pound of flesh. The news that Britain and America are at work on a plan for the funding afresh or the conversion of war debts and reparations in one huge international loan, and tho probable effect of such a scheme on new issues of quite other descriptions in the immediate future, may give extra importance to the task on which Messrs Stewart and Park will presently bo engaged.