CONFIDENCE SHAKEN

Evening Star, Issue 22382, 4 July 1936, Page 15

CONFIDENCE SHAKEN

NEW ZEALAND LDAN INTEREST FURTHER DROP IK VALUES MR SAVAGE’S STATEMENT REGARDED AS THREAT Press Association—By Telegraph—Copyright. LONDON, July 3. “Mr Savage’s explanation has not resolved the discord aroused by his original overtures, •which seem indistinguishable from threats,” says the ‘ Financial News.’ “ The market certainly finds them synonymous, for yesterday’s collapse in prices was even more violent than Wednesday’s. Mr Savage apparently means, business, but we are confident that it is he and not the bondholders who will ‘ think again.’ No New Zealand politician, least of all a Labour politician intent on launching ambitious and costly social schemes, dare face a complete closure of the London capital market. Naturally Mr Savage is asking for relief. Naturally, too, bondholders will refuse, and there we may hope the matter will end.” The City editor of ‘ The Times ’ says: “There were further declines in New Zealand issues, ranging up to four points. It is not surprising in view of yesterday’s stir that Mr Savage has explained his original statement. This should somewhat reassure stockholder as apparently it indicated that the original remarks were primarily intended to show supporters of the Government that he aimed at implementing an election pledge. Every debtor is entitled to seek relief from onerous interest by mutual agreement, although he must furnish proof of inability to pay the interest. There has hitherto been no suggestion that New Zealand is in such a plight, while the particulars provided in connection with, the loan on April 30 were distinctly reassuring. The Minister should be aware that the mere announcement that he is seeking concessions must disturb investors’ confidence, as New Zealand’s credit has stood exceptionally high. Her stocks are regarded as the best class of security affording great advantages to New Zealand.” The ‘ Daily Mail’s ’ City editor says that the market anticipated Mr Savage’s qualification, hut felt that something further was required to restore confidence.

“ DISTORTED VIEWPOINT " MR SAVAGE'S DANGEROUS IGNORANCE LONDON, July 3. The * Financial Times ’ says; “Mr Savage clearly does not realise the foundational fact on which. ‘all Stock Exchange business rests—namely, that a bargain is a bargain. Challenge this and credit immediately wobbles. Mr Savage’s viewpoint is hopelessly distorted having regard to the cheapness of money in the world’s financial centres. The money yield governs prices. When Mr Savage appreciates this point, the bother he has aroused will die down. Holder's of New Zealand Government stocks, therefore, need not be frightened by a suggestion which springs from well-intentioned but dangerous ignorance, and which is advanced without due appreciation of the fact that credit goes hand in hand with a strict regard for the fulfilment of obligations.’! PREMIER’S FURTHER COMMENT M A CBMMONSENBE SUGGESTION " [Pea United Press Association.] WELLINGTON, July 3. Commenting further on the Government’s attitude towards.its overseas obligations, the Prime Minister, the Rt. Hon. M. J. Savage, in an interview, emphasised the point that the more New Zealand paid Great Britain in the way of interest on loans the less New Zealand would be able to pay to Britain for her manufactures. “ A child will see that,” declared Mr Savage. “At a given time there is only a certain amount of production in New Zealand, and we export a large percentage of that, and I again say emphatically that the more that goes away in the payment of interest the less New Zealand will have f.or the payment of services given by Britain. It is in Britain’s own interest that there should be common sense reigning in the industrial and financial world. If the interest bill were not as large as it is the difference would go to Britain for the products of the labour of British workmen. By that I mean there would be a bettor distribution of the money paid. We have no desire to sidestep our responsibilities either in New Zealand or abroad. The only question for consideration is that of a more equitable distribution, and that applies to Britain just the same as to New Zealand.”

THE BORROWER'S RISK ECONOMIC PROFESSOR'S VIEW [Per United Press Association.] CHRISTCHURCH, July 3. , Arguing that there was nothing new in the proposal by the Prime Minister to seek a lower rate of interest on New Zealand loans in London before the due date of redemption, Professor Tocker, professor of economics at Canterbury University College, commented today on the proposal. He emphasised that such loans were contracts, not between Governments, but between the New Zealand Government and prfa»a*e Htffwtocf in Reitaiau

“The lenders have fulfilled their part of the contract in handing over the money,” said Professor Tocker, “ and thereafter the borrower takes the risk of a rise or a fall in prices. If prices fall then more goods are needed to'find the money. “If it is fair for British investors to agree to a reduction of their interest now it would have been fair over the period between 1918-1929, when prices were high, to increase the rates on New Zealand overseas loans raised before the war when prices were lower. It has always been that way in any such contract. Had the prices for New Zealand exports risen over reCent years New Zealand would not have offered a higher interest rate. Is she justified then in asking a lower pate heeawe prices heme £allen£ A