N.Z. LOAN CONTROVERSY

Greymouth Evening Star, 4 July 1936, Page 7

N.Z. LOAN CONTROVERSY

RIGHTS OF THE LENDERS

STOCK VALUES’ FURTHER FALL [BY OABLIQ —PRESS ASSN. —COPYRIGHT.] LONDON, July 3. The “Financial Times” says: Mi Sacage’s explanation has not dissolved discord' that was aroused by his original overtures, which seem indistinguishable from threats. The monev market certainly finds them synonymous, for yesterday’s collapse of prices was even more violent than Wednesday’s. Mr Savage, apparently means business; but we are confident it is he, and not the bondholders, who will think again. No New Zealand politician—and least of all a Labour politician—intent on launching ambitious, costly social schemes, daie face a complete closure of the London capital market. Naturally, Mr Savage is asking for relief. Naturally, too, the bondholders refuse! And there, we may hope, the matter will end. Mr Savage clearly does not realise a fundamental fact on which all Stock Exchange business rests, namely, that a bargain is a bargain. Any challenge to this, and credit immediately wobbles. Mr Savage’s viewpoint has hopelessly been distorted in his having regard to the cheapness of money in the world’s financial centres. Money yield governs prices. When Mr Savage appreciates this point, the bother he has aroused will die down. The holders 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 the appreciation of the fact that credit goes hand in hand with a strict regard for the fulfilment oi obligations.

“The Times’s” City Editor says: — There were further declines of New Zealand' issues ranging to four points. It is not surprising, in view of yesterday’s stir, that Mr Savage has explained his original statement. .This explanation should somewhat reassure stockholders, as, apparently, it indicated that his original remarks were primarily intended to show his supporters that the Government aimed at implementing its election pledge. Every, debtor is entitled to seek relief from onerous interest, by mutual agreement, although he must furnish proof of his inability to pay interest. There have hitherto been no suggestions that New Zealand is in such a plight, while the particulars which were provided in connection with the New’ Zealand loan of April 30 were distinctly retassiiring. The Prime 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 best class of security, this fact affording great advantages to New Zealand. The “Daily Mail's” City Editor says: The market has anticipated Mr Savage’s qualification, but it is felt that something further is required to restore confidence.

MR SAVAGE’S REPLY

WELLINGTON, July 3

Commenting further on the Government’s attitude towards its overseas obligations, the Prime Minister (Rt. Hon. M. J. Savage) in an interview, emphasised the point that the more that New Zealand paid to 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 any 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 for payment of the 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 was 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 that there should be a better distribution of the money paid. We iiave no desire to side-step 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 it does to New Zealand.”

PROFESSOR’S POINT.

CHRISTCHURCH, July 3.

Arguing that there was nothing new in the proposal by the Prime Minister (Mr Savage) to seek a lower rate of interest on New Zealand loans in London, before due date of redemption, Professor Tocker, Professor of Economics at Canterbury University College, commented to-day on the proposal. He emphasised that such loans were contracts not between Governments, but between the New Zealand Government and private investors in Britain. “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 and 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 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 rate because prices have fallen?”