BRITISH LENDING ABROAD.

Hawke's Bay Tribune, Volume XIV, Issue 278, 4 November 1924, Page 4

BRITISH LENDING ABROAD.

The question of the curtailment of loans abroad, both without and within the Empire, is still being very senously discussed in Old Country financial circles. It may bo said that the eager ness with which the German “reconstruction” loan and recent colonial flotations have been oversubscribed point to the argument in this direction having had very little effect. On the other hand, it has to be recognised that both in purpose and terms the German issue was something altogether exceptional and need therefore scarcely bo taken into account, while trade uncertainties, have been standing a great deal in the way of industrial investment at Home. In this latter respect it may be hoped that, witW stable Government in office and able to proceed to and carry out some defined policy, British capital may again flow freely in industrial channels. In any event, it is no harm in us knowing out here the trend that thu discussion, even should it prove in the end to be merely academic, is taking, One contention Against continuing the big outflow of loan money is that there is being lent outside the United Kingdom a good deal more than the surplus from export trade 'justifies, and that thus home industries and enterprises are being starved. As against this, however, there is another school pointing out that under-investment abroad, i£ it means the diversion of an unduly large proportion of savings into capita? investments ai home, also is detri mental. The Napoleonic War was soon followed by the active home railway development of tho ’Forties, and the financial crisis of 1847 has been referred to as a case in point. It is argued that then the heavy investment of capital a$ hoffie was followed by depreciation of the exchanges and rise in prices at' home. Bankers then thought that the fault lay inj tho fact that not enough goods were produced for immediate export. They therefore encouraged Lancashire industries and others producing export articles, and in order to create markets for them encouraged investments abroad rather than at home—io ■fact, they initiated tho policy now called in question. It is admittedly not easy to find ways and means to determine just what is tho optimum amount that should be invested abroad. Mr J. M. KEYNES’S VIEWS. In tho midst of this controversy comes a new suggestion of Mr J. M. Keynes, which practically amounts to a proposal to curtail, and in certain cases to eliminate entirely, loans to dominions and coloniesj The relevant part of Mr Keynes’s argument is this: Foreign investment (including colonial) are of three types. Firstly, investments abroad in trading, mining and exploitation,. These are of immense financial benefit to tho lender. Secondly,, the use of British capital to build public utility works‘abroad, which also were successful while under tho private investors' control. Now Mr Keynes finds a tendency on the part of the Governments concerned to control rates and conditions in such a way that the bene fits to the investors become doubtfulThirdly, there are the loans to foreign Governments, which have no balance turned out badly beecause there is “on the part of most foreign countries a strong tendency to default on the occasion of wars and revolutions, and whenever the expectation of further leans no longer exceeds in amount the interest payable ont the old ones.” The interest charged is insufficient for the disadvantage anjd extra risk; instance Brazil, which pays barely 4 per cent, interest on the 250 millions lent or even, allowing for the fall in tho value of money, onjy about 2J per cent. In the case of dominions und colonies tho Trustee and Colonial Stock Act has created a bias with those institutions and in dividuals who are in control of trust funds, a bias which is detrimental to the investors, because “in some cases these loans aro becoming dangerously large in relation to the population and the wealth of the. borrowing communities.” Such investments, and the annual reinvestment ox practically tvrice the interest receivable, divert capital from British home investments, anid, in fact, ‘ ‘ loans for harbour works in New South Wales can be borrowed more cheaply in London than loans for the port of London itself, merely because tho former, being undertaken bv th© Government of New South Wales, represent a trustee investment.” The remedy suggested is the repeal of existing Trustee Acts and the substitution for them of Treasury discretion.