LOAN INTEREST

Manawatu Standard, Volume LVI, Issue 183, 4 July 1936, Page 9

LOAN INTEREST

MR SAVAGE’S PROPOSALS. REACTION IN LONDON. ISSUES DECLINE. (United Press Association—By. Electric Telegraph.—Copyright.) LONDON, July 3. “The explanation by the Prime Minister of New Zealand (lit. Hon. M. J. Savage) on overseas obligations, 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 collajisc 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, least of all a Labour politician, intent on launching ambitions and costly social schemes, dare face the complete closure of the London cajiital market. Naturally, Mr Savage is asking for relief; naturally, too, the bondholders refuse, and there we may hope the matter will end.”

The city editor of the Times says: “There have been further declines in New Zealand issues ranging up to four points. It is not surprising- in view of yesterday’s stir that Mr Savage explained his original statement. This should somewhat reassure stockholders, as apparently it indicated that his original remarks were primarily intended to show their supporters that the Government 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 interest. There have hitherto been no suggestions that New Zealand is in such a plight, while the particulars provided in connection with the loan of April 30 were distinctly reassuring. The Minister should be aware that the mere announcement that he was seeking concessions must disturb the confidence of investors, as New Zealand’s credit stood exceptionally high. Her stocks were regarded as the best class of security, affording great advantages to New Zealand.” The city editor of tile Daily Mail says the market anticipated Mr Savage’s qualification, but felt something further was required to restore confidence. 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 viewpoints are hopelessly distorted 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. Holders of New Zealand Government stocks therefore need not be frightened by a suggestion which springs from a well-intentioned but dangerous ignorance, and which is advanced .without due appreciation of the fact that credit goes hand-in-hand with strict regard to the fulfillment of obligations.”

PREMIER’S REJOINDER,

NO DESIRE TO SIDESTEP.

By Telegraph.—Special to Standard. WELLINGTON, July 3. Commenting further on the Government’s attitude towards its overseas obligations, the Prime Minister emphasised to-day the point that the more New Zealand paid to Britain in the way of interest on loans the less New Zealand would be able to pay 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 for 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 was not as large as it is file difference would go to Britain for the products of the labour of British workmen. By that I mean that there would be a better distribution of the monev 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,” said the Prime Minister.

ECONOMIST'S VIEW.

QUESTION OF FAIRNESS. Per Press Association. CHRISTCHURCH, July 3. Arguing that there was nothing new in the proposal by the Prime Minister (Rt. Hon. M. J.' Savage) to seek a lower rate of interest on New Zealand loans in London before the due date of redemption, Professor A. H. Tocker, Professor of Economics at Canterbury University College, commented to-day on the proposal. Ho 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, thereafter the borrower takes the r!**r of a rise or a fall in prices. If price/’ 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 Zle 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 Ims 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?”