The MANAWATU DAILY Times MONDAY, JULY 6, 1936 The London Loans

Manawatu Times, Volume 61, Issue 157, 6 July 1936, Page 6

The MANAWATU DAILY Times MONDAY, JULY 6, 1936 The London Loans

For almost two generations New Zealand lias enjoyed the very highest reputation on the London money market. No other overseas country, Empire or foreign, could borrow on more favourable terms. This country has always met its commitments and at no time did holders of New Zealand bonds have cause to fear otherwise.

Now, at the very time the depression is lifting, a New Zealand Government by its actions may have endangered the Dominion’s credit. The Prime Minister has, no doubt with the best intentions, made a public statement the language oJ: 'which has aroused uneasiness in the minds of London investors, and although his Finance Minister has issued an explanation which considerably modifies the Prime Minister’s original suggestion, it has not altogether allayed the disquet and perturbation fust aroused.

Any criticism of the Prime Minister’s pronouncement must at the same time give full credit to the objectives which the Government has in mind in its negotiations with British bondholders. These are twofold: Firstly, to lighten the Dominion’s overseas interest burden; and, secondly, to increase our purfrom Britain.

As to the first, the Prime Minister fairly claims that the Dominion is paying, in goods, a heavier burden than was intended when the loans were raised. To-day, it takes about twice as many boxes of butter or bales of wool sold in London, to pay the interest, compared with the quantities required originally.

In the second place, the payment of interest diminishes our power to purchase Britain’s manufactures. Our exports realise a certain sum. From this is deducted the amount required to pay debt charges and the balance is used to purchase iinpoits. Lower the debt charges and the Dominion could give bigger orders to British manufacturers.

These contentions are indisputable. Also indisputable is the fact that New Zealand would gain and Britain would lose, were the debt burden lightened. This country would receive more goods, while Britain would receive no additional goods whatsoever. It cannot be claimed that the Dominion is unable to pay the debt charges.

The sole argument for their revision must be based upon the fact that as circumstances are now they are heavier than was originally anticipated. Even this argument is open to a counter-argument.

Professor Toeker, of Christchurch, in a very able commentary upon the question, brings out this point: “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 loans raised overesas before the war, when prices were lower.

“Had prices for New Zealand exports risen over recent years, New Zealand would not have offered a higher rate of interest. Is she justified then in asking a lower rate because prices have fallen?”

The London holder woixld be certain to raise this very question. To it New Zealand could only reply that the volume of the loans raised in high price days was threefold that of those raised up till the war period. This alters the burden of the discussion, but not the principle.

If the Government can achieve its objective it will be making an excellent bargain for this Dominion, Whether it can be achieved in the only manner morally permissible—that is by mutual agreement—is extremely doubtful. That doubt is rendered the greater, owing to the unfortunate opening that has been made to the negotiations.