THE New Zealand Herald AND DAILY SOUTHERN CROSS WEDNESDAY, JULY 26, 1933 DEBTS AND QUOTAS

New Zealand Herald, Volume LXX, Issue 21553, 26 July 1933, Page 8

THE New Zealand Herald AND DAILY SOUTHERN CROSS WEDNESDAY, JULY 26, 1933 DEBTS AND QUOTAS

The full text of the speech the Prime Minister made on New Zealand's behalf at the opening of the World Conference has como to hand. It amplifies the brief report sent by cable of what Mr. Forbes said about debt burdens and quotas. Thero is nothing startlingly novel in his statement. Its main lines have been followed by many others discussing the subject at other times and places. It contained, implied rather than expressed, a plea for the scaling down of debt obligations on the ground that they represented, in the present condition of prices, an outstanding barrier against the recovery of world trade. There are difficulties, legal, moral and ethical to complicate the question of a reduction in either the capital or interest burden of such debts. With that recognised at the outset, it is still profitable to consider and amplify the Prime Minister's statement. If the obligation to provide interest and repay the principal bears heavily on a borrower, that does not of itself establish any case for relief. To put it in the plainest terms, this brand of hardship is the reward of extravagance. It is recognised as such in the case of the individual, and there is no obstacle to applying the same principle to a nation. The keynote of Mr. Forbes' statement on the subject is that the difficulties now experienced are largely the result of altered circumstances. Commodity prices have so fallen that the quota of annual output, to be appropriated by taxation at the expense of all classes and applied to meeting debt charges, is far higher than it was when the debts were incurred. This is undeniable, but it does not yet advance the case for any scaling down of debts. Mr. Forbes recognises that an increase in commodity prices would automatically relieve the debt burden, but he questions whether it can happen while debts act as a brake on the flow of trade. In this he has the support of weighty authorities. The position as regards New Zealand is this. With prices low, the return overseas for exported produce is reduced. Therefore, a greater proportion of it is required to meet the demands of the debt service, leaving less to finance the import of commodities. Thus import trade is hampered. The demand for manufactured goods suffers, the possibility of higher prices is reduced, the vicious circle fs closed. This is true not only of New Zealand's debts, but is typical of the position as between all debtor and creditor countries. If the situation merely meant that the people of debtor countries, New Zealand for example, must deny themselves goods they were accustomed to import in order to meet their debts, even the theoretical case for reduction, now being considered, could not be sustained. As that denial threatens the export trade and the prosperity of the creditor, the position advances one stage. The real difficulty arises in trying to pass from theory to practice. Except for war debts between Governments, to speak of international debts is an inaccuracy which can easily breed misunderstanding. The borrowing is done by Governments, certainly, but the lending is by individuals. The securities pass from hand to hand. That is why the question of adjustment is so complicated, why even references to it, unless made with due caution, may be harmful. Any attempt to force a reduction on a multiplicity of bondholders might not only do untold injustice, it might cast over the whole process of overseas lending a cloud that would not dissipate for a generation. If, to return to the Prime Minister's speech, prices could be restored to the level ruling before the depression, the debt burden would be no more onerous than it was then—provided the volume of exports remained at least equal to what it was before. With similar prices and a greater volume, debt obligations would be comparatively lighter, there would be a greater export surplus to finance import trade. At this point quota restrictions link up definitely with debts. It is an axiom that payments between countries can only be made in gold, goods or services. If Britain places quantitative restrictions on the import produce from debtor countries like New Zealand, it must necessarily affect the payment of debt obligations or the flow of trade, quite apart from its restrictive effect on the development contemplated when the money was borrowed.' This country cannot pay in gold or services. It must pay in goods. If the despatch of goods were restricted the balance above the amount required to meet interest which remains to pay for goods in return, would be fixed at a reduced level. This may be taken as an argument for debt reduction or against quotas, according to the point of view. On all previously accepted principles affecting the sanctity of contract and the desirability of an unhampered flow of trade, it should weigh against quotas. The summing up of all that is inspired by what the Prime Minister said is that while a plausible case can he made in theory against the reslrictivc effect 011 trade of debt obligations, especially with prices heavily depressed, the complexities and dangers of attempting to scale them down arc sufficient to make any responsible man hesitate before suggesting tl>e application of the theory. This, and the certain fact that quotas threaten to complicate a baffling problem even further, arc the only conclusions, indecisive though they be, which can be reached.