LONDON INTEREST

New Zealand Herald, Volume LXX, Issue 21596, 14 September 1933, Page 11

LONDON INTEREST

BOARD'S LOANS PAYMENT IN STERLING GOVERNMENT'S INTENTIONS STATEMENT BY MR. COATES [by telegraph—OWN correspondent] WELLINGTON, Wednesday Commenting on the decision of the Southland Electric-Power Board to pa.v interest on its London loans on September 15 in New Zealand currency, the acting-Prime Minister, Rt. Hon. J. G. Cbat.es. stated that if the Power Board did not pay in sterling the Government, in the national interests, would do so. Legislation would then be introduced during the coming session of Parliament by which the Government would reimburse itself of the amounts so paid. In the report of the meeting of the board yesterday, it was stated that Mr. Coates had advised the board to take steps to apply for a test case in London and when nsked for his comments on this aspect of the proceedings the Minister indicated that this was hardly the correct interpretation of earlier proceedings,. "I may say," continued Mr. Coates. "that representatives of the Power Board waited on me on April 27 last and made reference to the Broken Hill judgment and to legal adVico which had been obtained by the board. I indicated to the deputation that I could not possibly agree to have anything tacked, on to that judgment, but that I concurred that the board should have the-matter tested in English Courts. 1 Government's Attitude i "I definitely stated that the Government would not associate itself with any movement to take advantage of the Broken Hill judgment and mentioned that there were bigger principles involved', by reason oif the fact that the Power Board's loan was a State guar-, anteed loan and concluded by saying that just how far the Government could say it was prepared to stand out

of the way until a tost case was taken wag another story. This was practically the first reference to the matter and even at that early date I took the precaution of laying it down that the Government might not be able to take a passive attitude in the whole matter. "Again in Juno last, in course Cu a letter to the board, I referred to the previous suggestion that the board might take a test .case in London to clear up the legal position. I pointed out to the board that nothing should be done which would .be likely to detrimentally affect the credit of other local bodies and the Dominion itself and that it was very desirable that payment of interest in London should continue to be made in English currency until it had been definitely decided by the English courts that the debenture-holders are not entitled to be paid in English currency. Prejudicing Board's Position "The present decision of the board, cf which I have just been advised, is that the board will pay in New Zealand currency and will leave it to the bpndholders to have' the position tested. The Government has been in close touch with London authorities and with the Prime Minister, Rt. Hon. G. W. Forbes, when he was in London, in regard to the whole position and adtrice received from London from the highest authorities available to the. Government was to the effect that the Southland Power Board would be very iil-advised to continue with its previous proposal to take a test case. "The debentures issued by the board give to it the option to re-finance in 1936 and it will be-at once apparent that any action which the board takes now may very seriously prejudice its position in 1930 when the time comes for it to re-finance. I have repeatedly drawn the attention of the board to advico received from London in regard to this asrject." A Statement Resented

"In/ the press report of the board's meeting it was stated that the Government had Refused the board the advantage of temporary financial arrangements in London which was assured," Mr. Coates continued. "I take strong exception to this statement, for in a letter which I sent to the chairman on September 6 I traversed the suggestion made by the board that it should obtain accommodation from a financial house in London, and added that, from information obtained by the Government on the subject, I was very doubtful whether the board would meet with Buccess in its efforts in this direction, but that if it should succeed in obtaining accommodation in London on a basis acceptable to the Government, I would be glad" to facilitate any such arrangements." Notwithstanding the legal advice obtained. by the Southland board, Mr. Coates said he felt bound to say that the legal issue was not free from doubt. Moral issues were, however, in the opinion of the Government, perfectly/ clear, and there could be no argument but that, having borrowed in the currency of the United "Kingdom and having covenanted to pay interest in London, any local authority was morally bound to honour its obliland Power Board that if the interests of that board alone were at stake the Government would not be concerned to the extent that it now was. The Government had obligations to meet in London and so had other local bodies in respect of loans maturing from time to time. "With these issues at stake the Government cannot look with any degree of equanimity upon the position which'has been created as the result of the decision of the Southland board, continued Mr. Coates, "and the argument of the board that, as the matter is a national one, the Government should pay the excess cost to the board, is quite fallacious.

Legislation Against Board "The board, no less than any other local authority of New Zealand, or e Government itself, is vitally concerned with the reactions of the London ° lo " e .y market, as witness the option which rr holds to re-finance in 1936. gl _ cannot help feeling that the board is mistaking the shadow for the substance and for the v sake of a small amount of g which jt hopes to obtain it is a PP a *"" cntly willing to forgo the greater ® " fit which it could reasonably expect y Kurcessfully converting in 1936. Questioned as to the action which the Government will take if the boa adheres to 'the resolution, Mr. Coates emphatically stated that the Government would issue instructions for payment in London of the difference required to enable the bondholders to be paid in sterling and that legislation would be introduced during the fortncoming session whereby the Governmont'would obtain from the Soutnlan Power Board reimbursement of tne amounts so paid. , „ , The Minister concluded by saying had made it quite clear to the P°p board that nothing short of Pfy" 1 ® ■ . sterling in London would meet the po - tion. The Government was jealous that, the reputation which it hpd hither held in London for fair and honourable dealing should not be lost as the res of the hasty action of ono loc authority. The Government was satisfied that when the board originally obtained a Government guarantee ana raised its loans in London the mtentio was that payments Bhould be made in sterling and the board: for many^ years had In fact confirmed this intention. t