COLONIAL BORROWING

Otago Daily Times, Issue 14441, 6 February 1909, Page 9

COLONIAL BORROWING

It would be an exceedingly unfortunate circumstance if, as the .State Treasurer ill New .South Wales has been hinting, colonial Governments were forced into a. .species of competition for loans on the money market". The real safeguard against (he possibility of such an occurrence consists in the risk to which the credit of the competing country would be expcse.,l, A colony of which the financial condition is so desperate that it was prepared to give almost any terms for the use of many would speedily find itself in a. position of inability to raise any loan at all. But Governments, like private individuals, cannot obtain money at rates more favourable than those ruling at the time for securities of the class they have to offer. And unfortunately for them it is frequently impossible even, for those who control the large fuiancial institutions of the country to gamre with any degree of certainty the state of the market. Of this, as we observed

a few days ago, the uiverse iidvice that was tendered this month to the Wellington Harbour Hoard and to the D'.niediii City Council., afforded a striking illustration, The Wellington Harbour Beard withheld its loan proposal because it was warned by its bankers that the time was inopportune, the Dimedin City Council, actinc on advice of an altogether different character, proceeded to ihe dotation of a loan for £200,900 at 4 per cent., And the money was obtained by the Rank of New Zealand at a premium of 10s per cent. The success of this transaction is rather noteworthy, since the flotation of tlr municipal loan wax almost, simultaneous with the disposal by the Government of £000,000 worth of New Zealand bonds at -1 per cent, which wove placed at- I(XH- to 101. Even when allowance is made for the fact I'liat the Government bonds have a short currency—seven years only-tho lact that the price obtained for them is virtually the same as that realised by the municipal lean, which carries the fame rate of interest, emphasises the good fortune of the Corporation, which netted £98 for its bonds, under an arrangement made with its bankers. It is. of course, unusual for a. municipal loan to be placed on terms as, favourable as are secured by a colonial loan issued by the Government. Probably the industrial troubles, of which Now Zealand has had a liberal share in the past twelve months, militated in some measure aca-in-st- the .success of t'he Government's emission. Aikl tae fact that the Dominion has had to submit, to a check in her prosperity must, have had it., influence upon the price realised by her bonds. Hut lucre would seem to be a disposition oil the part of English financiers to discourage colonial borrowimi. The experience of Canada is strongly su<rge.sthe of this. When the Dominion approached the market- a few months "go with a five million loan at. 3J- per cent., <o per cent, of the proposition was left in the hands of the underwriters. And the recent, six million loan at. 3'' per cent., for which a minimum was fixed somewhat ifi excess of that attached to the previous loan, cannot be said to have had a successful dotation, since the underwriters have still to carry 00 per cent, of it. The deduction is fairly obvious that, in the piosent state of the market, a colonial Government which reeks funds at Home ltlu.st oiler bolter terms than have for somo years past been considered by to be sufficient. The GovernJBfflti of New S'Qutlt jVales fciSj the_

Treasurer declare,?, refrained from increasing tho rate of interest on stock issued by it because, he says, it realises the vital importance to traders and others of maintaining interest, rates at a low figure. The price of money being dependent, however, on, influences which lie beyond the control of the Government of Xew .South "Wales or of any other Government, the mother State of the Commonwealth might find, if it had occasion, to apply to London for money in the near future, that itwould, whether it liked it. or not, have to submit to the necessity for the payment of a higher rate of interest than it lias been offering. Bnt, doubtless, it would be very convenient if in such circumstances the .State Treasurer were iible to make some specious claim that New Zealand or stsme other colonial State which had previously had recourse to the market, had been responsible for raising the rates.