NEW ZEALAND LOAN

Otago Daily Times, Issue 21612, 6 April 1932, Page 7

NEW ZEALAND LOAN

TERMS AND PURPOSES OUTLINED BY MINISTER DOMINION’S POLICY JUSTIFIED (Peb United Press Association.) WELLINGTON. April 5. The terms and purposes of the £5,000,000 New Zealand loan, underwritten in London, were outlined this afternoon by the Minister of Finance (Mr W. D. Stewart). t! The bulk of the money is to be used for funding outstanding Treasury Bills, and the remaining £1,000,000 will be employed in financing capital woiks, the Minister said. “ The issue price is £9B 10s, and the rate of interest 5 per cent., and the stock will mature on November 1, 1971; but the Government will have the option of repaying the loan wholly, or in part, on or after November 1, 1950, on giving three months’ notice. The return to investors, with redemption at par at maturity date, is £5 Is 9d per cent,., and the cost about £5 5s 5d per cent. “ Owing to the longer term, this cost is much lighter than the cost of the short term bonds issued last year,” said Mr Stewart, “and it is approximately the same as for the 1930 London loan. Having regard to the present economic conditions, and the unsettled state of financial affairs generally, the underwriting of the loan on these terms is highly satisfactory, and demonstrates that faith of the London money market in the Dominion is unimpaired, notwithstanding our temporary financial difficulties.

“ Without entering into any ■ controversy on the exchange question, I may mention ns a matter of general interest that the message received from London states that London financial circles never expected that any other course on the exchange question would be taken by New Zealand, for they believed that New Zealand realised that any other action would, have spelt disaster so far as our credit and future borrowing were concerned. This view is emphasised to indicate its importance in connection with future loans maturing in London.

Four millions of the new loan will be used for funding £4,000,000 of Treasury bills which mature in June next., To this extent the new loan will not increase the public debt, as all that is involved is the substitution of long-term stock for short-term Treasury bills. It did result in transferring that much of the old debt abroad, although, had the London money market remained normal, this would only have been temporary. The remaining £1,000,000 of loan represents new money, and will be used in financing the muchreduced programme of capital works. I agree with those who hold that we should aim at an early cessation of_ oversea borrowing, but at the same time a sudden cessation, particularly on top of the severe contraction in the national income from the fall in prices, is not in the best interests of the country. If, owing to our good credit, we can ease the shock at a reasonable cost, we should do so. In its recent report, the Economists’ Committee recognises this, and says that, while oversea borrowing should be gradually eliminated, this should not preclude recourse to the London market for the purpose of completing existing public works, and easing the process of adjustment.” The following cablegram from the High Commissioner in London was received by the Minister: “The press generally comment favourably regarding the loan. The following is an extract from comments made by The Times, London: ‘The story told in the prospectus, showing the position of the country, would compare not unfavourably with that of any other primary producer. ' This is a tribute to the policy of her Government, which has made drastic reductions in expenditure and has successfully resisted the temptation to depreciate deliberately the currency. New Zealand is now reaping the benefit of her action, for she is able to issue a 5 per cent. loan at a price which is about 8 points above the market price of the Commonwealth 5 per cent, loan of 1945-1975.’” , A SATISFACTORY RESPONSE. ‘LONDON, April 5. (Received April 0, at 0.15 a.m.) The Daily Telegraph’s financial editor understands that the response to the New Zealand loan was satisfactory.