PAYMENTS ON LONDON LOANS

Otago Daily Times, Issue 21981, 16 June 1933, Page 8

PAYMENTS ON LONDON LOANS

It is to be regretted that the Southland Electric Power Board has decided to institute proceedings with the view of ascertaining whether it can lawfully make interest payments in depreciated New Zealand currency on the loans raised by it in London. A decision of the English law courts is open to the construction that it will be possible for the Board to fulfil its undertaking to the bondholders by paying them in the currency of this country. In this event the Board will escape the cost of the exchange rate of 25 per cent., and it may be agreed that the temptation to avoid this expense is very considerable. If, however, the Board gains in this way the bondholders must lose, and this fact introduces considerations that necessarily affect every local authority in the Dominion which has borrowed money in London or may contemplate future borrowing on the English market. Indeed, it not only affects local authorities but also the Government for, as is to be observed with a good deal of' concern, it is at the request of the Minister of Finance that the Southland Electric Power Board has decided to submit a test case to the King’s Bench Division in order that it may be determined whether it can lawfully obtain relief from the burden of the exchange rate. Whatever the legal liability of the Board is, however, there is certainly a moral liability on it to pay its creditors in the currency in which it borrowed from them. And it is impossible to suppose that any evasion of this moral obligation will not seriously react upon the credit of all local governing authorities in the Dominion and greatly prejudice their prospects of securing future accommodation in London if they should require to approach the market there. The Southland Electric Power Board is asking the Government to share with it the costs of the legal proceedings that are to be undertaken. If the Government accedes to this request it will implicate the Dominion as a whole in a step that may be most damaging to its reputation.