DOMINION CREDIT

Otago Daily Times, Issue 22023, 4 August 1933, Page 8

DOMINION CREDIT

Discretion is frequently a virtue when financial undertakings are involved, but the Finance Committee of the City Council appears to have exhibited an excess of caution in withholding the contents of the telegram which the Acting Prime Minister has addressed to the Mayor concerning the removal of the loans of several New Zealand local authorities from the lists of the London Stock Exchange. Mr Coates’s message contained the information that this action had been taken by the Stock Exchange because the payments made to the holders of certain local bodies’ securities had been regarded as involving a partial default or a breach of contract. The local authorities concerned had either reduced interest payments by 20 per cent, as they were advised they were bound by statute to do, or had met their London obligations in New Zealand currency instead of in sterling. For the unfortunate reaction against New Zealand securities in London which has been the consequence of this, the local bodies are not altogether to blame. The legislation promoted by the Government, and the ruling of the Audit Department with reference to the effect of this legislation, scarcely allowed them an alternative in the first particular, and they were moved in the second particular to take advantage of the interference by the Government with the exchange rate. The burden of Mr Coates’s message was a reiteration of the Government’s previous announcement that during the next Parliamentary session payments on London in sterling will be validated, and that the exemption of securities of optional domicile sold in London not later than a certain date from the legislation requiring a reduction in the rate of interest will also be validated. The possibility of the occurrence of complications in England was, plainly, not sufficiently realised when the Government forced an increase in the exchange rate and when it brought down its legislation making a compulsory reduction in interest, and the responsibility appropriately rests on the Government to see that the damage due to its action is repaired. The money market is so extremely sensitive that the creation of an unfavourable impression concerning the dealings of local authorities in New Zealand with the British bondholders is liable to affect the credit of the whole Dominion. The necessity that the atmosphere should be cleared is particularly urgent since Mr Coates’s reference to the matter suggests that negotiations in London for the renewal or conversion of Government securities held in England, which were expected to be undertaken during the visit of the Prime Minister, have been begun. The New Zealand Ministers will leave England this week, and it is obviously desirable that any financial negotiations which they may have instituted should not be prejudiced.