BRITAIN'S CASE

Poverty Bay Herald, Volume LIX, Issue 17952, 2 December 1932, Page 9

BRITAIN'S CASE

WAR DEBTS SUSPENSION THE NOTE TO AMERICA WHOLE POSITION REVIEWED PAYMENT MEANS DISASTER (British Official Wireless.) Rec. 3 p.m. RUGBY, Dec. 1. The British note to America on the war debts question says the causes of the depression may be manifold, but war debts and reparations have (been one of the major causes. While in some respects it: may be difficult for governments to remedy the world’s troubles, certain steps clearly are within their powers and responsibility. The vast requirements for war purposes far oxeeeded'any normal means. Payment could only bo financed by loans from producing countries. These weie taken, not in money, but in goods. The loans made to the Allies by the United States, Britain, and Prance together reached the colossal total of ovci £4,000,000,000. For a time, the payment of reparations and war debts was rendered possible by the flow of investment capital from the United States to Continental Europe, but the prosperity years from 1922 to 1929 were largely illusory. Towards the middle of 1931, something like a panic prevailed. Since then the world had been living under icpeated shocks which had completely undermined the confidence on which the system of private investment depended. Currencies were threatened with instability, if not collapse, and controls and restrictions intended to remedy the trouble merely aggravated it. Everywhere taxation had been ruthlessly increased and expenditure curtailed’ yet budgets were in deficit or balanced with ever-increasing difficulty.

WAR LOANS BLOWN TO PIECES ‘“The world cannot even begin to consider how to restore the monetary mechanism, without which the modern world cannot effectively conduct its daily life, until the causes undermining confidence arc removed. One of the most important of these is the system of inter-governmental debts. These debts differ. radically from commercial loans raised by foreign Governments for productive purposes. Such productive loans are self-liquidating, but reparations and war debts represent an expenditure on destruction, like the shells on which they were largely spent. These war loans were blown to pieces and produced nothing to repay them. . ~ _ “In the long run 'international debts can only be paid in the form of goods or services. Creditors, (insofar as they had adopted a commercial policy precluding payment in goods, compelled their debtors to pay in gold. lhis led to a drain on gold reserves of nijiuv countries, and forced down the price of commodities in terms of gold currencies, causing widespread ruin to producers in debtor and creditor countries alike, and seriously increasing the burden of commercial debts. It bad rendered intolerable, the peculiar burden of unproductive war debts. The withdrawal of credits from Germany, and the consequent movements of capital forced the United Kingdom to abandon the gold standard, with woild* wide results. Thus the baneful effects of (these unnatural transfers gravely oceehtuated the difficulties of five continents. “Confidence and credit cannot revive until an end is put to attempts to force the stream of capital uphill.” BRITAIN’S GREAT BURDEN

Referring to the possible criticism that any remission of war debts would merely transfer the liability from the taxpayer of the borrowing country to the taxpayer in the lending, country', the note points out that British and American taxpayers are in much the same position. Before the Hoover moratorium, all tho reparation and war debts receipts of the United Kingdom went to cover current 'payments due to the United States, The British taxpayer had, each year, to find from his own resources over £80,000,000 foi interest on internal loans, out of which advances of £1,600,000,000 had been made by Britain to the Allies. “Tho interests of tho two counties, looked at from this standpoint, are the same, but even a partial recovery ot business activity in creditor countries would result in additional receipts from taxation, which would compensate their Exchequers many times over for the loss of revenue involved in the revision ot Avar ; debts. It will not profit the credit of a country to collect a few million pounds or dollars if it thereby perpetuates world disorder. A war debt settlement, however generous it may seem, would he repaid again and again by the contribution it would make to a world revival. It is in the power of the Governments of the world, and particularly those of the United States and the United Kingdom as the two greatest creditor nations, if they unite in co-operation, to make the first and essential step towards averting disaster, financial, economic, and political. BRITAIN’S PRIOR OFFER

Tho note recalls that British war expenditure in the United States amounted to £2,400,000,000, of which only about one-third was financed by borrowing from tho United States Government. Approximately £600,000,000 was obtained by the sale of gold and securities. In addition, tho British Government raised commercial loans on the American market before the United States entered the war to tho amount of £304,000,000. Of market borrowings in the United States, £275.000,000 had been repaid, and in respect to the United States Government loans payments would bo made, both before and after the funding agreement, amounting to £354,000,000, or £629,000,000 in all. Meanwhile, advances made by Britain amounted to £1,600,000,000, and had increased subsequently «*lfy the addition of capital interest. Shortly after tho war the (Bivtisdi Government offered to join any equitable arrangements for an all-round reduction or cancellation of inbr-Allied debts. That proposal was not accepted. The British Government was called upon to fund the debt to the United States. It 'then announced that it would limit the demands on its own debtors to the amount it was required 1 to pay to America, but, in fact, their receipts had amounted to less than half the payments to their creditor. “The relative position is that tho United States made loans of £2,055,000, 000, and the United Kingdom made similar loans of £1,600,000,000. The United States had received £434,000,000, and the United Kingdom had received nothing, having passed on all receipts to the United States, as well as £134,000,000 in addition. When interest is taken > into account, some £200,000,000 has been found by tho British taxpayer. While tho British share of tho total indebtedness to the United States is only 40 percent. of tlio total debt, of the payments ' made to the United States 80 per cent, comes from Britain. A

CHANGED' CIRCUMSTANCES “Coining as they did after tho losses resulting from tho war, these effects constitute, in the view of the British Government, a strong claim for consideration.” Regarding the changes in circumstances which have increased the burden of Britain’s obligations, it is pointed out:— (1) The British debt is expressed in terms of gold, but the burden on the British people is measured in terms of sterling. Consequently, the payment due on December 15 is increased from £19,750,000 to approximately £30,C00.000. (2) Tlie average wholesale price index in the United States during the period when the debt was incurred was 189 and is now under 94. The debt thus represents to-day, in terms of goods, not less than twice the amount borrowed.

(3) America’s tariff restricted the import of British manufactured goods. When the British war debt was funded in 1923 these amounted to £60,000,000; this year the figure was £16,000,000. The United States imports into the United Kingdom show an equally remarkable fall from £211,000,000 in 1923 to £59.000,000 in the first nine months of 1932. The total trade between the two countries since the funding agreement has fallen from about £300,000,000 to £100,000,000 a year. FAIDREACHING' EFFECTS

If the war debt payments had to be resumed, a heavy adverse balance of visible trade, amounting to £78,000,000 in 1931, would have to he reduced by adopting measures which would further restrict British purchases of American farm products. To the extent, therefore, that payments were resumed to the United State’s 'Treasury, a definite loss must follow to the United States producer. Despite the adoption of tariffs, Britain still imports hundreds of millions pounds worth of goods in excess of her exports. Therefore, it is necessary to consider action to ensure that sterling proceeds of these imports will more largely benefit the British market.

Touching the Lausanne settlement, the note says that if the payment of war debts due to the United States i s to be resumed, the British Government will 1)0 obliged to reopen tho question of payments from its own debtors —France, Italy, Portugal, Jugo-Mlavia, Rumania, and Greece, and also the British Do-minions—-which have been suspended since Lausanne. The debtor countries, in turn, will have, to demand payment by Germany of her obligations under the Young plan, and the United Kingdom will have to do likewise. Without a readjustment of the war debt obligations, the Lausanne agreement could not. be ratified.

WILL I'AY IN GOLD The proposal for a suspension of the December payment, which in no way will effect any ultimate settlement, is necessary to create a condition favorable to the successful issue of subsequent debt conversations. The reserves of the British Government in gold and foreign exchange, though adequate for mitigating exchange fluctuations, wore not intended, and did not suffice, to cover as well the payment of the 95,500,000 dol-

lars due on December 15. Tile only remaining alternative would be payment m gold. This would involve the sacrifice of a considerable part of the gold reserves of the Bank of England, which were widely regarded as no more than sufficient for the responsibilities of London as the financial centre. In conclusion, the British Government reiterates its profound conviction that u resumption of war debt payments, as they existed before the Hoover moratorium, would inevitably deepen the depression in world trade, and lead to a further fall in commodity prices, with disastrous consequences from which no nation would he exempt.