WORLD’S WAR DEBTS

Taranaki Daily News, 14 February 1933, Page 5

WORLD’S WAR DEBTS

WHAT AMERICA MAY DO AN AMERICAN EDITOR’S VIEW. “CANNOT CHANGE FACTS” The New Republic, one of America’s leading weeklies, has an interesting forecast of how America’s policy on war debts may eventually be shaped. In an editorial, the New Republic says:— “Why do we say that the economic' problem is already decided? Simply because there is no possible way, in the visible future, to take from our debtors anywhere near the quantity of real wealth which the debts are supposed to represent “Great Britain has not the export balance which alone would permit her to continue payment without dissipating her investments abroad and so losing the means of feeding her population and supplying her industries with materials. Indeed, she may not be able to pay for the necessary imports in any case. France, as is frequently pointed out, has a lot of gold, and might, by sufficiently reducing her gold reserve, meet her payments to us with that. This would help, provided the possession of the gold enabled us as a nation to acquire the real goods and services which the gold nominally could buy. ALREADY BULGING WITH GOLD. "But our bank reserves are already bulging with gold which is of no use to us, because the credit which it would make possible is not being employed in producing goods and services. And France’s debt to us is a minor factor in the situation anyway. Her biggest debt is to Great Britain; this is channeled to our shores through London via the British debt. France has nowhere near enough gold to pay both England and the United States. No refusal to reconsider, no ardent assertion of rights, can change these facts. We could even go to war in order to collect, and still find it impossible to take away enough booty to meet the obligations. “Governor Roosevelt must begin to find a way of escape for a Congress which is unwilling even to talk about any change in the payments. President Hoover wants Congress to reconstitute the debt-funding commission. But for Congress to do this would be to admit that there is something to talk about, and that concessions are possible. Congress will not now do so. “Here, at the very beginning, is a collision of principle with necessity. Mr. Roosevelt deftly avoids it by pointing out that according to another principle, well established in private dealings, debtors always have access to creditors. And in the case of international relations, their ; . normal, channel ,of communication is that of diplomacy, which is constitutionally in the hands of the ' President “Through the Department of State the. debtors can negotiate with him to their heart’s content; this requires no action by Congress. .Congress will be called upon only to ratify any result of the negotiations. This formula provides a breathing spell for the essential change of atmosphere. It allows time for the invention of new symbols which Congress may be induced to accept MAY ABANDON INTEREST CHARGES “There are numerous possibilities in this direction. Congress can, in the end, we are confident be persuaded. to ratify a satisfactory settlement which its members can say is not a cancellation. It would be possible, for instance, to cut the future payments about in half by remitting any further interest and insisting only on instalments of principal. “This would, in words, be insisting on payment of the last red cent of the debt whereas if we cut the future payments in half by requiring payment of interest, but remitting the principal, that, would, in words, be complete can-, epilation. Between these limits there are numerous possibilities of juggling with the rate of interest “Thia is merely an illustration of the sort of thing which may be done; we do not recommend it, because it does not go far enough. What is really necessary is to clear the slate of future payments entirely. .A good precedent for this is the Lausanne settlement of reparations. France had beer, just as adamant against lenient treatment .of Germany as many in this country , are against lenient treatment of < the Allies; “The problem there, as here, was to find a formula which would, while satisfying popular sentiment, fit the hard facts. Reparations were not, in words, cancelled. They were merely reduced and put in the form of. a lump sum. Payment of this sum was postponed. In the end it was to be paid only if a bond issue of the requisite size could be floated on the international market, at a minimum - price. , “It was foreseen that this flotation ■ could not succeed unless Germany had. in the meantime. developed sufficient 1 capacity to pay the charges on it. Even then, the proceeds were to be used, not to pay France or other Governments, but to finance economic reconstruction in Europe. They might, for instance, be spent in Germany itself, Thus, real cancellation was provided for. And French opinion was further conciliated by the proviso that the agreement would be presented to the several Parliaments for ratification only if a satisfactory settlement of the outpayments of the Allies on war debts was, in the meantime, arrived at.

“A parallel settlement of the debts' is entirely possible. We insist, let us ■ say, that the debts are just, and must ; be honoured in full. But we are convinced at the same time, that, in our own interest, a settlement must be made which will help and not hinder world-wide recovery. We provide, therefore, for the lump payment of the capital sums, reduced in accordance, with the deflation of prices and the diffi- ■ culties of transfer created by the shrinkage of trade (which, we could be : persuaded, is not real reduction). “We further provide that this payment be made- only in the bonds necessary to finance it can be sold. (Of course, those who think France and Great Britain can pay at present cannot logically contend that such bonds could not be gold.) We specify, again, that the proceeds of the bonds be used, not to pay us directly but for investment wherever they would most help revival of trade. It would be easy to find ways of so using them that the foreign markets for American manufactures and farm products would be correspondingly increased.”