LOANS RAISED IN LONDON

Timaru Herald, Volume CXXXVII, Issue 19670, 12 December 1933, Page 2

LOANS RAISED IN LONDON

INTEREST PAYMENTS IN STERLING OBJECT OF FINANCE BILL By Telegraph—Press Association WELLINGTON, December 11. ' In the House this evening, moving the second reading of the Finance Bill, the Rt. Hon. J. G. Coates saic that interest in the measure centred mainly in f, ie question of the payment of interest in sterling on local bodies loans raised in London. Certain loca] bodies in New Zealand had been the only ones to take advantage of the decision in the Broken Hill case. Although local body borrowing on London was not so general in Australia as in New Zealand, nevertheless it did take place and no Australian local authority had attempted to take advantage of the Broken Hill case. Two aspects of the position confronted the members of local bodies. In the first place they had asked whether they would be indemnified against personal loss in the event of payment in sterling, and in the second place they had found that they were unable to arrange renewal loans unless payment was made in sterling. These points were cleared up by the Bill which authorised payment in sterling and, in his opinion, the measure was very necessary in the interests of local bodies as a whole. There were two local authorities in New Zealand which objected to this legislation, but he still hoped that unanimity would be reached. Southland’s Attitude.

Referring to the Southland Electric 1 Power Board’s loan, the Minister point- ' ed out that it had been covered by a ! State guarantee and the Government had immediately been implicated by the decision of the Board to pay interest in New Zealand currency. The Government’s advisers in London had stated that the national finances would be prejudiced if advantage was taken of the Broken Hill decision. When it had been proposed by one or two local bodies to adopt this course other local bodies seeking renewal loans had found that they had been struck off the London Stock Exchange list. Mr A. S. Richards CLab.j, Roskill): Have those securities been placed back | on the Stock Exchange list? Mr Coates: Yes. Continuing the Minister said that if it had not been for the decision to pay in sterling, he did not know what the Government’s last renewal operations would have cost. As it was they had been arranged at the most favourable terms for 20 years. He thought that the Southland district would see that it would not be to its advantage to prejudice its position, because the maturity date of its loan was 1933/6. So far as the Government could help ! internally to arrange loans and pre- ! vent excessive rating, local bodies could depend on it to do so. In the j meantime the Government was not | justified in asking the general taxj payer to make up the difference bei tween payments in sterling and New ! Zealand currency on any local authorI ity’s loan. i Mr M. J. Savage, Leader of the ! Opposition, said that the provision in the Bill authorising the expenditure of public money for the protection of securities in which public money was invested appeared to be very far-reach-ing and likely to lend itself to considerable abuse. Legislation of the kind was not always used for the benefit of those who needed it most, and very often those who were able to look after themselves received the advantage. Effect of Exchange Policy. Continuing Mr Savage said that those members who had voted for raising the rate of exchange would have no cause for complaint about the clause under which local authorities might be required to make payI ment in sterling in respect of loans raised in the United Kingdom. The Minister could at least be congratulated for his consistency. The local authorities and everyone else must have known at the time the exchange rate was raised that someone would have to meet the additional charge. The increased exchange was an extra charge on the taxpayers of New Zealand. The very fact that certain Government supporters were dissatisfied with the provision of the Bill because it happened to affect localities in which they were interested was evidence of dissatisfaction with the actual raising of the exchange rate. The main reason for raising the rate had been that it .would help exporters. All agreed that exporters should be helped, but they did not agree that the method adopted had been the right one. The whole business had made a rather sorry story from the beginning and I would be wrong to the end. Mr Harvest’s Contention. Mr J. Hargest (C., Invercargill) said that as far as the Southland Power Board was concerned it considered that it was legally entitled to pay in New Zealand currency and not in sterling. As an organisation carrying on business it was responsible to its shareholders who were ts ratepayers, and in paying in New Zealand currency it was doing its duty to its constituents. Mr Hargest maintained that it was reasonable to pay the debt in currency that compared with that at the time the money had been borrowed. The proposal now was that the Govern- j ment or the bank should pay £16,000 i in London annually until 1936, when ! the loan could be converted. In the j conversion process £50,000 would be j added to the capital thus liquidating j the increased annual charge. There j was no risk to the Government or the j bank because by that time the sinking fund would total £400.000. Replying to the debate. Mr Coates ! said that the Southland Power Board had raised the question whether the Government should take a test case as to whether interest should be paid in New Zealand currency or sterling, but it had been informed that it would not be wise to take a test case. Mr Parry: Why not? Mr Coates: Because it would have affected the credit of other local bodies. The Minister added that the reason why he had not proposed to take the committee stages to-day had been because he hoped, when the committee stage was reached, to be able to say that, a satisfactory arrangement had been reached between the Southland Power Board and all the parties concerned. The Bill' was read a second time.