Conversion.

Star (Christchurch), Issue 5273, 1 June 1895, Page 7

Conversion.

(Lyttelton Times.)

The Sydney Morning Herald, if we may judge lrom a cablegram published in this issue, shares the opinion expressed in the current number of the Insurance and Banking Record concerning Mr Ward's proposed stock conversion scheme. It surmises that the proposal has been "postponed preparatory to being shunted," and urges that " unless the market conditions are much more favourable than at present, little or nothing will be gained by the change, while the expenses have to be borne." This is not very clear, and it will be safer, perhaps, to turn to the Banking Eecord for a correct summary of the views held by Mr Ward's Australian critics. That journal, after acknowledging the extraordinary success of our recent appeal to the Loudon money market, says : —

Flushed with the great success of the New Zealand 3 per cent loan, thai Colonial Treasurer, it is reported, is n6w arranging in London for the conversion of the whole of the Net? Zealand publio debt into 3 per cent, and is magniloquently advising the Australian colonios to follow his lead, conveniently forgetting that the project of a consolidation of Australian debts into one 3 per cent stook is very much older than his official existence. There is the usual talk of the great saving to be effected in interest, bnt his London advisers will doubtless show Mr Ward that the terms of conversion must be Buch aB will give investors the same -effective rate of interest as they receive at present. And this means at the best only a slight saving in the interost charge, and a very, large addition to the principal sum of indebtedness But Mr Ward could hardly be a Colonial Treasurer of the now approved New Zealand type if he did not bequeath the obligation to repay an enhanced principal: to posterity.

We need not concern ourselves jast now abont the very evident, and pethaps natural, disappointment of an authority that haß ■ persisted . in declaring that New Zealandia galloping to a financial disaster, but we must take exception to the assertion that the conversion of public debts simply means a slight saving in interest and a very large addition to the principal sum. Why, in the very same issue of the Eecord there is an article on the indebtedness of the Australian colonies, which places a very different complexion upon the operation. Here is an extract that will Bhow its general tenor :—

B afore coming to olos9 quarters with tbe subject, we may refer to the two -different ways of regarding indebtedness. It may bo considered as prinoipal or interest, and the distinction is a very important one in borrowing for a long term. For tbe amount of the principal does not necessarily define the extent of the burden. For example, a prinoipal of .61000 at 6 per cent is 50 per oent more onerous than a prinoipal bf .81000 at 4 per oent, or, vice versd, the ability .to pay an interest charge of £50 per annum wonld justify borrowing .£IOOO at 6 per cent, but only £625 at 8 per cent. * * * We emphaaise the distinction, because the true incidence of colonial indebtedness to the Mother Conntry is to be found in tbe annual remittance rather than in the amount of the principal. Indebtedness might be increased by 60 jtar cent, if the interest could be rednced by onethird, without the colonies having to remit a farthihg more each year. Hence the vest importance of sedulously fostering sound credit.

After such an admission as this it is only necessary to show the effect of our own conversion operations to expose the animus of the criticism directed against Mr Ward's proposal. Let us take as an illustration the conversion of the .£500,000 guaranteed debentures which was cro ruthlessly condemned by the Opposition at the last general election. By this operation we increased our debt by -£110,000, and lessened onr annual interest by £2986. If .£IOOO of this annual saving were set aside each year during the cffrroncy of the new loan it would cover the increase in the capital amount, so that we have a net annual saving of nearly .£2OOO, withont taking any account of the released sinking fnnds. This surely is not effecting a slight saving in interest at the cost of a very large addition to the principal sum.