London conversions.

Public Works.

8.—6.

LONDON CONVERSIONS. Before leaving the subject of the public debt, I would like to refer to the question of conversion of the portion domiciled in London. As the Dominion has now reduced internal debt charges, and lias thus accepted the sacrifice entailed in putting its own house in order, attention is naturally directed to the possibility of reducing the burden of external debt charges. As honourable members will have noticed from the report on the Monetary and Economic Conference already tabled, this matter was raised by the Right Hon. the Prime Minister at that Conference. In addition, it was discussed with the British authorities by the New Zealand delegation to the Conference. The general opinion in London, however, is that it is impracticable —in the meantime, at any rate —to make any arrangements for general relief, and that attention must be confined to conversion of those portions of the debt in respect of which there is an option to repay now exercisable. Unfortunately, in this respect we are not so well placed as some of the other dominions. We have, however, quite recently been successful in arranging for the conversion of £5,000,000 5 per cent, bonds which were callable. These short term bonds, bearing interest at 5 per cent., are for the most part held by the money market to which the long term issue now arranged is not suitable. Accordingly, the new loan is more a redemption than a conversion issue, the securities being taken up by a different class of investor. The terms of the new £5,000,000 loan are : Interest rate, 3| per cent.; issue price, £97 : redeemable in 1954 ; but the Government has reserved the right to redeem in 1949 on giving three months' notice. The issue was most successful, the loan being subscribed sevenfold in thirty-five minutes after the lists were opened. Satisfaction is felt as to the terms obtained, which are more favourable than for any previous issue during the last thirty years. The return to investors with redemption at par in 1954 is £3 14s. 3d. per cent., and the cost to the Government, allowing for the redemption of the discount and expense over the period, is approximately £3 17s. sd. per cent. The net saving in interest will amount to approximately £67,000 per annum, allowing for redemption costs of the respective loans. The only other loan which the Dominion at present has the right to repay is £4,000,000 4 per cent. 1933-43 securities. The possible saving of interest through conversion of these securities is relatively small, but, nevertheless, arrangements will be made at the earliest favourable opportunity to deal with them. In 1935 options to repay accrue in respect of £10,000,000 of debt and in 1936 of £5,800,000. CAPITAL EXPENDITURE. The Government is being urged to expand public works as a means of giving a fillip to industry and relieving unemployment. What must be borne in mind, however, is that the counterpart of capital expenditure out of loan moneys is the public debt and interest and debt repayment charges. Furthermore, unless the works undertaken are reproductive, these charges fall upon the taxpayer. A large and relatively sudden expansion of public works would no doubt act as a stimulant, but,.having regard to the other side of the picture in present circumstances, with the relative weight of all existing debt charges greatly increased by the fall in prices, it is obvious that any such expansion could not be maintained for long, and when the effect of the stimulant had worn off the community would be in a worse position than it is now —that is, apart from any improvement resulting from a rise in prices. If we coiild be reasonably certain that export prices, which are the key to our economic fortunes or misfortunes, were going to recover rapidly, then there would perhaps be some justification for a large expansion of public works to tide the Dominion over in the meantime. All indications, however, point rather to a slow recovery in prices. It is true that the putting in hand of extensive public works has been strongly advocated by prominent economists in Great Britain and elsewhere and wa,s to be discussed at the World Conference, but such proposals weie intended only for creditor nations, the basic idea being that the expansion thus brought about would help to lift prices in markets absorbing primary products and thereby automatically aid debtor countries such as New Zealand.

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