Evening Post FRIDAY, JULY 28, 1939. GOOD TERMS: ONEROUS CONDITIONS

Evening Post, Volume CXXVIII, Issue 24, 28 July 1939, Page 8

Evening Post FRIDAY, JULY 28, 1939. GOOD TERMS: ONEROUS CONDITIONS

The arrangements announced for ' the conversion of the £17,000,000 London loan are remarkably good * as respecting the rate of interest, but are likely to prove most onerous through the conditions of repayment. , Details on important points are meagre. We are left guessing, for example, what part exactly the British Government has taken in backing the conversion. In a brief statement, Mr. Nash acknowledges the "unfailing courtesy and consideration" of members of the i British Government in facilitating the conclusion of the negotiations. ! The "News Chronicle" states that "it : was impossible to secure the under--1 writing of the loan, but arrangements i were made by which a full subscription, either by conversion or by cash, is now assured." If this is correct, : the inference to be drawn is that the loan has not been underwritten in the | ordinary way, but other arrangements {have been made, cither through the | British Government or the Bank of I England, to assure that the money is j available. "The, Times" comment j that the "British Government is putjting its hand in its pocket on behalf |of New Zealand to such ail extent that it cannot be reproached with Slack of' generosity" supports this inference. Failing some such arrangement, ;New Zealand could not have exI pected to renew the loan at the exist- | ing rate of interest (3| per cent) j and an issue price of 5.99. In May a South African 3$ per cent, loan of £5,000,000 issued at £96 ...10s was heavily over-subscribed, but Australia in June asked for $6,000,000 for defence at 4 per cent., with an issue I price of £98 10s, and about 80 per I cent, of it was left with the underI writers. There have hoen suggesjtions of 5 per cent, or more for a I New Zealand conversion, and that price would not be out of the way for short-term money. In 3951, when embarrassed by lack of sterling, New Zealand' borrowed on shortterms, costing the Government £6 lsj 3d per cent., though the nominal ; rate was 5. The loan was converted I to long terms at S§ per cent, in 1933, when New Zealand's credit was 1 better established, and afterwards care was, taken to keep credit sound i so that both Mr. Coates in 1935 and j Mr. Nash in 1936 were able to conjvert loans at 3 per cent, with an j issue , price of £98 10s. There appeared little prospect of maintaining I any approach to these terms for the conversion of the £17,000,000. An j effective rate of 0 per cent, for short■terra money seemed more probable. ■New Zealand, therefore, may be I grateful to the British Government if or its part in obtaining this subslanjtial relief and may, in so far as the (immediate cost is concerned, conjgratulate Mr. Nash on the result of |his negotiations. - When the conditions of repayment are considered, however, New : Zealand-has no reason for throwing i hats in the air. We are .saved from a heavy addition to overseas interest I payments, but are committed to repayments of principal which will enforce upon us the most drastic . economy in import buying, A million sterling is to be redeemed on due date (the conversion offer is of £16,000,000 only), £2,000,000 more in 1940, and £3,500,000 in each of the four following years so that the loan will be completely redeemed. This means that in the coming export season we must find, over and above the amount used for j imports, nearly £NZ12,000,000 (estimated by the Reserve Bank as | required for interest and other j financial transactions), j£NZSSO0 } 000 (if Mr. Nash's hopes of repaying the £4,000,000 sterling export credits are realised), £NZ1,250,000 * (redemption of' £1,000,000 on maturity), and £NZ2,500,000 (repayment !of first instalment). The total of £NZ20,750,000 is fortunately reduced by the fact that the British 'Government will extend the £4,000,000 sterling export credits. But even the reduced amount (£NZ15,750,000) sets an exceedingly high mark to be reached when |it is remembered that in 1938 I (financial year) the excess of exports was less than £NZ7,000,000 and in 1939 only £NZ3,500,000. In succeeding years the task will be ! harder (omitting consideration of ;the (export credits), as £3,500,000 (sterling will be due for repayment ! instead of £3,000,000. What prosipect is there, under these circumi stances, of relaxing import restrictions? We are quite clearly entering a long period of drastic economy. • One fact must be accepted by -the Government: drastic economy in import, buying cannot be practised

The arrangements announced for ' the conversion of the £17,000,000 London loan are remarkably good \as respecting the rate of interest, but are likely to prove most onerous through the conditions of repayment. , Details on important points are meagre. We are left guessing, for example, what part exactly the British Government has taken in backing the conversion. In a brief statement, Mr. Nash acknowledges the "unfailing courtesy and consideration" of members of the i British Government in facilitating the conclusion of the negotiations. ! The "News Chronicle" states that "it : was impossible to secure the under- \ writing of the loan, but arrangements i were made by which a full subscription, either by conversion or by cash, is now assured." If this is correct, : the inference to be drawn is that the loan has not been underwritten in the \ ordinary way, but other arrangements {have been made, cither through the | British Government or the Bank of I England, to assure that the money is j available. "The, Times" comment j that the "British Government is putjting its hand in its pocket on behalf |of New Zealand to such ail extent that it cannot be reproached with Slack of' generosity" supports this inference. Failing some such arrangement, ! New Zealand could not have ex- \ pected to renew the loan at the existjing rate of interest (3J per cent) j and an issue price of £99. In May a South African 3$ per cent, loan of £5,000,000 issued at £96 ...10s was heavily over-subscribed, but Australia in June asked for £6,000,000 for defence at 4 per cent., with an issue I price of £98 10s, and about 80 per I cent, of it was left with the underI writers. There have hoen suggesj tions of 5 per cent, or more for a I New Zealand conversion, and that price would not be out of the way for short-term money. In 1931, when embarrassed by lack of sterling, New Zealand' borrowed on shortterms, costing the Government £6 lsj 3d per cent., though the nominal j ; rate was 5. The loan was converted J to long terms at S§ per cent, in 1933, when New Zealand's credit was

with continued prodigality in internal finance. Experience so far proves j beyond doubt that, to a country like. New Zealand following tho policy. New Zealand has tried to follow,; "insulation" is an impracticable! illu-! sion. We must.set about putting mirj affairs on a sound basis so that we can command confidence by demonstrating our ability, as well as our willingness, to pay our way. Britain has helped us generously, but there is great significance in "The Times" statement: "The Dominion must prove its worthiness if future assistance is to be more easily forthcoming." * There is no desire to interfere with principles in Nevf Zealand, "The Times" adds, but the" Dominion must recognise that it cannot again saddle Britain with the burdens of its own extravagances and must order its affairs accordingly. Our internal policy is a matter for ourselves; but the costs and consequences of a rash internal policy are also our responsibility. We have sought British assistance on this occasion to extricate us from a critical position. It has been given to us generously, and with a magnanimity which should shame the people who declaim against financial dictators." But tho conditions quite rightly place on us the obligation progressively to improve our position. It will be difficult, but not impossible if it is realised by ihe Government at the outset that external frugality and internal prodigality are wholly inconsistent. If there is attempt to evade this fact, and to run after new financial expedients, I the result will be quick and alarming 1 disaster.