The Gisborne Herald. WITH WHICH IS INCORPORATED “THE TIMES.” GISBORNE, FRIDAY, JULY 28, 1939. LONDON LOAN CONVULSION

Gisborne Herald, Volume LXVI, Issue 20001, 28 July 1939, Page 4

The Gisborne Herald. WITH WHICH IS INCORPORATED “THE TIMES.” GISBORNE, FRIDAY, JULY 28, 1939. LONDON LOAN CONVULSION

Mr. Nash has taken a bold and ever, courageous course in his endeavour tc overcome the difficulties attendant upon the conversion of the loan which falls due in London on January 1. From the information available — and it may be subject to further elucidation—the Minister has found it impossible to have the loan underwritten in the ordinary way on acceptable terms. In consequence he lias decided to approach the public direct, which means that the New Zealand Government, instead of the brokerage houses, will take whatevci risk is involved. Only flic exceptional circumstances in which tiie Dominion finds itself could justify this departure from the normal procedure Applications are invited for £10,000,000 worth of stock, issued at a discount of 1 per cent, bearing interest a 3£ per cent, and maturing in 1945 Holders of maturing stock will have the opportunity of converting thei holdings into the new issue and to the extent that this offer is not accepted the Government will be dependen upon now applications, If conversioi and cash applications combined do not cover the full total, other means wil need to be devised to meet the deficiency and it is this contingencj which vests the operation in a good deal of uncertainty and not a little anxiety. Since the lists close at the end of next week, the issue will no' long be in doubt. The first question that presents itself is whether the terms offered, ii the light of New Zealand’s presen credit standing, arc likely to be atractive to the British investor. The failure to have the loan underwritter is an initial disadvantage because if may be construed as meaning thal financial institutions have not confidence in flic issue. For an ordinary loan, the interest rate of 31 per con' would not be sufficient, even though the rate is the same as that recently offered by South Africa and the London County Council, but there are

two compensating advantages. The first is the exceptionally short term of the loan, a feature which should make it attractive to people who do not desire to tie up their funds for a long period in the present unsettled’condition of the world. The second, and more important, point is that the Government has given an undertaking to set aside sufficient funds in the next five years to provide for the repayment of the whole loan. This provision is probably without precedent and is a striking indication of how badly the Dominion's credit lias been shattered. The acceptance of it, however, is evidence of the determination of the Government, to face up to the problem and the move is such a bold one that it is deserving of success, and it might be just the thing that was required to capture the support of the public.

It is the same point, however, which emphasises the extremely heavy burden which the people of New Zealand will have to shoulder for the next few years. At the present time the Government requires to find approx! mntely £5,500,000 sterling a year for

debt payments. This year, apparently, about £1,000,000 extra lias been found to reduce the amount of the loan which is now being converted. Under Mr. Nash's arrangement, £2,000,000 must be found next year to reduce the debt, and in the four subsequent years no less than £3,500,000 a year will have to be set aside. On the latter

figures this means that debt services will cost in sterling £9,000,000 a year, instead of £5,500,000, an increase in New Zealand currency of about £4,500,000 a year at the present rate of exchange; and, incidentally, this undertaking will do more than anything else to preclude a further rise in the exchange rate. In other words, the people of New Zealand, either through taxation or internal loans, must find another £4,500,000 a year for London loan redemption in addition to providing for the repayment of the export credits of £9,000,000 guaranteed by the British Government and also the increased internal costs due to the needs of defence and the requirements of (lie social security scheme. Clearly, the people are going to be asked to tighten their belts

with a vengeance, but if the result will be to restore faith and credit in the Dominion the effort will be well worth while.

The era of spending, both State and private, is obviously past, and the Government and the people of the country will now have to demonstrate their capacity for going without things and saving to meet their debts, tn particular, they will have to do with a vastly reduced quantity of imported goods. The annual report of die Reserve Bank estimated that the normal requirements for debt charges and other invisible imports were about £12,000,000 a year. For the next few years, owing to the necessity for epaying lhe new loan and the export credits, this will require to be increased to about £18,000,000 a year, which means, in turn, that New Zealand must export £18,000,000 a year more ilian it imports—and in the last two years, with record exports, the excess of exports averaged less than £3,000,')00 a year. Compared with the last wo years the people must go without things to the extent of £15,000.000 a rear in order to meet their overseas

obligations. It. is not merely a case of diverting expenditure to within the country in order to reduce imports, but of going without altogether until these debts have been wiped off and this must inevitably mean a considerable readjustment of the whole economy of the Dominion. The Government either by design or of necessity, lias chosen the harder path and it will be for the people of the Dominion to face up to the sacrifices that re demanded of them and restore Die •lability and the credit of their country.