EMPIRE WAR DEBTS

Manawatu Herald, Volume XLIX, Issue 3742, 17 January 1928, Page 1

EMPIRE WAR DEBTS

CONSOLIDATION URGED. AVOIDING HIGH INTEREST RATES. Unity of action in the handling of the war debts of the British Empire forms tho basis of a scheme that has been evolved by Mr J. F. Darling, C.8.E., after a close study and investigation of Imperial finance extending oyer the last seven years. fie is convinced (says the Otago Daily Times) that the Empire, through lack of closer financial co-operation and co-ordina-tion, is paying a much higher rate of interest than is necessary, and he points out that the United States of America, acting as a great unity, can borrow at 3-f per cent., whereas the British Empire, with much greater potentialities, pays from 4J per cent, to o per' cent.—a difference of 40 per cent. “Are we to infer for a moment,” he asks, “that the security of the United States is 40 per cent, superior to that of the British Empire.” A FINANCIAL AUTHORITY. Mr Darling, who was one of the managing directors of the Midland Bank, and is at present a director of that institution, is a recognised authority on matters of Imperial finance, and served under the late Lord Milner on the Colonial Economic Development Committee in 1920. -He is at present touring New Zealand for the first time, and, accompanied by his daughter, lie Iras visited the principal cities of Australia, where his views upon Imperial affairs have Jfeen exchanged in Government financial and hanking circles. He arrived in Dunedin last week, and inter leftf for Wellington where the various qwstions of Empire in which lie is interested will he further discussed. I ISSUE OF EMPIRE CONIOLS. Interviewed, he stated that at the present time the outstanding war debts of Britain and the Dominions (apart from what is due to America) amounted approximately to £6,000,000,000 and £800,000,000 respectively, thus giving a proportion of 88 per cent, to 12 per cent. His proposal was for the consolidation of the portion of these debts which fell due at an early date, and their conversion into an issue of Empire Consols at a lower rate of interest. Only about half tho total debts could be handled in this way, because the remainder were tied up in long-dated securities. , '

The debts could he consolidated through the appointment.of trustees or commissioners who would he selected by the respective governments. No security was hypothecated against the existing loans and there was only the promise of each government to pay its stockholders. Under the scheme the governments, instead of paying direct to the stockholders, would pay interest and sinking fund into a common pool in tire hands of the trustees, who would be duly authorised to issue Empire Consols and would dip into this pool for the interest and sinking fUIIC QUESTION OF AUTONOMY. The main difficulty had been whether or not this would lead to interference with autonomy. In dealing with a debt that might last 50 or 60 years before being finally extinguished, the contingency—however remote —of a country being unable to pay its interest could not bo left out ot account. If the other countries made good the defaulting country’s contribution, they would demand some control over its affairs, and thus the principle of autonomy would be violated. This difficulty had, however, been overcome by tho suggestion that there should he two classes ot stock, on the principle of preference and ordinary shares. The preference would be much the larger proportion, and the interest and sinking fund would be within the contribution of Great Britain to the pool. The ordinary stockholders would take the balance of the pool, and would receive a higher rate of interest. For example, if the interest of the preference stock were 4 per cent., the interest on ordinary stock might be 4-J per cent. The scheme could be made still more attractive by the ordinary stockholder having, as in the case of'a business undertaking, a participation in thej'uture increase of the Empire’s prosperity. This could be measured by the returns of declared income for the purposes of income l tax. Thus if the basic rate on the ordinary stock was per cent., it would represent X per cent, of the declared incomes, of the different countries at the time of issue, and it would be this X per cent, that, in addition to its share of preference interest, the country in question would agree to contribute to the pool.. The ordinary stock would therefore become an extremely attractive security on the basis of, say, 80 per cent, preference and 20 per cent, ’ordinary, would form a strong inducement for holders of war stocks to convert their capital into preference stock bearing a lower rate of interest than they at present receive. REDUCING INTEREST RALES. “But,” continued Mr Darling, ‘the rate ut which Britain and the Dominions borrow at present is 4j per cent, and 5 per cent, respectively. How can the rate he reduced to 4 per cent.. There are three factors which would make this possible: — . First, by the Dominions contributing a portion of their gold. Secondly, by a control-tor the time being—over fresh issues of capital in London. The savings in Britain available for fresh investment are between £200,000,000 and £300,000,000 annually; therefore, if new issues are controlled so that money is looking out for investment, the rate of interest will tend downwards. . , , , The third and most important factor is the psychological one. The British Empire coming together to consolidate its war debts by an issue of Empire Consols would be a step of great impoitaiiee in itsell, but of still groatci importance in the direction of the economic unity of the Empire. It could scarcely fail to be appreciated by the world as a movement 'which heralded the economic unity of the Empire and its future development on an Empire It lias been suggested in Australia that Mr Darling’s scheme he made applicable to future borrowing, but lie has not yet completed his study ot that aspect of the question. He intends to leave New Zealand foi London on January 31.