FINANCE-PUBLIC AND PRIVATE

EMPIRE BORROWING

By ARTHUR W. KIDDY.

IN a very able article which appeared recently in the Observer, Sir Josiah Stamp dealt with the general question of our foreign loan policy, and, referring more especially to the semi-embargo which still exists upon foreign loans placed here, Sir Josiah gave some very good reasons why this embargo has had to be imposed and why it may be necessary to continue it for a while. Among other considerations there is, of course, the question of the effect upon the Foreign Exchanges and, therefore, upon our gold reserves, which might be produced if we were lending too heavily abroad, even though it can be admitted that such loans often have the effect of stimulating our trade and, in course of time, expanding our exports. Meanwhile, however, it is quite clear that there is one form of loan on which no embargo has been placed, namely, that represented by the borrowing operations of our oversea Dominions, and in what follows it must not be supposed that I am for a moment suggesting that any such embargo should be imposed. Nevertheless, it would be well, I think, that the magnitude of Empire borrowing should be clearly recognized for one or two reasons. In the first place, there is rather a tendency on the part of some of our Dominions to suggest from time to time either that the Home country is not sufficiently performing its duty in subscribing to Empire loans, or else that the terms of such loans might be made more favourable for the borrower. It should be clearly understood, therefore, that throughout last year and again this year our Dominions have directly benefited from the embargo placed upon foreign loans here, for had the London Money Market been open to all and sundry it is quite certain that our Australian Dominions could not possibly have obtained the huge sums which have been raised here during the past eighteen months. It is only fair that this preferential treatment to our Dominions should receive adequate recognition, while, in addition, it must be remembered that our Dominions are always able to borrow on terms almost as good as arc obtainable by the British Government or our Home Cor- porations because under the Colonial Stock Act these Colonial loans automatically become full trustee securities.

EMPIRE GOLD DEMANDS.

There are one or two other reasons, however, why it may be well that cognizance should be taken of our loans to oversea Dominions. Commendable as the objects of the loans may be,.. the fact. remains that they can encroach just as much upon the savings of the community and even upon the funds available for financing Home industry as though the money were actually borrowed by a foreign country, and in this same connexion it is also quite as possible for Empire borrowing to move ex- changes against us and affect our gold supplies as though the borrower were the United States themselves. Indeed, it would not be at all surprising if in connexion with the large Australian loans raised this year we were to sec a fair amount of gold taken from this country to Australia. Until we returned to the Gold Standard a good deal of gold went direct from the United States to Australia on London account, but now, of course, the tendency will be for the demand to centre upon London.

AUSTRALIAN BORROWING.

Although there has been a little borrowing for South Africa and certain of the Crown Colonies, the bulk of the Empire loan operations during the last eighteen months has been on account of our Australasian Dominions, and how extensive were those operations during 1924 is very well set out in an article in a recent number of the Australian Insurance and Banking Record. There the, matter is dealt with, of course, from the Australian standpoint. And it is quite clear that in Conservative circles in Australia there are some apprehensions as to whether the borrowings may not have been a little too rapid. During 1924, the total - amount borrowed in fresh money by our Australian and New Zealand Dominions amounted to £45,852,000, quite apart from a total of £30,778,000 issued for conversion purposes by certain of the Australian State Governments. Of this fresh borrowing £37,981,000 was for Australia and £7,870,000 for New Zealand. The total can be classified as follows :--

£ £ Covernmeuts (excluding con- versions) 33,580,997 6,000,000

Other public bodies ..

4,400,000 1,870,000

37,980,997 7,370,000 Add conversions (New South

Wales. Queensland and South

Australia) .. 30,773,037

£68,754,034 £7,870,000

Quite the largest total borrowed in fresh money was the loan of £16,000,000 to the Commonwealth Government, of which, it will be remembered, £10,000;000 'was issued in May and £6,000,000 in November of last year. More- over, even apart from the Australian Government, the local cities and public boards issued during. the year amounts running into a total of £4,400,000, so that the total of new borrowings and conversion operations together amounted to well over £80,000,000. Since the beginning of this year, Colonial borrowing has again assumed fairly large proportions, the total amount raised during the first half of this year being approximately £26,500,000 (including conversion operations) practically the whole of which represented borrowing by Australia.

THE WILLING INVESTOR.

In the light of these figures I do not think that the British investor can be charged with any coldness or even apathy in the matter of investments in the loans of our oversea Dominions, especially when it is remem- bered that while we have uiven preferential treatment

• Australia. New Zealand.

to Empire loans over foreign borrowings of an ordinary nature, we also raised last year very large totals in connexion with loans for the financial reconstruction Of certain of the Central European countries. In connexion with these Empire Loans, however, and especially with the Australian borrowings, there are just three points which seem to call for consideration. The first is : How far the borrowing is sound, even from the point of view of Australia itself. The second is the question of whether the proceeds of the loans are sufficiently devoted to foster- ing immigration into Australia, and the third is the effect of the loans upon the Australian exchange.

FINANCING DEVELOPMENTS.

With regard to the first of. these points, it is quite clear that financial critics in Australia are not altogether comfortable themselveS, for, in the journal from which we have quoted, and where, of course, only the figures for last year were available, there is a reminder of the fact that these big loans constitute heavy annual remittances to London, while it is considered that " The rapid growth of public debts is hardly supported by a corresponding progress in the development of the country or in the total population of the Commonwealth which alone would warrant the present scale of loan - expenditure." This, be it remembered, is not a London view but is local opinion as expressed in the leading banking journal of Australia, and therefore it emboldens one, when dealing with the further consideration I have mentioned, namely, as to whether these Empire loans are sufficiently' directed to the development of Empire resources along the lines of encouraging emigration from the Home Country. It is that particular object which undoubtedly fires the imagination when we speak of financing the development of our Empire resources, and it is certainly such considerations which would seem to constitute the chief justification for really large Dominion borrowings, whether the matter. is judged from the standpoint either of the borrower or of the lender.

QUESTION OF EXCHANGE.

The further point I have mentioned, namely, the effect of these large loans upon the Australian exchange, is also, I think, deserving of attention, though the points arising are of a somewhat different character and perhaps affect Australian banks quite as much as the Australian Government. During the past year or two the difficulty of obtaining remittances frcm London to Australia, save at an exorbitant premium, has been a most serious matter and has been a source of grave inconvenience to all trading with Australia. This difficulty has been enormously aggravated by the huge balances accumu- lated by our Dominion Governments in London as 'the result of borrowing here just at the very time when the trade balance in favour of Australia already gave that country command of large credits here and when the pressure to remit money to Australia was exceedingly great. And, so far from the Australian Banks being in a position materially to relieve the situation, complaint has been common as to the difficulty of effecting remit- tances save at so heavy a premium as to act as a deterrent to commercial activities. Latterly, .and since this country has gone on the Gold Standard, there has been a material improvement in the matter of exchange facilities ; but, if Australian borrowing continues on its present scale, it looks as though a good deal of gold might have to go from this country to our Australasian Dominions.