WAR DEBTS

Manawatu Standard, Volume LIII, Issue 24, 24 December 1932, Page 8

WAR DEBTS

THEIR ORIGIN AND AMOUNTS. An account of the origin of tire debts due to the United States by the Allied Governments, and of the debts due by all Allied Governments to Great Britain, is necessary for a proper understanding of the present situation arising out of tvar debts and reparations (writes the financial editor of the Sydney Morning Herald). A succinct history of their origin, compiled from official sources, has been published by the Economist, and it is on that history that this article is largely based. The cost of tire world war to Great Britain, including large loans to her Allies, was financed as to about onequarter by taxation, the rest being raised by internal and external loans. Before the entry of the United States into the war in April, 1917, Britain’s dollar purchases, which formed a considerable portion of her war expenses were financed mainly as follows: Million . dollars By sale of gold ... 826 By disposal of American securities 835 By market loans 1480 Total (£666 million at par) 3241 During the same period the British Government had advanced to its Allies £827,000,000 (about 4,000,000,000 dollars at par) for war purposes, excluding subscriptions by British citizens to Allied loans. The market loans stated above as having been raised in the United States had all been repaid by. March 31, 1931, except 136,333,500 dollars (about £28,000,000 at par) of per cent. 20-year bonds, redeemable in 1937. After the entry of tire United States into the war the sums required by European Governments for their war purchases in the United States were advanced on loan by the United States Treasury. Not the whole of the dollars so required was advanced, but only the net amount after taking into account the dollar resources otherwise available to each ally. For example, the United States Government was provided by the Governments of Great Britain, France and Italy with pounds, francs, and lire required for the use of the United States army abroad, a corresponding amount in dollars being credited to the accounts of those Governments in New York. The dollars thus obtained by the European Governments were applied, together with any other dollar assets available from their own resources, towards the cost of their purchases in the United States, and only the dollars required by them in excess of these sums were advanced on loan by the United States Government.

PILING UP OF THE DEBTS. Between April 1, 1917, when the United States entered the war, and June 20, 1919, when the advances made by the United States ceased, the Government of the United States lent 4,277,000,000 dollars (£850,000,000 at par) to Great Britain, in addition, to 2,997,000,000 dollars which §he lent to France (excluding credits for sales of surplus stores) and 1,648,000,000 dollars lent to Italy. During the same period Great Britain advanced to her European Allies about £750,000,000, bringing the total the latter owed her up to roughly £1,600,000.000. Total purchases ma.de by Great Britain front the United States during the course of the war amounted to £1,483,000,000, which she paid as to £265,000,000 from her own resources, as to £381,000,000 by reimbursement from Allies out of loans to them by the United States Government, and as to £837,000,000 by loans from the United States. Here it will be seen that Great Britain, when the advances ceased in 1919. owed £850,000,000 (excluding interest payments) to the United States, and was owed by her Abies £1,600,000,000.

BRITAIN’S OFFERS. In spite of the discrepancy between its debits and its credits the - British Government declared in February, 1920, that it would clean both sides of the slate in the interests of a permanent settlement. This offer the United States Government was unable to accept. Six months later the offer was repeated by the British Prime Minister in a letter to the United States President, who definitely refused to countenance any proposal for cancellation.

Two years later, in what is known as the Balfour Note, the British Government, in asking the Governments of France, Italy, Jugo-Slavia, Roumania, Portugal and Greece to make arrangements to the best of their ability for dealing with the British loans to those countries, stated that it desired to explain that the amount of interest and repayments for which it asked “depended not so much on what France and other Allies owe to Great Britain as on what Great Britain has to pay to the United States.” The policy favoured by Great Britain, it was added, was that of surrendering its share of German reparations, and writing off through one great transaction the whole of the inter-allied indebtedness.

UNITED STATES SETTLEMENTS. The Balfour Note having evoked no response, a Commission, of which Mr Stanley Baldwin was the head, was, at the request of the United States Government. sent to Washington in 1922. and in December of that year the two Governments signed an agreement for funding the British war debt to the United States, providing for repayment of the capital sum in full over a period of 62 years, with back interest from June, 1919, capitalised at 4J per cent., and interest to run from the date of funding at 3 per cent, for ten years, and 35 per cent, thereafter. The United States continued to make settlements with other debtors, the last settlement being with Greece in January, 1928. The settlement with France was not made till April, 1926, five months after the agreement with Italy was made. The table below gives the amount of the debt due to the United States ns funded, the total of the annuities payable, and present values of the total annuities at the time the agreements were entered into reckoning interest at the rate of 4J per cent., this being the standard rate of interest laid down by Congress in the Act establishing the Debt Funding Commission of the United States:—

UNITED STATES WAR DEBTS SETTLEMENTS.

645.247 22,162.996 6,838,604 The rateljoif interest applied to the British debt;l-3 and 3* per cent., was the standard applied to Poland and Chechoslovakia, when arrangeBelgium,

France, Italy, Jugoslavia and Greece, the proportion of fulfilment was far lower. The average rate of interest payable by France is 1.6 per cent., and by Italy 0.4 per cent. No remission of capital has been made in any case. That the debt of Franco as funded so nearly approached the debt of Britain as funded is due to the fact that Britain paid part of the interest before funding, and to the fact that there were six and a-half years’ interest added to the original French debt, as against part of two years’ interest in the case of Britain.

The present value of the debt at the time of funding was roughly threefifths of the funded debt. In the case of the British debt the present value at the time of funding exceeded four-fifths of the debt as funded. BRITISH SETTLEMENST.

As soon as Great Britain had funded her debt with the United States the British Government asked France and her other Allies to regularise their debt position with Britain. It was not, however, until the Dawes plan with regard to German reparations came into operation in 1924 that any progress could be made. The Roumanian debt was the first to be funded, the agreement bearing date of October, 1925. Then followed agreements with Italy. France, and Portugal, in order named.

The table below gives the total debt as funded, the total annuities payable, and the present value of the annuities at the time the agreement was entered into reckoning interest at the rate of 41 per cent: BRITISH WAR DEBT SETTLEMENTS. Present value Total Total of the

The table omits the Russian war debt to Britain totalling £423,000,000, estimated at £953,01)0,000 with accumulated interest to March 31, 1931, which has never been funded, and the Belgian war debt of £90,084,000, which was included in Germany’s reparation debt. It will be seen that the total value of the annuities which are payable over 62 years is very little more than the debt as funded, that total present value of the annuities, reckoning the interest at 41 per cent., is not one-third of the debt as funded, and that in no case has Great Britain taken as much as half the amount due to her.

A WAR DEBTS STORY. The British decision (to pay the war debt to America) inspires more misgivings than approval in some quarters which would normally be the first to commend it (says the Dunedin Evening Star). The case for it, despite all the ills which war debts have wrought and the disadvantages which this payment must have not alone for the debtor countries, is the case made by Mr Mot. tram in his impressive novel “Our Mr Dormer,” which deals with successive, generations of a British banking family. In 1880 (he recalls) John Doughty had gone for a tour on the Continent, carrying with him some gold coin and a letter of introduction to the French correspondents of Messrs T. and E. Hoppner (an allied banking firm). With some difficulty he succeeded, by virtue of this letter, in obtaining such money as he needed from time to time for his expenses. In 1869 Doughty Dormer, gping for a tour—a honeymoon tour with his young wife —took Bank of England notes and a letter of credit on certain bankers. He was treated everywhere with great civility, welcomed rather, and obtained what he required with ease. In 1894 Doughty Dormer s elder daughter, a music teacher .... went for a six weeks’ summer holiday through Belgium, the Rhine, Switzerland, Italy and France, and took sortie bank notes and her cheque book. She had to use the notes only once. Everywhere the hotels were only too glad to take her cheques. Such was the result of a century of Doughtys and Dormers! It was not that the English were liked. It was not that they were sought or admired. But their word was trusted. When they wrote on a piece of stamped paper “Pay to the order of Mr —” so many “pounds” they meant it. In ninety-nine cases out of a hundred the money was forthcoming. Perhaps the only really remarkable and lasting thing of the English civilisation Neither Confucius nor even the great Trajan nor Plato (who anticipated other of our achievements) could conjure up his dailv necessities by virtue of a promise written on a piece of paper.

Total Present Total debts annuities value of as funded. payable. annuities. $1000. $1000. $1000. 4,604,128 11,105.965 3,788,470 4,025,387 6,847,674 1,996,509 2,042,199 2.407,678 528,192 Belgium 417,797 727,831 225,000 91,964 115.000 312.811 13,831 33,331 11,392 9,009 21,695 7,413 18.128 19,455 6,319 1,940 4,693 1,596 Jugoslavia . 62.857 5,780 95,178 13,959 20,030 4,755 Lithuania .. 6,032 178.565 14,532 435,688 4,967 .146,825 Roumattia i. 44,594 122,506 172

Debt as Annuities AnnuiDebtor. • Funded. payable. tics. £1000. £1000. £1000. France ... 599,628 799.500 255,658 Italy .... 560,000 276,750 86,988 Jugo-Slavia .. 25,591 32,800 9,707 Greece ... 21,441 23,550 7,588 Roumania ... 18,448 31,250 8,396 Portugal ... 20,134 23,975 7,861 1,145,242 1,187,825 376,198