CHAPTER IV.--THE FINANCIAL POSITION. (continued)

The Public Debt.

  187. As will be seen from the full statements in Appendices F and G, Newfoundland's public debt falls broadly into eight categories:--

(1) Sterling loans which were raised before
  1900 and are not Trustee Stocks in the
  United Kingdom .................................................
  £3,331,500
(2) Sterling loans which were raised between
  1900 and 1914 and are Trustee Stocks in
  the United Kingdom ...........................................
  £1,590,500
(3) Sterling loan raised after the War and
  ranking as a Trustee Stock in the United
  Kingdom ............................................................
  £423,500
(4) Sterling-dollar bonds raised after the War
  which are not Trustee Stocks in the United
  Kingdom ............................................................
  £5,651,300
(5) Gold-dollar bonds raised in New York after
  the War .............................................................
  $31,500,000
(6) The "Prosperity Loan", 1932, and other
  internal dollar issues .........................................
  $3,354,650
(7) Advances by the Canadian Banks operating
  in Newfoundland ................................................
  $6,256,000
(8) Advances by the United Kingdom Exchequer
  (including a war-time advance of £400,000) .........
  £1,000,000

  188. It is thought that of the bonds coming within categories (4) and (5) about half are held in the United States of America and half in the United Kingdom. The sterling stocks coming within categories (1), (2), and (3) are thought to be held almost entirely in the United Kingdom.

  189. The Colonial Stock Act of the United Kingdom was passed in 1900 and the sterling loans raised since that date, i.e., those in categories (2) and (3), are all Trustee Stocks.

  190. In the case of the dollar bonds issued since the War, the holder has an option of payment in sterling or in dollars (United States or Canadian). The bonds raised in New York, i.e., those falling within categories (4) and (5), and representing about three-fifths of the whole debt, contain the gold clause. Those raised in London, Canada or Newfoundland do not contain that clause.

  191. The rates of interest are as follows:--
         Sterling stocks (non-Trustee), 3, 3½ and 4 per
    cent.
         Pre-war sterling stocks (Trustee), 3½ per cent.
         Post-war sterling stock (Trustee), 5 per cent.
         Dollar bonds issued very shortly after the War, 5½
    and 6½ per cent.
         Sterling-dollar and dollar bonds: subsequent
    issues up to and including 1930, 5 per cent.
         "Prosperity Loan, 1932" (raised locally), 5½ per
    cent.
         Bank and Government loans, 5 per cent.
  The loans were all issued at or near par so that the rates of interest quoted are substantially the true effective rates. The average rate of interest is just under 5 per cent.

  192. The total debt amounts to just under $101,000,000 or £20,746,000 at par of exchange.
  The total interest charge amounts to some $4,860,000 = £1,000,000 at par of exchange, to which must be added $140,000 or £28,000 per annum for sinking fund. The provision for debt service in the current Budget is $5,200,000, a figure which allows for exchange fluctuation and for the premium on interest payments in New York.

  193. "The Prosperity Loan, 1932" (Category (6)) and the Bank and Government loans (categories (7) and (8)) are repayable at any time. In the case of the other loans there is no provision for repayment pending maturity.

  194. The tables reproduced in Appendix L reflect the trend of Newfoundland's credit in London since the War.

Summary of Conclusions.

  195. In the light of circumstances surveyed in this chapter, we reach the following conclusions:--

  (1) The Island is in extreme financial difficulties. These have been intensified by the world depression, but they are due primarily to persistent extravagance and neglect of proper financial principles on the part of successive Governments during the years 1920-31.
  (2) The onset of the depression found the country, as a result, with little or no powers of resistance. The people are impoverished. No less than one quarter of the entire population was in receipt of public relief prior to the commencement of the fishing season, while the general level is one of bare subsistence. Without a long-range programme of reconstruction, which it cannot undertake unaided, the country will have little power of recuperation even when times improve.
  (3) There has been great improvement in financial administration as the result of the appointment from abroad of successive Controllers of the Treasury. But the effective work of this officer depends upon close co-operation and satisfactory personal relations between Government and himself. These conditions are fulfilled at present, but they may not always be fulfilled.
  (4) The Customs duties, which provide the great bulk of the revenue, require revision. This is about to be undertaken. There is little prospect of an increase in revenue in existing conditions; indeed, the revision of the tariff may be expected to lead to a temporary decrease.
  (5) Immense economies have been made in the normal expenditure of the Government. This expenditure cannot remain for very long at its present low level.
  (6) The present burden of public debt is wholly beyond the country's capacity, and it is essential that it should be lightened if the Island is to be saved from the imminent danger of financial collapse.




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