Léim ar aghaidh chuig an bpríomhábhar

Seanad Éireann díospóireacht -
Wednesday, 6 Nov 1935

Vol. 20 No. 13

National Loan (Conversion) Bill, 1935—(Certified Money Bill)—Second Stage.

Question proposed: "That the Bill be now read a Second Time."

The House is probably aware of the circumstances which render it desirable and, in my opinion, virtually unavoidable to introduce a Bill of this description at this particular period of the year. Therefore, though the House may possibly regret the interruption of its Recess in order to confer upon us the special powers which are asked for in this Bill, I think they will agree with me that, in the circumstances as I set them forth at length in the Dáil, we had no other alternative.

The purpose of the Bill is, I think, clearly set out in the Long Title, and, briefly, it may be said to provide such facilities as would ensure the success of the conversion operation, and such facilities as it has been found impossible, I think, to dispense with in any other country where such an operation as this has been carried through.

With regard to the conversion operation itself, possibly the Seanad might like to hear generally how it has been going. I am glad to say that so far the conversion seems to be almost unanimously accepted by the holders of the stock. The position, therefore, being as I have said, I have had to decide to close the list for cash subscriptions to the loan this afternoon. The closing took place at 3 o'clock, but country applications by the first post to-morrow will be considered. This decision has been rendered necessary for two reasons: first, the large amount of applications in cash for allotments of the new loan, and secondly, as I have already indicated, the very small proportion of holders of the First National Loan who so far have applied for redemption. Assuming that our experience up to the present continues to the 23rd November, and I see no reason why it should not, it follows that the amount of new first 4 per cent. stock which we can allot to cash applications will be small, and in order to avoid disappointment on the part of those who are, or who may be, contemplating the making of cash applications we think it well to close down now. Even as matters stand, it looks as if we will be unable to make anything like a full allotment in respect of cash applications so far received and, in the circumstances, to continue to accept further money from the public—as I have indicated it is pouring in at a rapid rate—would be unwise.

However, in connection with the operation I would again make a further appeal to the holders of the First National Loan to expedite the return to the Bank of Ireland of the forms of conversion. This will considerably facilitate the bank and the Department of Finance in handling the present operation and will enable allotment to take place at an earlier date than we had otherwise anticipated.

I do not think it is necessary for me to say anything more at this stage except to commend this Bill to the House and, in doing so, to say that I feel that the signal success which this operation has experienced up to this date is, I believe, in a very large measure due to the co-operation which we have received from all parties and from all interests in the country without stint.

I would like to support and welcome this Bill and to congratulate the Minister on the success which the conversion operation is having. The loan which is now being converted was raised, as the Minister said in the Dáil, in circumstances of very great difficulty. It was the first financial venture of the new State. There was considerable doubt as to the terms on which it would be safe to approach the public. At the time that we determined that we should issue the loan at 5 per cent., which was the prevailing British rate—at that time we issued the stock at as little as possible below the price prevailing for British 5 per cent. stock—I remember distinctly that a great many people who ought to know told us that we were attempting too much. Nearly everybody said that a loan on the terms that we were proposing would not be taken up. One after another people came in and told us that we would have to offer something better, in view of the then recent history of the country and in view of the circumstances prevailing. However, we decided that we would take a chance: that we would put it up to the public and to all interested parties. It was this general view that at that time a 5 per cent Free State loan issued at 95 would not appeal to investors, or would not appeal generally to investors, that urged us to make the sinking fund provision so ample. We wanted to assure people that, even though political normality was not reached as soon as we had hoped, by taking that step we would be in a position to keep the price of the stock high. We pointed out that with this sinking fund there would be considerable purchases, and that any tendency which might exist towards a fall would be counteracted in that way.

As a matter of fact, of course, the loan was wonderfully supported and was over-subscribed well before the appointed day. Not only were there big subscriptions from those who could afford to make big investments, but the small investors came along in great numbers so that the average allotment for the loan was very small. Those who invested in the First National Loan, in many cases, at any rate, were actuated by their sense of public duty as well as by the attractions of the loan itself. I believe that many of those who then subscribed to the National Loan, particularly the small subscribers, probably still hold their stock, and I am particularly glad that the Minister for Finance has fixed the terms of the Conversion Loan on such a basis that the great majority of those people—practically all as I gathered from the Minister—will convert, and will continue to hold what remains of the stock which they originally subscribed. It is to the interest of all parties that this loan should be a success, and I am sure all parties are gratified that events are proceeding as the Minister has related to us.

It was very interesting to hear our two Ministers for Finance—the Minister of former days and the Minister of to-day—discussing these matters together. I think we have all great reason to congratulate ourselves on the present state of affairs, especially when we see a former Minister for Finance and the present Minister comparing such friendly notes. Senator Blythe, in his day, had to face a very difficult situation. We can all remember how things were then. A new State had been set up here, and when that First National Loan was floated we can all remember what he had to do in order to get the people to back him up then. The same considerations do not apply to-day. From the point of view of ordinary financial considerations, this loan, in my opinion, can be recommended to investors. The Minister, I have no doubt, had very considerable trouble in deciding as to the rate of interest that he should fix. As the guardian of the finances of the country, it is his duty, of course, to get money at as cheap a rate as he can. The position was made difficult for him by the European situation. Due to it, publication with regard to loans and investments had pretty well ceased about the time when it was necessary for him to be moving in connection with his loan. The situation in Europe must have given him quite a considerable amount of serious thought. He was faced with the position of having to float his loan as if there was no disturbance in the European situation, but actually, of course, he had to act in the circumstances that prevail to-day throughout Europe. I think it was very wise to take full account of that and to give a rate which made it an absolute certainty that the loan would be worth buying and would be a success. The investor has, I think, got to thank our friends, the Abyssinians and the Italians, to some extent, for the terms which were offered. We have to give them a little credit. There is no question that, in view of what has happened, the Minister arrived at a wise judgment and fixed the rate at a sound figure.

Since we are on this subject, it is worth while to examine the public indebtedness of the Free State and to see what our funds are worth. I do not believe that anybody who has invested in our Free State loans has lost money. The Minister had a difficult situation to deal with because he knew, when he was offering 4 per cent., while the interest on the last loan was only 3½ per cent., that there would be grumblers who would say that the 3½ per cent. loan would be depressed. It looks as if that fear is not going to be realised. I think it is the opinion of the buying public that this 4 per cent. loan will go to a premium. The credit of the Free State is good, and a 4 per cent. loan, guaranteed by the Free State Government, ought to be a first-class security. If there are no adverse European developments, this loan should go to a premium and the 3½ per cent. loan should rise accordingly. Anybody can work out the extent to which the 3½ per cent. loan will have to rise to keep pace with the 4 per cent. loan if it goes to a premium. The prospects of the two loans, so far as the investing public are concerned, ought to be quite good. Looking at the amount of money for which the Free State has pledged itself in the loans which it has issued, we have not at all transgressed the bounds of what would be called our solvency. Our loans are not heavy when judged by the capacity of the people to pay the interest and sinking fund.

Our loans ought to be good investments, but there is one difficulty which, so far as I can see, must confront a Finance Minister of the Free State at the present time. He has to deal with a very small market. The loans of all the other Dominions—New Zealand, Canada, South Africa and the others— are freely quoted on our markets. We are all buying and dealing in these loans. No place outside the Free State is freely dealing in our loans, if they are quoted at all. If our Finance Minister had some big project on hands which required the issue of a big loan, he would have to take all the little considerations of the Free State market into consideration. That must cramp his style enormously. If these loans were spread and were freely quoted and bought outside the Free State, our Finance Minister would be able to issue his loans on much more marketable lines than at present. Our people are not greatly addicted to investment. They like bank deposits and similar deposits by which they are certain to get their money when they want it. The Minister, no doubt, knows that it is very hard to get the ordinary citizen to invest his money in loans or similar issues. Consultations have, therefore, to take place between the Minister and the banks as to how much money is available, while the Stock Exchange has also to be taken into account because of the very small market with which the Minister is dealing. The banks and the Government must work together. It is impossible to think of what would happen the country if we had a Government which made impossible demands on the banks, or banks which would not listen to and accede to all reasonable demands of the Government of the day. If we were to have that sort of thing, this country would not last. The banks and the Government must work together for the good of the country. So far as I know, we have always had good relations between the Government and the banks, and I have not the slightest doubt that we shall always have those relations. The banks come back to the same source for their supplies. They can deal only with a certain amount of their money and, in the event of a really big financial operation, I believe that our Government would, in the future, have to try to get access to bigger markets.

Senator Blythe will remember how he issued part of one of his loans in America. At that time, he evidently felt the same difficulty and tried to spread his market. The Government ought to bear that point in mind. They should try to see if access cannot be got to the money markets of the world, since other nations like ours are able to issue their loans on these markets. Some day we may be in need of a good deal of money which cannot be raised by taxation. However, the Minister did an excellent thing and a brave thing when he issued the conditions of this Conversion Loan.

There is only one other point with which I should like to deal. That is in reference to this sum of £1,150,000 of the present sinking fund. I thought at first that the Minister should have said what he proposed to do with it. I tried to think of what I would say in similar circumstances and I was utterly unable to arrive at a conclusion. The Minister was perfectly right in being guarded. I do, however, suggest to him that he should remember that this is sinking fund money and that it was raised by taxation for that purpose. When he comes finally to deal with it, he should bear that fact in mind and he should do nothing which would lead future buyers of our stocks to think that money raised for sinking fund would be appropriated to other purposes. One can easily understand the criticism there would be if that were done. I think it would be better that the Minister, if he has to deal with this question, should deal with it in his Budget and get Parliamentary consent for whatever he does. I do not wish to say anything of a controversial nature, but this is a matter to which economists all over the world will give serious attention. The Minister has to deal with a difficult problem. I do not know of any case in which a surplus arose, as in our case, by the redemption of a loan. The Minister, in dealing with this surplus, will be creating a precedent which will be watched. I have no doubt that he will take care of the good name of the Free State, but this is a matter which will require very careful consideration. I should like to think that it will not be dealt with privately by the Executive Council, but that the Dáil will have a voice in it. I do not want to be dogmatic about the matter, but I am sure the Minister is giving it serious consideration and that he will bring forward some proposal now that he knows the figures with which he has to deal. The sanctity of sinking fund money should be thought of in whatever is done. That, however, has nothing to do with the loan which we are now congratulating the Minister on having so successfully launched. I think that we Free State citizens ought to be very proud of the standing we have got for our funds. There has never been the slightest fear that anybody who put his money in Free State loans would suffer any loss connected either with the principal or the interest. Many of my friends have done right well by investing in previous Free State loans and I have no doubt that they will do the same thing in connection with this loan.

I am very grateful, indeed, for the reception given to this Bill. I am particularly grateful for the warm and enthusiastic support which Senators Blythe and Jameson have accorded to our proposals. It is true that the rate of interest was fixed after a great deal of hesitation on my part. It does not profess to be my evaluation of the credit of the State. A considerable number of factors had to be taken into account. One factor was mentioned by Senator Blythe— that those who subscribed to the first loan in circumstances of great difficulty were actuated by a sense of public duty. That is a factor to which any Finance Minister with the public interest in view must always give some consideration. Another important factor was that this was a conversion operation and that, over a term of years, certain people and certain interests—trade unions, ecclesiastical authorities and others—had enjoyed a certain income. It would not, in my view, have been in the public interest to reduce that income too drastically by such an operation as this. There was the third consideration which might, from the commercial point of view, be regarded as the greatest—the necessity for making the loan a success. I felt that we could not come to the Oireachtas and ask the co-operation of all Parties if there were in the terms of the loan anything at which any interest might reasonably cavil. These factors, I might say after a great deal of consultation and consideration, determined us to fix the rate of interest at 4 per cent. I am glad to know that the event has justified whatever risks we might have taken in that connection, and I am perfectly certain that even though the rate of interest might be a little more attractive than by a cheeseparing appreciation of the market we might have fixed it at the public credit has not been any way injured by it.

A number of matters were mentioned by Senator Jameson in the course of his speech, and in that regard I must say that he painted the dilemma of the Minister for Finance much more feelingly than I would attempt to do. There is no doubt that the international situation had its reactions, but if the position has been somewhat prejudiced by the dispute which has sprung up between Italy and Abyssinia, on the other hand we have had compensations in the shape of the united support which has been accorded to the conversion. Taking it one way or another, therefore, I think we have had nothing to grumble at. On the question of the sinking fund I am going to act prudently, as Senator Jameson advised me to do. It would not be possible until the operation has been completed to determine what we should do with the sinking fund,. There are many considerations that have to be taken into account. One is the position of the Minister for Finance, not as an individual, but as a corporate entity, vis-a-vis the Dáil, who must reserve to himself a certain amount of freedom in handling these financial transactions. On the other hand, there is the desirability of preserving the capital character of the sinking fund. I can assure Senator Jameson and the House generally that there are no considerations affecting the standing of the State from the financial point of view which will be left out of account when we come to deal with the matter.

Question put and agreed to.

I move:—

That, notwithstanding anything to the contrary contained in Standing Orders 79 (1) and 85, the Committee Stage and Report Stage of the National Loan (Conversion) Bill, 1935, be taken to-day.

I second.

Question put and agreed to.