THE PUBLIC DEBT
Statistics of the public debt on the 1st January 1909——History of
the public debt——The first loans.
The financial crisis——Consolidated loans——The Romero arrangement——
Loan for the rescission of guarantees——The internal public
debt——The total of the Argentine public debt, and its annual
cost in dividends and redemption——The proportion of financial
charges as compared to other budgetary expenses.
The burden of the public debt is heavy, but not unduly heavy in
relation to the productive power of the country——The necessity
of restraining further issues and of converting old debts——The
efforts of the Argentine to improve her credit.
All the vicissitudes through which the Argentine has passed in the course
of the nineteenth century have left their traces upon the history of the
National Debt. To the legitimate uses of credit have been joined abuses;
but all this now belongs to the past, and we do not intend, in a book
dealing with matters as they are, to recount this history at length, nor
to comment upon it nor criticise it.
The consolidated National Debt, on the 1st July 1909, amounted to
£62,892,428. It may be analysed as follows:——
FOREIGN DEBT.[101]
Circulation Annual Cost,
on 1st January 1909. Interest
and Amortisation.
£ £
Loans at 5 per cent. 23,350,139·76 1,702,585·29
Loans at 4-1/2 per cent. 7,697,262·88 516,147·42
Loans at 4 per cent. 29,820,312·79 1,454,465·64
Loans at 3-1/2 per cent. 2,004,710·40 121,238·09
-------------- -------------
Total £62,882,425·83 £3,794,436·44
[Footnote 101: By 15th September 1909, the amount of the debt had been
reduced to the following figures: 5 per cent., £22,702,330; 4-1/2 per
cent., £7,579,580: 4 per cent., £29,728,562; 3 per cent., £1,920,000;
total, £61,930,472.]
In the total given above is an important sum of which the cost, though
entered in the National Budget, is really borne by the various provinces.
Items in this amount are a sum of £6,800,000, for which the Province of
Buenos Ayres is responsible; the £3,000,000 of the conversion loan of
Santa Fé; £2,800,000 taken up by Entre Rios; and the Córdoba conversion
loan of £1,000,000; while Mendoza accounts for £600,000 and the National
Bank in liquidation, for £1,800,000. This establishment, although
belonging to the Government, bears the cost of its debt out of its own
resources. Eliminating these £16,000,000, we find that the external debt,
whose cost is borne by the Treasury, amounts not to nearly £63,000,000,
but to £47,000,000.
We shall ultimately have occasion to inquire how far this debt weighs
upon the resources of the Treasury, what the burden per inhabitant
amounts to, and how it stands in relation to the debts of other
countries. For the moment we must glance backward in order to realise
the historical conditions under which this debt was contracted, and what
its destination has been.[102] The first credit transaction effected by
the Republic abroad was concluded a few years after the Declaration of
Independence. In 1822 the Province of Buenos Ayres, which had always
been the heart and head of the Republic, taking its place, indeed,
under certain conditions, and under others representing it in foreign
countries, was fortunate in having at its head a progressive Government,
which, by its profitable initiative, has left ineradicable traces behind
it. The President was General Martino Rodriguez; the Ministers included
Bernadino Rivadavia and Manuelo-Josepho Garcia.
[Footnote 102: See, in _The North American Review_ for May 1902, an
article by Señor Alberto Martinez, entitled: “National Debts of the
World. IX. Public Debt of Argentina.”]
This Government cast its eyes over the empty surface of the vast
Argentine territory; it saw immense wealth unexploited, for lack of the
necessary elements; it realised its great need of material progress,
and understood, with a just and clairvoyant judgment, that of all these
needs the most urgent were the construction of a port for the exchange of
products with the outside world, the instalment of a water supply which
would ensure health to the inhabitants, and the establishment of villages
along the line of the new frontier, serving as desert outposts, and
constituting a military pale to withstand and confine the irruptions of
the savage Indians.
For the realisation of these then important undertakings of public
utility the Government of 1822 resolved to obtain the necessary
resources, by raising a loan of a million sterling, giving as
consideration a dividend of 6 per cent. and an annual redemption of 1 per
cent.; the House of Baring to act as agents for the loan. Unhappily the
executive power employed the resources furnished by this transaction in
founding a bank which had a very short existence, and the intended public
works were not effected. More than half a century elapsed before their
realisation.
The loan was issued in 1824, and was taken up in entirety at a discount
of 30 per cent., so that the Government received £700,000. For many
years, at the time of the Rozas tyranny, and during the ensuing period
of national dissolution, the payments on this loan were suspended; not
until 1856, when the tyranny was overthrown and the Argentine nation
reconstituted, did the Government of Buenos Ayres instruct Norberto de la
Riestra to come to an understanding with the creditors, and to offer them
the punctual payment not only of the future dividends, as they fell due,
but also of all those overdue, on deferred stock at 11s. 2d., at 2 per
cent. interest, with an annual redemption of 1/2 per cent. This debt is
today extinguished, and has left no traces on the budget.
The second loan contracted by the nation after its reorganisation
was intended to cover the expenses of the war to which it had been
unreasonably provoked by the tyrant of Paraguay in 1865; and this loan
has also disappeared from the ledger of the public debt.
The third national loan was contracted in 1870, the sum being £1,042,978,
under the Presidency of Señor Sarmiento; and the capital was required for
the accomplishment of public works. This loan and that preceding it were
finally converted into others which carried a lower interest.
Then these transactions were followed by others, of which we will briefly
enumerate the details.
The railway loan, authorised by the law of the 2nd of October 1880, was
to raise the sum of $12,000,000; a sum required for the extension of the
Central North Railway as far as the town of Jujuy, the Andean line as far
as San Juan, and for the branch line to Santiago de l’Estero. It bore
6 per cent. interest, with an annual redemption of 1 per cent. It was
issued in London, in June 1881, for the amount of £2,450,000, at a price
of 91 per cent.
The loan entitled “The Public National Funds,” which was decreed by the
laws of 12th October and 28th June 1883, enabled the Government to pay
for the shares in the National Bank (to-day in liquidation), which it
had acquired. This loan, bearing 5 per cent. interest and 1 per cent.
redemption, was issued in May 1884, by Baring Brothers, at a discount of
84·5 per cent., and amounted to £1,683,100.
The loan entitled “Harbour Works of the Capital,” authorised by the law
of 27th October 1882, was contracted for the construction of the new
harbour which the city of Buenos Ayres required for the development of
her foreign trade. An issue of $20,000,000 in gold was decreed, bearing 6
per cent. interest, with 1 per cent. redemption.
The “Public Works” loan was created by the law of 21st October 1885; its
amount was £8,400,000, and its object the unification of certain loans
required for various undertakings. The shares bore 5 per cent. interest
with an annual redemption of 1 per cent. The sum issued was £8,333,000,
of which £4,000,000 was placed in London, in January 1886, at 80 per
cent., and the remainder in January 1887 at 85-1/2 per cent. This loan
was guaranteed, as far as the interest was concerned, by the customs
revenue, and the representatives of the investors had on this pretext
reserved certain rights of control over the administration of this
revenue.
The “Central Northern Railway Loan” was divided into two series. The
first, authorised by the law of 9th October 1886, was of £4,000,000;
but of this sum only £3,968,200 was issued, as follows: to London, in
June 1887, £1,300,000 at 91·5 per cent.; in April 1888, £1,500,000
at 94 per cent.; in May 1889, £1,168,200 at 97 per cent. The second
series, authorised by the law of 30th October 1889, amounted in all to
£3,000,000, of which only £2,976,000 was issued. The two loans bore
an interest of 5 per cent. and a redemption of 1 per cent.; they were
contracted to allow of the prolongation of the Central Northern Railway.
The “National Bank” loan, created in virtue of the law of 2nd December
1886, authorised an issue of £2,058,200, to enable the Government to pay
the debt which it had contracted towards the said Bank. The bonds were
issued at 90 per cent.; they bore an annual interest of 5 per cent., with
a redemption of 1 per cent.
The “Treasury Bonds Conversion” loan, authorised by the law of 21st June
1887, was employed, as its description indicates, in the consolidation
of a debt contracted for a short term. The issue required was $5,078,330
paper, but only £624,000 was actually realised.[103] The stock carried an
annual revenue of 5 per cent., with 1 per cent. redemption, while the old
Treasury Bonds have an interest of 9 per cent.
[Footnote 103: The sum of $5,078,330 is equivalent at the present
discount of paper to £446,873; in 1887 the value of the paper piastre was
higher.——[TRANS.]]
The loan contracted by virtue of the law of 15th August 1887 was intended
to balance certain debts on the part of the National Government towards
the Government of the Province of Buenos Ayres. The issue was one of
£3,973,700, the interest being 4-1/2 per cent. and the redemption 1 per
cent.; it was taken up at 90 per cent.
The “Conversion of Debts” loan, at 6 per cent., contracted in virtue
of the law of 2nd August 1888, was an operation of consolidation and
reorganisation of debts. The issue amounted to £5,290,000. The bonds,
which yielded 4-1/2 per cent., with 1 per cent. redemption, were
negotiated in London, in February 1889, at 90 per cent.
The “Conversion of Hard Dollars” loan was issued in virtue of the law of
2nd July 1889, which authorised an issue of £2,600,000 to be applied to
the conversion of debts contracted in hard piastres. The new stock was to
yield an interest of 3-1/2 per cent., with 1 per cent. redemption. The
issue actually amounted to £2,659,500.
The “Consolidation Loan” (authorised 24th January 1891) was one of
the most important credit transactions ever effected in the Argentine
Republic: a transaction which evokes memories of a critical period which
we ought briefly to recall.
When Signor Pellegrini’s Government came to power, on the 6th August
1890, the country was suffering from a political upheaval, and at the
same time was entering upon a time of severe financial crisis, “the most
violent, the most desperate crisis which has ever afflicted the Republic,
and put its honour to the test,” according to the words of Vincenzio
Lopez, the eminent finance Minister of that administration.
The Treasury had exhausted its resources, in order to increase and
support the funds of the National Bank, whose debt to the Government
amounted to $47,491,483[104] in paper, and £2,528,224 in gold, while its
debt to foreign creditors amounted to £3,708,037, and to home creditors
£2,328,800.
[Footnote 104: This amount is not reduced to gold, the rate of exchange
not being fixed at the time.——[TRANS.]]
If the situation of the National Bank, which served as the Government’s
treasury, was serious, that of the National Mortgage Bank and that of the
City of Buenos Ayres were no less grave. The first owed $1,690,833 in
paper and £111,475 in gold in dividends, and the second was drained dry
by its debts, amounting to $34,646,533 paper and £92,339 gold at home, as
well as £1,960,000 abroad.
From the outset the Government concentrated all its efforts upon the
solution of these three grave problems. It proposed the reconstitution
of the National Bank; it would enable the Mortgage Bank to continue
operations, chiefly by repaying the advances which it had made to the
State; and assist the City of Buenos Ayres to meet its engagements in
respect of the interest of the foreign debt, constraining it to collect
and employ the municipal revenues in a more methodical manner.
The prime object of this important transaction was “to give the country
a period of economic repose, by provisionally suspending the removals
of metallic currency for the liquidation of the nation’s foreign
engagements,” as the Government declared in the message which accompanied
its proposal. To achieve this end, the creation of a consolidation
loan was proposed, amounting to £12,000,000, and increased later on to
£15,000,000 upon the advice of the lenders, the result being destined,
for a period of three years, for employment in paying the interest
on the nation’s loans and in relieving the Treasury of the burden of
guaranteeing the dividends of the railways.
In accordance with agreements concluded between the Government of the
Republic and the banking houses which undertook to negotiate the loan,
the banks undertook to accept, during a period of three years, as
consideration for the debt, and for the effectual guaranteeing of the
railways, bonds of the loan itself; and undertook, moreover, to accept
them at par. The issue each year was to be proportional to the sum
necessary to pay the interest on the debt.
The nation, on the other hand, undertook to set aside for the payment
of the interest on the said loan 6 per cent. of the customs receipts,
which were subjected to a monthly levy of the amount required, the amount
affected by the prior rights of the loan of 1885 being deducted first.
The nation also engaged not to increase its foreign debts, whether by
borrowing or giving guarantees, during the three years fixed for the
issue of the loan.
The total amount authorised was £15,000,000, the interest 6 per cent.,
and redemption was to commence at the end of three years, to be completed
in thirty years. Coupons could be paid to the State in settlement of
customs duties. Of the above nominal sum, only £7,691,725 was actually
raised, £7,308,275 remaining unissued for the following reasons:——
Under the administration of Señor Saenz Peña, when Señor Romero was
installed in the Ministry of Finance on the 12th October 1892 he found
the Consolidation Loan in process of issue, the stock being sold at need,
the 6 per cent. bonds being guaranteed by the customs receipts; they were
then selling in London at about 63 per cent. Señor Romero estimated that
if the system of paying debts by means of debts is generally a ruinous
one, it was especially so in this case, where the transaction was being
effected by means of bonds so badly depreciated as those of this loan.
The first important act of this Presidency was to make an arrangement
with the representatives of the bearers of the foreign debt, by which
they consented to a reduced interest for five years——that is, until
1898——the redemption charge being suspended simultaneously. In the
following years, from 12th July 1898 to 12th January 1901, the full
interest alone was to be resumed, and from 1901 the payment of the
redemption charge would also be resumed.
As a consequence of this arrangement, it was decided to issue no further
stock of the loan, even in cases where the issue was authorised: as,
for example, in the effective guarantee of railway stock. Holders of
the latter would receive payment on the basis of the price at which the
shares were quoted. This is why the Consolidation loan issue of 1891 was
confined to the sum already cited.
The “Travaux de salubrité,” or Water Supply and Drainage loan, authorised
by the law of 30th January 1891, to the extent of £6,750,000, in bonds
bearing 5 per cent. interest and 1 per cent. redemption, was created
under the following conditions:——
The Government of Señor Juarez Celman, which preceded that of Signor
Pellegrini, was inspired by the Spencerian doctrine, which asserts as a
principle that the State is always a bad administrator, and fell into
financial and administrative errors which were to cost the country dear
indeed. Thus it resolved to place in the hands of individuals all the
industrial enterprises undertaken by the nation, among which was the
scheme for supplying the city of Buenos Ayres with water and facilitating
the elimination of its filth and sewage.
Every one very soon saw, however, that a serious mistake had been
made. The individual firm entrusted with these important services was
exclusively preoccupied in exploiting the public, and its methods
resulted in protests and resistance on the part of the inhabitants
of Buenos Ayres. On 6th August 1890, the Government, Pellegrini
being president, came to the conclusion that it was its duty as an
administration, and was also a matter of political efficiency, to place
the sanitation works in the hands of the State once more; and with this
object it obtained an authorisation to contract a loan of £6,750,000, at
5 per cent. and 1 per cent. redemption. Such was the origin of this loan,
of which stock to the value of £6,374,995 was issued.
The “Rescission of Railway Guarantees” loan, authorised by the laws of
10th January 1896 and 30th December 1898, was contracted to disburthen
the State of the heavy obligations which weighed upon it as a result
of having guaranteed an interest of 6 per cent. on enormous capitals
employed in the construction of railways. With this object £11,699,957
worth of stock was created, and issued at 4 per cent. and 1/2 per cent.
The loan for the “Conversion of Provincial Debts,” created by the law of
8th August 1896, was justified by the highest considerations of national
solidarity, and of the defence of Argentine credit abroad.
The enormous debts contracted by the Provinces, unauthorised and
uncontrolled by the central power, quickly resulted in a veritable
bankruptcy, at the end of a period of waste and folly, of unchecked and
uncalculating expense.
The nation, which had in no way intervened in the matter of these
loans, and had contracted no obligations whatever on their behalf,
might strictly have refused to accept any responsibility for such heavy
liabilities; but it is indubitable that the insolvent condition of the
Provinces in the European markets might have affected the credit of
the nation, the latter being, in foreign eyes, involved in all these
individual failures.
What President Quintana said in his inaugural address on the subject of
the peace of the Provinces, which is also the peace of the State, may
also, with no less reason, apply to credit.
On the other hand, the nation could not remain indifferent to the
precarious situation created by the suspension of payment in the
Provinces. As practically all their revenues were already pledged, so
that they could not pay interest on their debts for many years, the legal
action of their creditors might fetter their administrations, oppose
serious obstacles to the development of their sources of wealth and
production, and, in short, inflict serious damage upon the entire country.
These very serious considerations decided the public powers to lend the
Provinces their aid, so that the latter might make equitable arrangements
with their foreign creditors, and as far as possible free themselves from
such heavy liabilities.
These arrangements were for the most part effected by exchanging the
4-1/2 per cent. stock of interior debt which the Provinces promised
against 4 per cent. stock of the foreign debt, which the nation remitted
to the creditors of the Provinces.
The total of these provincial debts amounted to £30,355,190, and the
nation, for the complete liquidation of the same, gave 4 per cent.
stock, bearing a redemption charge of 1/2 per cent., to the value of
£17,199,899. The interest and annual redemption charges of this stock
amounted to £773,995.
On the other hand the nation acquired by this arrangement 4-1/2 per
cent. stock of the loan known as the Guaranteed Banks loan to the value
of £9,175,233, the interest and redemption charge (of 1 per cent.)
amounting annually to £504,638. Adding to this sum that of £232,000, as
the contribution of the Province of Buenos Ayres, and £51,220 furnished
by the Province of Entre Rios, we have a total of £827,858 annually.
The exchange of the internal against the external debt thus produced a
temporary profit of £53,863 per annum; we say temporary, because the 4
per cent. stock has a later date of redemption than the 4-1/2 per cent.
The “Conversion of Municipal Stock” loan, authorised by the laws of 25th
September 1897 and 15th December 1898, was raised, to the extent of
£1,540,000, by the issue of stock at 4 per cent. and 1/2 per cent. The
result of this issue was destined to pay what still remained owing to the
creditors of the National Bank in liquidation.
The law of 5th January 1899 authorised a loan of £6,000,000, intended to
balance the debts of the Public Treasury; the alcohol duty being offered
as guarantee to the extent of £800,000 per annum; but hitherto the loan
has not been negotiated, and there is no longer any question of this
issue.
Such, briefly detailed, are the antecedents of the various foreign loans
contracted by the Argentine nation. As for the domestic consolidated
debt in 1905, it was the object of a complete reorganisation, so that
to-day the history of its origins is not of much practical interest. It
amounted, on 1st January 1909, to £7,639,760 in gold and £9,199,581 in
paper, of which £6,900,000 was in gold and £7,700,000 in paper in 5 per
cent. stock, £710,620 in gold in 4-1/2 per cent. stock, and £880,000
in paper in 6 per cent. stock. This gives us a total (in gold) of
£16,839,341, on which the charge in interest and redemption absorbs an
annual sum of £1,004,445.
Here is the analysis of the internal debt:
INTERNAL DEBT, _1st January 1909_.
Gold. Paper.
---------/\------------ ------------/\------------
Stock in Interest and Stock in Interest and
Circulation. Sinking Fund. Circulation. Sinking Fund.
6 per cent. loan, —— —— £880,000 £58,080
5 per cent. loan, £6,929,140 £422,100 18,908,140 1,110,898
4-1/2 per cent. loan, 710,620 40,750 —— ——
—————————— ———————— ----------- ——————————
Totals £7,639,760 £462,852 £19,788,140 £1,168,978
—————————— ———————— ----------- ——————————
As we explained in our first edition, the first action of the Government
which assumed power in October 1904 was to convert the various loans
of the internal debt, which bore an interest of 6 per cent., and
amortisation charges of 6, 4, 3 and 2 per cent., into one single loan
at 5 per cent., with a redemption charge of 1 per cent. This operation
gave the following results: The amount of 6 per cent. stock, including
National Bank stock, amounted to £5,888,881, or $66,918,300 paper. Of
this total $50,814,000, or £4,471,632 were converted in the Argentine and
£664,884 in Europe, or in all £5,136,516; the balance then amounting only
to £730,184. The result was that the average price obtained for converted
stock was 87.59 per cent., and for unconverted stock 12.40 per cent.[105]
[Footnote 105: The following figures relative to the Argentine foreign
loans taken from the Investment Handbook of the International Stock
Exchange, may interest the reader.——[TRANS.]
Argentine 5 per cent. Stock (1886-7): Authorised, £8,290,100: issued or
subscribed, £6,306,500. Price on 1st January 1910, 105-1/2.
Argentine 4-1/2 Sterling Loan (1888-9): Authorised, £5,263,560; issued,
£4,322,060. Price on 1st January 1910, 100.
Argentine 3-1/2 per cent. External Bonds (1889): Authorised, £2,639,500;
issued £1,923,160. Price on 1st January 1910, 80.
Argentine 4 per cent. Railway Rescission (1895): Authorised, £11,607,100;
issued £10,205,100. Price on 1st January 1910, 97-1/4.
Argentine 4 per cent. Gold Bonds (1900): Authorised, £2,828,515; issued,
£2,752,855. Price on 1st January 1910, 91.
Argentine Cedulas, Series B. (1886). These are certificates to bearer
issued by the National Mortgage Bank in lieu of cash lent to borrowers
on real estate. They were first issued in 1886, when a total of
$50,000,000 was issued in three series, A, B, and C. They are redeemable
by sinking funds of 1 per cent., and under Article 60 of its organic law
the National Mortgage Bank has to add to these funds the sums in cash
received from its debtors on account of advances of capital or sale of
properties. Cedulas are guaranteed by the nation.
In circulation, 31st August 1909, $1,175,250. Cancelled. $13,824,750.
Interest, 7 per cent. Prices have varied from 24-1/4 to 48-3/4. Price on
1st January 1910, 44-1/2.
Buenos Ayres Water Supply and Drainage Bonds (1892). Authorised,
£6,324,400. Present amount, £5,620,820. The operation of the Sinking Fund
in January 1910 will further reduce this amount. Prices have varied from
52-3/8 to 106. Price on 1st January 1910, 106.
Buenos Ayres Sterling Bond 3 to 3-1/2 per cent. Authorised, £10,296,000;
issued, £9,796,000. Price on 1st January 1910, 69-3/4.]
Although the Minister who effected this operation, exceeding the advice
of competent persons, or rather defying their judgment, took it upon
himself to issue a fervent panegyric of his transactions in an official
document, we none the less consider that the fundamental defect of
this conversion lay in having largely reduced the amortisation rate
of some of these loans, bringing them down from 6 per cent., 4 per
cent., 3 per cent., and 2 per cent., to a uniform rate of 1 per cent.;
as the sinking-fund, as a general thing, in the case of all financial
administrations, and especially of those of a country without any
great experience of government, is a restraining factor, a limit which
Governments and Parliaments impose upon themselves, in order not to
spend all they collect. Without this money-box, this “woollen stocking”
of Governmental savings, as M. Neymarck called it, it is certain that
there would be no trace in the Argentine Treasury of all the millions it
has paid in amortisation during the last few years; so that the present
generation would have cast upon the shoulders of the coming generation a
far heavier burden than that the latter will inherit as things are.
Returning to the external debt, we may state that among the loans
which figure in the national liabilities are eight, with a capital of
£23,350,139, at 5 per cent. interest; two, with a capital of £7,697,263,
at 4-1/2 per cent.; eleven with a capital of £29,840,315, at 4 per cent.,
and one of £2,004,710 at 3-1/2 per cent.
The public debt, external and internal, amounts to the following:——
External debt £62,892,428
Internal debt 16,839,365
-----------
£79,731,793
Let us see to what extent the interest on this debt weighs upon the
Budget:——
External debt £3,794,436
Internal debt 1,004,445
——————————
Total on 1st January 1909 £4,798,881
——————————
In the tabulation of the foreign debt we have not included the new loan
of £10,000,000, the stock being known as “Argentine Internal Credit,
1909,” bearing 5 per cent. interest and a 1 percent. consolidated sinking
fund, which the national Government has just raised in Europe. This loan,
which was readily taken up, was divided in the following proportions:
England, £2,960,000; France, £3,200,000; the United States, £2,000,000;
Germany, £1,640,000.
Taking this new loan into account the total of the external debt is
£72,892,428.
The various amounts of interest payable on the whole National Debt,
external and internal, converted into gold at the rate of 4s. per
piastre, represent a total of £4,778,882. As we have stated before, this
burden does not weigh exclusively on the Treasury; we must deduct from
it the interest paid by the Provinces and the National Bank, or, a sum
of £687,628, so that the interest paid by the nation amounts in fact to
£4,111,253. Comparing this figure with the total of the general budget,
we find that the interest on the National Debt amounts to 25·34 per cent.
of the total expenditure, of which 22·3 per cent. weighs exclusively on
the nation. Finally, we must not forget that large sums included in the
budget are paid into the sinking fund at a rate which should rapidly
decrease the debt; a factor which evidently must be reckoned as a
compensation.
In the face of this enormous debt are we to conclude, with certain
authors of repute, that when the payment of the interest on the public
debt absorbs more than 40 per cent. of a nation’s revenue, that nation is
in the most serious situation, not far removed from bankruptcy?
Certainly the theories of these gentlemen are based upon valuable data,
which are deduced from the science of finance, or taken from the actual
examples of certain nations; but it is also certain that these theories
have been formulated with the mind directed toward European countries,
in which population, wealth, and all the phenomena of social life are
evolved in a slow and harmonious manner; but for countries like the
Argentine, countries with enormous natural resources, subject to sudden
increases of wealth and population, where all manifestations of progress
are abrupt, such theories are not true.
Again, in order to estimate justly the extent to which this debt
weighs upon the nation, we must take account of the special conditions
under which this debt was created; a factor which makes international
comparisons difficult. It is not enough to know only the total of the
National Debt in order to comprehend the financial position of a State;
for it may well happen, as in the case of Australia, that the capital
of the loans forming the debt has been employed in productive work, the
yield of which contributes to increase the Treasury receipts.
Neither can the amount of debt per inhabitant give us a true idea of the
financial vitality of a country; for just as a given burden may crush one
man, while another can bear it with ease, so, according to the physical
resources of either, one nation may support a debt with ease which would
utterly overcome another.[106]
[Footnote 106: M. Alfred Neymarck has shown how broken a reed is any
argument based upon the amount of debt per inhabitant, and how void of
any scientific basis.
“We have successively passed in review the various countries of Europe,
and by basing our arguments upon facts and exact figures we think we have
demonstrated that in the evaluation of a nation’s credit, of the price of
its stocks and their rate of capitalisation, the figure ‘per inhabitant’
has no value and no significance. Such statistics, which are more or less
used everywhere, in France and abroad, by force of habit and routine, are
absolutely incorrect and incomplete; they have only one sure result: they
infect the spirit of judgment of those who rely on them.”——In the journal
_Le Rentier_, for the 7th, 17th, and 27th of September and the 7th of
October 1904.]
The weight of the National Debt must be estimated by its relations
with the economic system and the conditions of national development.
For example, in making such an estimate with regard to the Argentine
debt, we find that side by side with the increase of this debt there
is a notable increase of the national wealth, which should keep all
creditors tranquil and satisfied as to the liquidation of the obligations
contracted towards them on the part of the State, although these
obligations might at first sight appear out of proportion to the means of
the State.
If we take, as a mark of national wealth, the value of products exported,
we have the following figures to go by: between 1890 and 1899 the
value of the Argentine exports rose from £20,163,600 to £36,983,200.
In 1903 it amounted to £44,000,000; in 1904 to £52,800,000; in 1905 to
£64,400,000; in 1906 to £58,400,000; in 1907 to £59,200,000; and in 1908
to £73,200,000.
Side by side with the exportable products the revenues of the nation
have also achieved an extraordinary expansion, which has enabled
the Government to complete important public works, to perfect its
administration, to acquire and equip the first fleet in South America, to
spread primary and secondary education through its territory, and to push
its civilising agencies to the utmost limits of the country.
In 1898 the ordinary gold receipts rose to £6,416,440, while in 1903 they
amounted to £8,879,420, and in 1904 to £9,345,708: but in 1899 there
existed additional importation duties, which are now suppressed. In 1907
the receipts in gold amounted to £12,900,000, and in 1908 £13,600,000.
The same increase is to be observed in the receipts collected in paper
money. In 1898 they amounted to £4,201,495; in 1903 to £5,709,749; and in
1904 they rose to £6,086,753, although the duty on wine had been removed
during the first half of the year. In 1907 these receipts amounted
to £8,316,000, and in 1908 to £8,756,000; figures which represent an
enormous progress.
Thus a country in which the national resources and those of the Exchequer
increase in so rapid a progression, is evidently in a position to
support, without much anxiety as regards the future, the burden of its
National Debt, however enormous the latter might appear.
But such considerations must not, of course, incite the Administration
to violate the financial principles of method and economy, nor lead it
to increase the public expenditure at an unjustifiable pace, in order to
meet parasitic requirements, or satisfy electoral demands. What gives
rise to such fears is that when there is need for works of a certain
degree of importance, such as would give a stimulus to the material
progress of the country, or at least to endow the country with new
buildings and constructive works, the budget never comes to the rescue,
and the end is always an issue of internal stock.
Of late years the Republic has enjoyed a pastoral and agricultural yield
such as it has never seen in its economic existence. This double yield,
the result of energy favoured by climate, was not only remarkable for
abundance, but the prices which it commanded in the international markets
were the highest that have ever been known up to the present. All would
seem to indicate that in consequence of this abundance the Argentine
Treasury would overflow with money; that it would be in a position to
meet all the current expenses of administration, and also many of the
extraordinary expenses which are demanded by a nation in process of
formation for the stimulation of its material progress.
Unhappily it has not been so. The ordinary revenue, like the national
production, has exhibited a marvellous elasticity: but in spite of that
it has not been enough to cover the ordinary expenses.
Turning from the shadows that obscure the picture of the financial and
economic situation, we may, in spite of all, conclude that investors who
have placed their capital in Argentine loans may be fully reassured that
the interest will be scrupulously forthcoming. Although the majority of
the loans have been employed in other ways than those intended at the
time of their issue, it is none the less true that by their aid certain
works of national utility have been effected, which could not have
been realised without such resources. To cite only two, let us recall
the fact that the nation has spent £10,976,304 in the construction of
railways; while the Buenos Ayres Water Supply and Drainage Works absorbed
£6,530,000.
Again, as the great Argentine financier Señor Tornquist has said, we must
not forget that although the country avoided a war with Chili it was only
by allowing £15,000,000 to be swallowed up in ships and armaments; and
this was done without recourse to the outside world for loans, after not
less than £4,000,000 had been absorbed by military preparations in the
interior. These sums, representing nearly a quarter of the present debt,
were spent to avoid a fratricidal war, which would have cost us ten times
as dearly.
Apart from the fruitful application of loans, the creditors of the
Argentine must also consider the sacrifices made by various Governments
to defend and uphold the financial credit of the Republic. The service
of the first loan contracted by the nation——that of 1824——was, as we
know, suspended during the melancholy period of tyranny and national
dissolution; but hardly was the Argentine family reunited, hardly was
a regular Government established, when the latter hastened to resume
the liquidation of the liabilities which had been contracted. President
Avellaneda, in a solemn moment, has eloquently recalled the facts:——
“There is a new nation in the process of birth, possessed of the
sentiment of its own greatness; either by a puerile hallucination or by
the revelation of its destiny. It has barely formed a Government; but
already it imagines vast schemes; it asks and obtains money from London;
for capital, although she is represented as hard and having no bowels of
compassion, knows often a sudden tenderness for dreams.
“But the dreams of this people are quickly destroyed: then follows
anarchy, with its long and lamentable lapses of self-knowledge: anarchy,
into which young societies fall, by the very weakness of their native
elements; until at length they are seized by the iron hands of tyranny,
as was indeed the fate of Argentina. And a tyranny that endured for
twenty years! Wretched nation! Unhappy Argentina! Her voice was all but
dumb, failing in the depths of that abyss!...
“The bonds of that debt were quoted on the London Exchange; but in
time they were quoted no more, for they had at length lost all value;
even their name was erased. A day came, however, when the children of
Argentina’s creditors went to search for their bonds among forgotten
papers; and the bonds were redeemed. For many that was a day of
legitimate surprise; the bearers had offered their paper to their debtors
at any price; but now they were told that they would receive its written
value. It was enough for them that they should be paid in future; but
they were told that even the arrears of interest and amortisation should
be arranged by means of new stock, which was known as Deferred Bonds.
“When, among its assets, a nation possesses such a trait in its life as
this——a trait unique in the financial history of the nations——it has the
right to hold its head erect, affirming its honour and its credit.”
Since that date, and during thirty-six years, the country scrupulously
paid the interest on its debt, until the disastrous year of 1890, when,
as a result of the financial and political crisis, the most violent the
country had ever suffered, the payment of the foreign debt began to be
a matter of serious consideration for the Administration. Many schemes
were proposed to help the State tide over that difficult time; but none
of them included the repudiation of the debt. The Government then at the
head of affairs accepted the most onerous of these schemes, because it
was that which was most to the advantage of its creditors.
The arrangement then decided on, known as the _Morituri_ loan, or Morgan
loan, has been the subject of severe criticism; but one thing was not
and will not be debated, namely, the noble and patriotic intention which
inspired the authors of this transaction, and resolved them to safeguard
the worthy traditions of Argentine credit. By respecting their foreign
liabilities they served the truest interests of their country, and
respected also the spirit of the Constitution, which holds that credit,
and foreign credit in particular, should be the great constitutional
resource, placed in the hands of Governments “for the urgent needs of the
nation, or for undertakings of national ability.”