CHAPTER II
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:—
| ForeignDebt.[101] | ||
| Circulation on | Annual Cost, | |
| 1st January | Interest and | |
| 1909. | Amortisation. | |
| £ | £ | |
| Loans at 5 per cent. | 23,350,139·76 | 1,702,585·29 |
| Loans at 41⁄2 per cent. | 7,697,262·88 | 516,147·42 |
| Loans at 4 per cent. | 29,820,312·79 | 1,454,465·64 |
| Loans at 31⁄2 per cent. | 2,004,710·40 | 121,238·09 |
| ——————— | —————— | |
| Total | £62,882,425·83 | £3,794,436·44 |
[101] By 15th September 1909, the amount of the debt had been reduced to the following figures: 5 per cent., £22,702,330; 41⁄2 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.
[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 851⁄2 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.
[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 41⁄2 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 41⁄2 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 31⁄2 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.
[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 41⁄2 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 41⁄2 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 41⁄2 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 41⁄2 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 |
| 41⁄2 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]
[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, 1051⁄2.
Argentine 41⁄2 Sterling Loan (1888-9): Authorised, £5,263,560; issued, £4,322,060. Price on 1st January 1910, 100.
Argentine 31⁄2 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, 971⁄4.
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 241⁄4 to 483⁄4. Price on 1st January 1910, 441⁄2.
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 523⁄8 to 106. Price on 1st January 1910, 106.
Buenos Ayres Sterling Bond 3 to 31⁄2 per cent. Authorised, £10,296,000; issued, £9,796,000. Price on 1st January 1910, 693⁄4.
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 41⁄2 per cent.; eleven with a capital of £29,840,315, at 4 per cent., and one of £2,004,710 at 31⁄2 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]
[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.”