Economic and financial section > Balances of payments > 1931-1932

SUMMARY STATEMENT
31
A fact which is clearly brought out by the table is the financial strain which
continues to prevail in certain countries in Central and Eastern Europe. It is true
that forces of readjustment have also been at work in these countries, and the yield of
their bonds — at least in domestic markets — shows a falling tendency since the
middle of 1932. But the fall has not been great and the yields still remain at levels
which considerably exceed the rates which any solvent debtor would be willing to pay
for a new loan, and in most cases also exceed the yields prevailing before the financial
crisis in 1931.
The low bond yields prevailing during 1932 and 1933 in the main creditor countries
have permitted the governments of these countries to borrow on easy terms to meet
budgetary deficits and carry through large conversions of outstanding loans raised
when loan conditions were less favourable.
Thus, the United Kingdom converted the 5 per cent War Loan of £2,085 million
to a 3 % Per cent basis and has lately converted a number of minor loans ; the gross
savings in her budget resulting from these operations amount to over £40 million
annually (J). France converted a number of 5 to 7 per cent War and post-War loans,
totalling 85 milliard francs, or nearly one-third of her outstanding internal Government
debt, to a 4 ^2 per cent basis, with a saving in the annual service of over one milliard
francs. In October 1933, $1,900 million of the United States 4% per cent Fourth
Liberty Loan was replaced by 10-12 year Treasury bonds which, from October 15th,
1934, will bear interest at the rate of 3 % per cent. In 1932, the Government of
the Netherlands, which already in 1931 had succeeded in reducing the rate on the
bulk of its 5 per cent debt to 4 per cent, converted its outstanding 6 per cent debt,
amounting to 300 million gulden, to a 5 per cent basis, and of the new 5 per cent
bonds an amount corresponding to 186 million gulden was further converted into
4 per cent bonds early in 1933. The Swiss Federal Government issued two 3% per
cent loans in 1932 for conversion of outstanding 4 and 4% per cent loans of together
250 million francs. During the same year and the first nine months of 1933, the Swiss
Federal Railways and the Swiss Cantons converted debts amounting to 380 million
fiancs by the issue of loans bearing interest at rates which are from one-tenth to
one-fourth lower than those previously applied.
Since the autumn of 1932, some increase in the yield of French and Swiss bonds has
taken place. In the case of France, the increase has been great enough to induce certain
French borrowers to raise loans in foreign markets. In September 1933, the lowest
yields (that is, the highest quotations) were recorded for the Government bonds of the
United Kingdom and the United States. The yield of British Consols since the beginning
of 1932 has been only about two-thirds of what it was during the years 1929-1931.
The price of short-term capital may be studied from available data for market
rates of discount (1 2). The figures summarised for a few countries in the graph on page 30
illustrate the relaxation of the strain on the large money markets during the financial
crisis in the latter part of 1931 and the early months of 1932. The extremely low rates
which have recently prevailed in certain creditor countries are, however, a sign of the
small demand for short-term capital on the part of industry and trade at the present
low level of business activities.
Interest and dividends.
International interest and dividend payments in 1929 may have amounted to
about $3,700 million, or about 11 per cent of the trade in goods for that year. Between
1923 and 1929, they had increased very rapidly, probably by about two-thirds of the
(1) Not allowing for the reduction in taxation receipts.
(2) Cf. the League of Nations Monthly Bulletin of Statistics.