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credit.

On the other hand, the nation could not remain indifierent
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 4J 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 PUBLIC DEBT 321

The total of these provincial debts amounted to
£30,855,190, and the nation, for the complete liquidation of
the same, gave 4 per cent, stock, bearing a redemption charge
of i 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 arrange-
ment 4>h 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 Ay res, 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|- 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 | 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 4i 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.



322 THE ARGENTINE IN THE 20th CENTURY
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^ per cent, loan, 710,020 40,750 — —

Totals ... £7,639,7(50 £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 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.*

* The following figures relative to the Argentine foreign loans taken from
the Investment Handbook of the International Stock Exchange, may interest
the reader. — [Tkans.]

Argentine 5 per cent. Stock (1886-7): Authorised, £8,290,100: issued or
subscribed, £6,30(5,500. Price on 1st January 1910, 105^.

Argentine 4^ Sterling Loan (1888-9): Authorised, £5,263,560; issued,
£4,322,060. Price on 1st January 1910, 100.

Argentine 3^ 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^.

Argentine 4 per cent. Gold Bonds (1900): Authorised, £2,828,515; issued,
£2,752,855. Price on Ist 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 §^0,000,000 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, 31bt August 1909, $1,175,250. Cancelled, ^13,824,750.



THE PUBLIC DEBT 323

Although the Minister who ettected this operation, ex-
ceeding 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 govern-
ment, 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^ per cent. ; eleven with
a capital of £29,840,315, at 4 per cent., and one of £2,004,710
at 3i per cent.

The public debt, external and internal, amounts to the
following : —

Esterual debt ,£62,802,428

Internal debt 16,8:«,365



£79,7:51,793



Interest, 7 per cent. Prices have varied from 24^ to 48f . Price on Ist January
1910, 44^.

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 52g to 106. Price on 1st January 1910, 106.

Buenos Ayres Sterling Bond 3 to oj per cent. Authorised, £10,296,000;
issued, £9,796,000. Price on Ist Janu^xry 1910, C9^.



324 THE ARGENTINE IN THE 20th CENTURY

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 let Jannary 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, iuterest
and a 1 per cent, 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 ex-
clusively 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



THE PUBLIC DEBT 326

nations; but it is also certain that these theories have
been formiihited 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 pro-
ductive 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.*

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

• 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 succeBsively passed in review the various countries of Europe,
and by basing our arguments upon facts and exact figures wo 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 Z,e Rentier, for the 7th,
I7th, and 27th of September and the 7th of October 1904.



326 THE ARGENTINE IN THE 20th CENTURY

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 \ f.
proportion to the means of the State.

If we take, as a mark of national wealth, the value of jB (iiiK
products exported, we have the following figures to go by: Jiiitei
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 i
equip the first fleet in South America, to spread primary and i
secondary education through its territory, and to push its \
civilising agencies to the utmost limits of the country. i

In 1898 the ordinary gold receipts rose to £6,416,440, j
while in 1903 they amounted to £8,879,420, and in 1904 to-
£9,345,708: but in 1899 there existed additional importation i
duties, which are now suppressed. In 1907 the receipts ins
gold amounted to £12,900,000, and in 1908 £13,600,000.

The same increase is to be observed in the receipts col-
lected 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 repre- j
sent an enormous progress. j

Thus a country in which the national resources and those j
of the Exchequer increase in so rapid a progression, is evi- j
dently in a position to support, without much anxiety asj
regards the future, the burden of its National Debt, however j
enormous the latter might appear. i

But such considerations must not, of course, incite the i
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 require-
ments, or satisfy electoral demands. What gives rise to such



THE PUBLIC DEBT 327

Tears 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 Treasurj^ 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 ordinar}^ expenses.

Turning from the shadows that obscure the picture of the
financial and economic situation, we may, in spite of all,
•onclude that investors who have placed their capital in
Argentine loans may be fully reassured that the interest
will be scrupulously forthcoming. Although the majority
I if the loans have been employed in other ways than those
intended at the time of their issue, it is none the less true
tliat 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 Senor Toincjuist
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 tliis was
done without recourse to the outside world for loans, after



328 THE ARGENTINE IN THE 20th CENTURY

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 frat-
ricidal 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 con-
tracted 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



^^ THE PUBLIC DEBT 329

■'. '"''i'J 'that they should be paid in future ; but they w^ere told that
'^goes gyen the arrears of interest and amortisation should be
arranged by means of new stock, which was known as
Deferred Bonds.
'Creiis, ; "When, among its assets, a nation possesses such a trait
'^^^f; jinits life as this — a trait unique in the financial history of
' ™Mt I the nations — it has the right to hold its head erect, affirming
™t 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

■^'ij-^ 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

w i. consideration for the Administration. Many schemes were

proposed to help the State tide over that difficult time ; but

posses- I none of them included the repudiation of the debt. The

api ( Government then at the head of affairs accepted the most

It: onerous of these schemes, because it was that which was

mr most to the advantage of its creditors.

rca:; The arrangement then decided on, known as the Morituri

owci! loan, or Morgan loan, has been the subject of severe criticism ;
am ■ j but one thing was not and will not be debated, namely, the
I 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."



CHAPTER III

THE DOUBLE CURRENCY

The persistence of the double currency — The history of paper money — Thi'
origins of the premium on gold, and its almost continual increase — Th(
year 1890 and the depreciation of the currency — The causes of thii
depreciation ; abuses in the issue of paper, caused by a bad financial anc
administrative policy.

Remedies suggested — Rosa's law fixing the value of paper money anc
establishing a Cm'sse de Conversion — Opposition to this law — Its bene
ficent effect upon agriculture and stock-raising, which had especial nee(
of a stable medium of exchange — Reserve fund created with a view tij
converting paper money ; its vicissitudes in the past and its presen'
constitution — The present monetary situation.

IN the financial history of the nations there are few.
examples o£ countries in which the phenomenon of twc
standards of currency has manifested itself so persistentlj
and for so long a period as iu the Argentine Republic. Thi«
is one of the gloomiest pages of its past, on which are recordec
all the errors of its rulers, all the abuses of speculation, anc
all the faults of administration whose cost the present
generation has been paying since the opening of the twentieth
century.

Since the 27th of May 1820, the date on which the Junt£
of Representatives authorised a gradual issue of papei
money, and another issue of redeemable and endorsabk
notes, the latter to be applied to the payment of debts
contracted in the name of all the Provinces during the,
previous Administrations ; since 1820, we were saying, unti!!
the present time, there have been few years indeed during!
which the Republic has not been under the empire of a!
double currency.*

Our paper money, says an Argentine publicist, originated in
an issue of 290,000 piastres by the Banque d'Escoonpte, created
in virtue of a law of the Province of Buenos Ayres, dated the

*In 1820 the issue of paper money was 40,000 piastres per month, anc
that of the notes was the same.

330 I



THE DOUBLE CURRENCY 331

■2-2nd of June 1822. Four 3-ears later, when on the 20th of

January 1826 the Discount Bank was transformed into the

National Bank, the issue amounted to S2,694,>:56. When

the National Bank was in turn converted into the Mint,

eleven years later — that is, on the 1st of January 1837 — the

issue had already auwunted to $15,283,540. Seventeen years

later, when the Mint was transformed into the Pro-

; vincial Bank (1st January 1854), the issue amounted to

: ; $203,915,206. Daring the twenty-seven years which elapsed

• 'between the creation of this bank and the passin?; of the

'monetary law of 1881, the successive issues of National and

;i Provincial Governments had increased the mass of incon-

; I vertible paper to the sum of $882,071 ,156.

It was then, with gold at 2500 per cent., that the
Government began to recall all this mass of paper, re-
placing it by another issue, of which the one piastre notes
i exchanged against 25, or a piastre's worth of the issue which
I. was destined to disappear.



Online LibraryAlberto B MartínezThe Argentine in the twentieth century [microform] → online text (page 28 of 33)