  ARGENTINE FINANCE CHAPTER ITHE ARGENTINE BUDGET The financial situation—Continual increase of national expenditure—Great and rapid progress since 1891—Insufficiency of the means adopted to moderate this increase—The Budget Extraordinary and the Special Legislation Budget. Causes of this increase of national expenditure—The increase of administrative requirements caused by an increasing population; this is the most natural cause, and that most easily justified—Increase of the public debt—The intervention of the State as the promoter or guarantor of important public undertakings—Exaggerated military expenses. The total sum of national, provincial, and municipal expenses. The proportion per inhabitant—Comparison with other foreign countries in the matter of administrative expenses. The national revenue—The revenue as organised by the Constitution, and its analysis—Indirect taxation—The customs the chief source of revenue—Direct taxation; its origin in the Argentine; its justification; its yield—Revenue of the industrial undertakings belonging to the State: railways, sewers, posts and telegraphs—The exploitation of the State lands. Elasticity of the receipts, which follow the development and progress of the country—The accelerated increase of expenditure, and the resulting chronic deficit—Necessity of serious reforms. The phenomenon of an increase in the national expenditure: a phenomenon which makes itself felt under monarchies as well as under republics, in those countries which have long centuries of life behind them, as in those whose independent existence has barely begun: this phenomenon is felt in the Argentine Republic more keenly than in the older nations of Europe. Our book would present a serious lacuna if we did not, before speaking of the increase of the Argentine budgets, inquire first of all, as closely as we can in a work of information, what are the causes which have led to this continual increase in the national expenses. We must know, in short, whether this increase is due to general causes, produced by administrative necessities, and connected with the mere progress of the country, or whether on the contrary it arises from special factors, peculiar to the social and political conditions of the country, and to the Not to go back too far in our retrospective study, let us take as a point of departure the year 1891, which year is a veritable landmark in the history of the Argentine people, since it was in that year that the political and financial crisis which broke over the country attained its greatest intensity. We find that in 1891 the expenditure authorised by the national budget—not the expenditure actually effected, with which we shall deal further on—amounted to $41,230,349 paper and $20,315,446 gold, or some 31 millions in gold, or £6,200,000. Five years later—in 1895—this expenditure had increased to $76,000,000 paper and $15,000,000 gold, or $37,000,000 in gold, or £7,400,000. Since then, with rare exceptions, the budgets have followed an ascending scale. If, indeed, we concern ourselves with the sums actually realised, instead of those proposed by the budgets, we find that the amounts of the later budgets are these: in 1898, $75,000,000 gold and $119,000,000 paper, or $121,000,000 in gold, or £24,200,000; in 1899, $31,000,000 gold and $104,000,000 paper, or $77,000,000 in gold, or £15,400,000; in 1900, $24,000,000 gold and $105,000,000 paper, or $69,000,000 in gold, or £13,800,000. Reducing to gold the sums estimated in paper, we find that since 1901, that is, since the time when the value of the currency was established on a fixed basis, the following sums have been expended: in 1901, £14,200,000; in 1902, £17,600,000; in 1903, £15,600,000; in 1904, £17,200,000; in 1907, £20,200,000; in 1908, £20,200,000; there has thus been a rapid progress. The budget for 1909 amounts to $270,000,000 paper, or £23,812,800. In this total are comprised two items: one of 15 millions of piastres in paper, value £1,320,000; the other of 3 millions, or £264,000, which are set aside to meet the expenses of the fÊtes of the first Centenary of the National We ought here to remark that these figures do not include the sums realised by the Government by means of the issue of stock: a procedure which constitutes an interesting chapter of Argentine finance. We see, from these data, that the increase of the national expenditure is a constant, almost an inevitable factor, which occurs year by year in the Argentine administration. It now remains for us to inquire if unavoidable causes exist which force the State to spend without reflection, and, when funds are lacking, to contract loans which grievously burden the future; or whether, on the contrary, we have here a fault rooted in the soil of new countries which have no serious administrative traditions, and in which the spirit of order and economy has not yet grown to the stature of a national virtue. In the Argentine Republic the increase of public expenditure responds to causes which differ from those which are active in the countries of Europe; though we do not say that the latter do not also exercise their influence. A new country, inhabited by a sparsely-settled population, in possession of a rich but desert territory, its economic organism as yet barely developed, the Argentine has not yet produced a class of men practised in and prepared for practical administration. It is, on the contrary, afflicted with undisciplined political parties, full of impatience and of ideas of progress which cannot be immediately realised. It is not surprising that in the Argentine the increase of public expenditure responds to causes unlike those to be observed in other States, which number the years of their lives in centuries; which enjoy perfected administrations, possess a large class of men prepared for the science of government and finance, and whose needs, far from increasing, tend to restrain such expenditure. So, considering the question under its most general aspect, we believe we shall not depart very far from the truth if we suggest, as the causes which produce the constant increase of the Argentine budgets, the following facts: A brief examination of each of these causes will suffice to show that they have been truly presented, and will also demonstrate the degree in which the phenomenon we are studying exhibits itself. The influence of the first factor is assured and indisputable; it is enough to enounce it; it will be admitted without further criticism. The increase of the Argentine population, although it is not precisely all that might be desired, because it is not equally distributed, being larger on the coast than in the interior, is none the less considerable. The first national census of 1869 gave a population of 1,877,000 for the whole country; that of 1895 gave 4 millions; an increase of more than 2,100,000, or of 4·8 per cent. per annum. Since 1895, although the Constitution orders a ten-yearly census, no census has actually been taken. But according to the most reliable calculations, the population of the Argentine amounts at present to more than 6 millions of inhabitants. It is obvious that an increased population must also mean an increased administrative expenditure, as more telegraphs are needed, more bridges, roads, and railways, a larger police service, more lawyers and judges, and more schools But this is not to say that it is permissible for administrators entrusted with the annual duty of presenting an estimate of public expenditure to do what is occasionally done, with such deplorable results—to estimate also in an exaggerated fashion the increase of the population, in order all the more to inflate the budget. The profound financial crisis, which affected the country in 1890, had no other cause. Everything is risked by the abuses of official expenditure. We have the proof of this in the fact that the economic possibilities of the country have never been so great as in these moments of financial crisis. The continual increase of the public debt is another of the causes of exaggerated budgets. Since the first loan of £1,000,000, contracted by the Province of Buenos Ayres in 1822, which was later transferred to the account of the nation, until the present time, when, if no new loans have been contracted, at least the Government has put into circulation millions of stock which it was holding in reserve, the public debt has done nothing but increase, and in considerable proportions, attaining in 1909 to an amount of $371,000,000 gold and $237,000,000 paper, or £95,000,000 in all; and this, without including the last loan of £10,000,000 contracted by the Government in March 1909. Another permanent cause of the increase of public expenditure is that which arises from the intervention of the State, as guarantor or promoter of costly public works. The Argentine Constitution has very wisely instructed Congress to “promote the introduction and the establishment of various industries and of immigration; the construction of railways and navigable waterways; the colonisation of the lands belonging to the nation, and the importation of foreign capital and the exploitation of the rivers of the interior, by In these sentences the writers were inspired only by the embryonic condition of the country for which they legislated. In the old-established European nations, where great accumulations of capital exist, where everything is done by personal initiative, where the commercial and industrial spirit is highly developed, many of the prescriptions of the Argentine Constitution would be useless or out of date. But here, where capital is only beginning to exist, as a result of the large commercial balance left over from each year of international trade; here where, to use the phrase of an Argentine thinker, “we are naturally rich but economically poor,” the State has to turn to all trades; it has to go into business as contractor, encourage the establishment of industries by means of premiums or bounties, and stimulate the introduction of capital and of immigrants. The last of the causes we have cited as determining the increase of public expenditure in the Argentine, is the increase of military expenses. We do not here refer to the extraordinary expenses which the Government had to support for a number of years, in order to acquire the elements of naval and territorial defence wherewith to meet the possible aggressions of a neighbouring State, but the ordinary annual expenses for the upkeep of the army and the navy. Up to 1902 these expenses followed a scale of accelerated increase, and the country met them as a necessary sacrifice, dominated by the conviction that by this means it could evade the greater calamities of a war; and quieted at the same time by the promises which were given that once the danger had passed the expenses would naturally decrease. Unhappily it was not so. Although the international horizon was clear of the cloud which had threatened to disturb the tranquillity of the country, the army and navy estimates showed no signs of abatement; on the contrary, they showed a tendency to increase. Thus in 1902, when the international question was in an acute stage, and a rupture was momentarily expected, these estimates amounted to £2,816,000. Now, in 1909, with peace and tranquillity reigning on all sides, the war-budget still amounts to £1,980,000, and the naval budget to £1,452,000; or to more than £3,400,000 in all. We repeat that these are ordinary, not extraordinary budgets, whose amount is always considerable, and which have to be met by means of sums raised by special financial laws, or authorised by simple resolutions of the Cabinet or Council of Ministers. To these military expenses we must add the sums required to pay the retiring gratuities of officers, and these already amount to a veritable army. These gratuities, granted under the provisions of an irrational law, have contributed to deprive the army of a large number of soldiers who might still be serving with honour and distinction. But large as these expenses are, they are altogether eclipsed by the exorbitant sum of £14,920,000 voted by Congress in 1908, which, divided into eight annuities, is destined for the purchase of munitions of war, ships, etc. The Argentine, by consenting to such expenses, which are as excessive as they are unjustified, is thus deliberately entering upon the policy of armed peace, which has produced such lamentable results among the nations of Europe. The figures we have already given, which relate to the National Budget, represent a portion only of the expenses which weigh upon the inhabitants of the country; for they do not include those amounts requisite for the support of the provincial and municipal administrations of the entire Republic. The amount of all the budgets together—national, provincial and municipal—amounted, in 1908, to £29,200,000. Each one of the six-million inhabitants of the Argentine must thus annually contribute nearly £5 towards the support of the public administrations. But in reality this contribution is still heavier, as the expenses which figure in the budget are only a part of the administrative expenses, and we must still add the expenditure authorised by special laws or resolutions of the Cabinet. This proportion of £5 per inhabitant is enormous; to understand how large it is, we must compare it with the amounts charged in other and more advanced countries. On Commenting upon this abnormal situation, a sometime Minister of Finance remarked some years ago, in an official document which attracted attention by the energy and sincerity with which it was written:— “Our budgets have constantly increased of late years. It is notorious that the personnel of the Administration is excessive, just as it is notorious that useless and expensive sinecures have been created, with the sole object of giving places to persons whose influence has been such that the State has undertaken to support them. Bureaucracy is increasing; industry, commerce, and all the spheres of free endeavour and of individual effort are abandoned by the sons of the country, who seek salaried employment or the exercise of intermediary professions which demand no effort. The number of young men who waste their time in seeking a place, instead of devoting their activities to work, in a country which offers wealth to all who will employ a little energy, a little perseverance, is surprising. But all want an easy life, even though it be poor and without horizon; all wish to live on the budget, and in order to gain their object they exhibit all kinds of ingenuity; they go seeking recommendations, and employ every means at their disposal. “This host of pertinacious beggars of place results in the creation of new employments and new services, all equally useless. The national and provincial administrations pay more than $65,000,000 in salaries and pensions. Each inhabitant contributes six golden dollars—£1, 4s.—towards the upkeep of an army of employÉs, which is an enormous sum. The public services of other countries cost, per inhabitant: in Switzerland, 4s. 9·6d.; in the United States, 6s. 4·8d.; in England, 8s. 2·88d.; in Holland, 9s.; in Austria, 11s. 2·88d.; in Belgium, 12s. 0·48d.; in Germany, 12s. 0·96d.; in Italy, 15s. 9·6d.; and in France 19s. 2·88d. These figures, taken from Paul Deschanel’s work on Decentralisation, show us that we have outstripped all other nations in the matter of expenditure on the administration; even France and Italy, “We must check this avalanche by suppressing all useless employments and all superfluous services. It is essential to turn our young men aside from their present path, in order that necessity shall force them to exercise their energies in the vast field which is offered them by a new country, full of natural wealth, with a fertile soil and a benign climate.” The reaction which SeÑor Rosa, in his genuine patriotism, had hoped for, took place a little after his departure from the Ministry of Finance; but unhappily its direction was the reverse of that he anticipated. We have examined the expenses of the public administrations; we have measured the weight of the public debt; we must now examine the treasury receipts, in order to discover what are the most important sources of the revenues which fill it, and what elasticity they possess. The Argentine Constituents, after having explained, in the sententious preamble which serves as a preface to their great political code, what place was theirs who were building the great edifice of the State, turned to consider from what sources the revenues for the Treasury might be drawn, in order to satisfy the necessities of the administration of the country. To this effect they enacted that these resources should be: “The taxes upon imports and exports; the sale or allocation of lands forming part of the national territory; the postal revenues, and the other taxes, which the General Congress will impose equitably and in proportion to the population; also such loans and credit operations as the same Congress shall decree for the urgent needs of the nation, or for undertakings of national utility.” (Article 4). Has the foresight of the Constituents in establishing these sources of revenue been justified? or, in other words, were the elements of revenue created by the fundamental charter efficacious? A little study of the system of Argentine revenue will show that of all these sources enumerated, the only ones that have a permanent and fertile existence Besides the sources appointed by the Constitution for normal requirements and ordinary periods, the same charter enumerates another source to be resorted to in exceptional cases or for purposes of defence, when the common security and the general welfare of the State may demand it. This source is the imposition of “direct taxes, during a fixed period, and equally proportioned all over the Republic.” It follows from these limits that the principal effective source of revenue intended by the Constitution to form the Federal Treasury is that of indirect taxation. So far the new fundamental code has not only followed the example of the principal nations, and hearkened to the counsel of economic science, but has also put into effect an eminently practical and far-seeing procedure. SeÑor Alberdi, who of all writers has most profoundly studied the system of revenue established by the Argentine Constitution, has stated that indirect taxation is the most fruitful fiscal resource, as is proved by the customs revenues, which are relatively greater than those of all other taxes put together. The indirect tax, adds SeÑor Alberdi, is relatively the most equitable, as every one pays according to his tastes and his powers of consumption; the foreigner as well as the son of the soil. As we have seen, the Constitution was far-seeing and lucid in its definition of the character of the revenues of the National Treasury: that is, in fixing upon the customs duties, the sale and allocation of land, the products of the Posts, and other contributions to be imposed by Congress for normal situations in a proportional and equitable manner; and also in deciding upon the imposition of direct taxation for determined periods, and relatively equal all over the country, for exceptional and abnormal times. According to the commentator quoted above, when the Constitution left Congress the faculty of establishing, equitably and in due proportion, taxes of other kinds, and abstained from naming them or limiting them to a fixed number, it was because it wished to give the legislature the right of adopting all those recognised by economic science, in order that they might be imposed according to the principles of the Constitution itself. If we now cast an eye over the table of the national revenue, we shall see that in 1908 the nation collected, in the form of direct taxes, the sum of £583,344; in the form of indirect taxes, £4,803,920; for the remuneration of services, a sum of £1,023,440, which had not the character of direct taxation; as the usufruct of land belonging to the national domain, and the profits of national undertakings, £2,510,240; and as capitation fees, £8,000. We must also include in the receipts the sums contributed by some of the provinces, and by the National Bank, to the service of the national debt; guaranteed, on their account, by the National Treasury. If we add together all these sums, which for one reason or another were placed to the account of the nation in 1908, we arrive at a general total of £22,392,160. This revenue may be analysed as follows:— The group of direct taxes is formed by the land-tax of the city of Buenos Ayres and of the National Territories, which figures in the balance-sheet as a sum of £320,320. In reality the product of this tax is greater—amounting to more than £616,000—but the nation is by law compelled to give a certain proportion of this sum to the Municipality and another to the National Council of Education; what remains when these obligations are satisfied belongs to the Government. The commercial and industrial licences of the Federal capital and the National Territories form the second class of direct taxes, their yield being £245,520; but, as in the case of the land tax, the Government has to give part of this sum to the city and part to the Council of Education. The indirect taxes are those which produce the largest yield: they include the customs duties upon imports, which in 1908 yielded £12,036,000. The consular duties brought in £100,000; stamps and fees accounted for £118,000. Besides the resources furnished by the indirect imposts of the customs, there has since 1891 existed in the Argentine another kind of indirect internal duty, which is charged upon consumption, and which every day acquires a greater importance, in proportion as the country is developed and as wealth and population increase. These duties were established at a critical moment of the country’s history, and they mark a degree of evolution in the financial system of the country. In 1891, when the liquidation commenced of the great financial crisis which had completely overturned the economic organisation of the Argentine, the strength of the country was broken, the Treasury was empty, and there existed a public debt which was all the more grievous in that the paper currency was absolutely inconvertible, and decreased in value daily, in the midst of all the difficulties which characterised that terrible time. This overwhelming situation resulted in the establishment of indirect internal imposts; that is, the branch of taxation which is levied on the national industry and national production; but which is, in all contemporary nations, one of the most fruitful sources of revenue; the more so as its collection demands few sacrifices on the part of those who pay it. The realisation of this fortunate idea, which effected an important innovation in the revenue system, was due to the administration of SeÑor Carlos Pellegrini, in which Vincent-Fidel Lopez was Minister of Finance, and was perhaps the most important and meritorious act of the administration. During this first year of 1891, the receipts furnished by this branch of taxation did not attain to the expected results; they amounted only to £224,682, distributed as follows: Alcohols, £123,511; beer, £23,549; matches, £76,617; banks and companies, £982; total, £224,660. Out of a total collection of $75,501,077 paper and $497,120 gold, or £6,743,518, the yield of internal duties amounted only to 3.29 per cent. Four years later, after the administration of internal duties had undergone considerable modifications and improvements, so that the system of collection had become more exact, these imposts furnished the Treasury with £676,946, which out of In 1897 the budget voted by Congress increased the general revenue to be collected to $33,492,000 in gold and $47,835,000 in paper (deducting from this last sum 12 millions of paper produced by the shares of the National Bank and 2 millions as the profits of the Bank of the Nation), or in all $148,000,000. The yield of internal duties had increased to $19,360,000, or 13 per cent. of the whole revenue. In 1908 the domestic imposts produced £4,000,000, or 17 per cent. of a total collection of £22,400,000. The chief element of this revenue was furnished by the duty on the consumption of alcohol, which produced £1,496,000. The tobacco duty came second with a yield of £1,760,000. Matches yielded £269,000; beer, £308,000; insurances, £61,600. These figures show how rapid has been the increase of the revenue from internal duties on consumption. If we disregard that portion of the revenue which is raised by imposts, and examine the yield of the industrial undertakings exploited by the nation, we shall find that as yet they are far from constituting any real resource for the Treasury, and far from compensating the large amounts of capital employed. Comparing the yield of these undertakings with the working expenses, we find that the balance, as a general thing, is on the losing side. This is the case with the four railways belonging to the nation, whose yield, in 1905, was £1,012,000. The working expenses, the renewal of rolling-stock, and repairs of the permanent way, completely absorbed the revenue. We must hope that this ruinous state of things will disappear presently, when the network of State railways is completed, and the lines unite important centres of production, and the system of administration is perfected. After this miserable result we may point with relative satisfaction to another important industrial undertaking of the Government: the sanitation works of the city of Buenos Ayres. Apart from the hygienic advantage, which is already very evident, the financial results are worthy of attention, as they show that this undertaking will very shortly cover, if The ordinary working expenses of this undertaking amounted in 1908 to £258,202, while the revenue amounted to £673,200. This left a balance in favour of the Treasury of £415,000, of which a great part was employed, by virtue of special laws, in the enlargement of these works, which enlargement will still further increase the revenue. The financial result of this undertaking is a conclusive proof that such enterprises, when directed with method and intelligence, are always profitable to the State. The Postal Service, which the authors of the Constitution expected to be a considerable resource, has hitherto given only negative results; the receipts have not hitherto covered the working expenses. The ordinary expenses of the Department of Posts and Telegraphs were £1,144,000 in 1908, while the effective receipts for the same year were only £936,320; giving a deficit of £207,680. In reality this deficit was far greater, because fresh expenditure was necessitated by the construction and repairs of telegraphic lines, and certain purely nominal receipts, arising from the franking of official correspondence, were put on the credit account. If we now proceed to examine the revenue derived from the national estates, we find that its most important item proceeds from the sale and allocation of the public lands. This revenue, which figures among those enumerated by the fundamental charter as forming the resources of the Treasury, has by no means produced what it should, owing to the lack of method or foresight in the management of this important administrative department. In 1908 this source produced only £278,080; and this sum represents a considerable increase over previous years, especially over the year 1904, when the revenue was only £27,368. But when we take the fact into account that the nation still possesses 212 millions of acres of land, which are situated in territories whose population is rapidly increasing, and which will shortly be well served with railways, we perceive at once that these lands, which are a powerful source of attraction to immigrants, may also in time become a very important source of revenue. The revenue derived from the exploitation of industrial One of the characteristics of the present situation of the Argentine is the remarkable elasticity displayed by the increase of the fiscal resources. At the present time few countries in the world present a similar spectacle. Here, more than in any other country, the official revenues are in direct relation to the result of the harvests and the exportation of the products of the ranch; so that the table of fiscal receipts is a kind of infallible barometer, which measures the degree of wealth and prosperity of the general population. If—not to go back too far in our investigations—we take the thirteen years from 1895 to 1908 as an example, and if we convert into gold the sums received in paper, according to the average rate of exchange for each of these years, we find, in the first place, that in 1895 the Treasury received £7,600,000. Since then these figures have increased in rapid progression; passing from £7,600,000 to £8,600,000; thence to £10,000,000; thence to £10,600,000; thence to £14,600,000; but in 1900, through economic causes such as the loss of harvests, anthrax, the closing of English ports to Argentine live-stock, joined to such political causes as the fear of complications with Chili, the revenues fell to £13,000,000. But progress was not long in establishing itself anew; in 1904, the revenue was £15,200,000; in 1907, £21,200,000; and in 1908, £22,400,000, which is the highest figure the administration has ever known. To appreciate this enormous progress at its true worth, we must take the fact into account that it was precisely during these years that the nation released several sources of revenue which had previously been taxed; such as duties levied on the export of natural products, and on natural or artificial wines, and additional duties levied on importations, Thus in thirteen years, from 1895 to 1908, the fiscal receipts have increased by £14,800,000, or by 194 per cent. Such a result cannot but be satisfying, and it would be the most eloquent proof of the intense vitality of the Argentine finances were it not for the still more rapid increase of official expenditure. This also has increased, rapidly and enormously, more often than not exceeding the revenue, and leaving each year a more or less important deficit, which, accumulating from one year to another, has finally to be converted into a consolidated debt, whether foreign or domestic. “The practical result of the budgets from 1863 to the present time,” says an official document, “has been an uninterrupted series of deficits.”[100] In the face of this situation the patriotic advice which the Minister of Finance, J. M. Rosa, gave the Government and the Congress in a memorable document some years ago, is more than ever applicable. “We must do our utmost to economise,” he said, “by restraining ourselves and reducing our expenses to the absolutely indispensable. It is only by applying ourselves to the work of simplifying our administrative services, by suppressing useless formalities and superfluous employments, by scrutinising the least details of the public expenditure, that we shall succeed in making large economies. It is certain that to purge the administration of its ancient vices, to sweep away all useless appointments, to refuse to find vacant places at the bidding of power and influence, and to establish the strictest rules of economy, is a task of no mean difficulty; but we cannot stop to think of the animosity and the vindictive temper which it may arouse when duty renders such conduct necessary.” If Argentina truly wishes, not to compromise her lofty destinies, but to remain a centre of attraction to the labourers or the disinherited children of fate to whom she offers the resources of her fruitful soil; if she aspires to be, in the twentieth century, the great centre of the world’s emigration, as were the United States in the nineteenth CHAPTER IITHE 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:—
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 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. 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, 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. 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 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 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 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:
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. 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:—
Let us see to what extent the interest on this debt weighs upon the Budget:—
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 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. “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 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 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 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 “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.” CHAPTER IIITHE DOUBLE CURRENCY The persistence of the double currency—The history of paper money—The origins of the premium on gold, and its almost continual increase—The year 1890 and the depreciation of the currency—The causes of this depreciation; abuses in the issue of paper, caused by a bad financial and administrative policy. Remedies suggested—Rosa’s law fixing the value of paper money and establishing a Caisse de Conversion—Opposition to this law—Its beneficent effect upon agriculture and stock-raising, which had especial need of a stable medium of exchange—Reserve fund created with a view to converting paper money; its vicissitudes in the past and its present constitution—The present monetary situation. In the financial history of the nations there are few examples of countries in which the phenomenon of two standards of currency has manifested itself so persistently and for so long a period as in the Argentine Republic. This is one of the gloomiest pages of its past, on which are recorded all the errors of its rulers, all the abuses of speculation, and 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 Junta of Representatives authorised a gradual issue of paper money, and another issue of redeemable and endorsable 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, until 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’Escompte, created in virtue of a law of the Province of Buenos Ayres, dated the It was then, with gold at 2500 per cent., that the Government began to recall all this mass of paper, replacing it by another issue, of which the one piastre notes exchanged against 25, or a piastre’s worth of the issue which was destined to disappear. This operation, which at a blow reduced the paper currency to a twenty-fifth part of its original amount, also brought gold to par. In 1861 the depreciation of paper touched its lowest point: 2483 piastre notes were given for $100 in gold. The premium was thus 2383 per cent. But the reader must not take this to be the only surprise that the history of the double standard has in store; others, still greater, remain to be told. In 1862 the depreciation was even lower, the premium reaching 2456 per cent., and 2556 piastre notes being given for $100 in gold. The premium continued to rule high until 1867, being 2569 per cent. in 1863; 2784 per cent. in 1864, 2597 per cent. in 1865, and 2406 per cent. in 1866. We stated just now that the Republic, during a long period of history, never escaped from the inconveniences of depreciated paper save practically on two occasions, which were unhappily of only too short a duration. The first occasion was when Adolfo Alsina was Governor of the Province of Buenos Ayres. The “Bureau of Bank After this period the value of paper money declined anew. In May 1876 the golden coin was worth 28 piastre notes; in June, 30; in July, 33; in December, 29. In 1877 the average value of a golden piastre was 29 piastre notes; that is, 100 piastres in gold represented 2900 notes; in 1878 the ratio was 3187; in 1879, 3220; in 1880, 3055; in 1881, 2706. It was at this time that the second exception occurred, marking another check to the constant depreciation of paper. In November 1881, under the Presidency of General Roca, SeÑor Romero being Minister of Finance, a law was promulgated establishing a bimetallic standard in the Argentine. The monetary unit was to be the piastre of gold or of silver; the first weighing 24.9 grains Troy, and the second 383.8 grains, both being alloys containing nine-tenths of the pure metal. This law also established the metallic conversion of depreciated notes. This operation was a beneficent advance in the economic and financial system of the country; for by establishing metallic conversion it gave stability to the legal instrument of monetary transactions, and also contributed to establish an enviable state of affairs during the years 1883 and 1884, which gave rise to the rosiest hopes for the future. But by an irony of fate the very Government which had suppressed the double standard found itself forced to re-establish it in January 1885. It should be remarked that at this time SeÑor Romero was no longer Minister of Finance. The country being once more abandoned to the miserable system of inconvertibility, the depreciation of paper began its downward progress, recalling the too celebrated case of the assignats, a case one would have thought impossible of recurrence in time of peace and among a people that had suffered no catastrophe for many years. In June 1885 the premium rose to 50 per cent.; in 1886, it was 39 per cent.; in 1887, 35 per cent.; in July 1888 Thus the Republic entered on the year 1890; a year of grave political and financial disaster. On the one hand was the revolutionary movement, prepared by the connivance of part of the army and the navy; on the other hand, the crushing depreciation of paper, ending in an absolute catastrophe which affected both public and private fortunes. In the month of April of that year the premium increased to 215 per cent.; that is, 100 piastres in gold were equivalent to 315 in paper. In July, when the revolution broke out, it stood at 217 per cent. In November the Government which replaced that which had been attacked by the insurgents prohibited the quotation of gold. Nevertheless, the premium rose to 225 per cent, and remained at that figure until December. We must remember that, in spite of the downfall of paper, the economic vitality of the Republic had suffered no serious blow; no war had broken out, no international complication had occurred; there was, in short, no organic cause to which the premium could be attributed. Certainly, the commercial balance was unfavourable; but that phenomenon has not the significance generally attributed to it. The true causes of this crushing state of affairs were exclusively of a financial and administrative nature. It was the inevitable result of the manner in which paper money had been issued to serve the needs of the Government, and to feed the furnace of speculation. One cannot forget that at the end of 1886 the total issue of paper amounted to $80,251,380; that in less than two years it was nearly doubled, amounting to $147,503,911; while in 1890 the paper currency reached the figure of $196,882,500. But this situation, painful as it was, could not be suddenly changed for the better; other causes of a like nature were about to intensify it. The new President, who came into power after the revolutionary outbreak found himself forced, by various circumstances, As was only to be expected, such an issue on the back of the existing paper currency, which exceeded $196,000,000, could only produce a disastrous fall in paper. Its depreciation touched the lowest point in the history of the Argentine, or of any other country during the second half of the nineteenth century; the blackboard of the Stock Exchange showed an exchange value of 464 per cent. or a premium of 364 per cent., in the third week of October 1891. This was the record of monetary depreciation. After 1892 the monthly quotation of gold, in relation to paper, oscillated between 359 and 290 in 1893; 433 and 307 in 1894; 377 and 311 in 1895; 352 and 266 in 1896; 317 and 274 in 1897. We see from these figures that these conditions are abnormal, extraordinary; and yet, owing to their long duration, they are almost part of the normal life of the Republic. It is therefore a matter of interest to study the causes of such phenomena, in order to decide whether they are inherent in the period of transformation through which the country is passing, in which case it would be idle to attempt any reform at present, or whether they can be controlled or checked by the employment of means counselled by science and confirmed by experience. According to the judgment of certain persons who have devoted themselves to the study of economic questions, the causes which, in the Republic, produce the double standard, are of a permanent character, proper to the period of formation through which the country is passing. It is even said that so long as Argentina has not a capital of her own with which to float herself in the full tide of affairs—such a capital as is the result of years or centuries of prosperity—so long will she be a debtor among the nations, and the system of the double currency must continue. We ourselves are of opinion that the causes which have produced, and now maintain the inconversion of the fiduciary currency, are of a very different character to those implied by the above judgment; and that if we consider the economic state of the country at the moment when the Those interested should read the history of the first issues, exposed in a masterly manner by SeÑor Augustin de Vedia, in his work on the National Bank; they will see that the excessive issue of notes cannot be explained or justified by the period of economic formation which the country has passed through. We must search for other causes in order to explain this long and unfortunate period of inconversion, which lasted, with a few years’ respite; from 1820 down to 1905. What, for example, were the reasons which determined the premium on gold in 1885, under the first Presidency of General Roca? Was it, by any chance, that any economic calamity fell upon the country? Were the harvests lost? or was there a foreign war, or even one of those revolutionary risings so common among the South American nations? Did the germs of some epidemic invade the country, decimating the population by disease and poverty? Was there any violent and ruinous fall in the market prices of Argentine products? Nothing of the kind befell. The Government itself, in the message in which it solicited the ratification of the double standard, that “the national production, the valuation and the degree of culture of the soil, had consolidated the national credit.” The crops were abundant; and their prices, in foreign markets, were more than fair. The Republic was at peace, at home and abroad; thus realising one of the dreams of the paternal administration which directed its destinies. As for the public health, it suffered no perceptible eclipse in all the Argentine Territory. It has also been said that the commercial balances were unfavourable to the Argentine: a country at once a debtor and a centre of immigration. And it has been asserted, too, that the Republic suffered from a sudden increase of growth, without having behind it any reserves of accumulated capital. The affirmation that the depreciation of the currency, and in consequence the establishment of a double standard, arose from unfavourable commercial balances, has no scientific basis and is not supported by precise demonstration. “None of the countries which have suffered the misfortune of a depreciated currency have reached that condition purely on account of adverse balances,” as a Spanish economist, SeÑor Edouardo Sans y Escartin, has said with justice. All countries have suffered from this evil, on account of monetary changes, and the Argentine is only the latest example. France towards the end of the eighteenth century, England from 1797 to 1821, Austria and Russia since the beginning of the last century, the United States from 1862 to 1878, Italy since 1875, Paraguay since 1870, and the Hispano-American Republics for the last twenty-five years: all these countries have suffered from monetary perturbations, some through the abuse of paper money or the excess of the fiduciary circulation, others through the variations of the relation of gold to silver. In none of these countries did the crisis take the form of the consequence of unfavourable commercial balances. We find, in fact, that it is not the case that economic causes, resulting either from the formative period the country has traversed, or from its lack of accumulated capital, have contributed and are still contributing in the Argentine Republic to prolong the system of inconversion; the causes are exclusively financial and administrative, as we have already maintained. Having glanced at the circumstances which have determined the state of monetary inconversion which has afflicted the country ever since it became a nation, we must now Every presidency has declared its firm intention of redeeming or reducing the paper currency in circulation; but none of them has obtained results that we can really regard as final. Of all the attempts to terminate the condition of inconvertibility, to give stability to the currency, and to prepare, in a more or less proximate future, for the establishment of a sane monetary system, the most earnest and scientific, and that which had the happiest results, was that which emanated from the proposal presented to Congress in August 1899 by the ex-Minister of Finance, SeÑor JosÉ-Maria Rosa, which has since then become law: the present law of the conversion of the fiduciary currency. The scheme of reform of this eminent statesman was worked out on the following basis:— 1. Immediately to fix the rate at which the future conversion would be effected, in conformity with the actual and contemporary value of the currency. The fixing of a definite rate was necessary in order to consolidate the then existing state of affairs, to suppress the premium, and to give transactions a positive basis, without indefinitely retarding the possibility of conversion; and also to prepare for the liquidation of old issues, and to deliver the country to some extent from the gigantic burden of its issues. 2. To form a large metallic fund to guarantee this conversion and to make it possible for money to become stable during this period. 3. To maintain a fixed standard by these two means:— (a) The creation, in the Caisse de Conversion, of a bureau operating as an automatic regulator, in conformity with the tightness or slackness of money, and according to the necessities of the market; thus making elastic the paper currency, the circulation of which might increase (b) The intervention of the Bank of the Nation in matters of international exchanges. It was on these lines that the Minister drew up, and Congress adopted, a law which enacted that the nation should convert, during a fixed period, at a convenient time, the whole fiduciary circulation into Argentine gold coinage, at the rate of one paper piastre for 44 centavos of a gold piastre. This same law ordered the formation of a Conversion Fund, with resources which it enumerated; and finally it established in the Caisse de Conversion a bureau for the exchange of paper into gold and vice versa to all who might apply, at the rate of one paper piastre for .44 of a gold piastre. Few laws have been so beneficial as this law of monetary conversion was to the Argentine Republic. The present prosperous economic conditions of the country are the work of this law; it constitutes the glory of Roca’s Government, which gave it birth and enjoyed its first fruits. Yet we must emphasise the fact that this law, so beneficial to the public, was at the outset repudiated not only by the President, who, to avoid subscribing to it, forced his Minister to send in his resignation, but also by the principal organs of the press, at the head of which was that important journal La Nacion, and again by the Professor of Finance at the University—M. Terry—who was all for conversion on a sliding scale; that is, for the worst method conceivable, as by maintaining the condition of instability he would have adjourned the question instead of solving it. But thanks to the rare energy and the intelligent propaganda of SeÑor Rosa, the sole author of the law, effectually supported by Senator Pellegrini and SeÑor Tornquist, this important step was accomplished, despite all the obstacles which barred the way. In a very short time this law, so strongly opposed before its birth, produced marvellously beneficial effects upon the economic life of the Republic. It gave stability to the currency; that is, it endowed the Argentine with one of the To be convinced of this fact it is enough to run the eye over the column of metallic quotations on the Exchange, published in the “Statistical Annual of the City of Buenos Ayres.” This law has killed speculation on exchange values, which before it was passed had assumed scandalous proportions, and went far to developing throughout the country that passion for gambling which is even now a corroding cancer at the heart of the young Republic. This law also provided for the formation of a Conversion Fund, which was a powerful factor—si vis pacem para bellum—in the pacific solution of the old frontier dispute with Chili. This fund amounts to-day to £5,100,000 deposited in the Bank of the Nation, and would, without this far-sighted law, have been swallowed up in the whirlpool of administrative expenses. Lastly, the law of monetary conversion has been the salvation of agriculture and stock-raising, the two chief sources of national wealth, by preventing the too rapid change in the value of paper, which is a result that deserves to be considered with attention. The law was promulgated at a time when a large harvest was expected, and when, from that very cause, the depreciation of paper violently increased, the value falling from 278 in August 1898 to 206 in December of the same year. It is certain that at this rate the depreciation would finally have touched 150, to the greater profit of the speculators. What would have happened had the monetary situation We need not describe the disaster which would have overcome the country under such conditions as these: the loss of credit both at home and abroad. The stream of immigration would have been suspended; emigration, on the contrary, would have increased, taking the form of a veritable exodus, even of a flight; and each impoverished and disillusioned emigrant, as he left the Argentine, would have proclaimed that the country was ruined. As a result the Argentine would have been for years partially depopulated, or at least deprived of the new recruits which immigration brings in, and of whom it has such need in order to realise the value of more virgin territory. Worse still: once the harvest was sold, at prices which could no longer be calculated on the basis of the cost, gold, now freed from all restraint, like a balloon whose mooring is broken, would have resumed its upward journey. The melancholy spectacle of 1890 and 1891 would have been repeated; gold would have risen by leaps and bounds, in contradictory and incalculable rushes, finally to reach the limits that mean bankruptcy. Such are the disastrous results which would have ensued had not the law of monetary conversion come just in time to restrain the rapid depreciation of paper, and to give money the stability it must possess if it is to be the faithful According to the figures for October 1909 the monetary situation of the country may be summed up as follows:— The total of notes in circulation amounts to $686,291,704 paper, equivalent to £60,393,670. The Conversion Fund of £5,100,000 in gold, added to £34,752,058 on deposit in the Caisse de Conversion and to the £14,073,515 deposited in the various banks of the capital, forms a total of £53,925,573. It follows from these eloquent figures that the fiduciary circulation, notes, nickel, and copper, is guaranteed in Argentina by an actual value of 65.9 per cent. of its total; the notes alone are guaranteed by 89 per cent. of gold. Unquiet spirits from time to time, including the enemies of monetary reform, announce their opinion in the press that this law should be modified. Quite lately the well-known journal La Nacion, which is distinguished by the constancy and fervour with which it attacks this beneficent measure, has opened its columns to an enquiry, in order to obtain the opinion of the public, or at least of persons competent in such matters. Happily common-sense triumphed; the law remains intact, continuing to benefit the whole national economy. CHAPTER IVTHE CAISSE DE CONVERSION The principles on which the establishment of this institution is based—The necessity of a rapid redemption of fiduciary money—The imperfect success of this programme—New issues of notes—New attributes of the Caisse dating from 1899—The exchange of paper for gold and vice versa—The development of this system of exchange—The authority attaching to the Caisse. Among the official institutions which are closely connected with the issue and redemption of paper money, the Caisse de Conversion demands a special place, on account of the important part which it plays in the financial life of the Republic. This establishment was created in 1890, at a moment particularly critical for the credit of the country, when the terrible crisis occurred which ruined several banks and resulted in a depreciation of the fiduciary currency which exceeded all expectation. The Government which presided over the destinies of the country understood that it was necessary, in order to ameliorate such a situation, to put some means into practice which should ensure a more gradual movement of paper, its reduction in no matter what form, and its future convertibility within a short and definite period, as the message declared which accompanied the draft of the law submitted to Congress. In obedience to these excellent principles of financial and banking policy, it proposed the creation of a Junta or a special Directorate, “independent in its action, and uniting the necessary faculties for the recovery, administration, and application of the elements that must be confided to it for the effectual accomplishment of its important mission.” An “important mission” it was indeed that was confided to the Junta by law; for this body was to see the gradual conversion and redemption of paper money, supervise the strict execution of all the laws relating to paper money, and oversee all issues of the same. With the object of effecting, sooner or later, the actual and effective conversion of paper money, the law created a “Conversion Fund,” composed of the metallic reserves of the guaranteed banks, the sums for which these same banks would be debitors on account of the value of stock bought as guarantees, the public funds issued to guarantee the bank issues, and all the sums which, in virtue of other legislative enactments, might be destined to the conversion of bank paper, and especially those proceeding from economies made out of the general budgets. The Executive attached a special significance to this fund, proposing to use it to great advantage in the future; if the succeeding Governments had the wisdom to maintain the elements indispensable to the regular circulation of the national currency. These details prove that the fundamental idea at the bottom of the creation of the Caisse de Conversion was that of effecting, by its help, and by utilising the resources with which it was endowed, a rapid redemption of paper money. This intention, moreover, was solemnly affirmed at home and abroad when the contract was signed with the English bankers for the issue in 1891 of the loan known as the “Funding Loan,” amounting to £15,000,000; in virtue of which loan the Government undertook to withdraw from circulation, during each of the years 1891, 1892, and 1893, $15,000,000 in notes, or $45,000,000 in the three years. Unhappily the Government’s good intentions had no practical issue; the Caisse de Conversion, from the first moments of its existence, found it impossible to fulfil its object. So the proposal to withdraw $15,000,000 a year went no further than a beautiful ideal; it never took definite shape as a reality. In 1891 $1,696,676 in paper were burned; they came from an additional customs duty on certain imports. In 1892 $1,463,424, having the same origin, were disposed of in the same way. Besides this a sum of $3,511,600, provided by the payments made by the National Bank and the Bank of the Province of Buenos Ayres on account of $35,116,000 lent them by the Government in order to help them out of a greatly embarrassed condition, Thus the Caisse de Conversion, from which the Minister of Finance had hoped so much, failed at its birth, and as an institution gave no positive results. So it was not necessary, as the Minister of Finance, SeÑor V. F. Lopez, pleasantly remarked, to await the appreciation of future Governments. But this is not all; instead of redeeming the promised quantities of fiduciary money, the Government which was then directing the destinies of the country—we must believe that it was compelled by circumstances, which are so often more potent than the human will—the Government actually found itself forced to increase the total of paper in circulation by emitting, for various reasons, further issues of notes. Dominated by circumstances, it issued in 1890 $35,116,000, in order to legalise the excess of an issue delivered to the National Bank and the Bank of the Province of Buenos Ayres. In the course of the same year it created an issue of 60 millions more, in order to furnish the National Bank with 25 millions, the National Mortgage Bank with 25 millions, and the City of Buenos Ayres with 10 millions. In 1891 it issued 50 millions in order to found the Bank of the Argentine Nation, and finally 5 millions more for the Mortgage Bank. In short, urged by necessity, the Government created $150,000,000 of paper in two years, which on the top of a previous issue of $161,766,590 in paper was naturally followed by disastrous results. The Government which took charge of the administration in 1892 also manifested, in its programme, its firm intention of increasing the value of paper money by its gradual redemption; an operation which would, of course, be the duty of the Caisse de Conversion. To this end it included the necessary sums in the budget, and $865,426 were burned in 1893 and $8,000,394 in 1894. But the results obtained by this measure were far from responding to the hopes which were founded upon it; although the Government religiously The Government finally saw that its plan was useless; and hastened to explain itself by the mouth of its Minister of Finance, who declared that “the executive power recognises that the withdrawal of eight millions of piastres per annum cannot fundamentally alter the price of our paper; but what it does affirm is that this quantity will be sufficient, provided the production of the country increases, provided that the exports exceed the imports; that is to say, provided that the international balances are in favour of the Republic.” We may say in passing that these two desired factors were realised; but not the expected advantage, for the Government again made the mistake of issuing 15 millions of internal stock, bearing interest (£1,320,000), while at the same time it extinguished another debt, also domestic, which did not bear interest. All these details prove in a conclusive fashion that the original and organic functions of the Caisse de Conversion were inverted from the time of its creation; converting that institution into a factor of depression in all that concerned the paper currency, instead of being the instrument of increasing its value. After this date the Caisse operated as a secondary and harmless department of the public Administration; leading an almost forgotten existence, until the year 1899, when the law of monetary conversion was passed, which entrusted it with two missions of great importance, which were destined to exercise a beneficent influence upon the fiduciary circulation, and therefore upon the economic life of the Republic. One of these two missions had as its object the establishment of an office for the exchange of paper into gold and vice versa, at the rate of 2.2727 piastres in paper for 1 piastre in gold. The other consisted in forming a Conversion Fund, to which more or less important resources were assigned. This fund amounted in 1902 to £2,400,000 in gold, but at a moment when an international complication was believed The Government eventually returned £2,000,000 of this sum, and since then the fund has constantly increased, amounting in 1907 to £5,100,000, as we stated when speaking, in the passages relating to the issues of paper money affected by the Caisse de Conversion, of the results of the application of this new law. The law to which we are referring was put into execution on the 9th of December 1899. On that day the first transaction under the new law was effected; the Caisse received 100 piastres in gold, in exchange for which it returned the equivalent in notes, in the proportion of 44 centavos of gold to a piastre note. The balance drawn on the 31st of December showed the existence of £292.6 in gold. At this same date the fiduciary currency in circulation amounted in all to $295,149,735. Let us now look into the operations of the Caisse de Conversion after this date. During the year 1900 $18,398,449 (£3,679,690) in gold was received; but as this sum was eventually withdrawn the fiduciary circulation soon reached its former figure. In 1901 there was nothing done; that is, the Caisse received no gold. In 1902 scarcely anything was done; £4209 was received, and £3636 was paid out, leaving a balance of £573. The operations for 1902 began in October, during which month the Caisse received £68, 12s.; it paid out £67, 12s., so that £1 remained. In November the takings increased to £1497, and the outgoings were £1466, leaving a balance of £31. In December £2639 were taken and £2102 issued, leaving a balance of £537. Only in 1903 did the operations of the Caisse de Conversion amount to anything. The two principal causes of this state of affairs were, firstly the settlement of the frontier dispute with Chili, a question which had caused serious alarm, and had resulted in enormous official expenses during the few previous years; and secondly the size of the commercial balances. Bearing this in mind, it is not surprising that the amount of gold in the Caisse de Conversion, and, consequently In 1903 £9,208,284 in gold was taken, and £1,576,625 paid out; leaving £7,648,229. The busiest months were April, when £2,519,048 was taken, and March, when the takings were £1,738,395. The largest outgoings were in March and July, amounting respectively to £239,133 and £222,104. In succeeding years the metallic reserve of the Caisse de Conversion has continually increased, thanks to the favourable sense of the economic balances of the nation’s trade, and the capital which has entered the Republic, to be employed in the establishment of new industries, or the creation of railways, tramways, etc. At the time of writing the metallic reserve of the Caisse de Conversion has lately increased to £34,752,058, which, added to the £5,100,000 of the Conversion Fund, gives a total of £39,852,058. The proportion of these reserves to the paper currency in circulation is to-day 65.9 per cent. According to the law the increase of the metallic balance in the Caisse de Conversion has inevitably caused, as a natural consequence, the parallel increase of the issues of notes, nickel, and silver, of which the amount in circulation increased to $688,177,998 on 31st October 1909, or $393,028,267 more than on 31st December 1899, the year in which the law of monetary conversion was voted, and in which the same circulation amounted to $295,149,731. The rapidity with which the emission of paper has increased has caused certain journals, and especially those which have been prominent in attacking the law of monetary conversion (whose beneficial effects they were yet powerless to deny) to raise cries of alarm, thinking to see in this increase a future economic peril, or the seeds of a dangerous crisis, due to the inflation which, in their judgment, is produced by such issues. But it is easy to prove that these alarms are not justified from the moment when such issues are guaranteed by a corresponding deposit of metallic currency in the Caisse de Conversion. Moreover, a very little reflection will show that one cannot help admitting that this gold, As we may see from these data, the Caisse de Conversion has completely changed its rÔle. It has abandoned its original function, which was confided to it by the law; namely, the redemption of the fiduciary currency and the re-establishment of the monetary equilibrium when destroyed by excessive issues of paper. To-day this institution is merely a purely mechanical department of the Administration, and its functions might be fulfilled, at any rate theoretically, by other administrative departments which are closely connected with it. CHAPTER VTHE BALANCE-SHEET OF THE ARGENTINE ACCORDING TO THE INVENTORY OF SECURITIES The Inventory of Movable Property or Securities—The capital represented by movable properties, stocks, bonds, shares, etc., is the only kind of capital which lends itself to statistics—The great groups of movable properties: National Funds, Railway Shares, Insurance Companies, Foreign Banks, Mortgage Companies, and agricultural and industrial undertakings. The nominal amount of capital represented by movable values—Table of the annual revenues of the same, and the sinking fund—Division of this revenue among the different countries having capital invested in the Argentine. English capital—The importance of English investments in all branches of Argentine activity—The benefits of a reaction in favour of Argentine capital—French capital; its small value compared to English capital—German capital and its rapid increase—Approximate valuation of that portion of revenue remaining in the Argentine, and of that which goes to the various nations having capital invested in the country. The Balance-Sheet—The assets are principally composed of exportation values; the liabilities, the value of imports—The revenue of investments exported to foreign countries, and the total of the sums expended by the Argentine abroad—Table giving a summarised Balance-sheet and the balance in favour of the Argentine—International exchanges and the importation of gold confirm this favourable situation—Argentine capital will presently play a more important part in the country as compared with foreign capital. The Inventory of Movable ValuesThe time has come to sum up our conclusions, and we cannot do better than attempt to present the figures of the movements of the capital invested in the Argentine, and by stating, as far as possible, its yield. We have already had occasion to declare that Europe has not turned her attention to the young South American Republic for sentimental reasons, nor on account of the beauty of her political institutions nor the splendour of her landscapes. What interests To respond to this mental attitude we have thought it proper to undertake a dry and impartial inquiry into the value of the capital invested in the Argentine, and the total of its yield. Capital represented by movable values is the only factor which has in some sense an official existence which is amenable to control; it lends itself to statistics sufficiently precise to allow of our estimating, from this point of view, the wealth of a country; and it is consequently in this direction that we may search for a standard with which to compare the favourable estimates expressed in our preceding chapters on the subject of the development and prosperity of the Argentine Republic. This inventory will lead us to other data, which are equally instructive. In reviewing the movable values and in estimating their yield we shall at the same time examine into the general movement of foreign capital and its earnings, so that we shall be able approximately to state the amount and the profits of the capital invested by the various European nations which have dealt with this country. By the aid of these statistics we shall finally see the situation of the Argentine, which the results of its foreign trade have shown us only imperfectly, in its true light. Although the country has an extremely favourable commercial balance, which in 1908 was not less than £24,000,000, this sum has to support enormous charges for the payment of interest on loans placed abroad: the dividends of railway companies, of banking houses, of all manner of land companies, of commercial and industrial companies, whose shareholders are abroad, etc. etc. These are the sums we are trying to determine, in order to draw up as exactly as possible the balance-sheet of the Argentine. This chapter will therefore be devoted to estimating on the one hand what the country owes to foreign capital, and on the other hand what profit foreign capital draws from its investment in the Argentine. It is to some extent the current The nominal total of Argentine movable values subscribed up to the 21st December 1908 was £474,396,935 (in gold), of which sum £219,513,399 represents shares, £104,502,163 bonds, and £150,381,572 the public debt of the Nation, the Provinces, the municipalities, the capital of State railways, and the capital of the Bank of the Nation. If we compare these figures with the inventory of the movable values existing at the end of December 1904, we shall find an increase of £157,173,555. But if we take account of the fact that in the first amount the cedulas of the Province of Buenos Ayres figure to the value of £15,400,000, while in the second they amount to £10,400,000 only (the amount of shares admitted to conversion by the Government), we see that the difference is considerably greater. This increase does not arise exclusively from the new shares issued by companies created during the last two years; a large proportion is due to existing companies, which have at last decided to furnish the information demanded in view of this new inventory. But a certain number of companies still remain outside the inventory, whose stock would increase the total by 5 or 6 million pounds. Here is the list of the stock in circulation on the 31st December 1908: Summary of Securities in Circulation on 31st December 1908, and their Subscribed Capital.
The largest group of investments is constituted by the capital represented by the private railway companies, which amounts to £178,000,000, against £111,600,000 in 1904. This capital increases daily, and considering the development of the network of railways all over the country, it is not fantastic to prophesy that in a short time this sum will reach the figure of perhaps £200,000,000. The second large group consists of the securities representing the External National Debt, which on the 31st December 1908 stood at £62,900,000, or £7,400,000 lower than that of the debt in circulation on 1st July 1905. This diminution arises from the redemption of bonds by means of the 6 per cent. Funding Loan, of which the total was £5,600,000. If to the amount of this debt we add the sums represented by the external debt of certain cities, the internal debt of the nation, and the internal debt of some of the Provinces, we find that the entire Argentine National Debt forms a total of £130,000,000. We need not examine at greater lengths the composition and value of these two groups of securities, as we have already dealt with them in special chapters. As for the insurance companies and foreign banks, any estimate of their capital is difficult; but it is otherwise in the case of the mortgage companies. The capital which these companies have invested in the Argentine is now of a nominal value of more than £16,500,000. But this is only a small portion of the foreign capital invested in mortgages in the Argentine; for the high interest earned by this class of investment, which a short time back rose to 10 per cent., has attracted large sums of foreign money which have been invested privately. SeÑor Tornquist estimates the foreign capital thus put out in mortgages at £9,000,000. We must call attention to the interesting fact that the amount of foreign capital invested in the agricultural and other rural undertakings of the Argentine increases day by day. At the end of 1908 this capital amounted to £8,726,037, of which the greater part was the property of British subjects, who first devoted their energies to agriculture and stock-raising in the Argentine a comparatively long time ago. It is the English who have been the most active Among the industrial undertakings, that which has of late years assumed the greatest importance is the frozen or chilled-meat industry—the refrigerating industry. There are now nine refrigerating establishments, with a subscribed capital of £3,993,915. Other industrial undertakings, such as sugar factories, breweries, quebracho mills, and mines, are beginning to take a significant place in the list of Argentine securities. The nominal total of all movable values being estimated, at the end of 1908, at £474,396,933, the question which now occurs is, What is the annual yield of these securities? This is the most difficult point of our inquiry, and one we can answer only by approximate estimates. While it is simplicity itself to calculate the interest on the bonds of the public debt, whether external or domestic, it is anything but easy to calculate in all cases the dividends paid by each company to its shareholders. Some companies do not publish balance-sheets, and others confound the profits realised in the Argentine with the profits earned by their foreign houses or headquarters. As far as our present knowledge goes, the revenue of the securities we have mentioned may be estimated to be as follows:— Annual Revenue, of the Securities of the Argentine Republic, 31st December 1908.
Now what, approximately, are the amounts of securities or movable values belonging to foreigners and to natives of the Argentine? Such is the question we must now set ourselves, as one of the most important relating to the country’s future. Blessed with an immense area of territory, mistress of enormous and unexhausted natural wealth, and peopled by only 6 millions of inhabitants, the Argentine is a nation still in process of formation. She attracts men and money from all quarters of the globe; for she promises generous payment for initiative and for labour. From the economic standpoint, then, it is of enormous importance for the Argentine whether the revenue of her securities goes to persons residing in the country, or whether, In the case of a country which exists under the special conditions which affect the Argentine, where there are no accumulations of capital, where the spirit of enterprise is not very highly developed, and where every commercial or industrial undertaking of any importance has to look to the outer world for support, the total of the sums which leave the country each year to pay for imported articles, to meet the interest on the National Debt, to pay the dividends on the shares of limited companies, and the profits of private undertakings, the interest on capital out on loan, whether on mortgage or otherwise secured, and finally to remunerate capital invested and employed in the thousand different ways peculiar to this period of rapid intercommunication—the total of all these sums must be very great; something, indeed, like a metallic river rolling across the ocean. So much being granted, the moment has come to present the problem: of the 22 million pounds required to pay the interest on loans, the sinking-fund charges for their redemption, and the dividends of hundreds of companies, what is the proportion which each year leaves the Argentine to become spent or invested abroad, assuring the owners of bonds and shares the best part of the revenue of a distant country, a country endowed with a fertile soil, in which industry has a great future awaiting it? And what proportion of this total remains in the country? To solve this problem, it would be necessary to follow the track of each of the shares or bonds issued, in order to discover the destination of each; and this is what we shall attempt to do, with the help of the principal banking houses and the great commercial houses in financial relations with the outer world. Although all estimates on such a subject must rest upon the slightest foundations, and cannot be accepted as precise statistics, we do not hesitate to give a few figures as an indication worthy of credence, being drawn from the best possible sources. To proceed with due method, let us begin with the most English Capital Invested in the Argentine.
Thus this sum of £291,110,946 sterling represents an annual revenue of £14,258,338. To continue: in seeking to find the true amount of the economic international balance, we should have to include in the inventory of English capital bound to the Argentine by commercial transactions the large number of steamers which run between British and Argentine ports, whose value might be represented by a sum not less than £10,000,000. If this be added to the sum already obtained, we find that the English capital invested in the Argentine or bound to the country by commercial ties is not less than £300,000,000: the revenue of which, estimated at an average of 6 per cent., represents a sum of £18,000,000 per annum, entirely paid out of the production and the economic forces of the Argentine. To test the accuracy of this estimate we may mention that according to a conscientious study of English capital as placed in the principal countries of the globe, a study published in 1909 in the Economist, the sums invested in the Argentine But let us be content for the moment to realise that the known inventoried revenue on bonds and shares belonging to British companies or British subjects residing or situated in England amounts to £14,000,000 after the deduction of the portion remaining in the hands of Englishmen residing in the Argentine; and in the presence of such figures let us meditate for a moment on the social and economic consequences of such a fact. English capital, since the dawn of the organisation of Argentina, has been the great propulsive agent of all national progress. In 1822, when she was still insignificant both in riches and in population, Argentina knocked for the first time on the doors of British capitalists, asking them to lend a million pounds to be used for the construction of a harbour, for the instalment of waterworks in her capital, and for the foundation of cities; projects which were never executed; for it was with this loan as it was to be afterwards with many other Argentine loans. The funds demanded on credit were not employed to further the object for which they were solicited. After this first loan all other Argentine loans were subscribed by British capital. Moreover, no industrial or commercial undertaking has been established in this country but it has gone to seek the breath of life in the financial houses of the City. Professor Eteocle Lorini said with reason, in commenting on this fact in his book, Il Debito Publico Argentino: “All the industrial, commercial, agricultural and mining companies which furnish our Argentine statistics bear the foreign mark, limited; so that one ends by getting the impression that one is studying a purely English colony, for one finds this limited upon all species of manufactures; limited after the statement of capitals; all undertakings are limited; insurance is limited; the circulation and distribution of Argentine wealth is limited.” Whatever may be the importance of the limited company, it is by no means to the interest of the Argentine to declare war upon foreign capital; she should, on the contrary, Professor Lorini, whom we have just quoted, is of the same opinion. “We are certainly not of those,” he says, “who complain of the introduction of foreign capital. The more the latter is imported, the more it gives employment, and increases yet more the wealth and welfare of the country. But we must also add that as more capital arrives from without, so the payments which the country has to make for the use of it grow larger, and for this reason the whole financial policy of the Government and the Argentine should have as its object the introduction of the severest economy and the greatest possible thrift; not only that engagements contracted may be honourably met, but that in course of time we may form a national capital, capable of competing with foreign capital, of reducing its pretensions, and even of replacing it little by little, should the latter, for any reason whatsoever, be compelled to emigrate in virtue of causes foreign to the economic laws of the country.” After England France stands in the first rank of those European nations which have had faith in the future of the Argentine, and have risked the investment of their capital in this young and wealthy state. Unhappily the total amount of French capital invested has not been augmented, as one might have hoped, by the political and commercial ties which for many years have united the two countries, or by the fertile opportunities which the Republic has to offer to the activity and enterprising spirit of the Latin races. The nominal total of Argentine securities quoted on the Paris Bourse amounted, on the 31st of December 1907,
To prevent an erroneous interpretation of the above figures, it should be stated that this total does not represent the value of the securities actually held by Frenchmen, but only the securities quoted on the Bourse, which is a very different matter. For example, the French Bank of the Rio de la Plata figures in this total to the extent of £2,400,000, the amount of its capital actually subscribed, although scarcely a quarter of it circulates in France. On the other hand there is a very considerable quantity of Argentine securities belonging to capitalists or investors living in France; securities which are not quoted on the Bourse and are not deposited in any bank. We may cite as an example the last loan of £10,000,000, issued under the title of “Internal Argentine Credit 1909.” Of this amount £3,400,000 was subscribed in France, yet the bonds of this loan, on account of a difference with the French Government, have not yet been quoted on the Paris Bourse. We are thus justified in concluding that the amount we have given as representing the value of the stock held by Frenchmen—£78,998,854—is approximately correct; and that the two factors which affect the matter in opposite senses may be taken to cancel one another. We must also note the fact that the majority of Government funds find as large a market in London as in Paris. For example, the 4 per cent. loan of 1897-1900, which was entirely issued in London, was only admitted to quotation on the Bankers’ Exchange of Paris in 1903. In the banking department, the shares of the Spanish Bank of the Rio de la Plata and the French Bank of La Plata were only introduced to the Paris Bourse at the beginning of 1908; the principal market for these shares is still at Buenos Ayres. In the transport department, the General Company of We must remember that French influence in the Argentine has been active for a long time and in various ways. It was especially the immigration of the worthy inhabitants of the French Pyrenees which first set in towards the Rio de la Plata, where the Frenchmen invested their energies in many remunerative departments of labour; some becoming farmers, some cattle-breeders, some giving themselves to industrial work, some to trade in the cities; thus contributing to the development of the wealth of the country. The French mercantile marine was also the first to establish and maintain a rapid and easy transport between French and Argentine ports, thus permanently uniting the two countries. As for French commerce, it retained, as lately as 1884, a place in the first rank with regard to the exchange of manufactured articles or the products of the soil, the trade being carried on especially through the medium of the Rio da la Plata; indeed there was a time when French commerce represented 51 per cent. of the total trade of the Argentine, while now it is responsible for only 20·7 per cent. of the total value of Argentine imports and exports united. We may therefore consider that the part played by French capital in Argentine affairs is much too small as compared to the function of English capital, and we must regret that France is not more deeply interested in the great movement towards national prosperity. After France the European nation which has invested the largest amount of capital in the Argentine, and which has fully understood the true importance of the latter country, is Germany. In the remarkable increase and expansion of her industries Germany has not forgotten the shores of the Rio de la Plata. She has entered upon a struggle with England; all her electrical and chemical undertakings have taken root; factories have sprung up due entirely to German capital; a German Transatlantic Bank has been established in Buenos What is the total value of the German capital invested in the Argentine Republic? It is not easy to say with strict accuracy; but according to the very authentic information of certain Buenos Ayres bankers we may reckon that the German capital employed in the banks, commercial houses, estancias, and industrial concerns, and in the German Electrical Company, the electric tramways, etc., etc., amounts to £40,000,000. If to this capital we add that represented by the vessels under the German flag, which maintain an active communication with the Rio de la Plata, obtaining a large proportion of the best clients, the total of the German capital employed in the Argentine amounts to some £60,000,000. With these data in hand, and an approximate knowledge of the amount of foreign capital invested in this country in shares, bonds, and other securities, namely some £384,000,000, as well as its approximate revenue, which in round figures is about £18,000,000, plus £1,600,000 as the general sinking We know that the revenue of the bonds held by the English capitalists, including the sinking fund, amounts to £14,158,337. Again, the amount necessary to pay the interest on the bonds of the National Debt, cedulas, debentures, and shares held by French, German, and Belgian investors, may be estimated at £3,698,779; so that of the total revenue of £18,493,896 produced by the Republic, there remains in the country a balance of £4,287,820. The Balance-sheetNothing is more difficult than to bring together the constituent elements of a national balance-sheet, on account of the complexity of the necessary facts which often escape the net of the statistician. Beginning with the most important elements of this balance, and, so it seems, the most plainly visible—those formed by the movement of exports and imports through the customs—and ending with the most insignificant facts, there are still a large number of factors for which it is impossible to allow. Taking a broad view of the matter, we must first of all observe that the estimates by which we finally decide that that which leaves a country, whether in merchandise or in specie, is of greater value than that which enters it, are extremely arbitrary. The principal means of appreciation is the table drawn up by the Customs Administration upon cargoes leaving and entering the country, but the results drawn from this table are inevitably approximate. On the one hand the declarations upon which the valuations are based are always untrustworthy, as they are made by individuals who are interested in diminishing the actual values of their consignments. On the other hand, they are influenced by a thousand other circumstances which the customs cannot take into account, such as shipwrecks and unfortunate commercial transactions. Moreover, merchandise exported is usually valued by the customs at the moment of leaving the port of embarkation; that is, when it has so far paid only very small sums for It very often follows that in calculating the results of a given transaction, and in supposing, moreover, that the estimates are perfectly correct, we often find a perceptible difference between the comparative figures of exportation and importation, which must be settled (so it is often supposed) by a payment of cash, whereas in reality the whole transaction consists of a simple exchange of commercial products. Besides these general causes of error in the calculation of the principal elements of the Argentine balance-sheet, there are others affecting the Argentine which we might call local, which arise from the manner in which the customs estimate the merchandise imported. We have seen that the Customs Administration bases the collection of duties upon a valuation tariff, the exaggerations of which have given rise to the liveliest complaints. As for the statistics of the exports of national produce, they are based upon the market prices. As for the foreign capital invested in securities, etc., we know its value within a fair degree of approximation. But it is quite otherwise with the large masses of foreign capital employed or invested privately, whether in mortgages, commercial enterprises, urban or rural properties, or in a thousand other directions; we know neither the total amount nor the interest, nor profits which it produces. These profits are a permanent cause of uncertainty with respect to the establishment of the national balance-sheet. Apart from these causes already enumerated there is yet one other which deserves to be taken into account; it consists of the sums which Europeans who are established or have become enriched in the Argentine send each year to their families abroad. We have, unhappily, no means of estimating the importance of this sum. Finally, a cause of inaccuracy which is felt at present as it never has been before, has its rise in the ever-increasing number of natives of the Argentine who leave their country for Europe, their purses well lined, and themselves ready to spend their money in superfluities or luxuries, or in travelling from place to place. According to the information furnished us by the agents of various steamship companies, 10,805 first-class passengers left the Argentine for Europe in 1908, in search of more or less costly amusement. What will one of these rich South Americans spend abroad? How far do the mass of them contribute to increase the sum which the country pays out across the ocean every year? It is difficult to guess; but if we estimate, as we moderately may, that each of them spends about £1000, we may add on this count only a sum of £1,080,500 to the debit side of the Argentine balance. On the other hand, we have not included among the yearly liabilities the enormous sums which the country pays each year in ocean freight charges, because in fixing the sale price of exported products the freight has already been deducted, as well as insurance, brokerage, commissions, the cost of wharfage, etc., etc. But to give some idea of the importance of these sums it is enough to say that, according to estimates worthy of evidence, the Argentine Republic paid in freight, in the year 1908, for the transport of some 6 million tons of linseed, wheat, and maize, at the rate of £1 per ton of grain, a sum of about £6,500,000. These figures having been considered, we may now establish as follows the basis of the economic balance of the Argentine:— The Credit side is formed in the first place by the value of the exports, which in 1908 increased to £73,200,000; then by the great and incessant consignments of capital on the part of already existing companies, or new ones which are formed to exploit railways, tramways, or other industrial undertakings, or to undertake the mortgaging of landed property. An economic journal, much valued in Buenos Ayres, the Buenos-Aires Handels Zeitung, estimates at £8,000,000 the amount of fresh capital which enters the On the Debit side we must first of all place the value of imports, which in 1908 amounted to £54,600,000, including the large arrivals of railway and tramway material which the country has not to pay for immediately, as it obtains them upon long credit; this item is consequently much smaller in reality than it appears at first sight. Then comes the interest on the foreign capital invested in the Argentine Republic in bonds of the National Debt, in railway shares, tramway shares, and various other undertakings. We have seen that the revenue of all these securities issued by or in direct relation with the Argentine Republic amounts to £22,000,000, and that of this sum £4,300,000 remains in the Argentine; we therefore conclude that £18,000,000 leaves the country each year as remuneration for investments. Then we have also to enter upon the debit side a total of £84,400,000 which “seems to leave the country” each year in payment of the debts contracted with foreign countries. But in reality this sum is perceptibly less, for the reasons we have mentioned above, so that we may reduce it to £80,000,000. Now, if we place side by side the Debit and Credit of the nation’s economic balance account, we shall find that in the year 1908 there was a favourable balance of not less than £3,000,000. It is undeniable that this favourable balance has in fact been obtained, not only in 1908 but also in previous years, for there exist two irrefragable proofs of the fact: the rates of international exchange, always favourable to the Argentine, and the uninterrupted stream of metallic currency which flows towards the Rio de la Plata. “The state of exchange,” as Goschen has said in his work on the subject, “offers us the means of ascertaining not only the state of the commercial atmosphere, by indicating the proximity of disturbing currents, but it also indicates them in such a manner that by interpreting them carefully, we may choose “The attentive observation of exchanges,” says the economist Foville, confirming by these words the assertion of the expert just cited, “suffices to indicate to the minds of those competent whether the monetary stock of a country is in process of increasing, or whether, on the contrary, there is an escape of currency towards the outer world. Exchange tells us in which direction bullion is being attracted, at a given moment, just as the weathercock tells us the direction of the wind.” Now if we examine the table showing the international variations of exchange during the last five years we shall find that the latter are on the whole high above par; in December 1906 and January 1907 especially they attained considerable figures which have never since been surpassed. As for the importation of bullion and the visible existence of gold in the country, it will serve our purpose to know that according to the official figures there was on the 31st of December 1907 a total of £29,060,000 in the country, which was distributed as follows: £21,020,000 in the Caisse de Conversion, and £8,040,000 in the various banks, including the Conversion Funds. A year later, on the 31st of December 1908, these figures attained a total of £34,860,000, of which £25,340,000 was in the Caisse, and £9,520,000 in the various banks. But in the course of the year 1909 this upward movement has been even more evident, since the total amount of gold in the Republic on the 1st of November 1909 was no less than £53,800,000, of which £34,800,000 was in the Caisse and £19,200,000 in the banks or the Conversion Fund. It is already therefore certain, if we are to judge by the important consignments of gold actually on the way to the Argentine, that by the end of 1909 the Republic will possess metallic funds to the amount of at least £56,000,000. We have seen what a part foreign capital has taken in realising the economic value of the Argentine and the influence it has exerted in developing the country. It However, placing ourselves at the standpoint of the laws of evolution which preside over the destinies of the nations, we must admit that, in view of the present prosperity of the country, the intervention of foreign capital in the affairs of the Republic must daily lessen, in proportion as a national reserve of capital collects; as has happened in the United States, and in all states which are in the first rank of civilisation. But the term of this economic movement is still far removed, and until the day arrives, foreign capital will in all security continue to find employment in navigation and in public works, and also in those nascent industries which are beginning to exploit the mineral wealth of the Republic. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
