PUBLIC
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PECORD OFFICE
Peference :-
C.O.882/12
PUBLIC RECORD OFFICE, LONDON
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is obvious that, under such conditions, rates of interest will be high. The chief evil of the system, however, is not high interest but the fact that neither the high rate of interest nor the insuffi- cient security operates as a check upon further borrowing. If the borrowing depended solely upon the resources of the estate it would perforce have to cease when those resources were ex- hausted, When, however, the bailleur de fonds has had to make good the loss to the principal creditor, and to take a charge upon the estate for his future reimbursement, he has himself acquired an interest in its continued cultivation and consequential interest in the further borrowing rendered necessary for that purpose. If it were a case of a single year's loss on a single estate only, he might well hesitate before committing himself further. When, however, in a year of bad prices and widely distributed loss he finds himself involved in the same manner with respect to several estates, his total liabilities will probably induce him to make arrangements for further credit both on his own behalf and on that of the principal debtor, in the hope of an improved situation 'at the end of the next crop year. This course of action is the more likely to be taken even if not dictated by the bailleur de fonds' own interests. So far from being harsh and unconscionable the traditional policy of the bailleurs de fonds towards their clients' difficulties is that of forbearance carried beyond the extreme limit of prudence. In the small white community of Mauritius, closely bound together by the ties of inter-marriage and of long-standing family friendships, the influence of public opinion makes for lenient and sympathetic treatment of debtors, whose insolvency is con- cealed and assisted by further credit often beyond the creditor's own capacity to allow without endangering his own security. As a result of this tendency and of the weakness of the bailleur de fonds' own position under an arrangement which makes him per- sonally liable for his client's default, arrears of indebtedness have been allowed to accumulate on many estates to an extent which in some cases exceeds the whole amount of the realizable assets, including the land itself. With each successive year of low prices the extent of the borrowing becomes progressively greater, until the whole amount of the "faisance valoir," which is the local expression for the total circulating capital to be expended on one year's cultivation, has to be provided from borrowed money at a rate of interest seldom less than 9 per cent. This is the situation at which, we were assured, a very considerable number of the sugar estates of Mauritius have now arrived. In many cases the bailleur de fonds is virtually owner, subject to the prior claims of first mort- gagees, but is himself heavily committed as principal borrower or guarantor on behalf of the estate, which, in the present condi- tion of the market, may have a smaller net realizable value after defraying first mortgage charges than will enable him to discharge his own obligations. For the present, therefore, he continues in
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the role of creditor agent financing the estate, if necessary, by further borrowing to keep intact the fabric of credit which has become essential to his own safety.
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9. It was strongly urged upon us by representatives of the sugar industry and of the local Chambers of Agriculture and Commerce that the Mauritian Government should be advised to meet this situation by an extensive loan-the figure suggested was £2,000,000, approximately equivalent to Rs.27,000,000-to be guaranteed by the Imperial Government, for the purpose of providing capital at a lower rate of interest in replacement of that now held from mortgagees and bailleurs de fonds. The latter would then be paid off and the estate costs of production would be reduced to the extent of the saving in the rate of interest. We are not in favour of this pro- posal, or, indeed, of any proposal for the granting of further govern- The history of such ment loans to the sugar industry of Mauritius. loans in recent years has been a singularly unfortunate one as the following brief summary will show. A loan of Rs.5,000,000 was made in 1926 to be repaid as regards capital and interest by a special export duty of 50 cents per 100 kilos with effect from the year 1927-28. The tax was duly collected for that year, but in the following year was suspended (Ordinance No. 1 of 1929) under an arrangement whereby additional loans, viz., the Sugar Industry Loan (No. 2) of £204,603 11s. 7d. raised in England through the Crown Agents for the Colonies, and the Sugar Industry Loan (No. 3) of Rs.3,400,000 raised locally, were consolidated with the original loan for purposes of repayment of capital and interest by an export duty at the reduced rate of 18 cents per 50 kilos. This sub- stituted duty was collected for the year 1929-30 but was remitted for the year 1930-31, and its suspension has again been sought for the financial year
1931-32. In 1930 the further loan above referred to of £1 per ton of sugar, amounting to a total of Rs.3,025,000, was made from the Improvement and Development Fund, subject to its repayment by means of a special export duty on sugar over a period of thirty years and at such rate as shall thereafter be enacted ". The enactment fixing the rate of duty has not yet been made. Lastly, there is the special Hurricane Loan of the present year of which £500,000 is to go to the sugar industry under con- ditions of repayment which have not yet been fixed. It will be seen, therefore, that in addition to its enormous indebtedness to mortgagees and bailleurs de fonds the industry is already carrying a dead weight of five successive loans amounting to an approxi- mate total figure of Rs.20,000,000, and that at the present time it is unable to pay either principal or interest. In the light of this record the term loun" is becoming something of a euphemism where the Government is the lender. We may here mention that the particular form in which these loans were made appears to be
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