PUBLIC RECORD
OFFICE
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C.O. 882
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PUBLIC RECORD OFFICE. LONDON
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3. Mr. Piggott's description of the financial position of the Colony may, I think, be fairly held to be comprised in the word "desperate" and for a desperate position he proposes what he describes as a desperate remedy.
4. I do not dispute the accuracy of his description, neither do I confirm it. The information in my possession does not permit me to do either. It is possible, and indeed probable, that the description may apply to some estates and to some bailleurs de Fonds, but without a more intimate knowledge of the private affairs of the persons or estates affected than I can claim to possess, I cannot assign the proportion accurately.
5. It seems to me that the first thing is to ascertain the facts, and I will presently suggest how I think this should be done, but I think it well to preface iny proposals by a brief resumé of the position.
6. I have every reason to believe that the Colony is threatened with a finan- cial crisis, the extent of which I cannot at present predicate. The consequences of such a crisis, if it should be as extensive as is feared, have been described by Mr. Piggott, and I have no reason to doubt the accuracy of his description. It is, I think, a truism to state that it is desirable to exhaust every effort to avert such a crisis, provided the measures taken. do not further prejudice the financial position in a manner that would provoke a worse crisis later on.
7. Mr. Piggott in effect proposes two fresh loans which shall be amalgamated in one.
The first a conversion loan, which would redeem the existing advances-in- aid loan and convert it into a loan with a 10 years currency. The present state of the money market is such that the conversion could only be carried out at a loss. That is to say, it would be necessary to borrow money below par to pay off a loan at par. This is certainly a desperate remedy.
8. The second loan would be a loan to improve the machinery of the sugar mills. This has already been proposed in the Council of Government, and, in the debate that took place, I expressed myself as follows:
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No one denies, certainly I will not deny, that the existing factories greatly need amelioration; nor do I deny that the Colony would greatly benefit if the existing factories were improved and brought up to date; nor do I deny that the small planters would benefit by the amelioration of the existing factories. They would get a better return for their canes and a larger crushing. But there are difficulties. In the first place, this proposal has already been submitted to the Secretary of State some years ago. It was then rejected for reasons given. It is not for me to discuss whether those reasons were good or bad, at all events, from my point of view, I accept the fact that it was re- jected. In the second place, I must tell the Council quite frankly that I would not feel myself justified in approaching the Secretary of State and asking for a new loan for the large factories until, at all events, some considerable portion of the existing loans had been paid off. We may, perhaps, in a month or two have a new Governor here; I do not speak for him, I can only speak for myself, but I may say that looking to the financial position generally, I could not, and would not, as an honest man, approach the Secretary of State, with a new proposal for a fresh loan for the existing factories until a considerable portion of the existing loans has been paid off.
"The third objection is more serious. It is that this proposal might possibly, I do not say that it will, but it might possibly, constitute an infringe- ment of the Brussels Convention. Now, the interpretation of that Convention does not rest with me, it does not rest with the law officers of this Colony, it does not rest even with His Majesty's Government, but it rests with an International Committee which sits at Brussels and which contains representatives of many nations, all interested in the sugar industry, and who are naturally jealous to see that no one nation gets an advantage over the other and that no one Colony gets an advantage over the Colonies of another Power."
9. I have nothing to add to these remarks. However desirable, and it is desir- able, that the extraction of the mills should be improved, I consider that as at present circumstanced, the estates cannot give sufficient security to justify a fresh loan to them.
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10. The question then arises whether the Colony is or is not to go into liquidation. For if Mr. Piggott's information is correct this is what it comes to.
11. As I have already stated it seems to me that the first thing is to ascertain the facts. I have, as you are aware, received information from various sources all pointing to a financial crisis in the near future. But this information is general and necessarily to a certain extent conjectural. It is not precise, and, unless I am informed precisely as to the extent and nature of the disease, I find it difficult to propose a remedy.
12. I suggest, therefore, the appointment of a Committee to ascertain the facts. This Committee would of necessity be of a confidential character. That is to say, there should be the same honourable obligation of secrecy that covers the commu- nication between a bank manager and the clients of his bank. The members of the Committee would be under an honourable obligation not to disclose to any person, except the Governor, the nature of the applications made to them or the evidence brought forward in support of them. They would receive applications for delay as from debtor to creditor and they would be at liberty to demand such information from the applicants as a bank manager would require under similar circumstances. Their advice to the Governor would be governed by the same considerations that govern a bank manager in deciding upon similar applications. I think such a Committee might be composed of the financial officers, i.e., the Auditor-General, the Receiver-General and the Collector of Customs. They should be assisted by two gentlemen of commercial experience selected from the Directors of the two banks, i.e., the Commercial Bank and the Bank of Mauritius. They should also have legal assistance and I suggest either a member of the Parquet or the Govern- ment Notary.
13. When the report of this Committee has been received it will be possible to determine:
1st. The amount of the deficit likely to be realised on the payments due by
the planters on the 30th June.
2nd. The measures which may be necessary to meet the payments which must
be made by the Colony in London on the 1st August.
14. I will be glad if you can telegraph your decision on this despatch so soon as may be convenient to you. For it is desirable that the Governor or Officer Administering the Government should have some indication of your views not later than the middle of May.
MY DEAR BOWER,
I have, &c.,
GRAHAM BOWER, Administering the Government.
Enclosure in No. 155.
Chambers, March 25, 1904. I HAD SO much to do with the settlement of the financial crisis in 1898 and again in 1902, that I view the approach of a third crisis with the utmost dismay. The exhaustion of the Treasury balances is fraught with danger: the foreclosure of many mortgages on estates will entail general disaster. To borrow to repay is out of the question. Another remedy for the present evil condition of things have occurred to me. I send it to you quantum valeat, but, for many reasons, in the form of a memorandum and not as an official document.
MEMORANDUM.
Faithfully yours,
F. T. PIGGOTT.
The financial prospect of the Colony in the immediate future is alarming: it
may be briefly summarized as follows:
(1) A large number of estates will not be able to meet the first instalment of
the Advances-in-Aid Ordinance, due 30th June.
(2) The Bailleurs de Fonds will probably be able to pay, but if they do pay, they will not have enough money for the entrecoupe advances to the estates which are dependent on them.
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PUBLIC RECORD OFFICE
Reference :-
C.O. 882
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PUBLIC RECORD OFFICE, LONDON
ALLY WITHOUT PERMISSION OF THE BE REPRODUCED PHOTOGRAPHIC- COPYRIGHT PHOTOGRAPH—NOT TO
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This is not an expression of my personal opinion, but is common knowledge to those who are seriously considering the situation. The inevitable suggestion has been made that the payment of the first instalment should be postponed for two years, from this year, 30th June, 1904, to 30th June, 1906, the second instalment falling due 30th June, 1995.
The consequence of this would be that the Treasury would have to pay the amount due in London. Allowing a large estimate for those estates which may pay, the amount which the Treasury will be called on to pay cannot be less than Rs. 1,000,000. The causes which have brought about the want of money are two- fold: the expenses of erecting tramways and the low price of sugar. There are no signs which might lead one to hope that the prices will be any better next year; the general tendency of the market for some time has been downwards. The ex- penses for tramways will not recur, but there will still be heavy expenses for pur- chasing animals, some being still essential on all estates: and above all the next crop cannot be up to that of the present year. There is, therefore, no intrinsic cause which would tend to increase the profit on sugar in Mauritius.
2. It seems to me that the prospects of payment of the second instalment are no brighter than those of the instalment now falling due. The crisis, therefore, will in all probability recur in 1905, the facts will be precisely identical and there will be no possibility then of repeating the postponement, for the Treasury balances will have disappeared. The postponement for a year, therefore, cannot do more than stave off the evil day: and what is far more serious, there is no certainty that there would be sufficient in the Treasury in 1905 to pay the amount due on the loan in London. The alternative which lies on the surface of things is to allow the law to take its course: as would be said in England, the mortgages would be foreclosed.
3. The security for the advances-in-aid is a contract charge, and if we had only this Ordinance to deal with, the Government might, so far as its security is concerned, not be affected. Nor would the fact that on the estates which were sold there was a second contract charge, under the Mechanical Transport Ordinance, affect the Government position: the laws are so drafted that the Government would only claim the instalments due, and would not look to recover the whole of the principal of the loans.
4. The danger arises in the case of estates on which there is also a Hurricane Loan, with either one or two contract charges. Here there is a mortgage, and the seizure under the Advances-in-Aid Ordinance would inevitably lead to the fore- closure of the Hurricane Mortgage, and, of course, entail the ruin of the estate.
5. I have used the English term "foreclosure" of the mortgage for con- venience. I mean by it, of course, the procedure of sale by forcible ejectment under the law of the Colony. That procedure is sale at the Master's Bar, and if there is no higher bidder, the mortgagee is bound to buy in the estate at the amount of his claim in order to protect his advance, which is then repaid to him out of the proceeds of the sale.
6. There are 42 estates on which there are "advance-in-aid " contract charges, and of these 19 have also Hurricane Loan mortgages. If only 10 estates in this predicament were to go, the result would be disastrous to Government. First, the capital would have to be paid by the Treasury in cash, for the Hurricane Loan, being under Imperial guarantee, is administered by means of a fund, and although under the Ordinance power is given to the Governor as administrator of the fund to buy in mortgaged estates, yet I have great doubts whether the Treasury, which I presume has a preponderating voice in the matter, would be satisfied to have a large amount of the capital locked up in estates. But then there is this further complication, if the Treasury is depleted to pay the amount due on the first instalment in London, it is by no means clear that there would be enough left in the Treasury to supply the purchase price of the estates.
7. This brings me to the second point. These estates in the hands of Govern- ment would be comparatively worthless. I have assumed that Government would have to buy in the estates. The general financial condition of the Colony now is such that even assuming no catastrophe, such as would be the result of many estates coming on the market, it is doubtful whether the amount of the Government mort- gage claim would be covered by outside purchasers. But in the presence of such a catastrophe it is certain that no purchasers would come forward; if it is improbable that there would be any purchasers at the sale before the Master, it is certain that
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there would be none after Government had acquired the property. The Govern- ment would have the estates on its hands; it would be practically impossible for them to be worked with advantage as Government estates, and there would be nothing left but morcellement. In some districts the want of transport and the absence of railways would make the possibility of even this being done effectively more than problematical.
8. But apart from the position of the Government as a creditor, the position of anairs which would result from a compulsory sale of many estates could not but cause it the greatest anxiety as a Government. The unsecured creditors of the estates would lose considerable sums, for the Government, if it were compelled to purchase, would only cover its own claims, and as I have said, there are not likely to be any other purchasers. Some of these creditors would undoubtedly come to bankruptcy, and many smaller bankruptcies would follow; and this again would re-act prejudicially on the Government, as Customs duties would fall off, and many other items of revenue; and, by the estates going out of cultivation, further revenue in the shape of export duty would be lost. I have assumed that 10 of the 19 estates would have to be seized; I believe this to be possible. But even if five only were sold, this would still bring in its train disaster of considerable magnitude, which no one can look forward to without feelings of dismay. The seizure of many of the remaining estates on which there is only an "advance-in-aid" contract-charge, would also cause or add to the disaster; but in these cases there are other mortgagees who would have to buy in the estates, and the unsecured creditors would fare as badly as before.
9. Is there another remedy?
There is, of course, additional taxation; but I put this on one side as it would be putting the financial difficulties of the few on the shoulders of the many. I believe there is another remedy.
The financial position is in so acute a state, that I believe the only remedy would be to convert the present two instalments into 10 annuities, payable half- yearly like the loan for mechanical transport. This by itself seems so unsound a financial proposal that it does not seem possible to suggest it.
10. But there is another element in the situation of the sugar industry which has a very intimate connection with the present crisis. The price of sugar is so low as to leave only a small margin of profit on the working expenses. It is not necessary for the present purpose to go so far as some do and say that the margin of profit has almost vanished, it is sufficient to say that the profits at the present prices are very small compared with those which would have been made even at last year's prices. I do not think I am wrong in saying that it is only the fact of there having been a record crop this year that has saved the Colony. It cannot be hoped that next year's crop will reach the same figure. The financial position of the future depends absolutely on an increased output of sugar. Quantity of sugar will, in some measure, compensate for the poor quality of the price. This increased output can only be obtained by improved machinery, and improved machinery can only be obtained by means of a Government loan.
11. It has been hoped in the Colony that when the advances-in-aid had been paid off, the Secretary of State might possibly be induced to favourably consider the question of a loan for improvements in machinery. The postponement of the payment of this year's instalment postpones for another year the possibility of that hope being realized; a further postponement next year, if it were resorted to, would again postpone this question on which, not the prosperity, but the life of the Colony depends.
Postponement of payment of the instalments means only postponement of a crisis which is inevitable, and which when it comes will be so acute that the Colony could not stand it. The crisis can only be averted by increasing the production of sugar.
12. I believe, therefore, that the only way in which the present position of the Colony can be retrieved and its future assured, is by facing the two aspects of the trouble and by taking some step which will settle both. "And this might be done by combining a conversion of the advance-in-aid instalments with a loan for improvement of machinery and allowing repayment in 10 years (as a minimum) but a longer term if possible. This at least is free from financial objection, because, although part of the loan is undoubtedly to repay unproductive charges on the
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