REPORT OF THE AGENT GENERAL
FOR REPARATION PAYMENTS
BERLIN, June 10, 1927

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V. The German Public Debt.

During the period covered by this Report the public debts of the Reich and the States and communes have all shown an upward tendency.

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a. The Public Debt of the Reich.

The public debt of the Reich increased appreciably in 1926-27, thus reversing its earlier tendency.

In February, 1927, the Reich issued its first internal long-term loan since stabilization. The nominal amount of the issue was 500 million reichsmarks, and the bonds, which carry interest at the rate of 5 per cent per annum, mature in 1959 but are, subject to earlier redemption at par, in whole or in part, from February 1, 1937. A sinking fund amounting to 2.1 per cent of the original amount of the bonds, plus the interest saved on bonds redeemed, comes into operation as from February 1, 1934.

The loan of 100 million reichsmarks which the Reich secured from the Post Office in August, 1926, has since been increased to 110 millions.

As of March 31, 1927, the official statement of the public debt of the Reich includes, for the first time, provisional figures for the revalorized paper mark debt, which on that date is reported as amounting to 1,742 millions of reichsmarks. The composition of this figure is further discussed in a later paragraph.

During the financial year ending March 31, 1927, there have also been substantial reductions in many of the Reich's obligations. The nominal amounts redeemed included 11.6 millions of Loan Liquidation Debt; the entire volume of "E" bonds still outstanding, aggregating 87.1 millions; 132.4 millions of the loan from the Rentenbank and 9 millions of the loan from the Reichsbank; and miscellaneous obligations aggregating about 10 millions. The total reduction in the various obligations, in nominal amounts., was slightly over 250 million reichsmarks. In addition, through the operation of the sinking fund, redemptions were made in the various tranches of the External Loan of 1924 aggregating about 11 millions, nominal amount.

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1. Statement of the Public Debt.

The public debt of the Reich at the close of each of the last four financial years is shown in the table below. The figures for 1924, 1925 and 1926 are taken in part from the Finance Minister's annual memorandum on loans. The figures for 1927 and for the revalorized paper mark debt for 1926 are taken from Wirtschaft und Statistik, published by the Statistical Office of the Reich. The table includes for the first time the division entitled "Government Bonds", which covers the revalorized debt and that part of the new 5 per cent loan which was paid in by March 31, 1927.

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2. Revaluation of Paper Mark Loans.

The conversion of the paper mark loans of the Reich into the new Loan Liquidation Debt has progressed since the last Report, and the Statistical Office of the Reich has now published provisional figures of this debt. The work of conversion, however, is not yet complete, and it may still be some time before definite figures are available. The law of July 16, 1925, creates a new obligation of the Reich called Loan Liquidation Debt, and authorizes the issue of the new obligation in exchange for the paper mark loans. The rate of revaluation varies for different classes of paper mark loans, but, in respect of the war and pre-war bonds, the rate is 2 1/2 per cent of the face-value of the paper mark loans. For the later issues the rate is determined by the gold value of the mark at the time of issue.

So-called "old" holders who acquired their paper mar bonds before July 1, 1920, receive preferential treatment. "Old" holders who have exchanged their paper mark bonds are entitled to participate in annual drawings, which, over a period of 30 years, are expected to retire completely the Loan Liquidation Debt of such holders. When the Loan Liquidation Debt of "old" holders is drawn the holders also receive a premium equal to four times the value of the debt which is drawn. Thus revalorization for the "old" holder will bring him 12 1/2 per cent of the face value of his paper mark bonds. Loan Liquidation Debt, where drawn, also carries interest at the rate of 4 1/ 2 per cent per annum on both the debt and the premium as from January 1, 1926. Other preferences to "old" holders were provided in the law; small holders in necessitous circumstances received lump sum payments in settlement of their claims; and other necessitous holders, whose annual income doe not exceed 800 reichsmarks, may receive small annuities for life provided they postpone the drawing rights on their Loan Liquidation Debt or slightly larger annuities if they entirely forego these rights.

So-called "new" holders, who acquired their paper mark bonds since July 1, 1920, may exchange them for loan Liquidation Debt but under the law they may not demand either interest or principal until such time as Germany's reparation obligations have been met.

It is now expected that the work of revaluation will be completed in the autumn of 1927. The provisional figures published by the Statistical Office of the Reich indicate that the Loan Liquidation Debt amounted to 1,753.6 millions of reichsmarks on March 31, 1926. Of this it is estimated that 1,000 millions represents exchanges by "old" holders. to whom 4,000 millions additional will be paid in premiums as their Loan Liquidation Debt is gradually redeemed. This 4,000 millions must be added to the 1.753.6 millions of nominal liabilities, making the total estimated actual liabilities of the Reich under the revalorization plan 5,753.6 million reichsmarks.

In the table of the Government debt the amount of Loan Liquidation Debt is stated provisionally as amounting to 1,753.6 million reichsmarks on March 31, 1926, and 1,742.1 million reichsmarks on March 31, 1927. showing a reduction during the year of 11.6 million reichsmarks, in round figures. This reduction apparently represents the nominal value of Loan Liquidation Debt repaid to "old" holders in 1926-27. To this must be added 46.4 million reichsmarks paid as premium to "old" holders, making a total of 58 million reichsmarks, exclusive of interest, paid on account of drawings of Loan, Liquidation Debt in 1926-27.

In the budget 1927-28 the following amounts, stated in millions of reichsmarks, are set aside for payments in respect of "old" holders:

The amount actually paid in 1926-27 was 240.8 millions, of which only 58 millions were on account of drawings with interest at 4 1/2 per cent and the rest was on account of sinking fund and the life annuities. The smaller amount thus paid on account of drawings is due in part to the fact that the anticipated drawings for 1926-27 could not be completely effected. To complete the payments in respect of these drawings the amount set aside in the 1927-28 budget is larger than will usually be required. The normal annual Charge on the budget when the revaluation is complete is estimated at about 250 million reichsmarks, which should be fairly constant throughout the 30 year period. The charge of 64 million reichsmarks for life annuities to "old" holders in necessitous circumstances should gradually decrease from year to year.

As has been stated in previous Reports, payments for the benefit of the holders of the revalued debt are all subject to the prior charge of the reparation debt of the Reich, while that part of the Loan Liquidation Debt, estimated at 750 million reichsmarks, due to "new" holders who acquired their paper mark bonds after July 1, 1920, is not an effective charge on the Reich for either amortization or interest until such time as Germany's reparation obligations have been met.

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b. The Public Debts of the States and Communes.

The upward tendency of the, public debts of the States and communes has continued during the past six months, but new loans have been placed almost entirely through the domestic market, whereas up to the autumn of 1926 most of such loans were contracted abroad. As no comprehensive statement of the debts of the States and communes is published, it is impossible in this Report to present any authoritative figures. The revalorization of the paper mark debts of the States and communes is proceeding under the law of July 16, 1925., but no official figures are yet available.

Section VI, German Credit Conditions and the Currency

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