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The New Zealand Debt Conversion Act 1933 - a case study in coercive domestic public debt restructuring

Michael Reddell

New Zealand entered the Great Depression with very large public and private debts. The burden of those debts was greatly exacerbated by the unexpected size of the fall in real incomes and in the price level. In 1931 and 1932, the government passed legislation to ease pressure on private creditors, and in 1933 followed Australia’s lead in using legislation to compel domestic holders of existing government debt to accept a lower interest rate on that debt. The conversion operation appears to have had a number of goals. The fiscal savings were significant, although probably not decisive. It was also hoped that cutting interest rates on outstanding domestic debt might make external creditors more receptive to lowering the cost of New Zealand’s substantial offshore public debt. Perhaps as importantly, the conversion operation was one more piece in an ongoing programme of measures to adjust to, and reverse, some of the redistributive effects of the unexpected steep fall in the price level.