´ REDEMPTION OF PUBLIC DEBT
´ REDEMPTION OF
PUBLIC DEBTS
1.
REDEMPTION MEANS REPAYMENT OF LOANS
2.
ALL GOVERNMENT LOANS EXCEPT PERMANENT
INVESTMENT IN SELF SUPPORTING INDUSTRIES SHOULD BE REPAID QUICKLY
´ ADVANTAGES OF
DEBT REDEMPTION:
1.
IT SAVES THE GOVERNMENT FROM BANKRUPTCY
2.
DISCOURAGES EXTRAVAGANT EXPENDITURE OF THE
GOVERNMENT
3.
TO MAINTAIN THE CONFIDENCE OF THE LENDER
4.
EASY FOR THE GOVERNMENT TO FLOAT LOAN IN THE
FUTURE
5.
REDUCES THE COST OF THE DEBT MANAGEMENT
´ METHODS OF
REDEMPTION
1.
REPUDIATION
2.
REFUNDING
3.
ACTUAL REPAYMENT
4.
SINKING FUND
5.
CONVERSIONS
6.
ADDITIONAL TAXATION
7.
CAPITAL LEVY
8.
USING TRADE SURPLUS
´ REPUDIATION
- MEANS REFUSAL TO PAY A DEBT BY THE GOVERNMENT
- EXTREME STEP
- SHAKES THE CONFIDENCE OF THE PEOPLE AND BANKS IN THE GOVERNMENT
- IT MAY FIND DIFFICULT TO RAISE NEW LOANS IN THE FUTURE
- IT IS INEQUITABLE AND DISCRIMINATORY BECAUSE IT AFFECTS ONLY ONE CLASS
WHICH PURCHASE GOVERNMENT SECURITIES
- BUT IF AN EXTERNAL DEBT IS REPUDIATED IT MAY CREATE VERY SERIOUS
PROBLEMS FOR THE ECONOMY:-
- ECONOMIC BLOCKADE
- MILITARY ACTION
´ REFUNDING
1.
GOVERNMENT TAKES FRESH LOAN IN ORDER TO REPAY
AN OLD DEBT
2.
WHEN GOVERNMENT USES THIS METHOD OF REFUNDING
THERE IS NO LIQUIDATION OF THE MONEY BURDEN OF THE PUBLIC DEBT.
3.
INSTEAD DEBT SERVICING BURDEN GETS ACCUMULATED ON ACCOUNT OF THE DEBT REPAYMENT TO SOME FUTURE DATE
´ CONVERSION
1.
CONVERSION OF PUBLIC DEBT MEANS EXCHANGE OF NEW
DEBTS FOR THE OLD ONE
2.
THE LOAN IS NOT ACTUALLY REPAID
3.
SOMETIMES A HIGH INTEREST DEBT IS CONVERTED
INTO LOW INTEREST RATE
4.
IN THIS WAY THE GOVERNMENT IS ENABLED TO REDUCE
THE BURDEN OF INTEREST ON PUBLIC DEBT
AND GOVERNMENT IS NOT REQUIRED TO RAISE HUGE REVENUE THROUGH TAXES TO SERVICE
THE DEBT
5.
COULD PROVIDE RELIEF TO THE TAX PAYER
6.
ALSO LIKELY TO IMPROVE THE PATTERN OF INCOME
DISTRIBUTION
7.
ACTUAL REPAYMENT
´
SINKING FUND:-
1.
A DEVICE WHICH HAS BEEN DEVELOPED FOR THE
REGULAR PAYMENT OF DEBT
2.
A CERTAIN AMOUNT IS DEPOSITED EACH YEAR FOR THE REPAYMENT OF OUTSTANDING DEBT
3.
FUND IS USED FOR REPAYMENT OF THE DEBT
4.
ACCORDING TO DALTON SINKING FUND SHOULD BE MADE
OUT OF THE CURRENT REVENUE OF THE GOVERNMENT AND NOT OUT OF THE FRESH LOANS
5.
THE PROPERLY MANGED FUNDS PROVIDES A MEANS OF
ORDERLY DEBT
6.
MODERN ECONOMISTS LIKE J,F DUE RICHARD MUSGRAVE
AND OTHERS LOOK AT THIS SINKING FUND METHOD AS A SYSTEMATIC METHOD OF DEBT
PAYMENT
7.
SLOW PROCESS AND SUFFER FROM THE DEFECT THE
GOVERNMENT IN FINANCIAL DIFFICULTY MAY USE THE FUNDS FOR OTHER PURPOSE
´ ACTUAL
PAYMENT
´ SURPLUS
REVENUE:-
1.
A POLICY OF SURPLUS BUDGET MAY BE FOLLOWED
ANNUALLY FOR REPAYMENT OF PUBLIC DEBT
2.
BUT DUE TO INCREASING PUBLIC EXPENDITURE IT IS
RARELY USED
3.
IT CAN NOT BE USED IN PERIOD OF DEPRESSION
´
TERMINAL ANNUITIES:-:
1.
GOVERNMENT
MAY ISSUE TERMINAL ANNUITIES OF WHICH MATURES EVERY YEAR ACCORDING TO SERIAL
ORDER ANNOUNCED OR DECIDED BY THE LOTTERY SYSTEM SO THAT DEBT CAN BE CLEARED
EVERY YEAR
2.
REPAYMENT OF LOAN BY INSTALLMENT
3.
BURDEN GOES ON DIMINISHING
´ ACTUAL REPAYMENT
´
CAPITAL LEVY:
1.
IN TIMES OF WAR OR EMERGENCY MOST GOVERNMENT
FOLLOW THE USUAL PRACTICE OF REPAYING DEBT BY IMPOSING A CAPITAL LEVY ON ITS
CITIZEN
2.
A CAPITAL LEVY IS JUST LIKE A WEALTH TAX AS IT
IMPOSED ON CAPITAL ASSETS
3.
IT IS JUSTIFIED ON THE GROUND:-
1.
ENABLES THE GOVERNMENT TO REPAY ITS WARTIME
DEBT BY COLLECTION ADDITIONAL TAX FROM THE RICH PEOPLE
2.
IT ALSO REDUCES THE DEGREE OF INEQUALITY
BECAUSE IT IS CHARGED AT PROGRESSIVE RATE
´ STATUTORY
REDUCTION IN THE RATE OF INTEREST
´ GOVERNMENT PASSES ORDINANCES TO REDUCE THE RATE OF INTEREST PAYABLE ON ITS DEBT WHEN
GOVERNMENT SUFFERS FROM FINANCIAL CRISIS. THIS PRACTICE IS NOT FOLLOWED UNDER
NORMAL CIRCUMSTANCES
´
ADDITIONAL TAXATION : BY LEVYING NEW TAXES BOTH DIRECT TAXES AND
INDIRECT TAXES THE GOVERNMENT CAN COLLECT THE NECESSARY REVENUE BUT IT IS
CRITICISED ON THE GROUND THAT IT CREATES INEQUALITIES BY TRANSFERRING INCOME
FROM TAX PAYER TO BOND HOLDERS.
´ REPAYMENT OF
EXTERNAL DEBT
1.
THROUGH THE EARNINGS OF FOREIGN EXCHANGE
2.
BY CREATING EXPORT SURPLUS
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