"FINANCIAL CRISIS"

Evening Post, Volume CXXXVI, Issue 117, 13 November 1943, Page 6

"FINANCIAL CRISIS"

Sir,—Mr. Lefeaux came to New Zealand at the depth of the depression, bringing with him his background of experience as a successful Bank of England employee. He was placed in command of the Reserve Bank machinery set up here on the recommendation of a still more successful Bank of England employee, Sir Otto, Niemeyer. For some two years Mr. Lefeaux had his own way, and Bank of England theory, policy, and practice ruled New Zealand's1 financial policy. At that point, the depressed New Zealanders—workers, producers, manufacturers, distributors, business men, and their friends —decided that something must be done about their personal difficulties and changed their Government. The incoming Government regeared the administration machinery so that work was available to those who needed it, and so that spending power per man hour was increased. With this momentum, business "looked up"; retailers made demands on wholesalers; wholesalers on importers of consumable goods; importers on New Zealand's London funds. The forward policy in public works had its own impact on these funds to cover supplies of capital goods and heavy machinery. The London balances" went down to the point where the servicing of New Zealand's debt was in danger of break down. To keep New Zealand's word to the bondholder, the licensing system of control over imports was instituted. The alternative to this was borrowing in London and servicing the debt and imports with borrowed money. If this "orthodox" method* had been adopted, would the financial crisis of 1939 have been circumvented? That crisis arose from the falling due of some £17,000,000 of old debts for.settlement or renewal. If New Zealand had added to its external debt to purchase capital goods instead of using its London funds (thereby obviating the necessity of imposing import control) would there have been any hesitation in renewing this £ 17,000,000 on terms? We could only guess at the answer if Mr. Lefeaux had not made such pointed reference to New Zealand's use of its Reserve Bank machinery in financing the internal costs of its housing and far-reaching public works activities. To the point where houses were built and occupied, and public highways, roads, bridges, and railways completed and put into use, New Zealand was, obviously, a richer and better-equipped country, and, therefore, more credit worthy. When then should such use of Reserve Bank credit machinery be deemed "inflationary" or prejudicial to the immediate interests of the overseas money-lender? ' New Zealand had to choose between restricting imports or precipitating a second period of unemployment with the concomitants of domestic misery and commercial difficulty. It chose the lesser of the two evils. This choice was made before the war swept down on us, though, possibly, orthodox financiers in Great Britain had fore knowledge of the impending catastrophe. How the advent of this calamity, with all its attendant financial difficulties, saved us from the financial rocks would be interesting to know, seeing we had successfully cleared them prior to the war breaking out. Was there another "rod in pickle" for us in addition to the renewal of the £17,000,000 loans? Perhaps Mr. Lefeaux can enlighten us.—l am, etc., H. E. COMBS. November 10, 1943.