The Press SATURDAY, JULY 22, 1939. Mr Nash’s Negotiations

Press, Volume LXXV, Issue 22769, 22 July 1939, Page 14

The Press SATURDAY, JULY 22, 1939. Mr Nash’s Negotiations

The first fruits of the negotiations conducted by the Minister for Finance in London are welcome, because an immediate danger is removed and some hope of corrective developments of policy is introduced. That danger has frequently been described, in the last few months, as the danger of default, induced by the failure of New Zealand’s sterling balances to respond to the import control measures. The margin available to meet payments has barely been kept in sight above the Reserve Bank’s statutory reserve minimum, and this has been the case through the full tide of the export season. But it may be taken for granted that technical default would have been ayoided by the use of the statutory power to lower the required minimum ratio. This is the background of the following passage in the annual report of the Reserve Bank, laid before Parliament yesterday: Now that surplus sterling reserves have been practically exhausted ... a different situation presents itself. No longer will it be possible for credit to be created by the bank to find an outlet to any appreciable extent in the purchase of goods from oversea, except by using the bank’s statutory reserves for the purpose. In the existing circumstances, any additional credit expansion would ineyitably tend to cause, sooner or later, a general rise in prices, With a consequent diminution in the value of all savings, wages, salaries, and pensions. But though technical default might have been avoided by this device, it is obviously one that could be used only within severe limits of time and extent and with care to avert further recourse to it; and it is equally obvious that the significance of its being used at all could not have gone unmarked in London or New Zealand’s credit been effectually repaired by it. Mr Nash’s negotiations have brought benefits of longer range and more substantial ones. The grant of credits totalling £9,000,000 £5,000,000 for defence and other Government requirements, £ 4,000,000 for commercial imports—through the Export Credits Guarantee Department affords the Dominion considerable and probably adequate relief from the pressure on its London funds, and it does so in a way which, as the effect on New Zealand s credit in London is considered, and the effect bn its internal economy, also, is much to be preferred to the desperate expedient referred to above. But many factors must be estimated, and some must first be illumined, before the nature and consequences of the new arrangements can be fully understood. In the first place, it is still to be learned on what terms and for what time the credits are granted. 1 The extent of the relief given depends on that. Second, although the fears of many British investors will be eased and the price of New Zealand stocks reflect some return of confidence, the fact will not be obscured that the Dominion has been obliged to apply for help as a debtor in difficulties. More than that, it will not be overlooked that the British Government's response, though favourable, has been made on conditions stated with studious care but implicitly critical and cautionary. It is therefore essential to recognise that a market estimate of New Zealand’s prospects will be cautious and watchful, awaiting the outcome of Mr Nash’s mission in policy and action, . More particularly, it is essential to recognise that the chance of an easy and economical loan conversion is raised little, if at all. Third, the conditions which Mr Nash has accepted and the promises he has made are likely to cause him and the Government no little difficulty, in a party sense and in a public sense, ‘The conditions include the greatest possible relaxing of the present import restrictions, the study and redress of individual hardships, a check (provisional, at least) on the licensing and protection of New Zealand industries, a pledge not to license “ uneconomic ” industries, and consultation with United Kingdom industries on the decisions necessary to fulfil it. It is impossible to foresee the full effect of these commitments; it is impossible, as well, to think it can be slight, in view of the Government's previously declared aims and its actual progress towards them. But there remains, fourth, the most important consideration of all. Beyond the question of the present strain on the sterling exchange, and behind the solution . likely to be provisional only—of the problem of the imminent loan maturity in London, there looms up the whole future of the Dominion’s trading and debtor relations with Great Britain. It is complicated for some years to come by heavy maturities. Between 1942 and 1945 a total of nearly £50,000,000 falls due in London; and there are reasons, too grave to be optimistically discounted, for the belief that these obligations will prove to be exceedingly troublesome. One reason, of course, lies in the industrial and social policy of the present Government. How far it may be modified is an open question. How far any government that displaced Mr Savage’s would be able to change direction and stabilise the country’s load is another. A second reason may be found in the trend of agricultural prices and the increasing severity of competition in the Dominion s chief market, while others are closed or contracting. A third is set up by the British Government’s own agricultural policy, which threatens New Zealand’s export industries alarmingly. A fourth appears in the simple fact that the British investment market is no longer wide open to Dominion loans and eager for them. It is more sceptical; it is, besides, meeting exorbitant demands on the spot. When these factors are assessed and added, it is clear that the problems of the moment are forerunners of problems as large and probably more intractable. Negotiations which stop short at the point where these problems begin to recur are of transient significance only; and policies framed and developed without reference to them are Unreal. '