The Press THURSDAY, JULY 15, 1948. Dollars for Tractors

Press, Volume LXXXIV, Issue 25547, 15 July 1948, Page 4

The Press THURSDAY, JULY 15, 1948. Dollars for Tractors

The Federated Farmers plan to buy 10,000,000 dollars worth of American farm equipment in two years and square off the cost by guaranteeing the export (or equivalent dollar repayment) of 1000 tons of butter and 1000 tons of lamb to the American market for four years is at first sight attractively simple and useful. No time need be wasted in arguing out either, the question whether the equipment is really needed or the question whether it can be bought from sterling instead of dollar sources. It may quite safely be assumed, in regard to the first, that Federated Farmers (which has yet to complete its own survey of requirements) will have to satisfy the Government about it before any action, in this or any other direction, is taken; and, in regard to the second, that Federated Farmers and the Government will want exactly the same assurance—that Britain’s interest is not only protected but advanced by spending dollars. What is said for the plan is that it will enable the farmer to increase production, to Britain’s advantage, and will do it without increasing the current demand for dollars, which, would be to Britain’s disadvantage.' The equipment is supplied within two years against credits which will be repaid within four or five; only part of the increase in production will be required to repay them; the rest will be added to exports for Britain. Take the increase in production for granted. Then, at first sight, truly it is an attractive plan. But at first sight all that appears is one, isolated trade transaction, on special terms. Whether these are really as useful as they seem can only be decided by studying its relation to trade transactions as a whole. The essential fact about these is that New Zealand is running an import surplus in trade with the United States. Exports failed to cover imports by £2,000,000 in 1946 and by £15,000,000 in 1947. These deficits are merged in the total dollar deficit of the sterling area. Last year, for example, members of the sterling area, other than Britain, drew on Britain for £266,000,000 worth of dollars to meet their dollar deficits, of course in addition to her own. New Zealand’s £ 15,000,000 in effect was drawn from Britain’s gold and dollar reserves, which had dwindled to £552,000,000 by March 31 this year. It is certainly because Federated Farmers sees the need to stop making these drafts on British resource?, or to make them as small as possible, that it has devised its plan. But to provide a mechanism that makes one transaction self-balancing is one thing; to balance the sum of transactions, or bring it hearer to a balance, is another. If New Zealand imports 10,000,000 dollars worth of machinery in two years and pays for it with earmarked exports over four or five, the imports may or may not be additional to the normal allocation of American imports; the exports must be part and parcel of total exports to the United States. Suppose the tractor imports ai*e additional. Then, if it is assumed 1 that the dollar-cutting programme brings normal imports down to £15,000,000 and the doliar-earning programme builds exports to £10,000,000, what happens is that the effective dollar deficit will be 16,000,000 (at an exchange rate of 3.20), plus 2,500,000 dollars, the value of a year’s earmarked exports, which cannot be used twice over, to part-liquidate a credit and to offset visible trade. Alternatively, if the tractor imports are included in the normal import programme, the effective deficit will be the difference between £15,000,000, or 48,000,000 dollars, less 5,000,000 dollars, and £ 10,000,000, or 32.000,000 dollars, less 2,500,000 dollars; i.e., 13,500,000 dollars. These calculations hold for the first two years. In the two later years, the deficits will be 18,500,000 dollars. If tractor imports have been “ addi- “ tional ”, the normal programme will continue; if they have been squeezed into it. it is reasonable to suppose that the demand for the imports they have displaced will have to be conceded. All these figures are of course purely illustrative; but they serve to show that the Federated Farmers plan barely touches the crucial problem—how to reduce the current, effective dollar deficit. If it is suggested, in answer, that dollar exports may be increased much more than the illustrative figure of £10,000,000 suggests and the deficit accordingly reduced, the suggestion points straight to the centre of the matter. It is only a real increase in dollar sales, with close economy in dollar purchases, that will enable New Zealand to reduce the draft on Britain’s dollar resources. If Mr Nash has not yet replied to Federated Farmers, who put the plan before him last month, it may well be because the underlying issue—how far, in Britain’s interest, New Zealand snould go in pursuing dollar earnings—is not yet resolved. This much is fairly certain, that a barter-and-credit device covering a single exchange of commodities and perhaps a thirteenth part of New Zealand’s exports to the United States cannot solve* the problem, however that issue is decided.