NEW ZEALAND'S FINANCES

Press, Volume LXXXVI, Issue 26032, 8 February 1950, Page 4

NEW ZEALAND'S FINANCES

COMMENT BY LONDON “FINANCIAL TIMES”

EFFECTS OF CURRENCY REVALUATION

' (Special Correspondent N.Z.P.A.) (Rec. 8 p.m.) LONDON, February 7. “Last week’s disclosure that New Zealand had developed a substantial deficit in her external payments during the last year has naturally revived discussion about the wisdom of that country’s decision to revalue its currency in the middle of 1948,” says the “Financial Times.” “By raising the value of the New Zealand £ from 16s to 20s in terms of the British £, the former New Zealand Government hoped both to curtail internal purchasing power arising from export incomes, and to provide a firm check to the rise in prices of imported goods. “The main danger of the operation, of course, was that the resulting decline in the yield, in terms of New Zealand currency, of export sales would discourage exports and so force down New Zealand’s foreign exchange earnings. A secondary danger was that the reduced internal prices for imported goods would so stimulate demand that foreign exchange expenditures on such goods would be increased. _ . “The recent official statements that New Zealand’s payments deficit in overseas funds during the current year, on the basis of import licences already issued, may be in the region of £10,000,000 to £15,000,000 do not indicate to what extent this gap .may be due to the repayment of overseas indebtedness. But there seems to be little doubt that, to some extent at all events, this gap is the result of a deterioration in the country’s current account payments.

Expansion of N.Z. Imports “Fears expressed at the time of revaluation that relief from internal monetary pressures would be obtained at the cost of accentuating the external .monetary disequilibrium have not proved to be altogether unfounded. In particular, the drop in internal prices for foreign goods, coupled with the tendency for incomes to rise, had evidently led to a considerable expansion in New Zealand’s import requirements. Up to date, figures of her external trade are unfortunately not available, but British statistics show that New Zealand’s exports to the United Kingdom rose by £7,300,Q00 m the first 11 months of 1949, whereas her imports from this country rose by £10,100,000. , * “Many observers take the view that New Zealand’s external payments situation need not have suffered seriously from the revaluation operation, had the authorities adopted appropriate policies. It is felt that the tendency in New Zealand in the postrevaluation period has been to take advantage of the relief from internal monetary stresses afforded by this adjustment, in order to press forward with plans involving increased Government expenditure, which otherwise would have been ruled out because of the danger of gravely aggravating inflationary stresses.. “It is suggested that, had this mistake not been made, the revaluation would not have led to an external payments disequilibrium. The point is of importance for its bearing on a question that the New Zealand Government must’ now be asking itself: does the deterioration in external payments make it advisable to reverse the 1948 revaluation operation? “If revaluation has led to trouble because of unwise internal monetary policies, the Government’s first reaction to recent developments will presumably be to see whether internal policies can be reshaped to make revaluation succeed, rather than to decide in favour of an early revaluation of the currency.” Comment by “Sunday Express” Commenting on the recent financial statement by the New Zealand Prime Minister (Mr Holland), the “Sunday Express” said: “In New Zealand, the new Prime Minister has just told the nation what sort of a mess New- Zealand’s accounts ate in after years of socialist ‘economics.’ It is an alarming story—and one we should do well to heed.

“Over-spending, over-borrowing, subsidies, and over-taxation —these curses of the socialist economy had New Zealand hell-bent for inflation. Few citizens had realised it. The Socialists were thrown out of office just in time. “Mr Holland’s remedy is to get back to proper business methods —to cut unnecessary public spending, encourage saving, and reduce taxation. If New Zealand was found to be so close to disaster, ourselves?”