IMPORT CONTROL INSTITUTED

Press, Volume XCVII, Issue 28474, 2 January 1958, Page 6

IMPORT CONTROL INSTITUTED

Mr Nash Announces Decision (New Zealand Press Association) WELLINGTON, January 1. The institution of exchange allocation and import selection on goods bought overseas was announced tonight by the Prime Minister (Mr Nash). From today all imports are subject to licensing. In a nation-wide broadcast address, Mr Nash said, that New Zealand faced the most urgent exchange position since the ’thirties. Overseas funds were down to £45,500,000, sufficient for only six weeks’ imports instead of the six months recommended by the Royal Monetary Commission. “The hard fact is that our present funds overseas will meet only six weeks’ payments,” said Mr Nash. “They are only one quarter of what they should be.” In reply to a question, Mr Nash said the new policy would be maintained until the country’s overseas funds had been brought into “some sort of decent order.”

Mr Nash said the Government had considered and rejected several alternative methods to that being adopted to meet the situation. These included altering the exchange rate to make prices higher, but the results would have been harmful and inflationary. Overseas borrowing would have been costly even if possible, and would not have cured the underlying cause. The method of exchange control was not satisfactory because it was almost impossible to distinguish between essential and non-essential goods. Under the new policy overseas funds would be allocated to meet all basic needs among imported foodstuffs. These included tea. coffee, wheat, and dried fruits. As far as possible factories would get raw material to the full amount required. Greater use would also be made of local production potential. All necessary medical supplies would be imported.

New Zealand factories would be called on to supply footwear leather goods, woollen goods, soap, and carpets. Mr Nash also announced that explanatory statements on the new policy would be made later this week by the Minister of Customs (Mr R. Boord) and the Minister of Industries and Commerce (Mr P. N. Holloway). “Rapid Worsening” ‘‘The position has rapidly worsened over the last six months, and especially over the last three,” said Mr Nash. “In July last year, the reasonable expectation based on trends at that time was that New Zealand • would break even in our external trade balance. The then Minister of Finance, Mr Watts, stated in his Budget ‘that the best result we can reasonably expect at present is to break even.’

‘‘By the end of last September there was a deficit in the balance of payments of some £4m—not particularly desirable but quite manageable and, on the scale of our total trade, not a cause for serious concern. This figure was available on October 14, shortly before the opening of the election campaign. “During that campaign, on November 15, the statistics to the end of October were published and it was revealed that the deficit had grown to £ 14.2 m. This was a rapid, unexpected, and unwelcome increase within the space of a month, but still not sufficient to warrant alarm, although ample to warrant immediate attention from the then Government, which apparently it did not get. “In previous years there nas tended to be an improvement in our balances towards the end of the year because imports begin to lessen and exports to increase around that time. A likely estimate would then have been that the deficit for the October year of £l4m might be slightly reduced by December. “However, when after the election we took office as the Government, some three weeks ago, we discovered that the deficit, far from improving, had worsened rapidly,” Mr Nash said. “By the end of November it was £20.1m, and the latest estimate I can obtain is that it will total £3om for the 1957 calendar year which ended yesterday. “That is the most rapid slide in the history of New Zealand trade, and an indictment of the previous Government, which in that short space allowed New Zealand’s overseas reserves to fall from £B3m on October 2 to £ 45.4 m on December 25.

“Excessive Importing” “The major cause of the frittering away of our overseas reserves has been an excessive rate of importing.” Mr Nash said. “We have been spending more abroad than we have earned. In spite of the high prices for our exports. New Zealand has spent in the last eight years more than it earned Not only have we imported more than we could pay for and thereby have depleted our reserves, but during that period the Government borrowed abroad between £2om and £2sm. “Admittedly some of that borrowing has gone into capital equipment, but some of it has gone into needless, unnecessary importing. We have been living beyond our income.

i “New Zealand has run its reserves so low that internal ipolicies must be changed to bring back stability, but at the same time we must take urgent action to meet the most serious exchange position New Zealand has had since the depression. We do not want to take hasty action that would cause any unfairness or distress, yet at the same time we have had to act very quickly. “The problem is to prevent our overseas funds disappearing altogether. It has been suggested to me that one method of handling it would be to borrow temporarily abroad. This solution has two serious objections. The first is that the amount of money required. which might be as much as £som or £6om sterling, could not possibly be raised in the state of the London money market at

the present time, and the rate of interest would be very high, thus giving us another’ burden to meet.

“The second reason is that borrowing the money to tide over the present crisis would still not cure the underlying situation which leads to too heavy a demand for imports. Once we had spent any borrowed money we would be back in the same position as- we are now. Second Method

“A second method would be to have the purchasing power of the community reduced sufficiently and sharply enough to reduce the demand for imports in early 1958. There are two reasons against this. One is a purely technical one, that it would not act quickly enough, and the second one is that it would be wrong to suspend public works, cut wages, and produce unemployment in order to build up our foreign exchange reserves. I mention this only because years ago it was the method by which New Zealand recouped its overseas exchange, namely, by unemployment and the consequent cutting down of demand for imports. “A third method, would be to alter the exchange rate with the pound sterling to such an extent as would make the price of imports go so high as to deter many persons from buying them. Its results would be harmful. The cost of raw materials and equipment and the cost of living could go up by 25 per cent, to 30 per cent. In addition, other than the guaranteed price, gross farm incomes would go up by the same amount. This would add tremendously to the inflationary situation, and New Zealand would be at the mercy of a spiral of rising prices and our whole economy would be disrupted. “The fourth theoretical possibility is the imposition of exchange control as was done by the last Government in 1952. We believe that such a system would deprive New Zealand of essential imports and allow in non-essen-tial imports, because by the very nature of the banking system it is almost impossible to discriminate sharply enough between nonessential and essential goods when granting the right to overseas funds.

“So we come to the final choice: the method that we are going to adopt, namely, exchange allocation and import selection. Basic Food Needs “We must ensure that our basic foods are met first of all,” Mr Nash said. “We will therefore arrange that all the imported foodstuffs that are necessary for our New Zealand standard of life must be made available, and we will set aside overseas funds for this purpose. There are some foodstuffs which are not quite as essential that will get a somewhat smaller allocation of foreign exchange.

“Furthermore, we must make sure that as far as possible our factories get their raw materials to maintain and expand production from existing facilities. We are therefore allocating foreign exchange to the full amount required for a long list of basic raw materials used in industry. “Similarly, for essential materials used for medical prescriptions and for hospital use we are ensuring that all the funds required are set aside.

“This means, of course, that if, we spend all that is applied for on the absolutely essential items we will have less available for other items. And this means thal we will be calling on our reserves in New Zealand to provide some of that which we cannot afford to buy from abroad. “Our reserves in New Zealand consist of stocks of raw materials and processed goods that have been imported already. They consist of the machinery in our factories. They even exist in the factories themselves and, above all, they exist in the skill of our workers and the managerial ability of those in charge of our industries. We are therefore calling on these reserves to supply the deficiency which we cannot import. With unused capacity in our factories we are hoping that we shall be able to supply to the full the normal demand for Ihe New Zealand standard of living.

“Thus we are calling on the New Zealand factories to supply soap, footwear, leather goods, woollen piece goods, carpets, and other products of our factories. We shall not waste funds to import these items. The same thing will apply to many other items which New Zealand industry is well capable of supplying. Issue of Licences “So that exchange for imports shall not be used for non-essential purposes we are arranging that the banks will not allot any overseas exchange unless the applicant has a licence from the Customs Department. Thus, we are

using the Customs officers as the authorities who will issue the licences, which indicate to the trading banks that the Reserve Bank can provide overseas exchange to the amount stated. That is. the Customs officers will issue the licences to import in accord with the schedules, and this will ensure the availability of overseas funds for this particular licence. “The import selection aspects will be handled, as in the past, either by a specific allocation which is shown in the licensing schedule or by an amount which will be granted after an application has been investigated. In this way, maximum use will be made of New Zealand’s facilities of machinery, manufacturing production, and skill, and the most effective use will be made of New Zealand’s overseas funds.

“Full employment will be maintained. sufficient overseas funds will gradually be saved to start the necessary rebuilding of our reserves, and I believe that instead of overseas exchange being used on wasteful items, it can be now used to build New Zealand living standards more widely and deeply.”