“N.Z. £ STILL IN DANGER”

Press, Volume XCVII, Issue 28491, 22 January 1958, Page 12

“N.Z. £ STILL IN DANGER”

Exchange Parity Discussed (N.Z. Press Association—Copyright LONDON, January 21. The New Zealand £ was still vulnerable, in spite of the Government’s rejection of devaluation as a solution for the country’s external payments difficulties, said "Lombard.” the banking correspondent of the “Financial Times” today. It was likely to be in danger for at least several months, he added. “The new import controls are being wielded with such vigour that there seems to be little doubt that the Government’s plans to bring external payments and receipts into balance by curtailing expenditure abroad will eventually bring to an end the pressure on reserves.” The correspondent continued: "But past experience shows that countries situated as far from their Main sources of supply as New ZetUnd can rarely secure quick their payments worries through import restrictions. A period of six months or so normally has to elapse before policy changes in this field begin to find a marked reflection in the level of foreign currency outlays. “The question that arises therefore, is—will New Zealaqjfi be able, in the interval before thia relief is available, to keep her reserves high enough to enable her to maintain an adequate defence of the existing exchange parity?” Temporary Factors He believed that the outflow of reserves during the last few months had been partly due to temporary factors. One was the widespread expectation that the Labour Party would lose no time in limiting imports. This had prompted increased import spendings immediately they had. come into office. Second, there had been rumours that the new Government was considering devaluation. This had brought the country’s payments under pressure for the last two months on account of “leads” and “lags.” Unfortunately, it seemed that both these adverse factors would be felt for some time yet. One favourable point was that at about this time of year, there was. in the ordinary way, a sharp seasonal expansion in export earnings. Farm Incomes “Arguments for devaluation may be reinforced by the argument that such a move would also contribute powerfully to the problem of providing farm incomes with some protection from the backwash of the fall in world commodity prices,” the correspondent said. Stabilisation funds would enable this to continue for a time, but eventually the Government would have to choose between subsidising farm incomes and raising the return in local currency from farmers’ exports through a change in the exchange rate. It had been pointed out that the Dominion Government could reinforce existing foreign exchange reserves by disposing of holdings of United Kingdom Government securities to the value of £3om held outside them, the correspondent said. "But whether in these circumstances it would be prepared to make such a last-ditch stand for the present parity, bearing in mind that it has never found it a very comfortable one, is open to question,” he concluded.