Montreal COMMONWEALTH FINDS NO SIMPLE SOLUTIONS

Press, Volume XCVII, Issue 28699, 24 September 1958, Page 12

Montreal COMMONWEALTH FINDS NO SIMPLE SOLUTIONS

I By

"LYNCEUS"

'• of the “Economist "1

(From the “Economist' intelligence Unit]

London. September 16.—The Finance Ministers of the Commonwealth and their usual retinue of experts and officials are meeting in Montreal for one of the periodic discussions which crystallise and give collective shape to the economic community of the Commonwealth. These meetings often follow the annual assemblies of Governors of the World Bank and the International Monetary Fund because these annual functions call together the ministers and central bankers of all member countries, including those of the Commonwealth. On this occasion, however, the Commonwealth meeting will precede those of the Bank and Fund which are due to take place in New Delhi early in October. That sequence of timing is of some importance, because one of the main problems that is to be discussed in New Delhi will be that of the inadequacy of world reserves of gold and currencies on the basis of which international trade has to be conducted. That is a problem on which the sterling countries have something forceful to say. This is because gold reserves, even when supplemented by Internationa] Monetary Fund quotas, have been wholly inadequate to perform their task. Consequently an unduly heavy burden has fallen upon sterling. That is why last year sterling was subjected to such pressure, even though the United Kingdom was at the time, as it still is, running a substantia) balance of payments surplus. Banking, But Not Trade

This problem will, no doubt, receive a great deal of attention in Montreal and it is hoped that a collective attitude to it will crystallise there and that something like unanimous views will, as a result, be presented at the New Delhi meeting on behalf of the Commonwealth, and particularly on behalf of the sterling Commonwealth.

This Commonwealth Economic Conference was one time expected to reach important decisions affecting Commonwealth trade. This is because the genesis of the meeting is to be found in the • Canadian proposals made after Mr Diefenbaker’s first victory at the polls in the, early summer of last year, for an expansion of inter-Commonwealth trade. The proposals were necessarily vague because they had to be virtually extemporised after a victory which the victors did not really expect and which was won with the help of a vaguely antiAmerican platform.

The Canadian Conservatives had pleaded—successfully as it proved —for less dependence of their country on the economy of the United States and closer ties with the United Kingdom and the rest of the Commonwealth. The argument was advanced that if Canada could divert to the United Kingdom 15 per cent, of what she was buying from the United States, many advantages could be sebured both in achieving better equilibrium in the Canadian balance of payments with the United States and in fostering Commonwealth commercial ties. Canadian Industry Hostile

Difficulties began to appear when an attempt was made to translate this vague aspiration into precise proposals. Canada had also shown some concern at the readiness with which Britain at the time was pursuing the goal of free trade with Europe, and the British Ministers who visited Ottawa at about this time last year proposed that two birds might be killed with one stone—the diversion of trade to the United Kingdom and the quietening of Canadian fears about Europe—by creating a free trade area between Canada and the United Kingdom. That suggestion fell on very stony and unreceptive ground. Canadian industries very quickly made their hostile views felt and nothing more has been heard of this initiative.

Since all members of the Commonwealth are signatories of the General Agreement on Tariffs and Trade the scope for policy decisions involving greater discrimination in favour of Commonwealth countries is decidedly limited. There is in any case no widespread demand in other Dominions for increased preferences.

This fact, however, is not as generally recognised in Britain as it should be. Certain Conservative back-benchers have loaded the British Ministers departing for Montreal with a memorandum on plans for diverting some £3OO million of annual imports into the United Kingdom from foreign to Commonwealth countries. They point to sugar, meat, wheat and butter as the kind of commodities which Britain could import in greater measure from Commonwealth countries at the expense of non-Commonwealth clients. These proposals blandly ignore the fact that there are in Britain free markets in the commodity concerned and that to secure such diversion it would be necessary to go back to the war-time and immediate post-war practice of State trading. Are the Conservative back benchers prepared to carry their Commonwealth enthusiasm to this point? Do they want Britain to pay more for its food and raw materials than do its competitors?

At Montreal there is unlikely to be any echo to demands of this kind. Although Commonwealth trade may have been the issue on which the first proposals for this conference were based, it is likely to be outweighed by the problem of capital development. Capital-hungry Nations Most of the nations assembling in Montreal will be capitalhungry nations. Of all those represented, only Britain and Canada can claim at the moment to be in substantia] surplus and able to lend to the rest A great deal has been heard recently of India’s crying balance of payments difficulties and the more urgent of these will have been solved as a result of discussions in Washington between the United States, Britain. Germany and Japan. It is only the immediate requirement that has been satisfied. Beyond the balance of payments needs until April of next year, further deficits yawn and' these will be considered at Montreal. They will not be the only claims that will be tabled. Apart from India, the West Indies, Ghana,

Pakistan, Malaya, all have ambitious projects that will require capital and New Zealand is in dire balance-of-payments trouble. There will be a very salutary listing of all these claims—salutary because they will reveal to the would-be borrowers that each of them is not alone in the field, and that the sum total of the demand for capital is well out of reach of the available supplies. There is a danger in discussing each country’s needs in isolation. An admirable case can always be pleaded both on economic and social grounds for Harsh reality requires each case to be considered within a wider framework of supply and demand. Montreal, fortunately, will provide this. In order not to appear wholly negative in their conclusions, the assembled Ministers may succumb to the temptation of referring this whole problem of development to yet another institution. There has been much talk of creating a Commonwealth Development Bank. When this motion is taken it is to be hoped that some sensible voices will be heard expounding the truth that to set up an institution does not create life-blood of real resources and of managerial skill with which it must be equipped. Montreal will be useful, above all, as providing an opportunity for collective discussions of the highest level of the serious problems that face the Commonwealth. It must not be expected to yield major policy decisions that will change the pattern of Commonwealth trade or greatly hasten the speed of Commonwealth development.