Devaluation By N.Z. ‘Way Of Tackling Problem’

Press, Volume CII, Issue 30051, 8 February 1963, Page 10

Devaluation By N.Z. ‘Way Of Tackling Problem’

(N.Z. Press Association-Copyright)

LONDON, Feb. 7. The “Financial Times'* today suggested “straightforward devaluation” of th* New Zealand £ as a way of tackling New Zealand’s foreign exchange rate problem. “There is a good deal to be said for burying an unrealistic currency parity speedily rather than allowing it to suffer a lingering death," it said. The newspaper’s comn-en-tator, Lombard, was commenting on proposals for solving the country’s foreign exchange “bottleneck" recently put forward by its Monetary and Economic Council in a special report to the Government on the economic situation and outlook. Lombard said the council’s proposals “come very close to accepting the view that the revaluation ot the initial postwar period has left this currency too expensive for comfort—at least, so long as it has to exist in a world given to treating commodity producers in such a harsh fashion.”

He said New Zealand had now emerged from the latest of her series of balance-of-paymerrts .crises. Net CwTheta “But the recovery hag not on this occasion been a vary convincing one,** be said. Lombard described the collapse of Britain’s Common Market negotiations as “a stroke of good luck" for New Zealand. "Yet though this turn of events will serve to prevent the payments situation getting worse, there are no reasons for thinking at the moment that it will make It get any better," he said. He said the Monetary and Economic Council had proposed that, to reinforce existing measures to restrict foreign currency expenditure,

the Government should impose an overseas exchange tax on consumer goods, travel abroad, and certain other imports. “At the dame time, exports would be encouraged through the introduction of a system of special tax relief to individuals and companies tn respect of foreign exchange earnings accruing to them in excess of the average for the preceding two or three years." he said. Lombard said the effect of the first of these taro measures would be to bring about a devaluation of the New Zealand £ for a substantial part of the import trade. "The tax relief for increases in foreign exchange earnings would have much the same effect on the export side, though here the adjustment in the rate would be less clear-cut and would apply, of course, only to a comparatively modest part of total trade of this kind."

Lombard said the council was advocating a “partial devaluation.” by these proposals. "It clearly feels that, with a cheaper currency unit, it would be easier to keep foreign exchange spending down to manageable proportions without inhibiting economic development athome,” he said. Lombard said: "If this assessment of the foreign exebango situation is right—and I believe it would be difficult to fault—a big question arises. "It is whether it would be better to tackle the exchange rate problem through a Straight-forward devaluation rather than by half measures. “In the end, it would probably come to that anyway, and there is a good deal to be said for burying an unrealistic currency parity speedily rather than allowing it to suffer a lingering death.”.