Markets Buoyant, But Reserves Slim

Press, Volume CIII, Issue 30512, 6 August 1964, Page 18

Markets Buoyant, But Reserves Slim

(Parliamentary Reporter) WELLINGTON, Aug. 5. Even taking into account New Zealand’s drawing rights on the International Monetary Fund, which could be regarded as substantial secondary reserves, the country’s overseas exchange reserves are inadequate to cushion the economy fully in the event of a significant fall in overseas prices. This opinion is expressed in the annual report of the directors of the Reserve Bank, tabled in Parliament today. The report says that any large down-turn in export receipts, though not immediately in prospect could therefore lead to a greater check to economic growth in New Zealand than would

occur if the reserves were larger. Net overseas assets at March 31, after a year when export income was £4O million higher than in any previous March year, were no greater than they had been 12 months earlier.

Reserves at the peak in mid-1964 were (at the time the report was prepared) expected to be £lO million more than a year earlier but this was considerably less than could have been expected with the uniformly good export returns and the relatively tight import licensing schedule.

Though special factors such as increased payments for cars, sugar and fertiliser contributed to the rise in payments, the main reasons for the relatively poor result lay in the variations in the degree of utilisation of import licences and in the increasing deficit on invisible items. Apart from travel remittances, already strictly controlled, there was little scope for reducing invisible payments since these were largely contractual or of a type essential to the smooth running of the economy. Any

improvement must therefore be sought in increasing invisible receipts. Encouraging the tourist industry and ensuring that overseas receipts from invisibles were repatriated to the banking system to a greater extent than at present appeared to be the only two practicable ways of doing this.

With an import schedule originally fitting reasonably elncAiy to the country’s needs, the degree to which importers utilised their licences depended on internal economic conditions and on the degree of the inflexibility permitted licence-holders in selection.

In a general atmosphere of uncertainty, such as in 1962, a relatively high proportion of licences would not be used. In buoyant conditioriS, such as last year, importers would be prompted by internal demand to use their licences fully. Where, therefore, the initial over-all import budget made allowance for a predetermined level of utilisation, as it did at present, there must be considerable swings in actual import pay-

ments as internal demand conditions changed. This must set limits to the efficiency of import control in containing the level of overseas payments. Further, with the narrow range of natural resources and a high standard of living, it appeared a policy of import substitution would result in the substitution of one type of import goods for another rather than in any noticeable diminution in over-all demand. This had happened in recent years as the proportion of finished consumer goods had fallen and that of machinery, partly-processed goods and raw materials had risen.

Though this meant in general—but by no means always—more consumer goods at the same cost in foreign exchange, it did not seem to be in itself a satisfactory long-term solution to the balance of payments problems.

“If we are to be able to offer our growing population a higher standard of living, we must increase our overseas earnings at a greater rate than in recent years.” The report notes welcome moves in this direction, such

as those arising from the 1963 export development conference and the more general recognition of the possibilities of export markets. The report on streamlining port facilities had highlighted the need for more efficient internal services if rising freight rates were not be a further burden on exporters, and plans to increase tourist accommodation recognised the potentialities of this industry. “Though these, and similar steps, are important, it is clear we shall have to rely mainly on enlarging the production of our agricultural and pastoral industries. Longterm trends in the terms of trade seem to be in our favour. There will be fluctuations in the short run but generally we should be able to count on much better markets than we have had in recent years.

“We will still have to pay attention to the needs of our customers and the restrictions which hedge present and potential outlets, but the main problem to be solved appears to be how to raise primary production as much as possible as quickly as possible,” the report says.