The Press TUESDAY, MAY 9, 1967. Support From I.M.F.

Press, Volume CVI, Issue 31364, 9 May 1967, Page 16

The Press TUESDAY, MAY 9, 1967. Support From I.M.F.

The Monetary and Economic Council, whose recommendations on taxation and economic restraints have been followed closely by the Government, advised the Government in February to approach the International Monetary Fund for a loan to compensate for the drop in income from exports. The £10.5 million loan approved by the I.M.F. is less than the maximum of £l4 million New Zealand can apply for under an I.M.F. scheme devised in 1960 and amended last year. The scheme was designed to provide finance for member countries to enable them to overcome temporary payments difficulties arising from export fluctuations. The Fund makes this kind of loan available to countries taking “appropriate “ steps to preserve internal financial stability and “ maintain their balance of payments in equilibrium, “ taking good years with bad ...” It may be assumed that the I.M.F. regards the measures announced by the Minister of Finance last Thursday as “ appropriate “ steps ”, The timing of the Fund’s approval supports this assumption. The measures were, however, appropriate whether or not the Fund wanted such evidence of the Government’s determination to reduce New Zealand’s demand for imports. The latest tax increases have been dictated by New Zealand’s balance of payments. They were not dictated by the I.M.F. It is fortunate that New Zealand is a member of the Fund and that the Government has taken the kind of steps that qualify New Zealand for the advantageous support of the Fund. Without recourse to the I.M.F. the Government would have had to impose even more drastic measures and seek overseas loans on much less favourable terms. The purchases by the Wool Commission this season represent a drop in overseas income without a similar reduction in domestic spending power. Growers still get their cheques for wool bought by the Commission. Although, initially, this spending power is the growers’ it quickly becomes part of the purchasing power of the whole economy. The Government’s latest taxation measures will withdraw almost all of this money from circulation, thus reducing internal purchasing power in line with reduced overseas earnings from wool. The £10.5 million obtained from the I.M.F. appears to have been calculated to match the expected drop in overseas income resulting from the lower prices for this season’s wool sold to the overseas buyers. This I.M.F. advance probably will not be sufficient to tide the country over while the withdrawal of money by means of taxation is taking effect, or during the period when overseas earnings run at their lowest—in December and January when the seasonal drain on New Zealand’s reserves occurs. The Government must still consider exercising New Zealand’s remaining drawing rights with the Fund.