The Alternatives To Borrowing

Press, Volume CVII, Issue 31519, 6 November 1967, Page 12

The Alternatives To Borrowing

Critics of the Government’s policy of borrowing money overseas to pa.y for its purchases abroad seldom tell New Zealanders what to expect if the Government did not borrow or if it borrowed less. Critics of New Zealand’s overseas loans can make a good case against borrowing or against the extent of borrowing; they should not, however, remain silent about the consequences of their argument. A New Zealand Government’s credit abroad is good. If a loan is not fully subscribed the reason lies in the availability of cash or in the terms of the loan rather than in the confidence of investors. The Government is therefore free to decide the size of loans and the terms it offers to investors when it has assessed the needs of the New Zealand economy for the goods and services it wants to buy. The Government must, of course, assess the ability of the economy to repay the loan and the interest. New Zealanders and their Government still want more imports than they can pay for out of current earnings overseas. This is not merely because prices for our exports have fallen. Private overseas investment in New Zealand—representing an inflow of overseas capital—has also fallen, partly because of economic conditions in Britain and other countries. Furthermore, the critics of overseas loans are often those who most vehemently oppose overseas capital coming into New Zealand in the form of private investment. If the Government is to avoid all borrowing its alternative is simple, harsh, and almost certainly self-defeating in its outcome: companies, individuals, and the Government itself must buy less abroad and economic progress must be slowed much more than it has been this year.

The drop in farmers’ incomes, the removal of subsidies, higher charges for Government services, increased taxation, and reduced licences for imports have already reduced spending on imports. The New Zealand Institute of Economic Research forecasts a further decline. Yet substantial overseas borrowing has still been required to pay for these reduced imports and to maintain (barely) adequate overseas reserves. New Zealand’s overseas expenditure by private importers comprises raw materials for factories building materials, machinery, and equipment for factories, and a wide range of finished or semifinished products including motor cars, textiles, fertilisers. and books. The Government is responsible for most of the expenditure of overseas funds on equipment for the development of electric power, reading, railways, and ports. Curtailment of any or all of these activities will conserve overseas funds: it will also reduce employment now. and opportunities for employment in the years ahead. Is this what the critics of borrowing want?