The Press SATURDAY, DECEMBER 2, 1967. Import And Exchange Controls

Press, Volume CVII, Issue 31542, 2 December 1967, Page 12

The Press SATURDAY, DECEMBER 2, 1967. Import And Exchange Controls

"Devaluation, in association with a proper policy “ of protective tariffs, will provide an opportunity to “ overcome some of the inefficient use of our “ resources and to remove the distortions which have “ resulted from the operation of the system of “ import licensing for nearly three decades Long after the debate on New Zealand’s devaluation has ended and the squabble over the minor issue of export incentives has been forgotten, this passage from Mr Holyoake’s announcement on devaluation last week may still be topical. Mr Holyoake said devaluation would increase the effective protection of New Zealand industry, and this would facilitate the progressive liberalisation of import licensing and exchange control, “ which is essential if the full " advantage of devaluation is to be gained ”.

, Interviewed in London, Professor B. P. Philpott, professor of agricultural economics at Lincoln College, emphasised the importance of removing import control. “ The major benefit accruing to “ this policy is that it will encourage the expansion “of the right kind of export-oriented competitive “ manufacturing industries in New Zealand, instead “of the pallid imitations of industries which have “grown up under import control”, he said, in a typically provocative statement. Long an advocate of protection by tariff instead of by import control, Professor Philpott has more recently urged; devaluation. Devaluation, he said in London, should provide the basis of sound and well-structured growth “if “it is accompanied by the abolition of import “ control ”.

Devaluation adds to the cost of every manufacturer’s imported raw materials. Many manufacturers have no choice, or only a limited choice, of sources for their raw materials. Because import controls limit the competition they face in the New Zealand market, some have had little incentive to “ shop " around ” for cheaper raw materials. Removal of these controls would give them both an opportunity and an incentive to do so, for their competitors could secure a telling advantage on a depressed local market by lowering costs and prices. Britain and several of the other countries which have devalued may now be able to quote cheaper prices for raw materials and industrial equipment previously shipped to this country from Australia Or the United States.

Import licensing on raw materials not produced in New Zealand could be removed overnight, with negligible effect on overseas reserves. Most manufacturers today are more concerned to conserve their cash than to build up stocks. Controls on imports first of machinery and finally of consumer goods should be relaxed over the next few years as tariffs are substituted for import controls. Exchange controls are in a different category. Apart from the controls on foreign exchange earned from exports—which must be retained at least until overseas reserves are restored to a more comfortable level—these controls are aimed mainly at reducing New Zealand’s expenditure on “invisible items”. Hence the travel allowances, restrictions on New Zealand residents’ dealings in overseas shares, the 50c limit on purchases of British postal notes, and so on. The effect of all these controls was certainly to make it more difficult for New Zealand residents to transfer funds abroad; but they did not prevent them from doing so. Legally and otherwise, New Zealand travellers found ways of transferring funds abroad before their travels, or of leaving funds abroad when they returned. The rationing of 50c postal notes has imposed many a pilgrimage from post office to post office on New Zealanders determined to send friends and relatives abroad small sums of money for presents or minor purchases.

Mounting suspicion of the New Zealand exchange rate over the last 10 years may have justified the intensification of exchange controls. New Zealand now has a realistic exchange rate, which has removed most of the incentives to New Zealanders to buy Australian shares rather than New Zealand and to leave unused travel funds in bank accounts abroad. If they were confident that exchange restrictions had been removed for good, many, of the holders might realise on these assets and bring the money back to New Zealand. Assets held abroad by New Zealanders must now total at least $5OO million at the new rates of exchange; the repatriation of even a fraction of this sum would make a welcome addition to overseas reserves. But first, the holders of such assets need t 6 be convinced of official confidence in the new exchange rate. There could be no more convincing demonstration than the removal of most of the restrictions bn foreign exchange dealings. It is a risk which could be insured against by arranging standby credits; it is a risk which should be taken. <