Danger seen in sharp restraints

Press, Volume CXIV, Issue 33654, 2 October 1974, Page 2

Danger seen in sharp restraints

(N.Z.P.A. Staff Correspondent) WASHINGTON, October 1. The reversal in New Zealand’s terms of trade was so severe that the country would face an absolute decline in national income if the Government sought to balance its foreign exchange account solely by “demand” restraint, said the Secretary of the Treasury’ (Mr H. G. Lang).

Mr Lang was speaking at the annual meeting of the International Monetary Fund and World Bank. Such a degree of restraint was not considered by the Government to be in the best interests of New Zealand or its trading partners, he said.

■t "We recognise that the : level of activity in the economy must be kept within 1 the limits imposed by our ' ability to earn foreign exI change in the longer run. i But we also believe that adjustment to the terms of /trade deterioration must inevolve a run-dow’n of foreign > reserves and substantial overseas borrowing.” EFFECT ON OTHERS Mr Lang emphasised that any further tightening of general economic activity in industrial countries was likely to have disastrous effects on the conomiefi of primary producers and developing countries. In New Zealand restraint of demand would start from a high level, but the adjustments required would be “uncomfortable ... to say the least.” Concern should be felt, however, for those primary producing countries which did not have the reserves of economic strength needed to absorb the adjustment forced on them by deteriorating terms of trade. “The people of these countries, in some countries already facing severe deprivation, will have their standards of living reduced still further. Common humanity demands that those of us who are better placed do not (adopt policies which will bring this about” • TRADE DAMAGE “In this and other forums countries have been asked to avoid trade and payments restrictions as a means of overcoming current account deficits. But we must also accept that the over-zealous use of deflationary monetary policies in the fight against inflation has very detrimental effects on international trade. “Economic activity can only be maintained at adequate levels without serious inflation if the surplus revenues accruing to the oil exporting countries that cannot be spent on goods and services is recycled to the latter by way of loans, or investments on reasonable terms.” I New Zealand would continue to increase its aid disbursements to attain the aid target of 0.7 per cent of gross national product. This year the Government had increased spending on aid 60 per cent.