TO AID FARMERS

Dominion, Volume 26, Issue 48, 19 November 1932, Page 12

TO AID FARMERS

Plea for High Exchange MEMBERS’ OPINIONS Full Viewpoint Stated The viewpoint of those members of the Government who waited on Cabinet last Wednesday evening with a request that the exchange rate should be increased to 25 per cent, as the only effective way of helping the pastoral industry of the Dominion out of its present troubles, was outlined in the course of an interview yesterday by the Hon. A. D. McLeod. He also released the text of the statement read by him to Ministers on behalf of the deputation. Mr. McLeod said that in view of the more or less inaccurate statements being published, and the manner in which his name and the names of others had been prominently associated with the present controversy, he felt that the full facts, as far as he knew them, should be given to the public. It was quite correct that more than a week ago Messrs. J. Hargest, T. D. Burnett, H. M. Campbell, K. S. Williams, and himself, but not Mr. W. P. Endean, had had a conversation with the Prime Minister in the lobby and had told him there was a danger of a debate being forced on the floor of the House concerning the serious position of primary producers. It was suggested to the Prime Minister that it should be possible to give relief by increasing the exchange rate. "We assured Mr. Forbes that we were not in sympathy with such a move,” Mr. McLeod added, “but we said , that if a debate did take place, many of us would be placed off-side with our constituents if we did not take part, Mr. Forbes thanked us for mentioning the matter to him, and he told us frankly that the Government was gravely concerned about the position of farmers in general, and, through them, the position of all sections of the community. He concluded by suggesting that we interview the general manager of the Bank of New Zealand and hear his views, as the Government’s banker, on the farmers’ problems. Discussion of Bonuses. “We did so, but beyond discussing the possibility of bonuses, Sir Henry Buckleton declined to go into the exchange question, apart from any opinion which might be held by his directors, which, of course, he was not in a position to discuss. This was followed, as is now generally known, by the deputation which waited on the Prime Minister and his Cabinet on Wednesday evening last.” Continuing, Mr. McLeod said he had not looked for any prominence in that deputation, but the Reform group of the deputation requested him to act as their spokesman. This he consented to do, but only by way of a written statement which- had previously been approved. He assured the Prime Minister that the deputation had no desire to embarrass the Government in any way. He then read the prepared statement as follows:— “This deputation represents some 30 supporters of the Coalition, apart from members of the Cabinet, who daily are becoming more perturbed as to the serious position of this country’s foundation industry—namely, its great pastoral industry. By its pastoral industry, we mean the industry which in meat, wool, dairy produce and byproducts, is responsible for more than 95 per cent, of New Zealand’s total exports. We feel that if something is not immediately attempted here in New Zealand to bring price levels of pastoral products more in line with costs directly or indirectly borne by the pastoral industry, in the shape of wages, interest and other costs, the end of the present exporting season is going to find the vast majority of pastoral producers insolvent, and the economic position of this country seriously, jeopardised. “We recognise to the full the difficulties of the Government, and this deputation has no wish to add to those difficulties. We, however, honestly feel that unless some further earnest and determined attempt is made by the Government to restore a degree of equilibrium to this country’s Internal price levels, the national results before next winter is over will be far from pleasant. “We feel that an adjustment In the Internal price level can be brought about only in one of three ways:— (1) By further drastic cuts in wages and interest.

(2) By payment of substantial subsidies to those in the pastoral industry. (3) By further raising the exchange against sterling through exports. “We do not urge further drastic cuts, more especially in wages, and we cannot support subsidies if provided from borrowed moneys. We do, however, believe tliat much can be accomplished toward all-round relief by a raising of exchange to at least 25 per cent, over sterling, and we feel that every effort should be made toward getting the trading banks of New Zealand to adopt such a policy. Question of Currency. “We confess to having no clear idea as yet as to what is chiefly aimed at in the setting up of a Central Bank. If one of the chief aims is to bring New Zealand currency to a par with sterling as early as possible, then we believe tliat a very grave risk is being taken. However, the necessity for the Government attempting something on behalf of the pastoral industry is exceedingly urgent, and this is the only reason for so large a deputation of members waiting upon you as Prime Minister of New Zealand." On behalf of the United members of the deputation, Mr. O. H. Clinkard then expressed his views briefly. Mr. McLeod said that in replying to the deputation Mr. Forbes and Mr. Coates both definitely stated that the moving up or down of the exchange was not a matter for the Government’s decision, but for the decision of the banks. They both, however, went on to say that tlie banks, if doing their duty, could not divest themselves of a national responsibility which was almost as great as the responsibility of the Government. They both were, they said, as genuinely perturbed as the members of the deputation concerning the seriops position which had arisen regarding the country’s exports, and they sincerely thanked the deputation for so. frankly putting its views before them. After a few minutes’ chat regarding Central Bank proposals and the danger arising of the need for a general moratorium, the deputation thanked the Prime Minister and withdrew. Opinion from Australia. In justice to Mr. Endean, continued Mr. McLeod, it should be stated he. took no part in organising the deputa-

tlon to the Prime Minister, but his anxiety for the primary producers and the country generally under the present deplorable conditions is well known. On Wednesday last, however, he sent the following cablegram to the general manager of one of the largest importing as well as manufacturing firms in the Commonwealth: —

“Has high rate of exchange been to the benefit of Australia?” The reply received was as follows: —“Definitely yes. Initial immediate benefit to export producer ultimately reflected stabilised price levels, increased purchasing power. General benefits high exchange now recognised. Difference opinion now only whether present rate should be increased.” MOVE OPPOSED “Flagrant Violation” IMPORTERS’ OPINION The view that any alteration in the exchange rate would be a flagrant violation on New Zealand s part of the spirit if not the letter of the Ottawa agreements was expressed i a statement issued yesterday by the Exchange Committee of the Net. Zealand Importers’ Federation. “It is quite obvious that P res ® u I? J® being brought upon the Bank of Ne Zealand to raise the rate of exchange on London,” states the federation. “This pressure is being exerted oy members of the Coalition who represent farming electorates. It is not contended by them that an increase of 15 per cent. —from 10 to 2a per cent, is warranted or justified on the country’s total balance of indebtedness, but simply that the primary producer, owing to the low level of primary prices, must be granted relief. It follows, therefore .that what is being proposed is wilful exchange manipulation in other words, straight-out inflation. “There is literally no difference between inflation of the note currency and inflation of exchange. Both in practice and theory they are identical. Each represents a debasement of the coinage, and each must be accompanied by the inherent evils of inflation. “Woefully Distorted.” “The position of Australia as compared with New Zealand has been woefully distorted by those who advocated a high exchange rate for New Zealand. The exchange rate in Australia was not originally an artificial rate; it was a natural rate, determined by the state of Australia’s balance of Indebtedness, which was heavily adverse to the Commonwealth. For many years her imports had' heavily exceeded her exports, and she had been a large and consistent borrower on the London market. The ordinary law of supply and demand, coupled with the state of Australia’s external trade, both visible and invisible operated to increase the rate. ( “The important point is that Australia did not indulge in exchange Inflation. She did not create an artificial rate of exchange as New Zealand is now being asked to do. Later it is true the Australian rate because of the altered position of her finances and trade and the cessation of borrowing abroad became an artificial rate maintained at an unwarranted level. But what was the result? The exchange market virtually collapsed and to prevent such a crisis which must have had very serious repercussions and involved the State Governments private firms and the banks in substantial losses, the Commonwealth Bank stepped in, took over the control of exchange, and lowered the rate from 301 per cent, to 254 per cent. “Australia did not suffer' very adversely from the high rate of exchange until it became an artificial one. It was realised by Britain that the high rate was justified in-view of all the circumstances, and that Australia had not indulged in inflation. She therefore could not suffer the evils attendant on inflation in whatever guise it may be presented. Balance of Trade. “Everybody realises the desirability of a stable rate of exchange. It was stressed at Ottawa by the delegates from Australia and New Zealand. A stable rate materially assists trade and industry, and for that reason an endeavour is made by the banks to keep a level rate by the simple expedient of balancing good years with bad—that is to say, adverse balance of indebtness years with favourable balance of indebtness years, so that over a period thev about balance. “To-day New Zealand is maintaining her exports, and imports are still dwindling. We shall finish the present vear with a substantial favourable balance of trade sufficient to enable us to pay interest on our overseas, debt, private, Government, and municipalThat being so, any increase in the rate is unjustified. “Furthermore, it is a well-known fact that the banks are experiencing difficulty to-day in disposing of London funds. The supply is greater than the demand, and this is strikingly revealed by the outside market rate. If the supply was unequal to the demand, ami the banks were maintaining an artificially low rate of exchange, the outside rate would be higher than the bank rate of exchange. But that is not the position. The outside market rate is lower, and even with the lower rate transactions of any volume • are not occurring. If you will make inquiries you will find that the outside rate is about £9/18/-, and tliat is the rate being quoted by the largest outside operators. “These facts show that a higher rate is unwarranted. Its consequences can only bo disastrous. It must add heavily to the deficit of the Government, since it will add greatly to the burden of debt charges and will reduce very materially receipts from Customs taxation. Moreover,' the redistribution of national wealth that is involved will spread income over a large number of individual taxpayers who either pay but a small amount of income tax or whose income is below the exemption limit. The result must be a sharp decline in receipts from income taxation. This will not. of course, be felt until later, but it will add very greatly to the Government’s budgetary difficulties a year or so hence. “An artificially high rate of exchange, as ours will be if the rate is increased to 25 per cent., will adversely affect our primary products abroad. Buyers when purchasing will take into account the rate of exchange and will pay less for our products. The effect of that can readily be realised; for instead of accelerating the return of a higher price level for primary products it will have the opposite effect. “We have received certain concessions for our primary products, and we virtually agreed to grant certain concessions to British products in return. Now we are going to impose wliflt is equivalent to an additional tariff of 15 per cent, on British goods. If that is not a breach of faith, and a flagrant breach of faith, we have yet to hear of one.”