LONDON FUNDS

Dominion, Volume 32, Issue 112, 4 February 1939, Page 12

LONDON FUNDS

Government’s Plan For Conservation EXCHANGE CONTROL AND IMPORTS Statements By Minister Challenged The contention that the Government had no need to go to the lengths it has in the control of exchange and imports is made by the Importers’ National Committee in a statement issued yesterday. Ihe 'committee submits that there was another course of action the Government could have employed and draws attention to what it consideis were misstatements by the Minister of Finance, Mr. Nash, about the procedure previously followed by the trading banks when London funds had to be safeguarded.

“Mi*. Nash, in the second part of his speech to the conference on’the import control regulations, made mention of the different measures for arresting the decline in London funds to which the Government had given consideration,” says the statement. In his treatment of these alternatives, Mr Nash misstated the normal procedure followed in the past by the trading banks when London funds declined. The Minister said that 'before the Reserve Bank was established the old procedure, when the trading banks found that their London funds were tending to decline, was for them automatically to start to reduce overdrafts or call them in, rightly or wrongly.' “When London funds fell, and action by the trading banks was necessary to conserve them, the banks put a brake on the tendency to over-importation by ceasing to grant new overdrafts for imports, by increasing overdraft rates, and by issuing letters-of-credit less freely. So the position of London funds was brought back into balance in a normal way. It is only right that this matter should be corrected, since the procedure followed by the banks was not as stated by the Minister. Curtailing Expenditure.

“The Minister said the Government considered it was not wise to curtail expenditure in a country like New Zealand. It would, of course, be an ideal state if people could go on spending lit a high level without there being economic repercussions, but. if public mid private spending reaches a level that places- the country in financial difficulties, then the obvious thing to do is to reduce expenditure. “However, the Minister, discarding recourse to normal procedure, and discarding also the alternatives of raising a loan in London, increasing tariffs, or letting the exchange rate find its normal level, arrives at exchange control and import regulation as the choice of the Government. “But there was still another alternative course of action open, which Mr. Nash did not mention, and to which, we consequently assume, the Government gave no attention —an alternative in which blie motivating factor would have been co-operation, instead of the present coercion. Under this procedure there would have been the voluntary mobilizing of exchange resources, only such exchange as was left after sufficient funds had been earmarked for Government debt commitments being available for goods which the people and the importers desired to import, and for other purposes. Just such a voluntary scheme was instituted with success in Australia in 1930, when that country met with difficulty in providing in London the funds necessary to meet its obligations. “The contrast with the Australian system, under which a democratic people responded to a voluntary scheme, which, while preserving their good name overseas and enabling them to meet their debts, still left them with freedom, provides too striking a contrast for the point, to need any further elaboration. Several Courses Open. “If some action was necessary to conserve New Zealand’s London funds (and wo fully agree that some action Was necessary) then a choice of several courses which would have achieved the conservation of Loudon iunds, was open Io the Government. Mr. Nash’s persuasiveness would give the impression thal because of Hie Government: having decided that: rationing of available exchange was desirable, compulsory conlrol of it by I lie Government was necessary. Tills is not the case: Ihe former could have been done without the Inlier, and London funds would sill] have been conserved, and natural debl coinniilnieiils met. “Anolher impression llml might lie formed from I lie remarks of Mr. Nash is Hint, Hie Governmenl having decided on (1) Hie nil foiling of exchange, and (2) I lie compulsory conlrol ami allocation of II by ihe Governmenl, it was necessary for Hie Governmenl to (Iciermine Hie classes of goods Hint should or’slioiilil m>l lie Imported. This is not Ihe Clise; Hie llrsl Iwo Ililngs could have been done wlllnilll Hie last-nam-ed. and London I’iimls would si ill have been conserved, ami imlloiuil debt commitmenls mol.

“What Ute Minister diil not say was thnl tin emergency had also arisen in regard to secondary ittditslry In New Zealand, whereby industries, handicapped by their high costs or product lon, brought about by Government policy, wort* suffering from I lie compel II ion of imported goods In some cases. In order Io bolster up an internal condition that had become uneconomic and uni ena Ide. tlte Government widened its chosen plan to include rest riel ion of various classes of imports, so us Io give protection to local industry. This was a mutter altogether separate and distinct from any action which was necessary Io (“liable New Zealand to meet its debt payments overseas. ,

“A third factor in the situation seems to be a determination by the Government to tighten its grip on' the economic life of the country, as evidenced by the definite statement now made by the Minister that import selection is part of the policy of the Government. “The purpose of this statement is to make it clear that the Government, in deciding to take action which would conserve London funds, did not have to go to the lengths of State control of exchange and imports to which it did go. ,'Ve propose to deal with the grave faults of the scheme itself in a further statement.”