HOLDING THE BALANCE

Evening Post, Volume CXIII, Issue 11, 14 January 1932, Page 10

HOLDING THE BALANCE

The deputation which met the Governmqnt yesterday stated forcefully the farmers' objections to the export credits pool. It is right that these objections should be stated and fully weighed; but the Government would be doing a grave injustice to the rest of the community were it to accept tliis as a full statement of the case. The Government must shape its policy in the interests of the whole community and hold the balance fairly between exporters and importers, farmers and merchants, consumers, producers, and taxpayers. This, we believe, it is endeavouring to do, and the exchange pool is the fairest and most effective method of meeting the particular problem that has been made more difficult by the Government's anticipated inability to borrow at a reasonable rate on long terms. The example of Australia was freely quoted yesterday; but the circumstances were not fully stated. The Australian Government certainly did not license exports and insist on all credits passing through the banks, but Australian banks pooled their exchange resources to meet Federal obligations, the Federal Government raised its tariff and even imposed an embargo on certain imports so as to lessen the demand for funds in London (meaning that the rate was thus kept down), and a further restriction was imposed by. tlie rationing of credits which had to be resorted to. New Zealand, profiting by Australia's experience, has not adopted such measures, but has chosen instead to establish a pool under orderly and systematic control.

.This does not mean that the Government fixes the rate of exchange. It is wholly incorrect to say, as the principal spokesman of the deputation said, that "the Order-in-Council fixed the rate of exchange at a level which, in the opinion of the primary producers, was against the interest of the farming community." The Order-in-Council states that the rate shall be "the rate quoted by the banks." It is only if a question arises as to what is the rate so quoted that the Minister of Finance, after consultation with the banks, is to declare it. This has not yet been done, and the rate at present is that which the banks deem to be fair. In their decision of what is fair the banks are guided by supply and demand. They have to seek"sto strike a balance. For the past twelve months they have found that a 10 per cent, exchange does this. If tfyey judge a further check on imports and greater encouragement for exports essential they will apply the corrective measures. Their liberty to do so has not been withdrawn. .

It was still open to the banks to fix the: rate- of exchange as in the past (said the Prime Minister yesterday). Government interference in business has been freely criticised, and it was considered the less the Government interfered tho better.

AH that the Government has done so far is to place an embargo on exchange operations outside the banks. This is a very necessary measure to prevent trafficking which would force exchange up (in view of the Government's greater demand) and enrich, not the primary producers mainly, but the private speculators. '. Much was made by the deputation yesterday of the benefit of a higher rate to primary producers. But what would . that benefit be and- whence would it be derived? The Prime Minister answered this in part when lie sajd lhat a 30 per cent, rate would make the exchange addition to the Government's payments £3,600,000

instead of £1,200,000. Importers would be similarly charged with an addition of millions to the cost of the gbods they buy overseas. These additional costs will not rest with the Government and the merchants. The latter will be compelled to collect them from taxpayers and consumers. It is the farmer's argument that he pays eventually taxation, wages of labour, protection, and all other charges incurred by the rest of the community. If this argument be sound, then the farmer would pay out most of what he received through the higher exchange, and he might in some instances have to pay more, as additional costs have a snowball habit of becoming greater as they pass on. Certainly the Government, hard-pressed to balance its Budget now, could not find a further £2,400,000 without raising taxes. It could not obtain the additional revenue from Customs,, for a 30 per cent, addition to exchange would accelerate the operation of the law of diminishing returns as surely as an increase in the tariff. Taxation would be more oppressive than it is now, the cost of living would rise, and the cost of services with it.

In fact, what the farmer is seeking is merely the illusory benefit of inflation.' An adverse exchange indicates a measure of inflation, and it is to New Zealand's interest to rid herself of that inflation and return to normal-as smoothly and speedily as possible. Neither by artificial measures nor by speculative; bperations should that inflation be increased. From the tone of: the speeches yesterday one might take quite the contrary view—that inflation was desirable and had been deliberately sought by other countries. This is far from the fact. The inflation: had been allowed to proceed by prodigal borrowing and spending and high tariffs until the exchange rose.'Now there is a sign of improvement in Australia by the reduction of the rate. But if the high rate were so wonderfully beneficial why was it reduced at all—even from 30 to 25 per cent.? Why was it not rather increased? The answer is that the resort to high exchange wasj like the prohibitive tariff and rationing, a painful necessity. This fact cannot be disguised by making a virtue of necessity. The prudent, correct, and sound course is to place exchange, as the Government has done, under watchful control, barring disturbing speculation, and neither subsidising one section at the expense of the rest with a high rate nor depriving any section of its just due. The banks, with exporting and importing clients, may be trusted in consultation with the Government'to see that -evenhanded justice is done.) It will, however, give confidence and allay dissatisfaction if ■ the Government agrees to consultation on the question, provided, of course, that it is not onesided, but that all views—Government, banking, exporting, and importing—are stated.