ADVERSE CRITICISM

Evening Post, Volume CXIII, Issue 142, 17 June 1932, Page 8

ADVERSE CRITICISM

EXCHANGE CONTROL

TIME \OF STRESS

Opportunity was taken by the chairman of the Bank of New Zealand (Mr. O. Nicholson) to : day to refer to "the adverse criticisms, which have been so persistently levelled at the banks under present economic conditions. One would gather from these criticisms (he said) that, in the opinions of the critics, tho banks arc-to blame for' many of the, problems confronting 'the Dominion at the present timo, that they are oblivious to\the. country's best interests, and that' they are only solicitous for the earning of the largest possible dividends ,for their, shareholders. Such is not the case, as all banks fully realise that the prosperity of tho country is closely interwoven with their- own success, and. that it is their particular province to see that financial affairs are conducted upon those- sound lines, which their many years of experience indicate are essential for its safety and prosperity. > ' "They cannot be expected to stand by unprotestingly when sound financial principles are being violated. . It is essential that there should always be a close co-operation between the Government and the banks in all schemes of financial policy, if national difficulties capable of practical solution are to be surmounted as speedily as possible. . HOW THE BANKS SERVE. "Critics and other people of the Dominion must concede, that if it had not been' for the financial 'resources and strength of the banks to meet the requirements, not - only of the Government, ibnt also of their customers generally during the past year—the position of the Dominion and its people today have been in a very deplorable state indeed." Earlier in his speech the chairman remarked: "It is rather amazing in an enlightened country that there should i be so many opinions expressed to the effect that too much money is locked up in bank deposits to the detriment of its Usefulness." One would expect it to be obvious that banks could not afford the interest and other expenses of deposits unless use was made of the funds so supplied." They are, of course', used-in making advances to those in agriculture, manufacture,'and trade." ''- In references made to the bank's advances, the chairman said there had not been much demand for advances of a safe nature, but the bank had met all legitimate demands of its own customers. "Many of our farmer customers," he added, "are unable to make ends meet; in' addition to assisting them to the, limit of Bafety, we have made many concessions in interest rate; indeed, frequently .not charging any interest at aIL Owing to present uncertain values, it has been difficult to assess the measure of provision required to cover.losses on bad and doubtful advances^ It is felt, however, that our assessments have been made on a most drastic basis."

Sealing with redactions in bank interest rates and the recent compulsory reduction "of ' interest - rates by 20 per cent., the chairman pointed out that •'owing to-1 concessions made to customers who, under existing conditions, fcrejinable to make ends meet, the reduotion,. already "made, has brought down the actual average Tate on our advances* In New Zealand"?or the'iaif-year ended 31st March-last to 5.79 per cent., so that, when the further reduction comes into 'force we shall probably not~earn s}. per "cent., a" concession,-as compared with 19£0,0f more than the 20 per cent, stipulated.for in the.compulsory provision just mentioned. It should be borne in mind thatlinterest is calculated only on the daily balance of overdraft, and not on the amount-the bank agrees to lend-^a very decided advantage to most customers." DOMINION LONDON LOAN. The Government 5 per cent, loan of £5,000,000, raised in London last April at an interest cost of about 5i per cent., was referred to, and Mr. Nicholson said ihe> issue was very- favourably 'commented on. by the Press; but, unfortunately, it was made just as a sudden and quite 'unexpected cessation of the demand'for gilt-edged investments set in. Tho underwriters were -left with 47 per. cent, of .the,.loan, but on the market improving,- this balance of the issue was quickly, absorbed. "Pour millions of the- loan," he said, "is to be utilised .'for repayment amount; of Treasury bills maturingiiTLondon this month and one million for. public works. The. Dominion has. every reason to be satisfied with -the result p£ the Joan, which reflects the high credit New Zealand enjoys on the London'market. The exceptionally low'rates for money'now ruling in London should .enable the Government to finance there temporarily, on Treasury bills, thereby obviating 'the necessity, for remitting funds from New Zealand at the present high rate of exchange, and also saving a considerable amount in interest. • "It must not, however, be overlooked that the 'recent riotous occurrences in Dunedin, Auckland, and Wellington have, for the time being, had a disturbing effect on the country's credit ipii the money market in London." • - ' THE EXCHANGE BATE. • It was fully expected that the chairman would make some reference to control of exchange and the licensing of exports by" which it was provided that the. proceeds of exports should be bandied by,the- banks. "The action cf the' Government has beenl strongly condemned by exporters, who contend that exchange- should be left free 'to find its ■ own-ileyel/' Baid Mr.; Nicholson. ■*,' Doubtless they expected that in a free market, ; and-with the-knowledgo of the unusually heavy obligations of the Government and local bodies in London—estimated" at £14,000,000 for the year-^-the rate, by siilful manipulation, conltf be forced up from 10 per cent, to 25 per cent., or even 30 per cent or 40 per cent. Such rates would. of course, have necessitated an equiva- ~ lent_ increase in selling rates, thereby casting a most onerous burden on public finance, which would require to be met by increased taxation. , - "The banks' made no alteration id rates because, with the exception of one bank-, it was felt that, having re-gard-to their- -balances in London; and the prospective surplus of exports over imports" for the season, no change could be justified.

, "It is certainly riot the business of the banks to-adjust, exchange rates to meet" variations in the price of .produce. Nor can they be influenced by i the, rates, prevailing in other countries ■which are our principal competitors in - tho London market.

? 'Neither the Government nor the oanks could view with! equanimity the heavy depreciation of New Zealand currency which would result from any con-siderable-increase in buying rates on London, and the wisdom of this is fcorae out by the very, satisfactory terms which .the Government obtained for its £5,000,000 loan raised in London la April. Partner, control of the exchange enabled the banks to prevent the flight of capital from the Dominion, also to prevent New Zealand's funds in London being used for the benefit of Australia, It may be added that' it would pay this hank well, to see the

rate on London increased to 25 per cent., but the interests of the country mustbe regarded as paramount."

FACING- THE FACTS.

Subsequently the chairman dealt with outstanding features of the present general situation. The Bank of New Zealand and the other banks, he said,- were galled upon to render tho greatest financial assistance. ■ within their resources to trade and industry in times of stress arid difficulty as are now* being experienced. The Dominion's present position may be attributable to the result of two definite causes, viz., (a). greatly reduced national, income, and (b) an increased annual national expenditure. .

"They mean on the one hand that the income of the country has seriously diminished and on the other hand that its financial requirements have greatly increased,'^ the chairman continued "In'other words, wo, have less money from income wherewith to meet greatly increased public charges and standing debts. ...

"The serious fall in income is due chiefly to the unprofitably low prices for produce. The wool position is so serious that unless a substantial im-

provement in prices sets in, sheepfarui ing in New Zealand will be greatl} restricted, aa; it is unreasonable: to ex pect. farmers to continue in any -.industry at a loss to themselves.. As this industry has been: one of ;-the ■ main avenues of the Dominion's wealth, any restriction in;the.direction of its development ;will materially reduce the amount of national-income in comparison'with, previous years and retard the progress of - the country's, rehabilitation; Our sheep , flocks ; wilr, diminish lit' number,'and our lamb.export trade hi frozen :"meat, will be materially lessened.-^ It'is hoped thatv some means of assistance to sheep farmers will be devised to fencourage them to continue in an industry in the success of which :the people of the -Dominion are .so! vitally interested; ••.': ~ --'■■i^:.^ '■-' ■':) ■-. •'■ ■'■' ■>'

"Dairy produce is very low in price, and it is probable that adjustments will havo to bo made to .a permanent lower level of land values to meet such conditions.

"Production costs will have to be further reduced, which " requirement covers interest and all other charges on the industry, which obviously can only tear' charges within its earning power..

"_Thn condition'of a greatly reduced national income has consequently brought about restricted traile, which in turn has caused the present grave unemployment crisis. All avenues must be explored to remedy the position and the channels of a further settlement of a considerable section of our population on the land, and a vitalisation of secondary industries appropriate to the Dominion appear ,to be worthy of serious consideration and support." OTTAWA CONFERENCE. ' As regards our trading relations abroad, Mr. Nicholson said, much good was' expected to result from the British Empire Conference to be held at Ottawa. It was fervently hoped that there would be achieved at that Conference through . sacrifices mado for the common weal, an Empire trading understanding and strength which i would prove beneficial in the futuro to ' all the units of the Empire. '' It is clear that Great Britain must be tfio main outlet of our country's primary products," he remarked, "and we should, see that the goods •we require from abroad are purchased from this source in preference to any other. 31 Briefly summarised, the following appeared to be essential requisites for the country's welfare and rehabilitation:— -, *

. (1) Greatly reduced costs of production to meet world-wide competitive conditions and further increase in the volume,of our exports and the r cnlti vatiolr of further export lines. ' '-'

(2) Restricted public expenditure under several headings bringing Government expenditure within the limits of the "country's present resources.

(3) The creation of a self-depen-dent rural community comprising the bulk of the •population by their settlement on' the land in small holdings.

(4) A' reasonable further establish-ment-of industries- appropriate' to'-the country. ' •

Thus a more' balanced population would be secured so far as' regards their occupation and employment and a portion of the discontent now prevailing in tho"Dominion would be removed. A WORD TOE THE GOVERNMENT. his speech Mr. Nicholson held it -to be a matter for congratulation that the Dominion had a Coalition Government, functioning with a mandate to' take all steps essential to bring about the Dominion's financial stability 'and prosperity as speedily as possible^ It realised the problems that have to 'be faced, and in the exercise of tho mandate given it had,imposed taxation to a most onerous extent, effected rigid eeono'mies in public administration, and has. put into operation drastic-measures which could not be justified save through the exigencies of the crisis through 'Tvhich tho countiy was passing. In so acting, it had incurred th'e'displeasuro of many sections who resented being called upon to bear a share of the financial burden which they selfishly considered, should bo placed, on other shoulders.

"People are too prone to blame the Government for the Dominion's present position and to attribute the same to the lavish borrowing policy and extravagant "expenditure of its predecessors," ■ tho chairman pointed out. "They forget that such policy and extravagance • (emulated as woll by all loqal authorities) wero but the reflection of their wishes and that they materially, profited, thereby, whilo they were in full operation. As they ha\e shared in the benefits arising during the period of' inflation .and prosperity, so now they should uncomplainingly and courageously face the hardships resulting from , deflation and adversity." ■ UNEMPLOYMENT PROBLEM. Tho Government should be extended support and helpful-co-operation in its earnest efforts, and not bo subjected to captious criticism and active as well as passive opposition and obstruction

"Especially should the Government be commended in its honest attempts to solve partially, with the financial resources which may from time to time become available, the problem of unemployment—a state of affairs brought about through no fault of the majority of the unfortunate persons in that predicament. Sacrifices must be made ungrudgingly by all who have the necessary means, as well as by those in employment, to meet the" plight of this unfortunate section of the people and the extent of these, sacrifices must vary according to capacity to bear them."

Mr. Nicholson finally counselled the practice of all reasonable ana requisite economy in public local and private expenditure, the balancing of the national Budget within a reasonable period of years from sources other. than borrowing, and finding avenues of employment'for those in need of it. The solution of the country's difficulties could be greatly helped by resolute courage, unselfishness, and rehabilitation of a spirit of goodwill in all classes of the community.