ECONOMIC TESTS

Evening Post, Volume CXXVI, Issue 44, 20 August 1938, Page 11

ECONOMIC TESTS

NEW ZEALAND'S CREDIT

RESTIVENESS IN LONDON

OUR RISING COSTS

<Frcfti "The Post's' Representative.)

LONDON, July 27. The ability of New Zealand to pay s-er overseas debts is discussed in the wtest number of "The Economist." ..he Dominion's unblemished record to date is taken as a guarantee of will- * ingness to pay, which is not for a moment questioned. For several months, it is stated. New Zealand securities have been in the trustee bargain basement, but there have been few bargain hunters. Investors are said to have become distinctly restive, and the uneasiness cannot be ascribed in its entirety to a whispering campaign by the Government's opponents, for the doubts are not based on political melodrama but on economic tests. Investors are declared to have been inquiring how far the symptoms of economic deterioration in the Dominion may be affected by the play of domestic politics, particularly in an election year, which raises the..question of ability to pay debts. Ability to pay, says "The Economist," is governed by two main factors, the size of the Dominion's export surplus and the extent of her sterling resources. The reduction of her London balances to £24,000,000 (N.Z.) is traced, and attributed %x part to a flight of capital. "Certainly, the fall is much larger than can be explained by the current items of the balance of payments, or by the contention of the New Zealand Prime' Minister that the reduction in sterling balances is due to the overtaking of arrears in capital equipment. The potential significance of these movements in the trade balance and the London funds has not been lost on investors, for they have occurred during a year in which trade conditions Were extremely good. NOT CONSOLATORY. - "The strain'to which the confidence of -the New Zealand stockholder has been subjected to ... has not been lessened by the Government's defence that the London funds were unnecessarily large. Nor has the Prime Minister's recognition that sufficient funds must.. be accumulated in London to meet the Dominion's commitments afforded much consolation. "If the present rate of decumulation continues during the next year or two, the safety margin may become inadequate. Can New Zealand assure herself that her dairy produce and wool business will ride any further setback in international trade conditions with reasonable comfort. And if not, what are the Budge try consequences for, the Dominion?" After referring to Government steps in economic policy it is stated that the rise i/ costs owing to social legislation is already considerable. A comparison of New Zealand's expenditure with that of Great Britain, on a proportionate basis, is said to produce figures which, without any political bias against Mr. Savage's or any other Labour Administration, tend to raise doubts in any investor's mind. It is-.postulated that the Gbvernpolicy"'" must' result" in some measure, to Budgetary expansion, WithOut^any "offsetting in the-Jcost''?b'f external debt. The present indications are believed to suggest that the maintenance of New Zealand's debt service may involve a greater strain in the near future than hitherto. It is believed that even if butter and wool values are maintained—and they have been fairly steady 'for the past two months —the Government will still be

faced with the difficult task of financv ing a larger Budget and strengthening its trade, balance.