Evening Post FRIDAY, JUNE 16, 1939. AT OUR OWN COST

Evening Post, Volume CXXVII, Issue 140, 16 June 1939, Page 8

Evening Post FRIDAY, JUNE 16, 1939. AT OUR OWN COST

A comprehensive list of suggestions for improving the sterling position has been approved by the Auckland Chamber of Commerce. The suggestions cannot be reviewed in detail, but they are evidently the result of a thorough survey of the origin, as well as the current effects, of the sterling shortage. They aim lat relief of existing restrictions and the restoration of a normal economic condition. Among what may be classified as short-term remedies are the raising of an external loan, the removal of limits on investment rates, and simplification of import restrictions by stating what sterling funds will be available and (in effect) permitting importers to carry out their own detailed rationing. Long-term remedies include review of Public Works employment to prevent its interfering with export industries, greater flexibility of industrial conditions to facilitate business pre-planning, and substitution of tariff protection (where protection is necessary) for the aid to industry now being given by import restriction. While there may be differences on details, the balanced method presented in these suggestions is the best approach to a solution of the problem. It would ->be idle to patch up the , trouble for the meantime and leave the cause untouched. That Avould mean that another crisis would come just as soon as the effect of the short-term palliative wore off. Nor would it be advisable to attempt the application of a severe Spartan regime. That would subject to great hardship many people who are no more to blame than others for the trouble into-which prodigality has brought us. It has been quite unfair to put the cost of the crisis on the shoulders of the importers; but the correction of that unfairness lies in requiring all sections of the community to contribute equally in the sacrifices needed to restore normal conditions. Unfortunately, there appears to be no bright prospect of obtaining the external loan which would be of most assistance in easing present pressure and permitting gradual reorganisation of our economy. The City Editor of "The Times" (according to a cable message received today) considers that as things are going it is likely.that no sterling surplus will be available to meet the debt' service and that there is scarcely any hope of New Zealand raising a large amount of new money on the London market. The possibility is. mentioned, however, by "The Times," of the British Government assisting NewZealand to obtain a loan, and it is suggested that such help might be in the form of export credit. The City Editor considers that some assistance is desirable, but that it is doubtful "whether it is justifiable to give New Zealand sufficient assistance to sustain the Government's ambitious programme intact." New Zealand cannot reasonably quarrel with this opinion. We are perfectly free to undertake any ambitious programme we choose, but it must be at our own cost. If we cannot meet the cost and call for assistance outside, then we must be prepared to prove that our programme is within our reasonable prospective capacity. In other words, we may ask for help in meeting a crisis, but the responsibility for restoring a stable economy still rests with us. We cannot demand help in applying a short-term remedy if we propose to use the relief only to escape the longterm correction of our economy. This long-term correction must take the form of a readjustment of expenditure to income. The latest bulletin of the Canterbury Chamber of Commerce (prepared in consultation with the Department of Economics of Canterbury College) shows clearly that, excessive expenditure is at the root of the trouble. To sustain its programme of heavy expenditure, the Government, when it had exhausted its normal income re : sources, borrowed heavily from the Reserve Bank. This made it impossible for the Bank to keep its resources sufficiently liquid to deal with critical conditions. "The position that has arisen*" the bulletin states, "demonstrates the validity of the prerequisite for successful reserve banking laid down by Sir Otto Niemeyer, that the Reserve Bank 'must be entirely free from both the actual fact and the fear of political interference.' As the facts of the situation which has led to exchange control have become more familiar, it has become more obvious that present monetary difficulties are the •direct result of the Government's'

borrowing from the Reserve Bank, and that these difficulties will not be overcome until the Government's advances from that Bank are repaid." An external loan, the bulletin submits, should be used to repay the Bank and restore the liquidity of its reserves. But this would not complete the solution. Expenditure in excess of income caused the Government to draw heavily upon the Bank, and spending must be adjusted to income or the crisis will certainly 'recur.