EXCHANGE CONTROL

Evening Post, Volume CXXVIII, Issue 15, 18 July 1939, Page 12

EXCHANGE CONTROL

HOPES DISAPPOINTED

STERLING BALANCES

DIFFICULT OUTLOOK FOR

TRADE

Lord Balfour of Burleigh, chairman 'of the National Bank of New Zealand, Ltd., presided at tho annual meeting, of shareholders of that bank held in London on June 29. The verbatim report of his speech (of which two extracts were cabled and appeared in these columns on June 30) shows that, after dealing with the balance-sheet, Lord Balfour touched on New Zealand Government finance and legislation. He referred to the recent New- Zealand internal loan of £4.500,000 and to "the satisfaction feit generally that it was fully subscribed." He then explained the income taxation system as specially applied to banks. "It is fair to the present Government," said Lord Balfour, "to make clear that they did not introduce this system. They have increased the rate of tax leviable, but as long as we were only taxed in the same way as other people we should have no complaint to mako on that score. We have made urgent and continued representations to the Government in this matter, and we were pleased to observe from the Press that legislation is to be introduced next session 'to place land and income taxation on a more equitable footing.' We earnestly i hope that the Bill will in fact remove what is nn admitted injustice. MONETARY EXPANSION. ."When the present Government came into power in 1935 the country had not yet emerged from the depression, and the Government decided to try and ..stimulate trade and business activity'by a policy of monetary expansion," observed Lord Balfour. "The years 1936 and 1937 were good years for the New Zealand export trade, and the high income from exports coincided with the efforts made by the Government to raise the general standard of living and resulted in a marked degree of prosperity for the people of New Zealand. The inevitable, result was a great increase in the ' amount of money spent on imports. I "The year 193S saw a continuance of these high imports, a considerable flight of capital, and a heavy fail in export returns as a result of the drop in the price of wool. All these factors led to a big reduction oi the Dominion's sterling balances. I myself regret, from an economic point of view, that the Government pursued so vigorous a policy of public works and general internal expansion ■ during the boom year of 1937. because it seems to me that if a Government is trying to insulate its country from the effects of world trade cycles by the regulation of internal monetary conditions it must be just as ready to put on the brake during times of rising world prices as it is to press the accelerator when world prices are falling. A SERIOUS POSITION. "Whatever may be to blame for the big inroad made upon the sterling balances, the position by the end of November last had become so serious, especially in. view of the Government £17,000,000 sterling loan maturing on January; 1 next, that drastic measures were clearly necessai^ if default was to be avoided. "The three most obvious courses open to the Government were exchange control, exchange depreciation, or a general reduction of expenditure, including salaries and wages. The Government decided upon exchange control, and when it was first introduced we hoped that it would ie.->d to an alleviation of the position sufficient to | enable the sterling balances to be so far built up as to leave no doubt of the successful conversion of the 1940 maturity. BLIGHTED HOPES. "Unfortunately, our hopes have been disappointed, partly owing to the substantial imports of machinery and raw materials which the Government is permitting in order to facilitate the setting up and expansion of the secondary industries of the Dominion, and partly owing to the fact that the continuance of capital transfers has been permitted on an unexpected scale. This latter policy seems to me to have been unfortunate as it has added -materially to the difficulties now being experienced by those requiring sterling funds, either in payment of imports into New Zealand cr as remittances of income for living expenses in this country, i "When the exchange control began it seemed a reasonable assumption that the granting of import licences by the Customs or of transfer permits by the I Reserve Bapk implied that sterling j would be available as cover, and it is ' regrettable now to find that licences and permits have been granted substantially in excess of the funds likely to be available in the next-few months. REMITTANCES HELD UP. "It seems io me that, in an economy which is subject to the degree of Government control 'now being exercised in New Zealand, it is not possible for discrimination in the granting of sterling exchange to be made by the trading banks as well as by the Government and the Reserve Bank, and it is essential that, if the exchange position is not alleviated in some way in the near future, the Government should decide upon a list of priorities and indicate clearly to the trading banks the lines upon which they must act in any rationing of exchange which may be necessary In the meantime I hope that any of our customers whose remittances we may have to hold up or reduce will appreciate that we are doing the best we can to serve the interests both of our customers as a whole and of the Dominion." RELATIONS WITH BRITAIN. Lord Balfour expressed no view as to whether it is desirable or not that a primary producing country like New Zealand should attempt to switch over j a large, part of its economy to secondary industries, but it was clear to him, he said, that New Zealand had the right to try and do that which had been done in many other countries, including some parts of their own Empire. "To the suggestion that such action by New Zealand should be met by a. refusal to buy New Zealand products, • I must point out that New Zealand is still, and is likely to remain, our best customer per head of population, and that the import control is being deliberately administered in such a xvay that the United Kingdom proportion of New Zealand's imports cannot decline and is almost certain to jfrpw." . ■ After referring to the financial mission of the New Zealand Minister of Finance (the Hon. Walter Nash) to London, Lord' Balfour remarked that unpropitious as the moment might appear for fresh borrowing, he had no doubt that whatever requests the Minister had to make on the score of de- j fence would receive sympathetic consideration. HURDLES TO SURMOUNT. But the £17,000.000 New Zealand loan maturing next January and negotiations for defence expenditure, Lord! Balfour remarked, are not "the only j

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[financial hurdles now confronting New Zealand. There remains yet another urgent necessity, and- that is fresh money to finance imports other than for defence. "Prima facie, no moment could be less auspicious for such a request, but an examination of New Zealand's position reveals the fact that a substantial amount of fresh credit must be made available if a serious dislocation of trade, amounting' indeed to a commercial default, is to be avoided. "I have already mentioned that import licences have been granted bs r the Customs Department in New Zealand and transfer permits by the Reserve Bank considerably in excess of the amount of sterling likely to be available in the next few months. That is the case in spite of drastic cutting down of unessential imports." The bitterness of complaints of restriction of imports and exchange and "the momentum of credit expansion such as has been taking place in New Zealand," were also dealt with by Lord Balfour, and he added:— "It may be a valid criticism that the control should have been imposed earlier. However that may be. a very difficult trade position must be faced for the next six months at least. A surplus of imports and debt service over exports and debt service must somehow be financed if goods vital to New Zealand's exporting industries are not to be shut out. It does seem to me to be of the first importance that means should be found to finance these imports. Moreover, we have the assurance that such excess of imports is temporary only; the New Zealand Government has publicly recognised the fact that imports plus debt service have to be paid for out of the proceeds of exports. "The surplus imports of this year will have to be paid for in the long run by reduction of imports in future years." NEW ZEALAND'S CREDIT. A strong point was made of Government responsibility for laying down priority of imports. Lord Balfour also remarked hat "New Zealand's credit cannot be maintained if ordinary trading operations cannot be engaged in with confidence, and if confidence is to be maintained a corollary of the Government's assurance that imports will be controlled in an orderly manner is a declaration that such control will be retained only as long as it is necessary. "Conference and capital are alike elusive and the experience of the past six months has demonstrated to perfection that to prevent capital from leaving- a country is the best way to stop it going there." In considering any request for fresh credit in London to finance this essential trade which may be put forward by Mr. Nash, Lord Balfour said: "We must remember that there is no country more loyal to the Empire than New Zealand, and moreover the trade between New Zealand and the Mother Country is of incalculable importance to both countries. NEED FOR GENEROSITY. "I therefore earnestly hope that, whatever may have been the rights or wrongs, the wisdom or the folly, of the policy pursued by Mr. Nash and his colleagues, and however difficult the present moment may be, those who are negotiating with him will remember that an attitude of sympathy and generosity now will do far more than j rescue the New Zealand Government from difficulties which are largely of' their own making; it will save further] losses and unemployment in British firms which export to the Dominion; it will provide the security of which the British investor in New Zealand is in need, and it will strengthen, in a way which every one of us desires, the ties that bind together the components I of the Empire." I