EXCHANGE CONTROL

Evening Star, Issue 23174, 25 January 1939, Page 10

EXCHANGE CONTROL

ORIGIN OF GOVERNMENT’S POLICY EXPLAINED BY MR NASH MINISTER ADDRESSES IMPORTERS [Per United Press Association.] WELLINGTON, January 25.

The origin of the Government’s exchange control policy and the factors influencing its decision to bring it into operation were set out by the Hon. W. Nash when addressing the importers’ conference at the Wellington Town Hull this morning. The president of the Associated Chambers of Commerce (Mr M. S. Myers, of Dunedin) presided over an attendance of about 1,150, fully representative of the business interests of the Dominion.

Mr Nash emphasised that since the introduction of exchange control and from tho study ho had given to the question previously, ho was satisfied it was a common-sense, rational, and reasonable procedure to follow, even with all the difficulties it would bring into being. Mr Nash said he regarded it as a privilege to allow importer's to know exactly what was in the Government’s mind regarding the regulations. For the seven months. April 30 to November 30 of last year, there'was a decline in the Dominion's sterling funds in London of slightly more than 20 millions, and the Government had to find out the reason for such a marked decline in such a short period. Procedure had to he found to augment the sterling funds and prevent their complete disappearance.

Past Governments had usually borrowed to supplement the funds, and during 1923 to 1932 the national debt overseas had increased by nearly 66 millions. Since then the Dominion had not borrowed any new money overseas. The previous Government had started to try to work out a way of preventing the continual increase in the national debt, and during 1933 to 1938 the debt w r as reduced by 14 millions, including the local body debt that automatically had some effect on sterling funds. In 1935-36 the funds were 46 millions. The decline to the present level of seven millions was not entirely due to over-importation. Large sums had been taken out of New Zealand that had been left hero in anticipation of the exchange going down. Another reason was that persons who had made their money in-New Zealand had sent large sums overseas with the object of getting higher interest rates. That was probably the major influence on the funds.

During the last 12 months the exports exceeded the imports by roughly £3,800,000, when at least 12 millions excess of exports over imports was required for normal working, - The old procedure before the Reserve Bank came into being was that when the trading banks' found" their London funds tending to decline they automatically started, reducing overdrafts and increasing the interest rates on overdrafts. Then their clients were advised to curtail expenditure which automatically brought unemployment, and reduced wages and snending power, bringing about a decline in imports, and so balancing exports and imports.

The Labour Government decided not to adopt that method. Taking into account the type of country New Zealand was, it was decided not to reduce the living standards or borrow in London to meet the current commitments. It could have adopted several other courses than that adopted — namely, it could have increased tariffs or let exchange find its normal level; but it decided it did not want that to happen. Had either of those two courses been followed there would still have been a restriction of imports.

There was no way he could see in which the necessary funds in London could be built up to the desired point, except by restriction of imports. The present procedure was nothing new so far as the world generally was concerned. Thirty or forty countries had adopted exchange control.

During the present year local body loans maturing in the United Kingdom were £800,049, and on the Ist of January next £17,100.072 was due by the Dominion in London.

That implied that New Zealand had to find something more than 21 millions in New Zealand currency in London by the end of the present year, and that could be done in three ways. New Zealand could induce some of the people to whom money was due to renew their loans. More money could be borrowed for re- . payment purposes, or more of New Zealand’s own money could be found to meet the charges if New Zealand was to get fairly reasonable terms for renewal and repayment purposes. Some steps had to be taken to conserve the funds built up from the sale of exports. The decline in export values last year was seven and a-half millions, but the decline in import values was slightly less than two millions.

If New Zealand had only enough last year and was five and a-half millions worse off again this year, obviously some curtailment was necessary.

Mr Nash said that during tho year New Zealand had to find interest on debts amounting to £8,600,000, and everybody would agree that that had to be paid first to maintain the country’s integrity. Another prior charge of about £1,000,000 was on private investments held by people domiciled overseas. Then there was about another £1,000,000 required for salaries and commissions, insurance payments, and so on overseas. Another special circumstance was the present world situation, and New Zealand had to play its part in Empire commonwealth defence. The present Government had been spending at an accelerated rate on defence during the past few years out of sheer necessity, and he believed that the expenditure would have to be still further accelerated during the present year, entailing a fairly heavy chargt on the sterling funds. Materials for defence would have to come in before other imports. All those factors meant a fairly drastic cut in imports. It was common sense to select tho imports it was desirable to bring in so that the new

procedure would have the least harmful impact. It was impossible in New Zealand or elsewhere to have a standard of living other than that based on commodities and services produced.

If New Zealand was to reduce imports and still enjoy the present standard of living obviously it must make arrangements to manufacture in the Dominion and produce more than in the past, both in primary and secondary industries, for the purpose of building up funds.

New Zealand should be able out of its amazing resources to produce all commodities necessary overseas, and to build tip export funds to a greater extent than in the past. In addition ways and means must be found of making more goods in New Zealand. Manufacturers had a case in that there were men and women and youths, not fully employed. 1 Manufacturers would have maximum facilities provided for the import of commodities necessary for the production of goods. First of all the selection would apply to facilities for primary production, and then capital equipment, and raw materials for manufacturing goods to replace imports. There would be curtailment of the less essential and non-essential imports. In his opinion the United Kingdom had done more for the dominions than they could reasonably expect any country normally to do. (Applause.) It had given special preferences regarding marketing facilities and had made major contributions to the Dominion’s defence, and New Zealand was willing to do its part in making the impact of new procedure the least harmful against the United Kingdom.

The Government would do all possible to reduce the difficulties to the United Kingdom manufacturers and others arising from control. Maximum preference would be given to the United Kingdom, but there were other countries with which in recent years New Zealand had made_ agreements and which he thought possibly would take more from Now Zealand than previSince the introduction of control the Government was beginning to see for the first time what had happened to the proceeds of the sale of our exports. which had not been fully known in the past. Only during the past month or six weeks had the Government begun to see the ramifications of credit and currency and the effect on sterling funds. He asked the conference to accept the fact that the Government had been elected to take charge of the country, and the new procedure was part of its policy. He would do everything humanly possible to remove any hardship, injustice, or anomalies that might arise. As regards procedure, Mr Nash said he had given instructions to all collectors of Customs to act exactly the same at every port. There was to be no discrimination. He took particular pride in the staff of the Customs Department. He had some of the finest officers that had been associated w'ith any Government, and he had profound faith in their integrity. The basis of allocation for the first six months of the present year was the quantity imported in the _ first six months of 1938. That occasioned tremendous difficulties. He knew there wore anomalies, and to overcome some of them, although he did not want to issue licenses for the second period just yet, instructions went out a fortnight ago to collectors that where special circumstances existed a license could he issued for half of the _ total imports during the year. Provision had also been made for new lines and new imports. Hundreds of appeals had been answered, and an effort made to work out general principles on special points. Oases of particular hardship would be dealt with immediately. As the gathering was breaking up a member of the audience rose to propose a vote of thanks to Mr Nash, but already many of those present had left their seats, and no formal motion was put..