THE New Zealand Herald AND DAILY SOUTHERN CROSS WEDNESDAY, APRIL 19, 1939 BORROWING DIFFICULTIES

New Zealand Herald, Volume LXXVI, Issue 23325, 19 April 1939, Page 12

THE New Zealand Herald AND DAILY SOUTHERN CROSS WEDNESDAY, APRIL 19, 1939 BORROWING DIFFICULTIES

Unless a considerable measure of deflation and consequent unemployment is to be avoided, some new policy for meeting capital demands at present unsatisfied must quickly be applied by the Minister of Finance. The difficulty faced by the Auckland Harbour Board offers a case in point. Its finances are preeminently sound, its credit stands high, but it cannot borrow the £400,000 required to finish its export wharf at per cent, the rate arbitrarily fixed by Mr. Nash. Unless the State lends the money at the last moment, the work will have to be closed down, involving the dismissal of 50 men on Friday and about 200 ip all. The case is not an isolated one. Local body loan requirements are banking up. Boroughs and . counties have urgent capital works i in view and so have urban arid ' rural drainage boards. Power boards • require capital to pursue a normal programme of extension as well as ' catering for increasing demand in reticulated areas. In the ordinary course hospital boards borrow heavily every year, v but in the immediate future must make additional provision against enlarged services required under the Social Security Act. The need and desirability of most of these works cannot be called in question and the export wharf may be cited again as an example. Yet if these many and various bodies cannot be assured of getting the money—neither in the open market' nor from the State — they cannot proceed, and a deflationary influence will shortly make itself felt. If that is Mr. Nash's intention —to put the brake on—he should state it and justify the Government's reversal of policy. If it is not, he should make it possible for local bodies to finance and so proceed with orderly development. This prescription might not be difficult to fill if Mr. Nash had not to think of other capital provision that must be made. Before throwing open the local money market to local bodies, he has to consider the competitive effect on the financial requirements of the Government itself, of industrial expansion, and of farmers. The State continues to prosecute a boom capital programme. Mr. Armstrong wants millions for housing, Mr. Langstone other millions for land development, and Mr. Semple most of all for public buildings, hydro-electric development, railways, roads, bridges, tunnels and new parks of machinery. Mr. Jones , may have to join the queue for telegraphs and defence, while Mr. Nash will probably have a deficit to cover in the Dairy Industry Account, over and above the surplus on last season's guarantee. Previously the Postmaster-General had a comfortable surplus from the Savings Bank to invest with Mr. Nash. This financial year, however, the surplus has turned into a deficit. In the first 11 months ended February 28 of last financial year, withdrawals exceeded deposits by £3,644,133. In the corresponding period of 1937-38, the credit balance was £3,184,195. Thus the difference between the two periods amounts to £6,828,328, an awkwardly wide gap for Mr. Nash to fill. To finance all these State undertakings will make heavy demands on the available capital funds, quite apart from local body needs. In addition the Government carries the expansion of secondary industry in the forefront of its programme. Its success will depend on the availability and subscription of large capital sums. Finally the primary industries, caught by a lean year, are suffering stringency and will require' more than normal accommodation. How are all these needs to be met? If the demands should place a strain on the jnoney market, which is to have first call—the State, the local bodies, or the productive industries'! Mr. Nash should estimate the means available and state the policy to be followed in using them. That would be to plan, instead of to drift.. In stating any policy, of course, regard would have to be paid to the overseas credits available. The Harbour Board might easily, if its terms were attractive, raise a local loan of £400,000 for its export wharf and then find it could not obtain the exchange to purchase the necessary steel. Mr. Semple might bo supplied with sufficient capital to carry on certain works if they did not involve heavy imports of, say, rails or machinery or bitumen. With secondary industries a consideration would be the sums required for the import of plant and materials. This complication would not have arisen if Government policies had not dissipated £39,000,000 of reserve overseas credits in three hectic years; it could be lessened now if tho Government had not forsworn overseas borrowing. As it is, any ordered policy directed to meeting immediate capital requirements must take account of how the loan moneys are to be spent. Tne desirable must be subordinated to the possible, in view of the shortage of exchange. The need of defining the order of urgency between the competing claims of State, local body, factory and farm is thus enforced a second time. A carefully devised policy is therefore an immediate essential, a policy that will deal not only with means but also with their orderly allocation. The longer Mr. Nash tarries, the larger and more imminent is the risk of the whole national economy slowing up and of the onset of deflation with its depressive conaequenceg.