DOMINION FINANCE

Otago Daily Times, Issue 23857, 11 July 1939, Page 9

DOMINION FINANCE

MR NASH'S NEGOTIATIONS " ROOM FOR COMPROMISE " LONDON JOURNAL'S SURVEY Further reports confirm that any refusal by New Zealand banks to supply sterling exchange against import permits (states Finance and Commerce, a London publication) has been confined to a small number of special instances —mostly, it seems, cases in which people having remittance permits on an annual basis were seeking to cover the full year's requirements immediately. There is no question, however, but that the exchange problem is serious, particularly as the seasonal accumulation of sterling is now drawing to a close and the seasonal drain on sterling resources during the second half of the year remains to be faced. The projected reduction of £8.000.000 (N.Z.) in imports is itself, however, only a nominal one. For the oo'.icy of developing manufacturing industries in New Zealand is being pushed forward at such a rapia pace that most of this reduction in imports for consumption is likely to be neutralised by an increase in imports of machinery, equipment, and industrial raw materials. Moreover, owing to the general pressure to remit money from New Zealand wherever the case for remittance can be substantiated, miscellaneous demands for sterling are likely to be abnormal. In the circumstances the balance of payments on current account is unlikely to be appreciably, if at all, more favourable than in 1938. In 1938 the visible export surolus amounted to less than £3.000,000 (N.Z.), and this can scarcely have been much more than sufficient to meet remittances for dividends, tourist expenditure, and other miscellaneous items. On the face of it, therefore, there will be no surplus balance of sterling left over this year to meet the service of the Government and other public debt, which amounts to some £ 10,000 000 (N.Z.). The position is certainly not so perilous as that bare statement might suggest, for it is always open to New Zealand to slow down the programme of industrial development and to effect large cuts in the imports which that programme requires, and also to limit general imports further in case of need. But at the same time, on the basis of the Government's existing programme, New Zealand looks as though, shp will require not much less than £ 10,000,000 sterling during the current year over and above the proceeds of exports. It is clear enough that there could be scarcely any hope of New Zealand raising so large an amount of new money in the London market at present. And accordingly there has been a certain amount of surmise as to whether Government financial assistance —perhaps in the form of an export credit —might be forthcoming. For many reasons, certainly, it is to be hoped that some assistance will be given.

It is evidently a case in which there is room for compromise. The present schedule of development of manufacturing industries seems excessively lavish and rapid in proportion to New Zealand's size and pres- J ent capital wealth, and a reduction of the tempo of this schedule, together with adjustment of other matters in which New Zealand economy is somewhat out of gear, might effect a substantial economy in New Zealand's sterling requirements without involving any sacrifice of principle on the part of Mr Savage's Government. NEW ZEALAND ECONOMY CRITICISM IN BRITAIN EXPORTERS HANDICAPPED A letter, giving a survey of British exporters' views on New Zealand economy and Mr Nash's loan negotiations, has been received by a Dunedin resident. It state's: — " On the subject of the risk of the exchange depreciation in regard to deferred payment, I feel that it is not unreasonable, since I have to carry financial strain for a period of 12 months, that customers should be prepared to accept the risk of deprecation—that is to say, that, if between the date of payment and the date of remittance of funds to the United Kingdom, there is any depreciation of exchange, then this should be for the customer's account rather than the shipper's. This is no more than a contingent liability, and I feel that it can be guarded against in the price to the consumer, where it properly belongs. Actually, I do not now think that the risk is terribly great, because jf Mr Nash gets the £25,000,000 that he wants, then this should remove the danger. At the same time, it is by no means certain at this moment that he will get these funds in London, and I am privately advised that, although he has been here now for some little while, he has not made very much progress with his negotiations, not because this country is unwilling to extend financial assistance to-New Zealand, where it has already been prepared to extend it in less deserving cases. On the contrary, the reverse is naturally the case; but it is not merely a matter of sentiment but of sound finance and economics. "The view held in official circles over here is that it is useless to lend money so long as the present system is persisted with. The Federation of British Industries also has made very strong representations both to the Government and to the Bank of England, not only against the breach of the Ottawa Agreement that is represented by these quota regulations, but by the damage to British manufacturers, shippers, and others. The Government at home is reminded that New Zealand enjoys a verv privileged market over here, and that in return the British exporter is most severely handicapped in New Zealand, not through any fault of his own, but directly as n result of the continuance of a policy that does not conform to anv sound economic formula. " My own view is that if Mr Nash gets the money he wants, then it will be upon certain terms, one of which will be that licensing restrictions will have to go, or, at least, be very substantially, modified, and that this will mean an automatic retrenchment in Government spending policy for political purposes. In some respects he is a little unfortunate in his time of arrival, three fairly substantial loans just having been floated on the London market

on account of South Africa, Northern Ireland, and Australia, and there is, at least temporarily, and under present nervous international conditions, a slight financial indigestion—and £25,000,000, which I believe is the figure that Mr Nash wants, is quite a substantial sum of money, although I realise that £17,000,007) of it is more in the nature of a refunding operation rather than new money."