HIGHER EXCHANGE

Waikato Times, Volume 113, Issue 18855, 27 January 1933, Page 7

HIGHER EXCHANGE

ASSISTANCE TO PRIMARY PRODUCERS

(By Telegraph.WELLINGTON, Friday. _ In the House of Representatives this norning the Prime Minister (Right Hon. G. W. Forbes) made the follow- / ing statement regarding the Govern- ■ ment’s decision to Increase the rate of exchange:— Honourable members will recollect that on December 18 last in intimating that it was proposed to move the adjournment of Parliament until January 26 I stated that the intention was to allow the Cabinet to give a fuller and more thorough examination of the proposals affecting the general economic position of the Dominion, and particularly the difficult condition of the farming industry owing to the further drop in the prices of export produce, in ouv external markets, than was possible while Ministers were closely engaged in Parliamentary work. After the House adjourned the Government lost no time in making the necessary arrangements to- have the fullest information supplied as to the effect of the low prices on the budgets of the farming community, and in this connection Dr. Ilight and Professors Belshaw and Tocker were asked to come to Wellington to make a report of the Economic Committee, of which they were members in February, 1932. The report which they have furnished has been most helpful to the Govezmment especially in arriving at the decision of Cabinet to bring about an increase in the rate of exchange. The information supplied by farmers’ agencies and by the various Slate lending departments showed that the farmer borrowers had slipped back very seriously in their payments of principal and interest during the last twelve months. To give honourable members some idea of the magnitude of the arrears outstanding on loans to settlers in respect of the State Advances Department and the Lands Department I quote the following figures: At March 31, 1931, the amount owing by settlers to the State Advances \ Office was £411,740. At March 31, A 1932, it was £735,760, and at September 30, 1932, the total had increased to £1,056,830. In the Lands Department £1,522,137 was due for rent and interest in arrear at September 30 last, and in addition the postponements of rent and interest amounted to £283,650. Serious Position Arisen. I think members will agree that the figures supplied by these two State Departments furnish a fair index as to the position of mortgaged farmers generally in the Dominion. The growth of these arrears on the part of the farming community has been particularly rapid during the last few months owing to their credit a .id reserves becoming exhausted, and the more recent decrease in the prices of their produce, especially dairy produce, will no doubt accelerate lids slide. It will be readily seen that a serious position has arisen which will soon become a further problem for the already over-weighted Consolidated Fund. The review of the economic position submitted by the Economic Committee showed that it had become progressively worse since their report. The following figures will illustrate this. Taking the index llgure of all New Zealand export prices for the period 1908-1913 as 100, whilst in 1928 it had increased to 168, in November, 1932, it had fallen as low as 86, or a decrease of 49 per cent, in four years. lln ay mention in passing that the further recent decline in dairy produce prices is not taken into account in the figures I have just quoted. Now to external trade the most obvious effects of this decline in export prices may be seen in the overseas trade returns. In 1928 the value of our expo-ds was £56,200,000, whilst In 1932 it was £'33,600,000. The value of our Imports for the same years was £44,100,000 and £22,800,000.

7 These represent a decline of <lO per cent. In the value of our oxports and 53 per cont. In Imports. The heavy fall In Imports Is, of course, the dlroot effect of tho contraction In oxports. I will now take production in relation to national income. The estimate of national income is approximately made by addins about 20 per cent, to the official estimates of total production. The following table sols out Ihe position of total produeliun:— Estimated Value of Total Production. Million pounds. Farm Products—--1028-21) .. 82.1 1032-:i:t .. P.i.o Ollier Products—--1028-20 .. 11.2 1032-33 32.5 Total Production — 1928-20 .. 123.3 1032-33 .. Bl.r> Tlie voturns of national income show a reduel ion of 35 per cenl. between the two perimls. It may therefore he eoiiemded -that the national money inemne. wliieh constitutes the. purehashig power of the community has declined by at least one-third of the 1028-20 income. •\irain in regard to internal trade and finance. it Is inevitable lhai a decline of Ibis magnitude should he reVflected in the volume of inle-nal trade. T The best available indication of interna! lnisine>s is tim return of total debits uer week to all. Hie accounts

REASON fOR GOVERNMENT ACTION

PRIME MINISTER’S STATEMENT.

PROBABLE ADVANTAGES OF THE RISE.

INCENTIVE TO TRADE AND EMPLOYMENT.

■Spc-clal to Times.) In the Dominion pviblished by the Go vernment Statistician show in 1929 the average debits were £20,900,000 and in 1932 £13,500,000, or a decline of 35 per cent, in the'total volume of financial business in the country. The figures I have given to the House present a striking record of the decline that has occurred in New Zealand income and trade. The effects of the depression have been accumulative. Pelt first by the farmers they have passed on to the producers of local goods and services of all kinds. The full extent of these effects, howcwr, Is that in their efforts to maintain production they have had to draw upon resources of capital and credit, and now largely have to depend sole!) on income from the sale of their products. As the resources upon which they can draw become progressively exhausted, their purchasing power must.decline further, and the effect on the cities and towns must be felt very seriously. It becomes apparent, therefore, that the essence of the present difficulty is in the progressive disappearance of profits, and in the increase of losses. The restoration of sound business conditions, the expansion of production, the absorption of the unemployed, the increase in purchasing power and the revival of general business activity—all these must depend, on the creation of such conditions as will permit profits to reappear, and profiis depend on the relation of costs to prices. Since 1929 export prices have declined by 49 per cent., and retail prices have fallen by only 19 per cent., wholesale prices by 14 per cent, and wages (nominal) by 16 per cent. A reduction of internal prices and costs of about 35 per cent, is required to bring about the same relationship to export prices as existed in 1929. The main problem is to reduce the disparity between costs and selling prices. To let matters drift and allow undirected deflation to have full sway would be obviously unthinkable, and could not be countenanced by the Government. Such a policy -would dangerously aggravate our already serious difficulties. Various Methods Suggested. The Cabinet in its consideration of the position have examined various suggested remedies having for their objective the increasing of prices, sucJi as a rise in the rate of exchange, various forms of internal credit expansion, including a grant or bonus to primary producers and also a grant or subsidy to farmers financed Joy taxation. After mature deliberation the Government came to the conclusion that an increase in the rale of exchange from £llO to £125 would be more advantageous to the country as a whole than any other method in easing our present difficulties. The Government approached the banks and requested them to lake the necessary action to give effect to the decision. In their arrangement with the banks the Government have undertaken to indemnify them against any loss that may be incurred on the sale of exchange purchased at the new figure and a bill will be introduced accordingly to obtain the necessary Parliamentary authority to give effect to this undertaking.

Some of the Advantages. I do not in this statement propose to deal in detail with the various arguments for and against tills decision. Ample opportunity will be afforded to the honourable members for discussion of the subject. 1 will briefly mention some of the advantages which may he expected to acertio from ihe course that has been decided upon. Tho national .'ncome and the national spending power will be proportionately incroascd. It Is estimated that the proportion of costs likely to increase with a rise in exchange is small. At present industry and trade are being contracted and unemployment lias not decreased, because much business cannot lie eonducted on a profitable basis with production contracting as it is at present because of ihe maladjustment of costs and prices. A rise in Ihe exchange, which increases prices more Ilian costs, will certainly lend to arrest the decline, and may stimulaio an increase. II may he urged that the primary effeel of a rise in Ihe exchange is lo increase Budget expenditure through the increase in Ihe cost of overseas inlercsl payments, and lo reduce, customs revenue temporarily, bill Ihe secondary and more important effect is to prevent an appreciably greater fall in taxable capacity and non-tax receipts. It is confidently anticipated that Ihe net benetU to the Budget from !tie increase in Ihe exchange rate will not lie long delayed. Tho full effects of the present dcprcss'oo bane not yet been fully felt, but It is certain that unless further adjustments aro made the national Income and taxable capacity will fall further. II will be remembered that a short lime ago 1 expressed the opinion that the ouestion of exchange was one that shout'd bo properly determined by the banks. Since that dale, and consequent upon a close examination of ihe position, the Government came to the conclusion that the miller had liecome one of serious national importance, and could not he left to outside agencies.

If the country bad been able to continue without an alteration in the rate of exchange no one would have been better pleased than myself, but in l lie history of all countries grave emergencies arise when it becomes necessary for a Government to interpose and place upon their own shoulders the responsibility for the course of action they deem best in the interests of the country. What I stated on the occasion to which I have referred was my opinion in the light of conditions then existing. These conditions have unfortunately become more unfavourable and rendered action on the part of the Government imperative. I recognise that the action of the Government in bringing about an increase in the rate of exchange does not find favour with those engaged In the import trade and in other business circles, but I would earnestly ask those who are loudly criticising the Government to view the position from ,a national standpoint and consider what would happen if a policy of extreme deflation with all its attendant evils were allowed to hold sway. Appeal to Critics. Two of the outstanding factors which appealed to the Government were the existence of a distressed farming community and the unfortunate position of the unemployed. It is indeed a sad state of affairs when 68,000 of our citizens are out of employment at a time usually regarded as the busiest season of the vear. When we remember this fact 1 feel certain that the pressing nature of the problem must be brought home to every one of us. I would ask our critics to regard the position in the same spirit as actuated the Government in coining to Its decision. If orthodox methods fail to find a solution in times of grave emergency, then I claim that the Government is justified in resorting to other means in order to lighten the burdens of 'the people. I feel confident that with the stimulation which will now be given to both primary, and secondary industries we may look forward to a gradual but certain absorption of a large number of those who are at present unemployed. The importance of this aspect of the present conditions can, in the view of the Government, no longer be ignored. There are those who hold different opinions from the Government in regard to the policy of raising the rate of exchange t.o relieve what all must agree is a very serious ■ position, but it is the responsibility of the Government ta decide the course to be adopted. This we have done and we are confident that the wisdom of this step will ere long be apparent.