STAGGERING COST

Evening Post, Volume CXVII, Issue 145, 21 June 1934, Page 12

STAGGERING COST

IMPORTERS' VIEWPOINT

PURCHASE OF STERLING

Strongly condemning the Government's high exchange policy, the New Zealand, Importers' Federation, in the course of a statement, refers to "the staggering cost of this dangerous experiment with the Dominion's financial stability," and urges that it is time the public realised the dangers of the position.

The statement is as follows:—

Controlled exchange at the artificial rate of 25 per cent, has been operating for seventeen months, since January, 1933, and, from the Government's re-cently-published audited accounts covering the twelve months ended March 31, 1934, much is revealed regarding the staggering cost of this dangerous experiment with the Dominion's financial stability.

It is time the public realised the dangers of the position. ' Tho depreciated rate continues to operate and there is no real reason to suppose that the cost to be faced for the current twelve months will Be any less than it was for the year ended March 31 last. COST OF HIGH EXCHANGE. Consider the following approximate figures dealing with the cost of the exchange during one year alone:—

[Inward freights are covered by extra cost of imports (see item above) freight being added to the lauded value.]

There are other indirect costs in addition to those shown above.

RATE PREVENTS IMPORTS,

The Minister of Finance has already announced that the Central Bank wiil purchase all sterling held by the Government in London, but that any loss on this transaction will be- borne by the Government. It would appear that the Government still cherishes the hope that there will shortly arise so great a demand for sterling to pay for imports from Great Britain that no ultimato loss .will have to be faced on theso heavy holdings. Tho executive of the New Zealand Importers' Federation expresses its firm belief that it is not possible our importations will be swelled to such an extent that they will balance our exports for' the next two years and also take care of the £20,000,000 in sterling which had accumulated by March last. In fact, so long as tho present artificial rate of ■■ 25 per cent, is in existence so long will imports lag, and it will not be until the exchange is considerably reduced that the volume of imports, will increase appreciably.

The Central Bank, it is understood, will purchase all the excess sterling held by the Government in London by crediting the Government, in New Zealand, with an equivalent amount in New Zealand currency and, with, that, the Government will retire- Treasury bills held by the Associated Banks. Such a transaction certainly suggests inflation as, when it is completed, the- local banks will hold additional funds in New Zealand'amounting .to between. £25,000,0.00 and £30,000,000. It is well' known that avenues for the employment of already existing capital are very difficult to find. s PERMANENT DEPRECIATION. It is possible that ' these transactions will have tho effect of permanently depreciating our currency and, if that takes : place, the problem of Dur dairy farmers will be rendered even more difficult when the Ottawa Agreement expires. It is an axiom that everything in this world has to be paid for sooner or later,- and this executive is convinced that any ./temporary benefits which the farming community may have seemed to secure from the depreciation of our, currency •will be more than counterbalanced by the future grave difficulties which face the marketing of our produce in Britain while New Zealand's currency, remains depreciated.

DIRECT COSTS. ■ £ Twenty-five per cent extra on Government overseas debt payments . 1,797,000 Twenty-live per cent, premium on surplus funds taken over from bunks (£20,094,000) 5,023,000 Difference between interest paid to banks on Treasury bills and interest received by Government on Lon- ■ don money. (London interest averaged at 1 per cent. Local interest at 3 per cent. Calculated at 4 per <* cent. difference on half of £20,004,000; 4 per cent, oa £10,000,000) 400,000 Twcnty-flvo per cent, extra on overseas debt payments by.local bodies. (Interest payable to U.K. £880,772)- 220,000 Total direct costs 7,440,000 INDIRECT COSTS. £ Twenty-five per cent, extra cost of imports (estimated by taking difference between sterling value and value in N.Z. currency as shown in Government Abstract of Statistics) 4,658,000 Sales tax mado necessary by exchange disruption of Government finance. (From Abstract of Statis- • tics) -. 1,847,000 Extra cost of shipping charges: Outward freights at 12!/> per cent., of £5,000,000. CXote. —Total exports for the year were valued at £46,000,000 N.Z. currency, and freight approximates' 10 per cent. , of value. Though official exchange Is 25 per cent., an agreement with shipping companies provides for surcharge of only 13 2-3 per cent, on butter and wool freights. Exchange on freight of other goods ! does not average lower, but 12% per cent, has been used for conservative calculation) G25.000 Total indirect costs 7,130,000 Total direct and indirect 14,570,000