STERLING FUNDS

Wairarapa Times-Age, 4 February 1939, Page 4

STERLING FUNDS

POLICY OF THE GOVERNMENT CHALLENGED FURTHER STATEMENT BY IMPORTERS ALTERNATIVE SUGGESTED. ADVANTAGES OF VOLUNTARY CO-OPERATION. (By Telegraph—Press Association ) WELLINGTON, This Day. The contention that the Government had no need to go to the lengths it has in the control of exchange and imports is made by the Importers’ National Committee in a statement issued yesterday. The committee submits tiiat there was another course of action the Government could have employed and criticises the contentions of the Minister of Finance (the Hon W. Nash). “Mr Nash, in the second part of hir> speech to the conference on the impor •. control regulations, made mention of the different measures for arresting the decline in London funds to which the Government had given consideration,” says the statement. “In his treatment cf these alternatives, Mr Nash mis-stat-ed the normal procedure followed in the past by the trading, banks when London funds declined. The Minister said that before the Reserve Bank was established the old procedure, when the trading banks found that their London funds were tending to decline, was for them to automatically to start to reduce overdrafts or call them in, rightly or wrongly.”

“When London funds fell, and action by the trading banks was necessary to conserve them, the banks put a brake on the tendency to over-importation by ceasing to grant new overdrafts for imports, by increasing overdraft rates, and by issuing letters-of-credit less freely. So the position of London funds was brought back into balance in a normal way. It is only'right that this matter should be corrected, since the procedure followed by the banks was not as stated by the Minister. CHECK ON SPENDING. “The Minister said the Government considered it was not wise to curtail expenditure in a country like New Zealand. It would, of course, be an ideal state if people could go on spending at a high level without there being economic repercussions, but if public and private spending reaches a level that places the country in financial difficulties, then the obvious thing to do is to reduce expenditure. “However, the Minister, discarding recourse to normal procedure, and discarding also the alternatives of raising a loan in London, increasing tariffs, or letting the exchange rate find its normal level, arrives at exchange control and import regulation as the choice of the Government.

“But there was still another alternative course of action open, which Mr Nash did not mention; and to which, we consequently assume, the Government gave no attention —an alternative in which the motivating factor would have been co-operation, instead of the present, coercion. Under this procedure there would have been the voluntary mobilising of exchange resources, only such exchange as was left after sufficient funds had been earmarked for Government debt commitments being available for goods which the people and the importers desired to import, and for other purposes. Just such a voluntary scheme was instituted with success in Australia in 1930, when that country met with difficulty in providing the funds necessary to meet its obligations. AN AUSTRALAN LEAD, “The contrast with the Australian system, under which a democratic people responded to a voluntary scheme, which, while preserving their good name overseas and enabling them to meet their debts, still left them with freedom, provides too striking a contrast for the point to need any further elaboration. “If some action was necessary to conserve New Zealand’s London funds (and we fully agree that some action was necessary) then a choice of several courses which would have achieved the conservation of London funds, was open to the Government. Mr Nash’s persuasiveness would give the impression that because of the Government having decided that rationing of available exchange was desirable, compulsory control of it by the Government was necessary. This is not the case: the former could have been done without the latter, and London funds would still have been conserved, and naturally debt commitments met.

EXCHANGE AND TRADE CONTROL.

“Another impression that might be formed from the remarks of Mr Nash is that, the Government having decided on (1), the rationing of exchange, and (2) the compulsory control and allocation of it by the Government, it was necessary for the Government to determine the classes of goods that should or should not be imported This is not the case; the first two things could have been done without the last-nam-ed, and London funds would still have been conserved, and national debt commitments met. “What the Minister did not say was that an emergency had also arisen in regard to secondary industry in New Zealand, whereby industries, handicapped by their high costs of production, brought about by Government policy, were suffering from the competition of imported goods in some cases. In order to bolster up an internal condition that had become uneconomic and untenable, the Government widened its chosen plan to include restriction of various classes of imports, so as to give nrntection to local industry This was a

matter altogether separate and distinct from any action which was necessary to enable New Zealand to meet its debt payments overseas. “A third factor in the situation seems to be a determination by the Government to tighten its grip on the economic life of the country, as evidenced

by the definite statement now made by the Minister that import selection is part of the policy of the Government. “The purpose of this statement is to make it clear that the Government, in deciding to take action which would conserve London funds, did not have to go to the lengths of State control of exchange and imports to which it did go. We propose to deal with the grave faults of the scheme itself in a further statement.”