A review of the prospects for our balance of international payments following the cessation of the war emphasises the following adverse factors in the outlook for 1945/46 and 1946/47- (A) Our terms of trade are likely to be seriously adverse. Import prices (F.O.B.) are at present about 100% above pre-war. On the other hand export prices are up only about 35%. There is little prospect of an increase in wool and the contract prices for dairy produce and meat are fixed until the latter half of 1946.
(B) Accumulated demand for imports is large.
(C) Overseas war credits have practically ceased but outstanding liabilities due mainly to United Kingdom Government constitute a significant charge on our London funds.
(D) Other factors are the sudden termination of Lend Lease, the prospective Lend Lease settlements and the effect of drought on wool and wheat export income.
Particularly at the present time it is difficult to make accurate estimates of our balance of payments. But it is clear that on the assumption goods are freely available from overseas unrestricted importation would mean an embarrassingly high level of both essential and non essential imports and would reduce our overseas reserves to dangerously low levels. For financial reasons alone we are therefore faced with the necessity to confine our imports to essential goods and to control both sterling imports. The severity of the controls will largely depend on- (A) The extent to which we are prepared to run down our overseas reserves, (B) Payments made in respect of war liabilities and Lend Lease settlements, (c) Availability of essential imports.
Present indications are that the maximum value of imports which can be financed in the period from 1/7/45 to 30/6/47 is 265 million pounds sterling (recorded values). On present day prices this would be equivalent in volume to imports of only about 65 million pounds sterling per annum compared with a pre-war average of about 100 million sterling per annum. But on present expectations it would reduce our overseas reserves from about 130 million at July last to about 40 million pounds sterling at June 1947. The target of 265 million would however be a flexible one and would be revised in the light of the progressive position of our balances of payments.
However before finalising our import policy plans to protect our external financial position we desire to place the facts before you and to consult with you as we are naturally anxious to reduce import controls to the minimum possible. This is essential to our local industry and employment and we also recognise the importance of your own export trade.
In particular we would like advice on the following points affecting imports from United Kingdom- (I) Import prices. The estimated increase of 100% over pre-war repayments to FOB index (repeat F.O.B. index) compiled by Commonwealth Bank. Does the latest information available to you confirm this. is there any trend to lower prices.
(II) Availability. We would appreciate any information as to availability of goods before 30/6/47 particularly in machinery, metal manufacturers and textiles.
(III) Quotas. Would it suit you if in some cases you were to place agreed quotas on your exports to Australia rather than that we should place restrictions on imports from you.
We would welcome your views on the general issues involved so that we may work towards a mutually beneficial solution of the problems and we should be glad to have the fullest information as to your own export policy and your prospects of substantially increasing exports to Australia in 1945/46 and 1946/47.