Your telegram 23 and 34. [1] Negotiations with India and Pakistan.

Following is summary statement of our general policy in relation
to conservation of dollars and of the specific steps we have taken
and propose to take to reduce our dollar deficit.

2. Glad if you would request Government of India and Pakistan to
treat as confidential as it contains some figures which have not
been published here.

Policy Prior to Suspension of Convertibility in August 1947
3. Since the outbreak of war in 1939 Australia has co-operated
with the United Kingdom and other sterling area countries in
mobilizing earnings of dollars and other 'hard' currencies and
restricting their expenditure to essential items.

4. During period when American troops were stationed in Australia,
net dollar accruals were substantial and were sold to United
Kingdom Government for sterling thus making them available for
general sterling area expenditure in the prosecution of the war.

5. Following cessation of hostilities and termination of Lend-
Lease Australia continued to restrict dollar imports to essential
goods not available in adequate quantities from sterling sources.

Diversion to 'easy' currency non-sterling countries was made where
practicable when no sterling source of supply was available.

6. Despite application of these principles Australia's dollar
imports increased substantially in value in latter half of 1946-47
due partly to rise in American prices and partly to increased
availability of capital equipment, raw materials and other
essential goods from North American production.

Measures Adopted Since Suspension of Convertibility
7. Continuation of the policy of issuing dollar import licences
for goods of an essential nature not available from sterling
sources throughout 1947-1948, would have resulted in a further
substantial increase in imports from North America. Total value of
imports from United States and Canada on this basis for 1947-1948
would probably have been in excess of A120m. (f.o.b. plus 10%) as
against A63m. in 1946/47.

8. Measures adopted since 20th August, 1947, will have the effect
of reducing the 1947/48 figure to about A90m. which, because of
commitments under outstanding licences, is the maximum saving that
can be effected in this financial year. The measures adopted
should however, result in cutting dollar imports for the calendar
year 1948 to something like A60m. to A65m.

9. Outline of specific steps taken is given hereunder:-

(A) Cuts in major items-
(i) Petrol. A cut of about 12 1/2% in the existing ration scale
was applied from 1st October, 1947, and a further cut of 10% was
applied from 1st January, 1948.

(ii) Motor Vehicle Chassis. Value of imports of North American
motor vehicle chassis (which are essential to maintenance of
extensive body-building and assembly industry in Australia), has
been restricted to A9m. for eighteen months period ending 30th
June, 1949. This is equivalent to an annual rate of A6m. as
compared with expenditure of over A8m. in 1946-47 when body
building plants were operating well below capacity.

Pre war imports of North American chassis were about 45,000
passenger type units and 13,500 commercial type units. On present
prices it is estimated that annual allocation of A6m. will
provide for only about 15,500 passenger type units and 7,600
commercial units.

(iii) Newsprint. Total consumption of local and imported newsprint
has been restricted to 90,000 tons per annum as from 1st January,
1948, representing cut of 51% on pre-war consumption. Prior to the
application of the cut consumption had been restored to the pre-
war level.

(iv) Tobacco Leaf. Import licences for American tobacco leaf
during 1947-48 were cut by 20%. Further economics are
impracticable this financial year as the leaf has already been
bought. Consumption of manufactured tobacco and cigarettes has
been cut by 15% from rate operating up to September, 1947. Leaf
stocks are to be reduced and purchases of leaf in 1948-49 will be
kept to the minimum.

(v) Film Remittances. Remittances by film companies have been
limited to 50% of the 1946 level and the companies have been
required to hold the blocked funds in Australia for investment in
an approved manner. On 1946 figures the saving involved is about
$3m.

(B) Imports other than major items
(i) Cancellation of Licences. All outstanding dollar import
licences for goods other than major items listed above were
recalled for review in October, 1947. Confirmation of licences was
limited to-
(a) goods in transit
(b) goods covered by irrevocable letter of credit
(c) items of top priority.

All other licences were cancelled by a blanket notice to
importers. Total value of recalled licences was A52m. and
licences to value of A17m. (representing one-third of the total)
were cancelled. Goods covered by cancelled licences were of
essential character.

(ii) Ceiling for New Licences. A budget ceiling figure of A8m. was
established for value of new dollar licences to be issued for
goods to be imported to 30th June, 1948. This figure represents
the total amount permitted to cover the issue of all new licences
for importation of goods during the remaining 7 months of the
financial year. The ceiling is being rigidly enforced resulting in
rejection of many applications covering goods of highly essential
nature.

(C)Dollar Imports 1948-49
The principle of a budget ceiling on dollar imports will be
continued through 1948-49.

A ceiling figure will be imposed on the value of dollar licences
for goods to be imported during each quarter of the financial
year.

The ceiling adopted for the September quarter of 1948 is A16m.

(25% of the value of dollar imports during the financial year
1946/47). In view of the steep rise in North American prices this
will represent a marked reduction in the volume of dollar imports
as compared with the 1946/47 level.

Ceiling figures for subsequent quarters will be determined in the
light of developments in the general Sterling Area dollar
position.

Administration of the import licensing system within the budget
ceiling will in general be based on establishment of quotas for
each individual importer related to the level of his dollar
imports during 1946/47. Quotas will be established only for highly
essential goods and many items will be added to the prohibited
list. For goods such as machinery where a quota system for
individual importers is inapplicable, a category ceiling will be
imposed within which individual applications will be considered on
their merits.

The new system will ensure strict financial control of dollar
imports during 1948/49 quarter by quarter thus enabling the
restrictions to be varied in intensity during the year if
necessary.

(D) 'Invisible' Items
(i) Travelling expenses. Restrictions on provision of dollars have
been progressively tightened. No dollars are now being made
available for purely personal travel. Applications for business
trips are being closely scrutinised and the maximum provision for
high priority trips has been reduced from 5000 dollars to 2500
dollars.

(ii) Newspaper Representation. Remittances by Australian
newspapers to cover representation in U.S.A. have been limited to
50% of remittances during 1946-47.

(iii) Stage Plays. Dollar remittances for stage plays have been
limited to 50% of level in calendar year 1946.

(iv) Visiting Entertainers and Artists. A limit of the dollar
equivalent of A1000 has been applied to remittances of surplus
earnings. This restriction has resulted in the abandonment of many
proposed tours.

(v) Gifts. No dollars are provided for gifts from Australian
residents to residents of the dollar area.

(vi) Sustenance. Maximum amounts permitted to all non-sterling
countries have been reduced to 10 sterling per month to any one
beneficiary with maximum of 30 sterling per month to any one
family. Remittances are permitted only on production of evidence
of need.

Positive Measures
10. Apart from cutting dollar expenditure following positive
action has been taken:-

(a) Gold. Current gold output for 1947-48 valued at about A11m.

is being sold to United Kingdom against sterling as contribution
to the Central Gold Reserve.

(b) Exports. Every effort is being made to increase Australian
exports to dollar and other 'hard' currency countries. The
possibilities are limited because of prior commitments to United
Kingdom and elsewhere and full recognition is also being given to
fact that increased exports to sterling area countries of goods
they would otherwise have to buy for dollars represent an equally
valuable contribution to sterling area pool as would direct
exports for dollars.

11. Detailed examination of possibilities for increased exports is
still in progress but some worthwhile results have already been
achieved by permitting some increase in exports of short supply
items at expense of Australian consumption, (e.g. increased export
quotas has been permitted for worsteds and other woollen
manufactures, cement, pig iron, steel rails, etc.,).