2 Australian Government to Noel-Baker

Cablegram 27 CANBERRA, 4 February 1948, 3 p.m.

SECRET

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.,).

1 Cablegram 23, dispatched 23 January 1948, and its follow-up, 34, dispatched 31 January, asked the Government for a statement of its general policy on conservation of dollars and steps taken to achieve this end; the statement to be used, if necessary, to assist negotiations for new financial arrangements with India and Pakistan.

[AA: A1838, 88/2]