Overseas Costs of War
Overseas Costs of War
In spite of New Zealand's ultimate ability to emerge from the war with a lowered overseas debt, the external cost of war was heavy and the situation was not always free of anxiety. In particular, in late 1942 and early 1943, when increasing food supplies to United States forces in the Pacific seemed likely to divert too large a portion of New Zealand's overseas fund-earning exports to Reverse Lend-Lease, New Zealand became alarmed about her ability to continue to meet overseas commitments in the United Kingdom. The United Kingdom Government, while not unsympathetic, was reluctant to enter into any firm undertaking to protect New Zealand against possible losses of overseas assets.1 In the event, farm production was high, exports to the United Kingdom were maintained, and, with heavily curtailed private importing, the expected overseas funds crisis did not eventuate.
New Zealand's overseas commitments for the 2nd NZEF and for the Empire Air Training Scheme, amounting to some £60 million, were covered by the Memorandum of Security. As has been noted, these costs were repaid in full by March 1946.
Allowing for these and other overseas commitments, but ignoring losses of overseas exchange earnings, it is estimated that New Zealand had to find some £150 million of overseas exchange to meet war costs.1
Without the drastic wartime curtailment of private importing, it would not have been possible to find all this extra overseas exchange. Import restrictions, inability of traditional suppliers to meet orders, the reduction of disposable incomes in New Zealand and extra sales taxes on expenditure all played their part in restraining private imports. The combined effect was sufficient to enable New Zealand's overseas exchange position to be strengthened, in spite of her special war commitments. The improvement was assisted to some extent by United States expenditure in New Zealand for items not covered by Reverse Lend-Lease, and by the private spending of United States servicemen.
Net overseas assets of the banks rose from their low level of about £9 million at the outbreak of war to about £40 million by the middle of 1942. They were to remain at about that level until the second half of 1944, when they began to increase. The United Kingdom Government started to make lump sum payments to the New Zealand Government in 1944,2 but this was not the only reason for the improvement. Balance of payments problems are discussed more fully in Chapter 14.