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at prices below those demanded by Siam for rice allocated to Government. So far this has not happened on a very large scale, but imports might increase at a very awkward moment and it would not be practicable or politically desirable to attempt to stop them. It must be faced therefore, that in holding stocks at the level now necessary, Government does run a real danger of having to liquidate those stocks at a loss eventually. It would be both embarrassing and undesirable to leave such a loss to be met from revenue in the year in which it occurred. Government is now holding stocks of rice representing a commitment of $80 million which will be further increased - and it has been computed that the possible loss on all stocks might amount to as much as $30 million and would probably be incurred in a short period. It therefore seems prudent to earmark part of the surplus against this contingency and accordingly/I propose that out of the surplus which accrued from all the trading activities of the Department during the years 1946 - 1950, and of the net surplus accruing in respect of the current year, an appropriation of $30 million should be made to set up an Essential Commodities Equalization Fund.
I propose that in general the selling prices should be computed so as to recover on each commodity where possible, approximately a normal importer's margin of profit, and that at the end of each year the profits or losses on the individual commodities should be aggregated and the ret sum, if it be a loss, transferred as a charge to the Essential Commodities Equalization Fund, subject to your consent and to that of the Legislative Council. When it becomes possible for Government to cease these trading activities, I envisage that the balance on the Fund would then be transferred to the Development Fund referred to in the following paragraph.
9. After making provision for the Equalization Fund, it is likely that a sum of approximately $50 million will be available for transfer. This sum, it is true, would have been smaller had Government required profits as they accrued each year to be transferred to general revenue, and had then charged interest on the sums advanced from surplus balances to finance the acquisition of stocks. On the other hand, during the period under review the surpluses earned have, in effect, financed a fair proportion of the stockpiling, and since it does not represent normal Government revenue, I consider it would be appropriate and would serve a most useful purpose, to provide for the transfer of the balance of the accumulated surplus to set up a Development Fund.
I shall be addressing you in greater detail on this question in connection with my proposals for the Estimates for 1951/52, but, in brief, it is proposed that this Fund should be used to finance revenue- producing projects and such other development and welfare projects which will not commit Government to increased recurrent expenditure financed from General Revenue. In this way the burden on ordinary revenue, which is likely to be very severe, owing to the extraordinary expenditure which present times entail, and owing to a desire to accelerate the scale