Further N.Z. devaluation predicted

Press, Volume CXVI, Issue 34099, 11 March 1976, Page 1

Further N.Z. devaluation predicted

By

DAVID BARBER,

N Z..P .4 r’aQ corre’pcr.den" I

LOXDOX. March HI. A further devaluation of the Xim Zealand dollar early this y ear has been predicted by an independent financial journal published in I <»ndon.

The “International 1 Currency Review.’* 1 jwhich describes itself as I the “journal of the i world financial com-' munity.” also says that the New Zealand econ- ' ■ omy "will become virtu- , ally unmanageable" if world commodity prices and demand do not recover during the year. ■ In an article on the New (Zealand dollar in the current 'issue, the journal says: "The (recession is deepening, thei balance of payments deficit: • remains extremelv wide.) foreign borrowings are already reaching an alarming level, and the rate of inflation is expected not onlx to accelerate. but to be among the highest in the entire 0.E.C.D.(area in 1976. “Under such circumstances. !a further devaluation of the ' New Zealand dollar seems j virtually inevitable. Indeed, in the absence of a sharp improvement in commodity prices during the early months of 1976, a devaluation can be expected in the early' part of the vear. rather than | later.” Evil consequences I The “International Cur-, irency Review.” an independent journal specialising in ; economic. currency. and (monetary affairs, is published (every two months. It claims a 'subscriber circulation of 2375. and one authoritative City of London source said that it (was “reasonably well mi formed, and circulates m 'most of the City’s leading i banks and financial institutions.” The unsigned article on the I New Zealand dollar is one of 119 on individual national curirencies in the current issue. The article lays responsibility for the “gravity of the economic crisis” in New Zealand at the feet of the former ’ Labour Government. “New’ Zealanders will be living with the evil consequences of that political experiment for some years.” it t says. \ erge of collapse j “The prediction, made in November by the former ;World Bank economist. Dr D. (T. Brash, that within a few I years almost the entire deve- ! ioped world would have a higher standard of living than ■New Zealand, is a fitting epitaph to the recently defeated

Labour Government's performance "Indeed the whole New Zealand economy would have .been on the verge of colllapse. had it not been for the Labour Government’s success in postponing the dav of reckoning by indulging tn massive international borrow ! ing.” I The journal says that j although New Zealand had approached “almost every ' international borrowing .source” it had not taken a loan from the United States because its credit rating was (not good enough. To make a public offering (of securities in the United j States, a rating has to be (obtained, and the top “AAA” I rating is obtainable only by the very largest companies, land the most stable nations. Low credit rating Discussions were initiated .with certain investment banks, the journal says “However, these discussions were terminated when .it dawned on the New Zealand authorities that the 'Americans did not consider their activities appropriate for the award of an 'AAA' irating. and tha’ the irrespon (sible tenor of the former (Government’s borrowing be lhaviour would soon become (public knowledge.” I Noting that the Organ isa tion for Economic and Development had predicted an intla fjtion rate of 17 per cent (the highest in the 24-nation body t this year, the journal sayr ’ “Alt expectations of a high , rate of inflation seem fully ’ justified.” lax inrrea-r* I “Not only is a weak bal ance of payments position likely to force lie (letpin ment to devalue the currency again, with a consequent adverse reaction on import prices, but urgent action to halt the spiral of Govern intent borrowing is likely to make it necessary for the Government to impose increased direct taxe-. and to raise the prices at which public utilities and nationalised industries sell their services.” Such a policy could well bring long-term benefits, but it would induce more intla tion in the short-term—“and will make it much more difficult for the Government to persuade the trade unions to moderate their demands in i the interim.”