Economic trust in N.Z. returning

Press, 15 October 1976, Page 4

Economic trust in N.Z. returning

International confidence in the recovery of the New Zealand economy was rapidly being restored, and international bankers were quite keen to lend money to New Zealand, said Sir Jeremy Morse, a leading British banker, in Christchurch yesterday.

Sir Jeremy was commenttag on the similarity of the economic problems faced by New Zealand and Britain. The differences were that New Zealand enjoyed international confidence, and that to a large extent New Zealand's problems were not so much of its own making as attributable to adverse terms of trade, he said.

Sir Jeremy Morse who is to become chairman of the Lloyd's Bank group next year and is visiting the branches of the National Bank here, attended the recent meeting of the International Monetary Fund in Manila.

At the age of 47, he already has a distinguished career in banking behind him; director of Glynn Mills, Ltd. at 35, an executive director of the Bank of England at 36, six years a governor of the International Monetary Fund — including two years as chairman of Deputies of the Committee of Twenty.

The recent discussions in Manila made it clear that all countries were frightened of inflation, and were seriously trying to bring it under control. he said. Unfortunately, it is also becoming more evident that there is a pause in the economic recovery of the Western World; markedly so in the U.S.A.. but carrying over into Europe and, to a lesser extent, Japan. This would make things

more difficult for the comtries at the "greasy end of the pole”—those with currency problems, especially if these countries had to rely on export-led growth to overcome their problems.

While New Zealand was facing some difficult problems, international opinion was that the Government was going the right way about them, especially in not deflating too fast. “You cannot correct a balance-of-payments deficit by deflating.” he said. Asked about the outlook for the international monetary system. Sir Jeremy said he thought that, provided economic recovery—even if modest—could be sustained, the world might go back to fixed rates of exchange. "But the questions that will be foremost are inflation and the achievement of economic growth. There is now a reasonable chance—better

than ever, and I would not have said that two years ago — that inflation worldwide may be contained to a level of 5-10 per cent. "The danger is higher rates of inflation than that, which will lead to erratic and uneven growth, and stagflation for many countries.”

Commenting on the recent sharp falls in sterling, Sir Jeremy said that these had to be regarded as serious. One reason was that the British economy was big in world terms.

“Present currency dealings are a roundabout; as one currency goes down, another looks exposed. But at every tum the pound looks undervalued. A dollar rate of $l.BO more truly reflects relative inflation rates and purchasing power. “But the sterling crisis cannot be written off so easily, because of itself it has deleterious effects. Moreover, it creates 'forward doubt’ in the ability of the British economy to recover. This is to be discussed in the talks between Britain and the I.M.F, in November,” he said.

The British Government, the country, and the I.M.F. would have to be satisfied that the British economy could come round, he said. The Labour Government had been slow at first to adopt orthodox economic policies, but when it did it carried throughr tough deflationary measures to restrain Government expenditure and the growth of domestic credit expansion. It was committed to let the money supply not rise more than 12 per cent a year.

These policies appeared to be working. His own opinion was that if Britain could get its accounts other than oil into balance, then the North Sea oil would easily repay the huge borrowings now being made, Sir Jeremy said.