Measures to boost anti-inflation moves

Press, 29 November 1976, Page 1

Measures to boost anti-inflation moves

NZPA

Canberra

The Australian dollar will be devalued by 17.5 per cent from today as part of several policy measures designed to boost the Government’s anti-inflation strategy, the Federal Treasurer (Mr Philip Lynch) announced in Canberra yesterday.

The new rate for the Australian dollar, to take effect from the opening of business today, will be SUS 1.0174 compared with 5U51.2329 last Friday.

The devaluation comes at a time /hen the Australian Government is battling to curb inflation running at an annual rate of 12.2 per cent.

At the same time, the country is facing its worst period of industrial turmoil for years, with signs of a major confrontation looming between trade unions and the Federal and state Governments. Unemployment stands about 330,000 — and there are forecasts it will rise to 400,000 bv 1977.

Mr Lynch, in a statement announcing the surprise devaluation, said that a changed pattern of management of the exchange rate would also be adopted.

The changed arrangements. he said, would comprise a variable link to a trade-weighted “basket of currencies” to which the Australian dollar had remained pegged since September, 1974. The pegging of the rate for long periods was now discontinued and the Government would, in effect, adopt a flexiblv administered rate “somewhat along the lines of a managed float.”

“When the assessment of all relevant economic fac-

tors indicated a need for movement in the level of the exchange rate, this would take place by means of more frequent and smaller shifts in the relationship of the Australian dollar to the basket of currencies,” Mr Lynch said.

The new system was an appropriate response to the changing nature of economic conditions abroad and of Australia’s international trading relationships, and was designed to avoid- the building-up for the • future “of expectations of major shifts at long intervals in the exchange rate.” Mr Lynch blamed the decision to devalue on the deterioration in recent years of Australia’s underlying external situation as a result of higher wage costs than those experienced by its major trading partners, and the continuing loss of reserves.

Political observers in Canberra noted that the devaluation followed intense pressure from Australia’s hard-hit rural sector, represented in the Government by the National Country Party, the junior member of Mr Malcolm Fraser’s coalition. Government Ministers however, had consistently denied they were contemplating devaluation, in spite of calls from cattlemen and graziers’ organisations.

“It is now considered that various sectors of the economy, particularly the manufacturing and primary industries, were being forced to bear an undue

and, indeed, unfair burden which should be relieved to some extent by this present action,” said Mr Lynch. Noting that all sectors of industry should take heart at the devaluation, Mr Lynch chided the wagefixing National Conciliation and Arbitration Commission which last week gave Australia’s six million workers a 2.2 per cent wage rise.

Referring to the “obvious reluctance” of the commission to award lower increases in wages, Mr Lynch said it had become increasingly clear that there was little or no chance of restoring competitiveness of Australian industries by purely domestic policies.

“The Government could not have allowed the situation to continue in an atmosphere of increasing uncertainty, in the hope that underlying cost disabilities suffered by Australian industries would eventually be corrected,” Mr Lynch said.

“That would have imposed too heavy a burden on external policy and have put at risk Australia’s export and import competing industries,” he said. Australia’s international reserves have fallen by more than SIOOOM oyer the last 12 months, notwithstanding the resumption of overseas borrowing by the Government. The rate of loss of reserves has increased significantly in recent months, with a fall of S6OOM since the end of July, in spite of S24OM in overseas borrow-

ing by the Government in that period, according to official figures. The Federal Labour Opposition immediately branded the devaluation as a case of the “National Country Party tail wagging the dog.”

“The devaluation is a huge defeat for the Government’s whole economic strategy,” said a Labour spokesman. Australia’s last devaluation was by the Labour Government in September, 1974, when it lowered the value of the Australian dollar by 12 per cent.