Timing was surprise

Press, 29 November 1976, Page 1

Timing was surprise

From

ROBERT HORROCKS,

NZPA staff correspondent

Sydney The tuning of the announcement rather than the decision was the greater surprise in yesterday's devaluation of the Australian dollar. Mr Lynch’s statement that from the beginning of trading today the dollar would be devalued 17.5 per cent was in line with the predictions of many commentators in recent months. The consensus had been that devaluation was inevitable, but that it would not take place until the second quarter of next year. But the more speculation there was about the likelihood, the greater the pressures became. Talk of pending devaluation led to

a rapid and increasing outflow of private capital. Australia’s international reserves fell S3OOM to $2278M between the end of July and early this month. During the same period, the Australian Government borrowed SUSIOOOM. The rural industries and some sections of the manufacturing industries have been particularly vocal in their support for devaluation. But the arguments against devaluation have included assertions that it will bring short-term benefits only, and will eventually add to Australia’s high inflation rate. The decision to devalue will be seen as a setback in the Government’s efforts to reduce inflation.

If recent undenied speculation has been correct, the decision to devalue was made in the face of opposition from both the Reserve Bank, Mr Lynch, and the Minister of Industry and commerce (Senator Robert Cotton). There was a strong rumour that Australia would devalue during the first week-end in October (Labour week-end in Australia), but once that had passed and the Cabinet apparently decided againr 4 such action when introducing economic measures to tighten credit three weeks ago, the immediate likelihood appeared to ease. The authoratative “Australian Financial Review” came out with a frontpage editorial comment at

that stage headed: “The message is: no devaluation.” So in spite of the great deal of talk about devaluation in recent months, the Government yesterday took Australia by surprise with the timing of its anouncement. In doing so, it achieved what any government set out to do when forced to make such a move. There can, however, be little doubt that the amount of debate on the subject has played its part in hastening a decision which the Government would have preferred to have deferred until such time as it felt the depressed economy was in a state of recovery and inflation—running at 14 per cent—■ was under control.