Economist fears deficit increase

Press, 25 May 1977, Page 2

Economist fears deficit increase

There is a “serious danger” that New Zealand’s current-account deficit on overseas exchange transactions will again increase this year, according to Professor A. D. Brownlie. He estimates that the deficit may rise from $59 IM in the year ended March, 1977, to “perhaps above •S6SOM” in the year ending March, 1978. Professor Brownlie, who is professor of economics at Canterbury University, chairman of the Monetary and Economic Council, and a member of the Commonwealth experts’ group of “10 wise men,” was addressing the Christchurch Lions Club last evening. Professor Brownlie questioned the reluctance of the authorities to alter the New

S'Zealand exchange rate in reJsponse to falling export ' prices and terms of trade. ■ “In the past, governments •■have been reluctant to raise jthe New Zealand dollar i price even when desirable — ’ that is, devalue the New J Zealand dollar — because (this raises the New Zealand : price of imports and so the domestic inflation rate,” he • said. • ; “However, a long period -iot inappropriately low ?! domestic prices of foreign I currency will encourage ims I ports excessively in relation t|to exports and lead to a per- , I sistent tendency towards a . balance-of-payments deficit. li “The outlook for New -■Zealand’s terms of trade is Lnot particularly bright, -which compounds the >! difficulties posed by the I present large and unsustainable balance of payments s’deficit,” Professor Brownlie /'said.

"It is now clear that present economic arrangements and structures must ; give way to more efficient practices and an allocation ■ of resources better adapted to current external realities. “In order to maintain and : advance our living standards, we must accept to a greater extent than in the' : past the need to avoid waste in the use of resources,” he J said. “If the present adjustjment policies do not succeed, or are thwarted by a further deterioration in the terms of trade, the Government may have to take , harsher measures such as an extension of import licensing and exchange control, Revaluation, and rationing. “I do not expect that such measures will become necessary, and I certainly hope not,” Professor Brownlie said.