N.Z. devaluation thought unlikely

Press, 5 December 1978, Page 2

N.Z. devaluation thought unlikely

New Zealand is unlikely to devalue its currency within the next year, according to the director of the Institute of Economic Re'search (Mr T. K. McDonald). Mr McDonald was in Christchurch yesterday to address the New Zealand and Australia Economic Society on “Future prospects; for the New Zealand econo-' my.” Devaluation was not likely within the next six to twelve months he said. However, it “might finally have to be one of ’hose blunt instruments which are wielded almost unthinkingly to achieve what is desired.” Devaluation was increasingly falling out of favour with both professional economists and the economic community generally. There were now many doubts about its real benefits, said Mr McDonald. He also believed that the Prime Minister (Mr Muldoon) was not personally in favour of it. If it was to be Produced 1 it would be essential that

New Zealand’s "house be set in order,” so that prices and wage changes would not immediately negate what benefits there might be, he said. Mr McDonald was also asked about his opinion of ec momic union with Australia. He said he generally .favoured the idea, if it were ito occur on the right terms. Political union did not attract him at all, and he said that Australia was getting more and more wary of the implications of union with this country. Nevertheless, a move towards a full-scale customs union would be highly desirable. The way was open to a relationship with open economic borders and removal of tariffs, within 16 years, said Mr McDonald. He had earlier predicted continuing economic restraints arising from a tight balance of payments. Overseas borrowing would continue, he said, with a consequent risk to New Zealand’s credit-worthiness. The Government could

: only continu to follow a : programme of restraint, and although optimists spoke of • a recovery in the terms of, trade, this was only slight, i M McDonald said. "I have no confidence that we will get the sort of recovery in terms of trade that will be necessary to re--1 move balance-of-payments constraints.” As long as the private sector was depressed, the ; country's economy would : depend on the public sector to maintain a reasonable level of activity, Mr McDonald said. Correspondingly, however, there (Vould inevitably be general resistance to the level of public spending and borrowing. The Government had had little alternative but to bor-> row at a “reasonably high" I level in recent ; ears, otherwise unemployment' would have been much higher than: it was now: “The Govern-: ment is only borrowing to keep the economy afloat,” Mr McDonald said. In Wellington yesterday, the Prime Minister (Mr Muldoon) said that there had neen no significant changes; in Government financial forecasts up to the.middle of! next year. j Mr Muldoon had been! ; asked if the Government} planned a mini-budget before Christmas or early next'} ■ year. “In the New Year we will ' . conduct our normal scrutiny I of the situation and do what has to be done from time to 1 ; time,” he said. I ' There is no pressure, no! . crisis and things are exactly as I explained during the election campaign,” he said. He said that the latest official estimate of the overseas exchange balance-of- : payments deficit, on an an;nual basis for the year to IJune, 1979. was now $425M. “We have been workingi on a S4OOM figure for prob- ! ably six to eight months,” j 'said Mr Muldoon. He said he expected tob examine over Christmas al: (Treasury report for the in-!; i coming Government on the': ! state of the economy. Asked if he would seel some advantage in taking; i the public into his con-! fidence and releasing one of!' I these reports, Mr Muldoon i .said; “I always take the pub-! lie into my confidence —; my difficulty is to get it! published.” He said he had taken the; I j public into his confidence 'during the General Election campaign but the reports I were all about his talking to! . television report rs. . *"" ■