THE PRESS WEDNESDAY, JUNE 3, 1981 New Zealand’s shrinking $$$$$

Press, 3 June 1981, Page 20

THE PRESS WEDNESDAY, JUNE 3, 1981 New Zealand’s shrinking $$$$$

Under the system of flexible exchange rates which New Zealand has used, since ■June. 1979. the New Zealand dollar was devalued during May by 0.7 per cent. Considered as the loss of a mere 7c in every $lO. the amount looks, small enough. But consider a couple setting out on a world trip costing, say, $lO,OOO in New Zealand currency. Paying for that holiday in New Zealand currency will cost $7O more than it would have a month ago. When last month’s seemingly tiny devaluation is applied to the finances of the whole country the result is daunting. New Zealand’s overseas debts at the end of 1980 amounted to about $3560 million in New Zealand currency. That total has been increased by $24.5 million by last month’s devaluation. Last year’s Budget provided $267 million for the payment of interest on New Zealand’s external debt. As a result of the May devaluation that interest has been increased by nearly $2 million in a year. To put the figure for external debt in perspective, the increase of $24.5 million in the principal from last month’s devaluation is the total value of New Zealand’s crayfish exports for a year, or its ironsands exports, or its carpet exports. That amount has been lost in a single month. In fairness, it needs to be remembered that under the system of the flexible exchange rate New Zealand did not devalue at all during April, and that the May figure of 0.7 per cent is rather higher than the average for the months since June, 1979. Even so, the New Zealand dollar has been devalued by 10.6 per cent

in less than two years, through the small monthly decline in value. Many reasons might be offered for the decline in the value of New Zealand’s money. The impression is still left of a' country, with an ambitious and apparently successful drive to increase exports, being forced to sell more and more simply to maintain its position. Because of high internal costs, New Zealand’s products are pricing themselves off world markets. Or they would, if movements in the exchange rate did not adjust the relative value of New Zealand’s currency to that of its main trading partners. Put another way, New Zealand’s rate of inflation is higher than that of the countries with which it trades. Because of the regular,, small devaluations, New Zealand’s imports, including such items as cars and petrol, and raw materials, must continue to cost more. That means further inflation in New Zealand and more pressure for higher incomes. A sober assessment would surely suggest that New Zealand should buy less abroad, and that internal production costs, of which wages are a significant part, should be kept as low as possible. Such a view is hardly likely to find favour with electorate or Government, especially in an election year. The alternative is to watch as each month seemingly small devaluations of New Zealand’s money drag the country further towards the status of what used to be known as a “banana republic,” an international debtor whose currency no-one else seems to want at any price.