Inflation fear in devaluation

Press, 19 August 1981, Page 26

Inflation fear in devaluation

PA Dunedin Many manufacturers are fearful that a rumoured large devaluation of New Zealand's currency will not remove the fundamental causes of inflation in the economy, says the managing director of Fletcher Challenge Corporation, Mr H. A. Fletcher. Mr Fletcher said that he was very worried at the relative attractiveness from an economic point of view of .Australia compared with New Zealand.

“If, as some people suggest, we should drop all agricultural input subsidies and manufactured export

subsidies and have a major devaluation, that is going to aggravate the real standard of living, too, and widen the apparent income gap between Australia and New Zealand,” he said.

“The real concern among manufacturers is that if a devaluation occurred together with the removal of subsidies, inflation would not be contained, and the value of that 20 per cent or so devaluation would be quickly lost.”

Mr Fletcher said that he did not think export incentives should be removed before 1985 without a compensating adjustment some-

where in the economy that manufacturers would accept and would be of equivalent value.

“Many people have sunk a lot of money into plant and in market development, and have contractual commitments,” he said.

They could not withstand the loss of incentives. Mr Fletcher said that it was very hard to think of any other compensation for incentives “other than devaluation of a major size’’ and then there was concern “whether the effect of that devaluation can be maintained.”

Mr Fletcher said he

thought that the economy could easily cope with the “think big” projects. He believed that all the projects would proceed “and I would hope the country adds a few more."

All the projects were designed to create foreign exchange. The $5OOO million involved “sounds a lot of money” but it would be spread over five years.

“I have no doubts that the building materials are available,” he said. “The infrastructure of Dunedin and the South Island can withstand it, and I believe the labour will be there for the smelter and the dams.”