Govt ready if world monetary system collapses

Press, 10 February 1983, Page 1

Govt ready if world monetary system collapses

Parliamentary reporter

The Government is putting together contingency policies for action in the event of a collapse in the world monetary system.

The Prime Minister. Mr Muldoon, on the first day back from his trip to Switzerland and Asia, told reporters yesterday that a groundswell of support for his reform .proposals was moving up through the international bodies controlling world trade and finance.

But. if they were not accepted by the main industrial nations. New Zealand would need to be ready with policies that would minimise the effects on the domestic economy, he said. He would not say what these were in case it confused the issue in the minds of the public. If the worst happened and no reforms resulted, New Zealand would not be too badly affected "in some ways." Meat and dairy products would still be needed on the world market, but New Zealand would not get good prices for its principal exports this season or next, he said. The Government would also put together a package of policies for use if the main industrial countries accepted the need for reform, Mr Muldoon said. In this event New Zealand would have to continue at a relatively low level of economic activity until reforms took place. The United States was

changing its views on the need for changes. "The American Secretary’ of the Treasury. Mr Donald Regan, expressed certain views last December that indicated to me that he personally was on the way to being convinced,” Mr Muldoon said.

One "very prominent person" at the meeting of top world business and political leaders at Davos in Switzerland would discuss with Mr Regan proposals that he advanced to the meeting. Mr Muldoon said. “There is no doubt that there is a change in the thinking of the American Administration — a change that was inevitable.” Although.he was still hoping for a top-level conference to revamp international finance and trade, one measure — the consolidation of debt by its conversion into long term loans at a fixed rate of interest — could be taken by the International Monetary Fund itself. This measure was very well received at the Davos conference, although “not universally," Mr Muldoon said. It would take pressure from countries having to refinance short and medium term loans at flexible rates of interest, and from private sector banks by giving them better assets, enabling them, to lend more, “which is what they are going to have to do to avert the crisis which is looming,” he said. The Interim Committee of the Fund which is meeting this week could set this change in train, he said. ' But to alter the rules of the organisations controlling world money and markets, a big international conference would still need to be held. The General Agreement on Tariffs and Trade (G.A.T.T.),-

for example, had "worked itself out of a job and needed to be completely rebuilt." Its aim of reducing tariff barriers had been superseded by changes in exchange rates which could far more than outweigh any reductions in tariffs. Movement towards this international conference was clearly happening. Mr Muldoon said.

A report by the former United States' Secretary of State. Dr Henry Kissinger, in “Newsweek" in a recent issue said “very much the same thing as the analysis he , had been putting forward, and that is a considerable change as far as he is concerned,” Mr Muldoon said. The report of the NorthSouth group of the O.E.C.D. which met on February 3 and 4. had made a very similar analysis. “They have come to see that specific action is required and that some kind of meeting is needed to coordinate it," he said. The •report would be public in several days. The Non-Aligned Nations would meet in New Delhi next month, and a draft communique for that meeting was making another similar analysis.

Asked if he would make any formal representation to the 1.M.F., Mr Muldoon said that “the very real concern” of countries who were members of the I.M.F. would register with the I.M.F. until “in due time” reforms would be discussed by the executive board of the fund.

In the final analysis the American economy would have to lead the way, Mr Muldoon said. It was at present running at. 67 per cent of capacity which meant that any slack in the American economy would have to be picked up before

benefits were felt in New Zealand. “But more and more people are realising that we are in a very dangerous situation,” he said. In the worst eventuality Indonesia would be more vulnerable than New Zealand. Mr Muldoon said. Ninety per cent of its income was from exported oil products which were volatile in quantity and price. “They believe the cost of oil is going to come down, but that remains to be seen. But they have reason to be much less confident than we can.”

Mr Muldoon said he did not discuss the future of the New Zealand Army battalion at Singapore in his talks with the Singaporean leader, Mr Lee Kuan Yew.