Bank letters disclosure urged

Press, 10 January 1984, Page 7

Bank letters disclosure urged

PA Wellington The Chief Ombudsman, Mr George Laking, has recommended that the Prime Minister, Sir Robert Muldoon, or the Reserve Bank make available an exchange of letters between them concerning the bank’s attitude toward Government financial policy.

The recommendation comes after more than four months of investigation and review by Mr Laking of a decision by the governor and directors of the bank not to make available to Wellington’s “Evening Post" newspaper copies of the correspondence and any appendices attached. The directors of the bank declined to make the correspondence available after the Governor, Mr R. D. Wilks, had consulted with Sir Robert The reason for withholding the correspondence was stated by the directors to be that it was necessary to maintain the constitutional convention which protects the confidentiality of advice tendered to Ministers by advisers.

The directors also considered that release of the information would inhibit the effective conduct of public affairs through the free expression of opinions between the bank and the Minister.

Mr Laking recommended in a report dated 6

that the correspondence between Sir Robert and the bank be made available.

In a covering letter to the “Evening Post,” he said that under the Official Information Act a public duty to observe his recommendation within three weeks is imposed upon the bank unless before then the Minister of Finance, Sir Robert, directs otherwise.

The newspaper also requested any appendices attached to the exchange of correspondence. Mr Laking declined to recommend that an appendix attached to one of the letters sent by the bank to Sir Robert be released. This appendix was a memorandum for the directors of the bank from the bank’s economics department and was entitled, “1981 Credit Expansion." It sets out in chronological order references to monetary policy, which amount to a summary of the dialogue between Sir Robert, the Treasury and the Reserve Bank during April, 1980, to December, 1981. Mr Laking said: “The advice and opinions summarised in the appendix ... were given in a specially sensitive context The subject was the relative expansion of money supply; the timing was the lead-up to a General Election.

“The present request for release is made within a relatively short time of the

event and against a similar background.” “That being so, the release of the appendix now would, in my opinion, inhibit the advice expressed to the Minister by the bank at the present time to the extent where the injury to the public interest, which is protected by (a section of the act), would outweigh any advantage to the public of knowing today what advice and opinions were submitted in 1980-81,” Mr Laking said.

He said he did not think he was required to discuss whether such advice given at a different time, or in respect of which disclosure was sought at another time, would be entitled to the same protection.

The “Evening Post’s” request for information about the exchange of letters and the appendix sprang from two developments. The first was a warning in a Reserve Bank bulletin published in March this year that it was very important that New Zealand should safeguard its reputation as a “reliable and responsible” borrower. This warning was followed by the dispatch of a letter by Sir Robert to Mr Wilks referring to the article in the bulletin.

Sir Robert said in this letter of March 28 that if directors tended to support his igjne of thinking they

might suggest that the bank gives rather less support to its critics than it had done in the bulletin article.

“The implied warning in respect of Government policy which has been taken up by the ‘Evening Post’ is a matter of some importance, as the alternative to what we have been doing by way of policy is a lower level of business activity, more business failures and higher unemployment than we have at the present time.

“I would like you to put this letter in front of your directors at their next meeting and ask them, as men of experience, whether they would favour such a policy. If they do it would certainly influence my thinking, although my present inclination is to restrain the downturn, even at the cost of seeing some of our ratios get out of line.” The bank directors replied on April 18 that they unanimously supported the objectives of present Government policy, that is the maintenance of business activity, the avoidance of business failures and the preservation of employment opportunities, while according top priority to the reduction of inflation.

Two days later the ‘“Evening Post,” reported a Wellington economist, Dr Gareth Morgan, challenging the bank’s directors ,to declare simply whethtt they

supported Government policy or merely its objectives. Supporting objectives was not the same as saying they supported the policies being used to fulfil these objectives, he said. Subsequently the “Evening Post” learnt that only parts of the correspondence between the directors and Sir Robert had been made public. The newspaper was also advised about this time that an appendix attached to the correspondence would provide confirmation of claims that Sir Robert had been warned by Government officials in 1980 and early 1981 that there was dangerous build-up of liquidity in the New Zealand monetary system. An election was to be held in November, 1981. During the year, with the election looming, Sir Robert claimed he had not received advice of a surge in the domestic money supply. Sir Robert said he intended to find out why he had not been warned of this build-up. Before the election financial action was taken to curb “over heating” of the economy.

In Wellington a number of public servants asserted that Sir Robert had been warned many times about the dangers of a surge in money supply and that it had been recommended that measures be taken to correct the situation.