Australians expect N.Z. to float dollar

Press, 20 July 1984, Page 4

Australians expect N.Z. to float dollar

NZPA staff correspondent Sydney The New Zealand Government is widely expected to float the dollar to cash in on the benefits of this week’s 20 per cent devaluation. Commentators in Sydney predicted yesterday that authorities across the Tasman would follow in the footsteps of the Australian Government last year in floating the dollar — a move credited with saving it from damaging pressure from the present high-flying United States currency. David Pott’s economics editor of the "Australian,” said yesterday that all the signs were pointing to a float in about three months. “The question is how long the devaluation will last, and how New Zealand will set the exchange rate in the future,” he said. “By freezing prices for three months, the devaluation appears to be a holding operation to stave off the financial crisis caused by a large capital outflow from

New Zealand. “But it gives the market three months to speculate on what is likely to happen next, which could still prove to be destabilising for the New Zealand currency. “As happened here, the expense of that kind of speculation will be borne by taxpayers. “The new Governemnt has not announced how the New Zealand dollar will be set in future, though the three-month hiatus suggests the authorities are planning a float of some sort.” Paddy McGuinness, editor of the “Financial Review,” said that the Prime Minis-ter-elect, Mr Lange, had taken a courageous first step in correcting imbalances and beginning the process of sorting out the “bungling economic management” of the previous Administration. The package of measures announced was fair enough as far as it went, but there was still further to go. He said that the devalua-

tion would yield its full benefit to the economy only if accompanied by a removal of most of the regulations and interventionist schemes which cluttered and stultified economic adjustment, the removal of tariff barriers and extended wage restraint. “The New Zealand economy is going to have to go through an immense upheaval of structural adjustment and increasind productivity if the harm inflicted by the Muldoon regime is to be corrected,” he said. “Moreover there is an immense overseas debt which will have to be serviced if not repaid.” He predicted that Mr Lange would have to go ahead with the planned Muldoon Budget then recast the priorities in a supplementary Budget later in the year or early next year. Along with slashing the Budget deficit, he said there was the problem of speculation against a rise in the value of the New Zealand

dollar. “At some time in the next few weeks, when the Reserve Bank judges that sufficient liquidity has been restored to the economy, it would be advisable not to appreciate the New Zealand dollar, but to allow it to float, as the Australian dollar was floated towards the end of 1983,” he said. “This will obviate the danger of excessive rises in the value of the dollar as interest rates remain relatively high.” The final crucial stage of the recovery process would be the planned economic summit which would require a genuine opening of the books to the nation and a pledge of co-operation from the unions. “If all this can be achieved, the New Zealand economy can look forward to an export-led boom, and a wave of new investment in manufacturing industry from Australia,” McGuinness said. “The tourist sector will be an added bonus,” he said.