Devaluation hard to justify, says Australian banker

Press, 24 July 1984, Page 30

Devaluation hard to justify, says Australian banker

The New Zealand devaluation was difficult to justify by the economic conditions, the managing director of Westpac Banking Corporation, Mr R. J. White, said at a press conference yesterday. Mr White is on a visit from Sydney to attend a meeting in Christchurch of Westpac’s New Zealand board. It seemed a complete replay of the Australian scenario at the time of the Australian election, when in the period of about 10 days vast sums left the country, and after devaluation took only three to four days to flow back again.

Because it was left to float the Australian dollar was corrected almost back to its pre-devaluation rate, once sufficient time had elapsed to allow businessmen and traders to take a view. Of course, Australia’s overseas reserves were much stronger, Mr White said. The competitive position of New Zealand vis-a-vis Australia had improved substantially, he said, balanced only by the factor of imported components in New Zealand exports. Because before the devaluation CER had already caused a shift in New Zea-

land’s favour, it would be interesting to await the Australian reaction, he said. However, the Australian economy was now mnch more competitive: unit costs of production were the lowest for 10 years, the Australian wage structure was stable, with s industrial peace, ; and the “accord” reached between all sectors of the community was holding. ,< , The Hawke Government had been especially helped by three factors, Mr, White said. (1) The. breaking of the drought; an indication of its severity was, that wheat

production rose from 8 million to 20 million tonnes. (2) The continuation of a policy begun by the Fraser Government of encouraging housing; this year housing starts had risen from 105,000 to 145,000. (3) The Government deficit had doubled, to sAustBooo million. None of these factors apply to the current year, Mr White said, and the big question mark was how the accord would bold next year. Another weak spot was the comparative lack of private investment Referring to the world economy, Mr White said

that the United States was attracting huge investments and was running huge internal and external deficits. Although these had benefited countries exporting to the United States (Western Pacific countries especially, and Australia and New Zealand depended in turn on exporting to them) the deficits were unsustainable. Sooner or later the United States would have to take corrective action, and this would seriously affect international trade. The prognosis for the world economy for 1985 and 1986 was not rosy, Mr White said.