Decision to devalue lamented by P.M.

Press, 26 July 1984, Page 7

Decision to devalue lamented by P.M.

Last week’s decision to devalue was an economic tragedy, a political tragedy, and "to me it is a personal tragedy as well,” said the outgoing Prime Minister, Sir Robert Muldoon, at Lincoln last evening. “If I was to take a purely political view, I would be nappy that the first major decision of the incoming Prime Minister is a blunder that should see him out of office in three years,” he told a . Lincoln College Students’ Association dinner. “It may be that in the economic sense this thinking is right as well, because the sooner he goes the better it will be for the New Zealand economy. “In my heart, however, I am sad that so many years of endeavour, the co-opera-tion of the public in . every walk of life to make the wage-price freeze succeed and bring down the rate of inflation, is now of no consequence.” “That is an economic tragedy ” Sir Robert said that the time of his Government would be remembered in the economic history of New Zealand as the one that laid the foundations for future prosperity. New Zealand was still in a recession that had now lasted for more than 10

years. It did not have the booms that other countries did. “For 8% years the policy of my Government has been to maintain the living standards of the New Zealand people while we re-made this economy on a broader base that would diminish our proportionate reliance on a narrow range of the products of grassland agriculture,” he said. The policy had succeeded extraordinarily well. Given a normal situation in the world economy, the present account was estimated to come back into credit by 1987 or 1988, as the “think big” projects began to earn money. Horticulture, forestry, and manufactured exports would also earn credits that could be used to expand the economy or pay off the debts. However, in the meantime the National Government had been voted out “as part of a process that has toppled the leaders of every country of our type in the world during the last 10 years, even those which have enjoyed temporary booms.” This was basically because the ordinary citizen in a democracy could not separate day-to-day problems from the responsibility and activity of the Govern-

ment in office. “It is a major tragedy that on Monday of last week, the new Prime Minister, Mr Lange, gave up without a struggle to avert the massive devaluation which will seriously damage our ability to combat the! effects of a world economic downturn within the next two years,” Sir Robert said. He said he believed the deterioration in New Zealand’s balances was simply the early payment of legitimate accounts and the failure to remit proceeds from normal sales. "If we had stood shoulder to shoulder on a no-devalua-tion basis, I believe that the outflow would have diminished, stopped, and turned around. “At the very least, Mr Lange should have had the courage and understanding to give it a day or two last week. Little could have been lost and the game could have been won.” As a result of Mr Lange’s failure to stand firm, in spite of his election promises, various individuals had made millions Of dollars of untaxed profits and the New Zealand economy was put in jeopardy. Sir Robert said the supporting measures for a devaluation were not in place and the removal of interest

rate regulations would do nothing to help. “The new president of Federated Farmers, who has publicly advocated devaluation, should properly have his head put on the block,” he said.

The simplistic argument that a devaluation helped farmers overlooked the fact that targeted help over recent years had been a much more economical, precise, and effective form of support. Beef prices would rise, but costs would rise. The first price rise to hit the community would be fuel. It was generally accepted that the impact of devaluation phased out rapidly. The long-term effects were invariably bad. Devaluation would not make the economy more internationally competitive in a world where agricultural protectionism ran riot. Sir Robert also spoke of a need for changes to the international economy and the likelihood of a serious world depression in the next two years. The events of the last few weeks had left New Zealand “dangerously exposed” to this situation, he said. The dinner, which was organised before the snap election was called, was attended by 75 people.