Credit alarm bells ‘were rung loudly’

Press, 7 February 1985, Page 13

Credit alarm bells ‘were rung loudly’

Wellington reporter The Minister of Finance, Mr Douglas, has rejected an assertion that alarm bells were run only softly by officials over the credit growth of 1981.

The assertion came from the former Minister of Finance, Sir Robert Muldoon, who also maintained in “The Press" on Monday that memoranda from officials, released last week, were only extracts from longer documents submitted to him in 1981.

Mr Douglas said yesterday that alarms were rung very loudly, and not just in the Reserve Bank. He referred to warnings given by Mr Len Bayliss, then the Bank of New Zealand’s chief economist, of growth in monetary and credit aggregates. “It is clear that, rather than not being warned, it was Sir Robert’s intention to . allow monetary and credit to grow quickly enough to support the 1981 election year boom,” Mr Douglas said. He also ridiculed Sir Robert’s statement that the directors of the Reserve Bank had supported the aims of Government policies. This was “like getting the directors to support motherhood and apple pie,” Mr Douglas said. * “At no time did the direct’

tors indicate that they fully supported the policies being implemented to meet these objectives,” he said. Mr Douglas said it was no coincidence that measures were taken a month before the 1981 election to increase the attractiveness of Government stock issues. “The fact that these measures were finally taken only a month before an election was not coincidental. This action took place exactly a year after the Current Economic Situation Report sounded a note of warning that the banking system had plenty of capacity to meet an increase in the demand for credit, and 11 months after the board of directors of the Reserve Bank expressed concern to him over the potential consequences of strong monetary and reserve assets growth,” he said. Mr Douglas said that Sir Robert had ignored warnings throughout 1980 and 1981 about the dangers posed by his monetary policy. As a consequence, a record inflation rate of 5 per cent was shown in June, 1982, equivalent to a 20 per cent annual rate.

“This directly brought about the imposition of the wage and price freeze which the New Zealand public is still paying f&j 2¥2 years later,” he said" 7