Deficit 'core of problem’

Press, 10 January 1987, Page 30

Deficit 'core of problem’

PA Wellington The economist, Mr Len Bayliss, says a substantially overvalued exchange rate has gravely weakened the international competitiveness of export and import industries. In an article in the Arts Council’s journal, “Arts Times,” he says the Government’s monetary policies had failed to reduce inflation or the balance-of-payments deficit. “The core of the problem is a large Budget deficit which must be substantially reduced. “This raises acute political difficulties particularly as it is rarely possible to spread the burden of adjustment evenly and equitably.” He said the orthodox remedy for the economy followed by the Labour Government when it took office, and by most other countries, was to achieve accurate price and profit signals. This was done by

eliminating or reducing the causes of previous distortions: reduction protection, dismantling controls, eliminating, subsidies (but not welfare subsidies), and increasing competition. These measures, related to the private sector, hdd been supplemented by corporatisation and other measures to improve resource allocation and the return on assets in the public , sector. But Mr Bayliss said there was widespread support for the policies in spite of considerable opposition from people and industries previously subsidised and protected. \ “There has also been opposition to some of the rhetoric and more extreme policy statements which inevitably occur in times of major change. “Nevertheless, the main thrust of . these policies, whose impact is largely medium term, is unlikely to be changed/*