No change—Douglas

Press, 14 September 1988, Page 39

No change—Douglas

PA Wellington It was a serious error to regard the improvement in economic indicators and forecasts as a result of any shift in the direction or emphasis of Government policy, the Minister of Finance, Mr Douglas, said yesterday. He was commenting on what he described as a “significant misinterpretation” of the Government’s policy stance in the latest Business and Economic Research, Ltd, forecasts, released yesterday. Improvements now showing through were a “direct result of the policies the Government had been implementing for the last four years — not the outcome of some alleged policy change,” he said. “The Government has made it clear from the day we took office that the objective of our policies was a substantial and sustainable improvement in both economic growth and job creation,” he said. Two fundamental requirements to achieve that aim were to reduce inflation and to improve efficiency throughout the economy. “Neither of these tasks is complete yet,” Mr Douglas said. “New Zealand still has a considerable distance to go, to achieve and lock in the kinds of gains required to ensure sustainable economic growth and job growth.”

The Government had made it clear from the outset that those policies would

initially put pressure on interest rates and the exchange rate, as part of the mechanism by which New Zealand’s competitiveness would be improved. “We also made it clear that as inflation came down towards internationally competitive levels, interest rates would reduce over time, and the real exchange rate would also come down. “What we are seeing today is the first fruits of those policies and the beginnings of an improvement in confidence, as people see the results are, in fact, starting to come through.” Lower interest rates and present exchange rates were clearly stimulating a response from producers, “but equally obviously, those exchange rates affect the price of imports.” “The aim of our policies continues to be inflation in the 0 to 2 per cent range by the early 19905. That makes it essential to hold the same firm monetary policy consistently in place, and we are doing that,” Mr Douglas said. “Any change in policy, as suggested in some quarters, would in fact jeopardise our objectives of stable low inflation, sustainable improvements in competitiveness, and sustainable growth in productive jobs. “The recovery of confidence noted by Berl in its forecasts is in fact based on the knowledge that we are continuing our established policies — not on any belief that we are changing them,” he said.