Lobbyists at odds over bank bill

Press, 27 July 1989, Page 2

Lobbyists at odds over bank bill

By

PATTRICK SMELLIE

in Wellington

Productive sector lobby groups are at odds over proposals to restrict the Reserve Bank’s activities to reducing inflation.

In select committee hearings on the Reserve Bank Bill, representatives of the Manufacturers’ Federation predicted such a move would doom New Zealand to recession until 1997. Federated Farmers and the Business Roundtable, however, welcomed the bill. It alters the Reserve Bank’s list of responsibilities, removing such goals as employment and economic growth, and leaving the single goal of price stability, or low inflation. The reason for this is the belief that the Reserve Bank’s only policy tool — monetary policy — can only have long-term effects on inflation. Short-term growth and employment dould be engineered through monetary policy, but only at a longterm cost to economic performance, it is argued. The president of the Manufacturers’ Federation, Mr Barry Brill, said the bill would lead to a loss of democracy, since the Reserve Bank would be able to act against inflation without reference to the Government

While in theory the bank would

have to do so only if politicians failed to bring in sensible policies in other parts of the economy, politicians could not be trusted to implement such policies. “This bill says that if the Government engineers a Budget blow-out, the Reserve Bank has to take the heads off the manufacturers and the farmers,” said Mr Brill. The federation strongly disagreed that monetary policy could not be used to promote growth and employment Mr Brill said no other country was proposing to make the Reserve Bank as independent as New Zealand was.

While many of the world’s main economies were now experiencing inflation and tighter monetary policies as a result, they were winding down from an economic boom. New Zealand kept tight monetary policies in times of recession, he said.

The Opposition spokeswoman on finance, Miss Ruth Richardson, argued that the responsibility for monetary policy settings would remain with the Government under the bill.

The Reserve Bank was obliged to have an overly tight monetary policy only if the Government was “committing economic atrocities” in other areas, such as failing to cut spending, or freeing up the labour market.

“What it means is that you have to do a number of things to get the linkage between monetary and other policies,” she said. The president of Federated Farmers, Mr Brian Chamberlin, welcomed the bill, saying “the overall effect would be a more consistent and transparent monetary policy. “The passage of the bill should place increased pressure on the Government to operate a more responsible fiscal policy and adopt more micro-economic reform.

“Consumers will be encouraged to increase savings by deferring spending if they have confidence that prices will rise more slowly and predictably.” The bill also preserved democratic principles by preventing policy changes occurring without the public knowing about it.