27 August 2000 Media Statement

Current account blamed for low dollar

Embargo: 6:30PM Sunday, 27 August 2000

Deputy Prime Minister and Minister for Economic Development Jim Anderton says the fall in the value of the kiwi dollar is the result of continuing overseas deficits.

He told a foundry industry conference in Queenstown today that New Zealand owes more overseas than the entire economy can produce in a year.

Jim Anderton says that factor suits the Government's political opponents less than the claim of some commentators who think that the level of the dollar is some kind of rough score card for how the economy generally is doing.

"It should be remembered that when our dollar was worth 70 cents US a couple of years ago, our export industries were being crucified. Its level then was driven by the highest real interest rates in the developed world. Overseas investors knew they were on a one-way bet – the Reserve Bank at the time could not afford to allow the value of the dollar to fall because of the potential inflationary effects. And interest rates were being hiked up to try to suppress domestic demand.

"The result was that the economy’s debt increased massively. To put it bluntly, we were living on the credit card.

"The current level of the dollar is largely a predictable response to the explosion in the balance of payments. We were importing too much and exporting too little, and now we are experiencing the so-called ‘correction’.

"It is certainly true that a country can’t get rich by simply having a low-value currency. But it is also true that a country can make itself poor by having an over-valued currency. That is what New Zealand was doing for far too long," Jim Anderton said.

ENDS

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