IN TOUCH: Comment on How to be export friendly

The first step toward kinder environment for exporters is an immediate cut in interest rates but… this needs to go hand in hand with the establishment of new economic order.
This new order would put the plight of exports and exporting businesses at the front and centre of all economic discussions whether diagnoses, prognoses or remedies. For it is not only actions that count – expectations, perceptions and attitudes also need to change.
In essence, New Zealand’s economic policy framework was hijacked long time ago by the inflation police. Yes, there has been intermittent tinkering involving semantics and target ranges. But the attitude remains that inflation is public enemy number one and needs to be halted at all costs. From this belief flows expectations that interest rates are likely to be raised at any sign of inflation. And such expectations underpin an exchange rate higher than would otherwise be warranted.
Yes, the exchange rate declines every now and then. But the expectation that it will inevitably rebound and overshoot on the high side just makes matters worse. The current policy framework provides no sign of stable economic environment within which New Zealand enterprise can settle, plan and establish sustainable export businesses.
Current numbers are illustrative of how inflation concerns incessantly override other economic issues. New Zealand’s CPI inflation rate is currently 2.5 percent, while it is 2.4 percent in Australia. Previous March years recorded 3.4 percent, 2.7 percent and 1.6 percent rates of inflation for New Zealand. Australia’s numbers are 3.0 percent, 2.4 percent. 2.0 percent.
Further, the consensus of 12 forecasters expects NZ CPI inflation over this calendar year to be 2.2 percent, rising to 2.4 percent in 2008. The highest expectation is 2.8 percent for this year and 3.1 percent next year. The RBNZ itself expects 1.7 percent and 2.5 percent. The Aussies are expecting 2.6 percent for both years.
There is little evidence we are out of synch with others around us. Yet we continue to act as if inflation is bad, is about to get worse, and state of heightened inflation alert is warranted.
So, in the wake of the F&P announcement of job losses as activities are shifted abroad, I find the intensity of the recent collective economic navel introspection curious. Cynical is not word I would use to describe my responses – rather an overwhelming sense of déjà vu.
The country has been grappling with how to retain, improve and benefit from manufacturing – and other – exporters for many decade now. There was the much-protected and, now much-maligned, economy of the 1950s, ’60s and ’70s. The turn of the century saw the call for ‘knowledge economy’. Now we are engaged in search for some alternative ‘monetary policy instruments’.
The need to establish stable economic environment within which New Zealand businesses can operate and compete on global footing seems, at best, footnote. That New Zealand cannot cope with third-world, low-cost labour competitors is clear. However, the alternative is not so clear.
Skirting around this question doesn’t help, as it needs to be faced head-on. Furthermore, relegating the plight of exports to second – or even lower – place behind inflation concerns reinforces expectations that stable long-term business climate is unlikely to eventuate.
So, perhaps, now (if not earlier) would be good time for export commandos to rescue New Zealand’s economic policy framework from the inflation police. An unambiguous statement of the policy priority would be start: that is, the export sector is first; everything else can wait in the queue.
And no, this is not being ‘soft on inflation’. Because inflation, whenever it is out of line with that of our main trading partners, should be very much target for an export-focused policy framework. But the health of the export sector should not be sacrificed in the pursuit of other unrelated targets. Housing market problems or savings shortcomings – whatever they be – are not excuses to reek untold damage again to the long-term economic base of the country.
Economic management – and, dare I say, leadership – needs to encompass the primacy of the export sector in furthering the nation’s well-being. And it must recognise that inflation concerns need to become subservient to export sector needs.
•Ganesh Nana is senior economist and editor BERL Forecasts, Business and Economic Research.

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