Letter from Wellington
Monday, 28 August 2000
Don Brash is reported to be resigned to the dollar's fall. Earlier this year the Reserve Bank sent signals that it would
raise interest rates hoping to support the dollar. In the past the market adjusted to such signals. This time the market
ignored the Bank. The market wants out of the Kiwi dollar. The Bank believes the fallen Kiwi dollar will not respond to
interest rate rises. So Brash has told Cullen - it's your problem now!
Cullen Is Feeling The Pressure
While it is correct that the Kiwi's fall is partly caused by the US dollar's rise and the awful trade deficit - these
factors do not explain the size of the movement. The Kiwi is not just at its lowest point since the float - it's at its
lowest point ever - and most expect the dollar to fall further. Cullen may be able to persuade gallery journalists that
he is a moderate - however the experts who deal in currencies compare him against other OECD Finance Ministers. In the
last year, no-one else in the OECD has increased income tax, nationalised accident insurance, broken binding commercial
contracts or passed a law increasing trade union power. Investors regard such policies as risks. In a free global
capital market it is their choice not to stay. 'Red' Oskar Lafontaine, Germany's former left-wing Finance Minister, who
was moderate compared to Cullen, did not even last a year. And thirty minutes after his departure the Euro rose two
Will Cullen Last?
A significant part of the problem is that the Finance Minister has no credibility in financial and business circles. The
replacement of Michael Cullen is under serious consideration. For: Cullen has no power base (he is a friendless,
list MP), and he is showing increasing signs of stress. His proposal to pre-fund super makes no more sense than
pre-funding any other tax paid benefit. Against: Who to replace him with? Trevor Mallard has no more credibility with
the market. Phil Goff, with his Rogernomics background, is a possibility. Business confidence will turn around if Cullen
is replaced and a coalition policy reversal occurs. Mitterand and Schroder - both Social Democrats - replaced their
finance ministers and changed to a pro-market course. Clark is to much a prisoner of her left-wing coalition allies to
be able to do either - we are in for a rough ride.
What Does The Low Dollar Mean?
The Letter notices that news journalists have difficulty reporting what the lower dollar means. Firstly, it's worth
stressing that no enormously successful economy has a weak currency. Secondly, for wage and salary earners the dollar's
11 per cent drop will, over time, translate into at least a four per cent drop in living standards. This is on top of
the hit mortgage holders are taking from higher interest rates. Labour's action in linking superannuation to wages
rather than the CPI will mean the elderly will feel the full force of devaluation. Labour's Maori voters who smoke are
really being hit in the pocket.
The Only Happy Man
Jim Anderton is as happy as only a man with a rent free state house and taxpayer funded petrol, could be. Jim must be
ecstatic over Telecom's share price - from a high of circa $10 it has now recorded a low of $6.40c. In opposition, Jim
never missed a chance to attack Telecom. As every major super fund holds Telecom shares - Jim has reduced the wealth of
us all. Jim is probably also happy that the 2GHz spectrum auction is floundering around $40 million - the Germans got
$100 billion last month. Jim says the lower dollar is an opportunity to reach an 'economic nirvana'. Under that theory
why not go to economic heaven and have the dollar at 20 cents?
Bridge On The Road To Nowhere?
Sandra Lee told us she ordered the $260,000 plus upgrade on the road to Tama Iti's place because she does not want
another 'Cave Creek' if one of the bridges collapses. An engineer has told the Letter that there are no bridges on the
track, rather a number of culverts, "you could drive off a culvert and not dent a panel on your 4 wheel drive". The
Letter was also told that DOC has had consultants, at a cost of over $15,000, prepare the tender documents for the road.
Money now wasted on the appropriately named road to nowhere.
Young Doctors Strike
The country's health administrators are in limbo because the coalition has no strategy. As one administrator told the
Letter "the young doctors could claim any amount. It's not connected to anything." First year doctors are not doctors -
they are trainees - they do nothing that a nurse could not do. Why the strikes are effective is because other health
professionals - doctors and nurses refuse to do the work of young doctors - and under the new Employment Relations Bill
it is illegal to make other workers do the work or hire replacements. It was clear from ACT's snap debate in Parliament
that Annette King has no strategy, or any idea, what to do.
The introduction of unit standards into secondary schools is causing chaos. The idea is that the whole secondary school
curriculum has been sliced into hundreds of tiny little units. All pupils must be assessed on each unit. There are just
two grades: satisfactory or unsatisfactory. The new scheme - which goes back to Lockwood Smith's day - is now being
trialled. Teachers say that it takes hours of time each day to administer. Pupils find the system meaningless. The
temptation to just 'push pupils through' i.e. cheat, is very high. Trevor Mallard is very much in favour - so this
experiment, that seems doomed to lower educational standards, will be in schools by next year.
Report Back Tour - report
ACT MPs are in the second week of their annual report back tour. This week's Letter stories on young doctors and unit
standards are feedback from the tour. For tour details or ERA seminar information look on ACT's website:
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