ECONOMIC UNCERTAINTY HITS NEW ZEALAND'S 1988 EXPORT PROSPECTS

ECONOMIC UNCERTAINTY HITS NEW ZEALAND'S 1988 EXPORT PROSPECTS

There is some uncertainty here concerning the effects of continuing, radical economic change and the high price of the New Zealand dollar on the nation's export prospects for 1988.

The government has been deregulating the financial industry here at a gallop since it took power in 1984. An unprecedented boom crested in 1987, when the worldwide stock market shock saw New Zealand stocks drop further and stay lower than in any other OECD country.The activities of some large corporations are being investigated by government regulatory agencies and by the New Zealand Stock Exchange. A number of stockbrokers have failed.

An Institute of Economic Research survey reveals that there is not much business confidence in the community for this year, which surprises no one, and there is no doubt that public confidence in investment has been shaken.

There is some feeling, articulated by Minister of Finance Roger Douglas, that the business community had acted with less constraint during the boom than those in other nations because of sudden economic freedom after many years of tight regulation.

However, the government - despite some internal wrangling on just how far it will go in lowering taxes and changing the tax structure - has announced that it will drop company tax down to a flat rate of 28 percent. This is a clear indication to business of the intention to stimulate reinvestment in New Zealand enterprises.

Not only is the short-term outlook not good, but there is continuing clamor from manufacturers and farmers that the strong, floating New Zealand

dollar is helping to price their exports out of foreign markets.

When the dollar was floated in 1985, it was expected to settle to around 45 cents to the U.S. dollar and about 75 cents to the Australian dollar. Those were considered about the real, relative levels of worth. But it has been climbing inexorably, especially as both the Australian and U.S. dollars have declined. The New Zealand dollar settled to around 67 cents to the U.S. dollar and 93 cents to the Australian dollar early this year.

Manufacturers and farmers generally favor deregulation, but they say that high interest rates in New Zealand and other artificial devices are holding up the price of the dollar. They want the government to intervene to suppress the price of the dollar because it is making exports too expensive to compete.

In the meantime, there has been no overall slump in exports in recent months. Total exports for December 1987 were up 21.4 percent, but the figure is distorted by a huge jump in butter sales - 168 percent above the figure for

December 1986.

During the second half of 1987, the United States was the third biggest market with sales of US$540.1 million (13.9 percent of the total exports for the period), behind Japan (US$682.7 million) and Australia (US$660.7 million).