Archive for January, 2009

Brief Comments

January 30, 2009

Sorry about the lack of posts, but I have been either out of contact or busy.

I was surprised by the size of the OCR cut.  I was picking no more than 100 points.

The continuing trade deficit concerns me.  We need to continue our focus on trade liberalisation and on improving our export performance.

There is a general strike on in France today.  I am not sure how this is going to advance the cause of those suffering from the financial crisis, but it is certainly inconveniencing many people.

I have yet to hear anything from the speakers at Davos that fills me with encouragement about the global financial future.  Pretty much all the sessions are watcheable on the web on the World Economic Forum website.

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Relative Value Of Currencies

January 24, 2009

The latest iteration of the Big Mac Index is in the latest Economist New Zealand isn’t featured but at current exchange rates a Big Mac in New Zealand costs around US$2.50.  This puts us back as aa currency well undervaalued when compared to the US$.  As recently as July we were seen as slightly overvalued on this index. 

The Swiss should, I think, take note of the strength of their currency.  I am very worried about the competitiveness of their economy.  Last February I recall the Big Mac index showed that Iceland had the world’s most overvalued currency.  What has happened to Iceland since then???

EU Agricultural Subsidies And The WTO Round

January 24, 2009

I am getting even more worried about the WTO Doha Development Agenda negotiations.  The rise in protectionist sentiment in major economies is unhelpful to the conclusion of the negotiations.  But structural issues inside the EU are also proving unhelpful.

I haven’t seen any of the MAF or MFAT internal reporting on the agriculture component of the negotiations for over four years so i may be wrong here.  But the impression i had was that New Zealand (and Australia) believed that the world had gone through a fundamental change.  Subsidies were no londer as important to the operation of the EU’s common agirculture policy.  So when I called for the world to accept a minimilast outcome from the current negotiations based around agreement to abolish export subsidies once and for all, coupled with some modest action to trim levels of domestic subsidisation, I was told that I was a fool and that this was not nearly good enough.  EU agreement to end export subsidies was going to happen anyway and EU domestic subsidies were too expensive to sustain.  What I was suggesting was therefore non-meaningful.  What was needed was progress on market access also.

Well has the world changed?  According to my research we don’t just have a resumption of EU export subsidies but we have an increase in domestic subsidies and a return of our old friend the “butter mountain”.  There is also a “skimmed Milk powder mountain” developing.  The EU has just agreed to buy 30,000 tonnes of butter at a guaranteed price of 2,299 Euro a tonne and 109,000 tonnes of SMP at 1,698 Euro a tonne (the current world price is around 1,400 Euro a tonne).

Why am I worried about the Doha Round?  Because we are going to be lucky to hold the exisiting text, let alone improve upon it.  The Round haas floundered so far because countries like New Zealand, the US and Australia have been saying that we need to secure more commitments, particularly on market access.  In current circumstances expectations of further improvement to the text looks to be highly optimistic.

I don’t believe that the Round is necessarily dead, but I suspect that business as usual is not going to be an option.  I think that a fundamental re-think is going to be needed about a strategy for getting the negotiations completed.  This is only going to come at the political level.  In this context, next week’s discussions at Davos are well timed.  These won’t achieve a breakthrough, but they could start some new ways of thinking about this negotiation in the run up to the G20 meeting in April.

My suggestion would be for Ministers to stop looking at the negotiation in terms of the pillars – agriculture, non-agricultural market access, services etc.  and instead look at what can be realistically be achieved in current market circumstances.  What will need to be done in other areas to keep the EU to its current position on the abolition of agricultural subsidies and cuts to domestic subsidies?  The answer will be some modest cuts in industrial tariffs and some modest forward movement on services.  Countries can leave expectations of substantial improvement in market access conditions to bilateral and regional trade negotiations.

This formula has hope of achieving an outcome, maybe before the end of this year.  It will achieve a meaningful outcome and allow the WTO to consolidate its functions.  Continuing along the current negotiating track carries the risk of failure.  That will be a disaster for the global economy.

Tourism

January 22, 2009

As you can imagine, I read with some interest the controversy earlier in the week when the CEO of the Tauranga Chamber of Commerce was criticised by the PM for reportedly suggesting that Tauranga shops should ramp up prices during cruise ship visits.  I am not sure that this is exactly what my colleague from Tauranga actually said.  If he did I am with the PM on this issue.  We really should be doing as much as possible to give tourists a great experience of New Zealand.  In particular we want them to tell their friends back home about how New Zealand was great value for money, not one of those countries that seeks to rip tourists off at every opportunity.

This issue is very current here in Switzerland with hotels, restaurants and shops preparing to ramp up prices and impose otherwise unacceptable terms on those about to descend on the area for the meeting of the World Economic Forum.  The event has long outgrown the town of Davos itself.  Our Trade Minister Tim Groser is having to be accommodated 15 minutes away in Closters (which isn’t that bad) but Australia’s Trade Minister is having to stay an hour away from Davos (his PM and Treasurer are going also so get accommodation in or close to Davos).  There are reports that Richard Branson can’t get accommodation any closer than Zurich.

How are hotels responding?  Well prices are way up reflecting demand that is well ahead of supply.  That is to be expected.  But what annoys me is that many hotels are demanding that people book for a full week at these exorbitant prices, even though a booking of two or three days is all that is required.  Moreover the hotels expect the right to be able to sell these already paid for rooms to new clients once guests have checked out, or before they have checked in.  I was kind of hopeful that the international financial crisis would encourage a rebellion on the part of those attending the WEF meeting but there are no signs of this happening.

Getting back to New Zealand there is an immediate action that the New Zealand Government could take to make New Zealand better value for foreign visitors and encourage them to shop in New Zealand.  We could intriduce a GST refund scheme similar to that operating in jurisdictions such as Singapore or the UK.  I must dust off a letter I wrote to the previous Government on this topic.

Inflation

January 21, 2009

It was good to see that there was such a big drop in inflation confirmed in yesterday’s statistics.  I hope that this ensures a further easing in the OCR by the Reserve Bank at the end of the month.  I also hope that this will encourage financial institutions to pass lower rates on to business borrowers.

President Obama

January 21, 2009

As I write CNN is preparing itself for history to be made in 20 minutes as President Obama is sworn.  I wish you all the best Mr President.  You have many challenges confronting you.  Be bold.  Use the international financial crisis and your longer than normal honeymoon period to good effect.

The Way We Were

January 21, 2009

Remember the days of the NZ Post monopoly on telecommunications services?  How long did it take to get a connection?  It has been a bit like us here in Switzerland. Wendy hadn’t bothered to get the internet connected at her house here until now.  Unfortunately we discovered that it takes two weeks to get a connection here.  Apparently there are no exceptions to this two week rule, unless you want to pay a SF500 urgent connection fee.  The connection which happened today is a very good connection at a similar price to that we pay in Wellington.  A pity about the delay however.

All The Best Lloyd

January 19, 2009

We at the Chamber work very closely with the Infratil team and know Lloyd Morrison well.  I was therefore very upset to read the several e-mails sent overnight about Lloyd’s news.  If anyone can fight this disease Lloyd can.  All the best Lloyd for the weeks ahead.

EU Export Subsidies

January 19, 2009

I am still thinking through, and talking through with people here, the full implications of the resumption of export subsidies by the EU.  This seems to be aa reaction to the fall in international prices.  Unfortunately international prices for key agricultural commodities look as though they are going to be soft for some time.  Will the EU really be willing to agree to the text currently on the table in the WTO if prices stay soft?  The current text would see an end to export subsidies for agriculture.  They are already illegal for non-agricultural products.  No disciplines yet exist on subsidies in the services sector.

Getting The Banks To Lend Again

January 19, 2009

I was just listening to Gordon Brown’s latest package of measures aimed at getting the banks to lend again.  Unwillingness to lend remains a problem here to.  I am sure that this will be a major theme for February’s employment summit.