IMF support for Government's economic policies

Treasurer Bill English said a report on New Zealand's economy released today by the IMF confirmed that the economic changes of the last 15 years meant New Zealand had a sound foundation for future growth.

"In the Public Information Notice (PIN), Executive Directors of the IMF said that New Zealand's economic performance had improved during the 1990s, reflecting the success of economic changes made over the last 15 years.

"In particular they noted that our resilience to last year's recession was itself a key payoff from those economic changes. Their assessment confirms that the changes of the last 15 years mean we have a sound foundation for future growth

"The Directors pointed to New Zealand's low inflation, low public debt and the absence of distress in either the corporate or financial sectors as key aspects of New Zealand's strong economic performance.

"Executive Directors noted that New Zealand continues to face two difficult economic challenges: firstly the vulnerabilities associated with the large current account deficit and external debt; and secondly the need to sustain the recent improvement in productivity growth. Although New Zealand was relatively well positioned to cope with exchange rate or interest rate shocks, its vulnerability to such shocks called for caution and a continued implementation of strong macroeconomic policies.

"The Government has taken these challenges into account by following a prudent fiscal strategy, pursuing ongoing microeconomic reform, and addressing the longer-term budgetary issues such as population ageing.

Mr English said other aspects of New Zealand's performance Executive Directors commended were:

• current economic policy by the Reserve Bank and the Government
• the fiscal policy of building up the operating surplus over the medium term through continued expenditure controls, and
• efforts to reduce welfare dependency and the generosity of Government superannuation.

Ends

Background information

The IMF undertakes regular consultations with its members, known as Article IV consultations.

This year, as well as the PIN, the IMF Staff Report is also being released with the agreement of New Zealand. The conclusions in the Staff Report reflect the outcome of meetings the IMF Staff Mission team had with public and private sector institutions during their consultations in May-June 1999.

The PIN includes background information on New Zealand, and a summary of the IMF Executive Board’s discussion of the Staff Report. The IMF adopted a policy in April 1997 to release PINs. A PIN was released following the last New Zealand Article IV consultation in 1997.

The Staff Report is being released as part of an IMF pilot project, an initiative aimed at increasing the transparency of the IMF and its members’ policies. New Zealand has volunteered to participate in the pilot project because the Government sees a number of advantages associated with increased transparency. For example:

• an increase in accountability of the Fund to the member Governments and therefore the public,
• increased incentives for quality of advice by both the Fund and the host country authorities,
• increased incentives for national authorities to take pre-emptive or corrective action as soon as it becomes apparent that it is needed,
• efficiency gains associated with an increase in information available for risk assessment to private financial institutions, and
• creating a better-informed basis for public debate on economic issues.

Since the pilot project was announced in April 1999, 13 other countries have published their Staff Report, including the United States, Japan, Ireland and Sweden. The pilot project will be reviewed after one year.

The Staff Report and PIN are available on the IMF’s web site at: http://www.imf.org/