Ups and downs

downs of the dollar

Australia’s devaluation of her currency by \lVi% on November 30 set off a train events in Papua New Guinea, Fiji and New Zealand, aimed at maintaining something like a status quo. There were pluses and minuses all round. A big plus for the Islands was that much keener competition between Australia and New Zealand is likely with their currencies now much closer together. NZ had gained an edge earlier in 1976 through devalua tion.

NZ devalued by 7% against the US dollar and other major currencies, except Australia, which was an effective revaluation of 12.7% against the Australian dollar. Fiji devalued by 5.6% against all currencies, except the Australian dollar. Papua New Guinea, which revalued her currency by 5% against the Australian dollar earlier in 1976, made a further revaluation of 12.5% against the Australian dollar, but in relation to other countries she devalued by about 7.25%. All these chess-like moves and counter-moves made it more difficult for experts quickly to assess the likely results.

Australian goods will be cheaper in the Islands markets, but as Australian tourists will receive less in the Islands for their dollar, tourism could suffer.

That will be a blow in Fiji, where the industry is just starting to move out of the doldrums. Islands goods will be dearer in Australia, but Australia is not a big buyer of the Islands main exports primary produce so the effect is likely to be negligible on such commodities as sugar, tea, copra, coffee and cocoa.

The PNG Finance Minister, Mr Julius Chan, said if PNG followed the Australian dollar down by the full amount, there would have been an increase of well over 17.5% in the prices of goods from countries other than Australia. That would have been inflationary for PNG, and would have hit wage-earners heavily.

PNG’s main consideration was to protect the purchasing power of the kina. By following the Australian dollar only part of the way, higher prices for some imports would be

balanced by lower prices for others, depending on their origin.

Fiji and Papua New Guinea have increased their selling chances in areas other than Australia. Their currency moves also mean that imports, particularly food and capital goods in which they are most interested, will be dearer from the rest of the world, but cheaper from Australia.

However, their exports to Australia will be dearer. But one beneficial result to PNG will be in tea, although the price to Australia will rise. However, tea exporters to Australia in Sri Lanka, India and Indonesia will have to hike their prices to such an extent to maintain present incomes, that their teas will be proportionately dearer than PNG tea.

Australian aid to PNG and other Pacific Islands will be less, which is likely to cause finance ministers to have another look at their budgets for the coming year.

The Fiji Finance Minister, Mr Charles Stinson told the parliament

devaluation of the Australian dollar in Fiji terms was about 12%.

Mr Ronald Rowland, general manager of Burns Philp (SS) Ltd said consumers could expect a drop of 10% in the price of Australian goods on

supermarket shelves within a week.

FOOTNOTE: But some of the effects of the devaluation became even harder to judge within a fortnight of the Australian decision, when Australia announced revaluations of 2% on December 6 and 1% on December 13, meaning an overall devaluation of 14.6% on the pre- November 29 rate. Australia’s currency is now floating, which will affect the Island nations in different ways.