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Naive exporters boob as dollar dives lower

By Nicholas Bryant

Friday 25th August 2000

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Naive exporters are making short-term gains at the expense of the country's long-term economic prospects thanks to the ailing kiwi dollar. The kiwi hit an alltime low yesterday of 42.35USc - lower than during the currency crisis of early 1985 when it was floated.

The sell-off comes amid poor export earnings and warnings some exporters are making expensive blunders while an equally naive government puts up a smokescreen of success.

Rather than establishing fair value for the New Zealand dollar with buyers of exported products, many traders have been converting the New Zealand dollar to the buyer-preferred US dollar at the daily rate - a recipe for short -term wealth that will see their prices stranded at low levels once the dollar firms.

But experienced foreign exchange buyers know the value of the kiwi dollar on a long-term basis - which is why experienced commodity traders have set contracts at an average of 50-52USc to the kiwi.

Others, realising the exporters' windfall, bargain so both camps get a cut. But most are extremely naive and "become annoyed at having been so when confronted with the truth," Tradex managing director Norm Morgan said.

"We need to understand a lower dollar does not help the real value of our exports; it's a smokescreen and all the while we're painting ourselves into a dangerous corner," he said.

With a database of about 4000 companies, Tradex provides private sector support similar to that of the taxpayer-funded Trade New Zealand.

Mr Morgan said about 95% of companies on his books were using the daily currency conversion rate at the time they created the invoice.

"For any sort of sustained export success we need a change of mindset whereby we establish a benchmark which determines the real value of goods in the buyer's currency, not the purchasable value of a short time span," Mr Morgan said.

He also took a swipe at the government, which he accused of running a smokescreen of good news about tourism without recognising only sustained exports would lead to real wealth.

"As the dollar falls of course we'll get more tourists but tourism is one of the lowest-paying industries in the world. Tourism isn't the wealth-creator it portrays itself as."

The dollar remained under pressure yesterday, dropping to an all-time low of 42.35USc in late morning after the release of weaker than expected trade figures. These showed a deficit of $330 for July against an average market expectation of $20 million. It confirmed fears of weak export receipts at just $2.1 billion for the month.

Finance Minister Michael Cullen tried to reassure the markets, saying the dollar was undervalued and oversold.

Meanwhile, new research has revealed foreign and local investors have quit bonds and there has been a 10%-plus sell-down in equities.

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