Don’t Tell Anyone

International experts give New Zealand’s economy the thumbs-up, but the media fail to bring it to public attention.
Listener: 29 May, 2004.

Keywords: Growth & Innovation; Macroeconomics & Money;

A Fulbright New Zealand grant enabled me to visit a number of research colleagues in the US, including the IMF team that visited New Zealand in February. The International Monetary Fund has a programme of annual consultations with its member countries in which the economy and economic management are reviewed. The focus of our Washington meeting was on some mutual research interests, but the team mentioned that their New Zealand review would be published the following day. Early the next morning, I scanned the websites to see what our journalists made of the report.

There was nothing on the New Zealand Herald’s, and the only reference on (based on the Dominion Post and Christchurch Press) was “IMF urges better bank monitoring”, which proved to be the summary of an appendix to the appendix of the report. TVNZ’s website, ( had Reuters’ summary, but it did not capture the core of the report that I picked up from the IMF later that day. So, since you probably missed it, here is its executive summary. The bold type is in the original:

The New Zealand economy has continued to respond strongly. Real GDP growth moderated to three and a half percent in 2003. Domestic demand remained buoyant owing to the strength in net immigration, solid employment growth, the wealth effects from rising house prices, and real income gains from the New Zealand dollar’s substantial appreciation since the end of 2001. Net exports, however, acted as a drag on the economy. The unemployment rate declined below five percent to a 16-year low, while inflation fell to the lower half of the official one to three percent target range.

Growth is projected to ease further to three percent in 2004. However, the outlook is subject to considerable uncertainty, with the economy operating at a high level of resource utilisation, slowing net immigrations, continued strength in domestic demand, an improving world economy and the spectre of further currency appreciation.

The … Fund broadly agree[s] on the settings for macroeconomic policies. In the near term, the challenge for monetary policy will be to assess the countervailing pressures on inflation. The staff support the Reserve Bank of New Zealand’s decision to cautiously wait and watch the data to see whether further monetary policy changes are needed.

The fiscal position remains strong and the stance of fiscal policy is fundamentally sound. The recent improvement in fiscal prospects provides some room to introduce some new fiscal initiatives. [This was written before the May Budget.] However, as the government recognises, the scope for additional spending is limited, and continued prudence and discipline in making spending decisions needs to be maintained. The government has begun to take action to address the fiscal implications of population ageing, including partial pre-funding of future pension liabilities. Consideration should also be given to possible parametric reforms in the pension and healthcare systems. [“Parametric reform” is jargon for changing the criteria for eligibility – such as the age of entitlement to New Zealand superannuation – and the levels of benefits. So they are not challenging the structure.]

Further strengthening the growth performance remains a key goal. Government efforts in welfare and education reforms and expanding New Zealand’s links with the rest of the world should contribute to enhancing growth. [I would have also mentioned infrastructure and technology enhancement.]

New Zealand’s financial sector has a high degree of short-term stability and an overall sound outlook. The main recommendations of the Financial Sector Assessment Program aim at preserving stability in the medium and longer term in the context of the country’s disclosure-based regulatory regime and the high share of foreign ownership of the banking system. [The IMF may not have been criticising the policies of the previous Reserve Bank governor (now leader of the National Party), but expressing a worry about all the world’s banks, while acknowledging some peculiarities in our financial system regulation. It is certainly not saying that our banks are particularly problematic.]”

So, it was a very favourable report, perhaps more than I would have given – perhaps more than even the Minister of Finance would. Given that the IMF sees so many disasters, perhaps when it sees an economy that is well managed and performing well it tends to glow.

One can’t help wondering whether, had the IMF report been more critical of the state of the economy and the quality of economic management, our newspapers would have given it front-page headlines. The IMF team remarked how transparent the New Zealand Government system was (implicitly comparing it with many others), so there are no restrictions on access to the report. But transparency is a fat lot of good if the newspapers don’t bother to tell the public.