KEY POINTS:
National Party leader John Key wants formal talks with the Government on how to stem the massive flows of hot money into New Zealand that are pumping the exchange rate to crippling levels.
Mr Key, a former London-based head of global foreign exchange for investment bank Merrill Lynch, stressed it would be difficult to put in place formal controls here, given the $150 billion exposure foreigners have to New Zealand. "I'm not saying there would be no solutions to this ...but it will be difficult."
He warned the New Zealand economy cannot sustain exchange rates at the current level of US74c. It would lead to substantial jobs losses and closures.
And he said the situation could get worse if nothing was done to tackle the underlying conditions which are attracting the Asian cash to take advantage of the highest interest rates in the Western world.
The National leader suggested the New Zealand housing market would ultimately self-correct, in line with the other markets which have felt bubble effects like the UK, US and Australia.
But the New Zealand economy was particularly exposed because of the impact of Japanese retail investors and major currency speculation on the back of the $US1 trillion of hot money washing about in Asia. "We're very happy to work with the government on this - it's totally a capital markets and hot money issue."
The National Leader's call comes in the wake of a tumultuous week which has seen business clamouring for Government action after another round of interest rate hikes, a persistently high New Zealand dollar, strong criticism from the OECD, and, the planned departures of major NZ exporters to Asia.
Yesterday Key confirmed to the Herald on Sunday that he had discussed the issue with Finance Minister Michael Cullen over dinner at the Australia New Zealand Leadership Forum in Sydney.
Key would not reveal which specific options the pair had canvassed in what he stressed was at that stage purely an informal talk.
He also revealed to the Herald on Sunday that while he was still finance spokesman he had written to Dr Cullen proposing the original bipartisan talks on monetary policy.
