Fran O'Sullivan: We're not winning so forget the score

It's a pity Finance Minister Michael Cullen did not call National's John Key for a bit of advice before slagging the latter off yet again as a currency speculator.

Key could probably have warned him that sending officials to Tokyo in early December to try to talk down the kiwi dollar would be a waste of space unless, or, until there were clear signals that the Reserve Bank's tightening exercise was going into reverse.

Until that point, any savvy offshore investor would be willing to run with the risk that any prospective currency depreciation would not be so savage or as quick that they would lose their shirts by investing in a country that still sported the highest real interest rates in the OECD.

On this point, I'm with Key.

He may have headed international currency for investment banker Merrill Lynch. But his credentials were rated so highly that he sat on the foreign exchange committee of the Federal Reserve Bank of New York.

Crying wolf should never be the first option.

It's basically an admission of defeat and acknowledgment that the Government and Reserve Bank are (so far) wary of making the sort of real interventions that would pull the rug from under the booming uridashi NZ dollar bond market.

Cullen runs the risk that the officials' comments, particularly now they are in the public domain, will lead to a negative re-rating of the economy that may not turn off the Japanese and European investors who have been piling into uridashi and eurokiwi issues, but foreign investors contemplating major greenfields ventures here.

It's early days yet but figures which I saw yesterday suggest the NZ officials' December exercise may so far have been in vain.

Uridashi NZ dollar issues are still being arranged in Tokyo this month, despite the efforts by Treasury Secretary John Whitehead and his Reserve Bank colleagues to alert top Japanese officials and representatives of leading issuers to our emerging economic problems or, as Cullen put them in last week's statement, to ensure the risks of investing in uridashi NZ dollar bonds were well understood at this time.

Some $1.87 billion of uridashis have been launched since December 1, and a further $706 million of eurokiwis, although this amount might be inflated due to the difficulty of cancelling issues already well down the pipeline.

But the major issue that ought to worry Cullen is that some of those institutions that were on Whitehead's lobbying list - the World Bank and Asian Development Bank, who are among the leading uridashi issuers, and, Daiwa Securities, a major arranger - are still very much in the market.

It was probably too late to cancel the World Bank's $88 million uridashi bond issue which was launched on December 9. But an Asian Development Bank issue worth $598 million was launched by Daiwa on December 21. Another issue was launched by Daiwa on January 6.

Cullen and Whitehead will not have missed the irony.

Cullen sits as one of the World Bank's governors (with representatives from the other 183 member nations). Whitehead is his alternate.

The governors, of course, only set policy.

It is up to the World Bank's executive directors to run the show.

But it is clear that exerting moral suasion on global institutions is a difficult task.

They basically get to clip the ticket when they swap the funds raised from Japanese investors with trading banks after cheap money to lend at significant profit to their clients.

It's a game that many reputable institutions have played.

Even the Government used to make major plays in the international uridashi market.

So well-regarded was one A$400 million uridashi that Daiwa organised on behalf of the Government in 2003 that it won its arranger Euromoney's Uridashi of the Year award for the second year in row.

The Treasury's Debt Management Office emphasises that the Government is not at play in NZ dollar uridashis.

The critical point is that instead of picking a tit-for-tat fight, Cullen might usefully engage Key in an off-the-record chat about the types of policy changes that might be necessary to try to stop our absurdly cyclical exchange rate cycle and buy our exporters respite from the strong exchange rate.

It may not be in Key's long-term political interests for Cullen to quickly work his way out of the high-exchange rate conundrum.

Key favours policies which would see the Government take action to reduce its own negative impact on the economy.

But there's no guarantee that policy set will quickly reverse the exchange rate.

In the meantime, it's probably worth Cullen trying to reach an accord with opponents, just as the Government does on major trade and security issues, to see if they will support measures to ease the pressure on our productive sector.

The country's economic security should take precedence over political point-scoring.