Cullen and Key square off over NZ investment

Finance Minister Michael Cullen and his National counterpart John Key squared off yesterday over the bid by New Zealand officials in Japan to talk down the dollar.

Mr Key said the December visit by Reserve Bank and Treasury officials risked tarnishing the country as an investment destination.

Mr Key said "hot money" was flowing into New Zealand because it had the highest interest rate in the developed world, partly caused by Government spending.

Mr Key called on Dr Cullen to say what information was shared on this "Government-sanctioned trip" that he was not prepared to share domestically.

"Telling Japanese retail investors New Zealand has a massive current account deficit is surely not news to them, so what else did officials tell the investors?

"Government officials' attempts to bad-mouth the New Zealand economy in Japan are not only futile but risk tarnishing the country as an investment destination.

"Is Dr Cullen telling us he sees it as officials' jobs to warn overseas investors off from investing in New Zealand? If so, what message is this sending to the global investment community?"

Mr Key blamed high interest rates on inflation pressures partially created by the Government's build-up in its spending.

Dr Cullen said Mr Key was demonstrating his ignorance of fundamental economic issues, and the strong kiwi dollar reflected New Zealand's "stellar" economic growth over the last six years.

"What Mr Key is suggesting now is that a National-led government would be slashing spending," he said.

"This is the truth they hid from voters during the election campaign."

Dr Cullen said National would cut spending and taxes at the same time.

"That would only further fuel inflation, lead to more interest rate rises, adding pressure on the kiwi dollar and so causing more pain for ordinary New Zealand home owners and exporters," he said.

"Mr Key is clearly out of touch. He's simply showing his true colours as a friend of money markets and currency speculators in particular."

Dr Cullen said the Government might revive talks with Bank of Japan officials and market participants if the uridashi issuance did not slow down.

"Depending on whether the issuance has slowed or not we shall then consider what further discussions will be desirable."

He said the country's worsening current account deficit and an overvalued New Zealand dollar were significant factors that were brought to the attention of Japanese officials. The current account deficit ballooned to 8.5 per cent of gross domestic product in the 12 months to September 2005.

Massive interest in buying New Zealand dollar uridashi - bonds aimed at mainly retail investors in the Japanese market but denominated in foreign currencies - was a major reason for New Zealand currency's surge to a 22-year peak of 74.65USc last year.

The New Zealand dollar yesterday was below 68USc for the first time this year in the wake of disclosure of the talks in Japan, before recovering to close at 68.08USc.

- NZPA