by Roger J Kerr
The economy needed a lower exchange rate and it is being delivered by the markets (thanks partially to the credit rating agencies).
It remains to be seen whether the National Government has any innovative economic policy initiatives to keep our exporters competitive and on the front foot.
The Minister of Finance, Bill English talks about our exporters needing to be competitive; however, what is he doing to foster that position?
Managing foreign exchange risk is an important part of export success. Exporters who just hope that the currency will go their way have been found out in recent times and their businesses and the export economy has been worse off because of the lack of currency hedging.
One small and important way the Government could contribute to export success - hence stronger GDP growth - is providing a 'hand-up' by specific credit support to small exporters so that they can hedge the NZ dollar currency risk longer term.
Most banks restrict small exporters to a maximum term of 12 months for forward contracts.
A few years back our advisory firm tried very hard to implement a FX hedging credit support scheme through the NZ Export Credit Office that would have provided longer term currency hedging facilities to small exporters over and above the short-term credit horizon of their banks. Such credit support schemes for FX hedging have been introduced by the Governments in Canada and Australia.
Unfortunately, the proposed scheme here became bogged in the bureaucratic mire they call Wellington with Government mandarins finding plenty of ways not to do it, rather than to do it.
It is these types of initiatives that need to be implemented to allow exporters to have the financial strength and security to expand and create jobs.
Unfortunately the request for the low-risk credit support from the Government came at the wrong time with Crown guarantees to retail depositors being called up on the finance company collapses.
It is always sad to see exporting companies laying-off workers (as Canterbury Leather International did last week) citing the high NZD/USD exchange rate as the reason they lost competitiveness and business.
Exporters without hedging policies and programmes are risking shareholder’s money and their workers livelihoods; you would think politicians and Government officials would understand this.
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* Roger J Kerr runs Asia Pacific Risk Management. He specialises in fixed interest securities and is a commentator on economics and markets. More commentary and useful information on fixed interest investing can be found at rogeradvice.com
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