The Government has been accused of having its "head in the sand" when it comes to problems faced by New Zealand's manufacturing sector.
John Walley, chief executive of the Manufacturers and Exporters Association says "there is no doubt there is a crisis", and it's all the fault of the high New Zealand dollar.
"Two things will happen, absolutely, if the currency continues to increase," he told Firstline this morning.
"For the people whose balance sheets are now so thin they can no longer survive, they will close. For the people with resources remaining on their balance sheets, they will change their business models and move offshore. Both of those stories are bad for New Zealand employment."
Opposition parties yesterday began hearings in an inquiry into the manufacturing sector, which they say has shed 40,000 jobs since National came to power in 2008. The Government has declined to take part, with Prime Minister John Key denying there is a crisis.
Unions and company executives told the inquiry yesterday the high dollar was forcing businesses to close or go offshore, with one even saying it would probably take "a change of government" to solve the problem.
Mr Walley says the Reserve Bank needs to widen its scope, instead of just focusing on keeping inflation down.
"I think what we've seen is the overvalued New Zealand currency now for two or three years, that's attacking exporters' balance sheets, and frankly very few, if any, jurisdictions on the planet are purely inflation-targeted anymore."
But ASB economist Nick Tuffley says changing the Reserve Bank's focus won't make much difference.
"I think the Reserve Bank does have quite a flexible target with what it's doing, and tweaking the target's not going to make the difference between an 80c exchange rate and a 50c exchange rate in this sort of global environment," he told Firstline this morning.
"We need to fix the UK, fix Europe, fix the US, then we might have a lower currency."
Mr Tuffley says past attempts to control the exchange rate failed.
"The best things that it can really do is keep inflation relatively low and stable, and we've gone through past periods – the '70s and '80s – where we tried to do things with monetary policy – let's have a little bit more inflation, let's boost the money supply and get faster growth – and it didn't work. All it did was mean that we have high inflation, which doesn't really help anybody, and in fact it tends to hurt the poor and the elderly, the most vulnerable, more than anybody else."
Mr Walley says if nothing is done, New Zealand's economy will suffer.
"It's absolutely true that on the one hand, imports and consumption is favoured by a high currency, but equally we have to pay for the goods we import, so if the part of the economy that actually earns our way in the world fails, then the cheap flat screen TV may be attractive, but if you don't have a job, maybe you don't even consider it."
He says labour costs are "almost insignificant" to manufacturers.
"The reality is it's the currency."
Not only has the Government denied there is a crisis, it claims the number of manufacturing jobs has increased in the last four years.
Mr Walley disagrees, and is urging the Government to get involved in the inquiry.
"I understand that the Government has been invited all along this process, and is simply taking the 'head in the sand' approach. 'What crisis? There is no crisis.' Well, if they get out and talk to the people I talk to every day, there is no doubt there is a crisis."
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