The Politics of Debt - Bill Rosenberg New Zealand’s foreign debt is a political as much as an economic issue, and one which is steadfastly ignored by most political parties. New Zealand’s level of foreign debt and other liabilities remain at Third World levels. Even the US, with much lower levels of debt compared to the size of its economy, shows greater concern. At March 2004 Statistics New Zealand shows that New Zealand’s overseas borrowing and lending was:
Gross overseas debt is therefore almost $142 billion, all but $18 billion of which is owed by the private sector. It would take over a year of New Zealand’s entire output (Gross Domestic Product - GDP) to pay for it, or three and a half years of all our exports of goods and services. Over half (51%) of this debt is due within one year, making the country vulnerable to threats of capital flight and refusal to refinance debt as it expires. $81 billion of the debt is owed by banks – largely to finance residential mortgages. Almost $54 billion is owed to New Zealand residents, $11 billion of which belongs to the Government and Reserve Bank. That leaves a net foreign debt of $88 billion, but the net figure does not reflect the extent of our exposure to debt. Debt is not the whole picture either: New Zealand’s international liabilities also include $60 billion in equity – foreign investment in New Zealand companies. New Zealand residents own $35 billion in equity overseas, but historically this has performed very poorly, frequently making losses – indicating either poor investment decisions or tax avoidance. The foreign debt principal must ultimately be repaid, and so must the interest payments and dividends by selling New Zealand goods and services abroad. The interest and dividends alone cost us $8.9 billion in the year to March 2004 (offset by only $2.4 billion in income from investments abroad). That means almost all the proceeds of our dairy and meat exports go to service our international liabilities – without considering the problem of repaying the debt principal. Sir Roger’s Little Fib One of the deliberately cultivated lies of the radical economic changes of the 1980s and 90s was that selling public assets to local and international Big Business was necessary to pay off "our" foreign debt. Sir Roger Douglas said, in relation to the forest sales: "I am not sure we were right to use the argument that we should privatise to quit debt. We knew it was a poor argument but we probably felt it was the easiest to use politically" ("Out Of The Woods", Reg Birchfield and Ian Grant, 1993). But in fact foreign debt relentlessly increased, assisted by the flood of imports, which followed the opening of the economy. The total foreign debt was $16 billion when Douglas came to power in 1984.The resources lost in servicing foreign investment in New Zealand – whether debt or equity – end up reducing the incomes available to you and me. Unless that foreign investment increases productivity in the country, it is just a very expensive deadweight. According to United Nations data, New Zealand has the fourth highest level of foreign direct investment of any developed country. Direct investment – where the investors take control of the company – is where the greatest gains in productivity should theoretically be. So why aren’t we rich? You can see the answers for yourself in the mess confronting us after the asset stripping, empire building and neglect by foreign owners of our rail, electricity, airlines and Telecom, to name but a few. All the more reason to retain and tighten controls on foreign investment. So why is the Government currently working on removing them? Non-Members:
|
||||||||||||||||||||||||||||||
 Return
to Watchdog 106 Index |
||||||||||||||||||||||||||||||
 |