Change afoot at the Reserve Bank: New Governor appointed


Today it was announced that Adrian Orr, who has overseen the New Zealand Super fund will take over the role of Reserve Bank of New Zealand Governor. Mr Orr who has spent a decade overseeing the fund, which witnessed substantial growth during his tenure will take over at the end of March 2018.

When Dr Don Brash was Governor of the Reserve Bank, he became something of a household name. Dr Brash was willing to be interviewed by the media. He seemed to have the respect of Reserve Bank observers. His tenure lasted from 1988 to 2002, when he stood for National in the 2002 election.

Dr Alan Bollard replaced Dr Brash in 2002. He earned a reputation of encouraging staff at the R.B.N.Z. to develop their own ideas about how goals should be met, took out a layer of management and regularly talked to staff one on one. His tenure was eventful too, for he oversaw a major postwar boom in the New Zealand economy, where at one point the Government had a N.Z.$10 billion surplus and had started paying back some of the debt accrued during previous Governments. He also presided over the R.B.N.Z. during the days of the Global Financial Crisis where more than 30 financial institutions collapsed in New Zealand. Dr Bollard left in 2012 to take over the Secretariat of Asia Pacific Economic Conference.

And then there was Dr Graeme Wheeler. Mr Wheeler replaced Dr Bollard in 2012. Mr Wheeler was not known as a media friendly Governor. During his tenure the Mediaworks company which owns TV3 and operates the Newshub programme was banned from Reserve Bank briefings after one of its reporters leaked an embargoed report on the interest rate. Mr Wheeler was also known for not readily granting interviews, thus making it difficult to report on issues facing the R.B.N.Z.¬†Following Mr Wheeler’s announcement in February 2017 that he would stand down at the end of his five year term which would end in September 2017, the then Treasurer Steven Joyce indicated that due to an impending election three days before his term ends, the Government would appoint a caretaker Governor to oversee the R.B.N.Z. until the new Government can appoint someone for the next term.

With the change of Government, new Treasurer Grant Robertson has signalled substantial changes are coming for the Reserve Bank. The major changes are that its targets are likely to be broadened and that external officials will be able to contribute to decisions around changing interest rates.

So, it will be interesting to see how Mr Orr handles the Governorship. Notable economists speak highly of him. He faces numerous challenges such as balancing the need for higher wages against inflation, the effect of international tensions on the New Zealand economy and the rise of crypto currency.- will it become big enough as a player to influence policy or will crypto currency go the way of the .com bubble?

Earthquake Commission needs bailing out


The coffers of the New Zealand Earthquake Commission are bare. After shelling out billions for the Canterbury earthquake 2010, the Christchurch earthquake (technically an aftershock of the former)in 2011 and the Waiau earthquake of 2016, the bank accounts of the Earthquake Commission are in need of Government bail out.

No one should be surprised at this. Prior to the earthquakes of this decade the Earthquake Commission at one point managed nearly N.Z.$6 billion in assets. The combined costs of the three events is around N.Z.$46 billion (around $4 billion for the Canterbury earthquake; $40 billion for Christchurch earthquake and $2 billion for the Kaikoura earthquake and aftershocks).

However, it is not an acceptable state of affairs in a country as prone to earthquakes as New Zealand is that our main earthquake insurance provider should be without any funds. It also raises questions about how we fund the Earthquake Commission and how we expect it to dispense insurance in the future.

It needs to be remembered that E.Q.C. insurance is capped at N.Z.$100,000 and whatever is in excess of that is the responsibility of the claimants regular insurance company (State, New Zealand Insurance, A.A., and so forth). It is not geared to supporting businesses and only supports domestic assets.

In order to reduce the E.Q.C.’s own exposure it takes out insurance with large reinsurance companies. An example given is the $2.5 billion taken out with 30 reinsurance companies.

Still, the large earthquakes of the last several years have raised a concerning question. How will E.Q.C. cope if further earthquakes occur in the Christchurch or Kaikoura tectonic settings? Such concerns are real because the Hope Fault with a repose period of 120-150 years has not ruptured for 129 years, and typically ruptures in magnitude 7.0-7.3 earthquakes – it branches off the Alpine Fault and goes out to sea just north of Kaikoura. The Greendale Fault, which started the Christchurch earthquake sequence, only partially ruptured on 04 September 2010. Whilst there is no suggestion it is going to rupture in the immediate future, at some point the segment that has not, has to reconcile with the rest of the fault – that will probably be another magnitude 7.0 earthquake.

A Crown Guarantee ensures that should an earthquake breach the $1.5 billion excess cap, the Natural Disaster Fund pays out until its limit is met and then the Crown pays the remainder. All very well, but when the Crown has already forked out for multiple large events that have nearly completely drained E.Q.C., one should consider whether the Crown needs some sort of back up. I do not know how this might happen or if a backer is even possible, but still it is worthwhile considering this possibility.

The New Zealand social emergency created by National


As we move further into the first term of the new Government, it is starting to become clear that there is a significant crisis in New Zealand society. The issues fuelling this crisis are numerous and varied, and none started on the watch of the recently ousted National-led Government. But in nine years in office these symptoms advanced far enough that combined they now pose an immediate and direct threat to New Zealand society.

National has in effect created a social emergency. The failure to address despite repeated warnings that there were problem emerging with housing, health, social welfare and justice have combined to create conditions where the so called market has left behind sections of New Zealand society whose deprivation is feeding social decay.

The conditions created consist of a combination of contributing factors. They include but are not limited to:

  • Drug addled neighbourhoods with police struggling to contain the epidemic of methamphetamine, synthetic cannabis and other harmful substances
  • Absentee parents/caregivers and a break down of parental/caregiver responsibility
  • Rampant truancy and young people leaving school with no qualifications, and no jobs or training to go to
  • School children living in inadequate housing, constantly having to move and living in conditions that are not compliant with basic human rights or housing law
  • Housing rents eating up money for food, clothes, medical expense – children go to school hungry and/or distracted

The problems start in the home or at school, but often end in a police cell. The following is a brief synopsis of how a person might go downhill. I am not suggesting that all people in such circumstances will experience this – indeed there are many fantastic parents who care very much, who go without themselves and try to be a positive influence in their child’s life, but in socio-economically deprived neighbourhoods, this is a real issue.

In the first instance at home or school, they have no food and often start the day on an empty stomach, are irritable or distracted. A failure to be settled in one spot for any length of time will mean the child has trouble settling in at school, distracted by problems at home. Over time this may fuel other problems, because the student will start getting into trouble, picking fights, associating with the wrong crowd. At home the parent/caregiver might be working long hours to make sure there is enough money to pay rent and will not be at home at critical times such as when they have homework or need underage supervision, so the children start misbehaving. At school the teachers realize that the person or people in question have a discipline problem. Homework is not being done, and the student is disruptive, argumentative. It begins to escalate with children missing school and truancy officers picking them up. At this point, the child is at an intersection in their life. At this stage the choice is stark. The child unless there is substantial intervention by the parent, the school and potentially social social workers will either leave or wind up being expelled from school with poor prospects for the future.

It never needed to be like this. And the long term cost to society, the economy and the people who know the child are substantial. If s/he devolves into drugs, then a life of crime and prison awaits. If s/he tries to turn themselves around their past – especially if a criminal history is involved – may catch up with them and hinder their future development.

This is why there is a significant and dangerous poverty issue in New Zealand. It has the potential to fuel illegal substances, crime, violence and gangs, none of which are welcome or wanted. All of which are horrendously destructive and all of which we need to shut down.

New Zealand must condemn Jerusalem decision


On Wednesday, New Zealand time the President of the United States, Donald Trump made the shocking announcement that America would recognize Jerusalem as the capital of Israel.

New Zealand must condemn Mr Trump’s decision to recognize Jerusalem as the capital of Israel. We must not follow America and move our diplomatic mission there. The media and the politicians have ignored the history of the Palestinian struggle and it will come back to haunt them.

Not surprisingly Israeli Prime Minister Benjamin Netanyahu is over the moon. And in recognition of it, against the walls of the old city, the American and Israeli flags were projected side by side.

In effect Mr Trump has ripped the Middle East process into shreds of paper and then thrown them in the face of the Arab world, the Palestinians. The Israeli Prime Minister and his hawkish Government, plus the hard line Republicans in the United States are the only ones applauding.

The effect is more than to just anger the Palestinians and the Arab world. Along with his inflammatory efforts dealing with North Korea and Iran, Mr Trump has now added a third place that he is offside with around the world. What are the conflict around the world at greatest risk of turning into international conflicts with potentially world wide consequences? There are a few:

  1. North Korea – on tenterhooks, with one false move possibly starting an international conflict that has regional, possibly global consequences
  2. Iran – not on tenterhooks yet, but creeping that way with America, Saudi Arabia and Israel ratcheting up the inflammatory rhetoric despite its compliance with the U.N. nuclear deal
  3. Eastern Europe – high risk, with N.A.T.O. forces building up and Russia actively seeking to counter their influence, and a boil over could rapidly escalate into an international conflict
  4. South China Sea – not on tenterhooks, but potentially the one with the biggest risks as a direct military confrontation between super powers is not likely to end well for anyone
  5. Palestine – comparatively stable for now, and would not have made this unique list but for Trump’s decision to recognize Jerusalem as the capital of Israel

In 1917, whilst World War 1 was going full bore in Europe, Britain and France embarked on a bit of empire building in the Middle East. In 1916 two new nations were carved out, with borders paying scant attention to the ethnic or religious communities there. Their protestations were put down brutally and the new nations were called Iraq and Syria. In 1920 Winston Churchill – the same Winston Churchill who would be lauded as a hero 20 years later for staring down Nazi-era Germany – authorized the bombing and gassing of Iraqi rebels. Britain and France wonder these days why they are not so popular in the Middle East.

Palestine and the Arab lands did not do much better under the Balfour Declaration and people wonder why there is so much animosity in the Middle East. Let us have a look at how the Palestinian animosity towards Israel and the West came to be.

The Balfour Declaration came about for several reasons:

  • World War 1 was not going well for the British and it was hoped that by announcing a formal Jewish state in recently occupied lands, Britain could increase the support among the Jewish communities in major allies and neutral countries
  • Britain wanted to create a land bridge between crucial Middle territories such as Egypt with its “crown jewel” India – a British backed Jewish state would be part of that land bridge
  • Despite agreeing with France on how to carve up the Middle East, Britain viewed its dominance in the region as essential

In the Treaty of Versailles, signed on 28 June 1919, Britain was entrusted with the temporary administration of Palestine on the understanding it would work with the Arabs and the Jews. The Jewish population increased rapidly in Palestine. Unlike the Jews, the Arabs were not granted any sort of nationhood despite helping Britain with the war against Turkey. Animosity over this continues to the present day.

So, it is against this background that Mr Trump has made a highly inflammatory and totally irresponsible decision to support Israel having its capital in Jerusalem. Combined with his refusal to rebuke Mr Netanyahu for Israel’s ongoing annexation by stealth of Palestine, this effectively amounts to a non-military declaration of war against Palestine and it should be roundly condemned.

And it is.

 

Peter Dunne advocates a Republic of New Zealand


DISCLAIMER: I am a supporter of a New Zealand Republic if a binding referendum finds New Zealanders to be in favour.

When Peter Dunne made his valedictory speech today, several weeks after quitting Parliament, he advocated that New Zealand become a republic. Mr Dunne, who has been an advocate for constitutional reform for the duration of his time in Parliament, has triggered a divided reaction on social media.

The Stuff media item has a poll, that I read at the time of writing this article, showed a narrow lead in favour of a Republic. Commentary was as divided as it was often ill informed, with many people not being clear on how a republic works or even why they opposed one.

So, below I ask and answer some key questions about New Zealand and the Republic debate. The answers to all these questions and more can be found and explored in greater detail in:

Holden L.J., “The New Zealand Republic Handbook”, 2009

What is a Republic

A Republic is a style of governance where supreme power is reliant on the consent of the citizens it governs. There is no hereditary leader like in a Monarchy where succession is passed on down through a royal family. In a Republic the President is either directly elected (such as in the United States), or by an elected assembly.

What types of Republic are there?

There are several types of Republic, notably the Parliamentary Republic, Presidential Republic, Islamic Republic and Peoples Republic.

Perhaps the most famous is the Presidential Republic, which is the style of the United States, where the President is not only head of state, but also the chief decision maker. New Zealand, whilst not being one, is closest to the Parliamentary Republic in that there is already a Parliamentary structure in place, headed by the Prime Minister. The role of a President would be most likely to appoint/dismiss Governments, receive heads of state and – heaven forbid – declare war.

The other two Republic types that are well known are the Islamic Republic and the Peoples Republic. Iran is an Islamic Republic with a Supreme Ayatollah who is the head of state and has influence on the President of Iran. The final one is the Peoples Republic, which variously includes – but is effectively the same in function – the Democratic Peoples Republic of Korea (North Korea), Democratic Republic of the Congo and the People’s Republic of China (China – not to be confused with Republic of China (Taiwan))

Will New Zealand have to leave the Commonwealth?

No. Numerous nations in the Commonwealth are Republics – Fiji, India, South Africa, to name just a few. As long as a member does the following it is a member of the Commonwealth:

  • Recognize the Queen as head of the Commonwealth
  • Respect the wishes of the people
  • Respect human rights, liberty, rule of law and free and fair democratic elections
  • Be a sovereign state

Why ditch the Monarchy if Republics are unstable?

Political instability generally has more to do with historical, social and economic circumstances rather than constitutional ones. Sierra Leone and Pakistan are Republics that started lives as unstable monarchies where coups were instigated before they became Republics.

Will the constitutional status of the Treaty of Waitangi be affected?

No. Responsibility will remain where it has been all the time: with Parliament and the Head of State, the only difference being a New Zealander would be head of state.