Does S. Pacific Dollar Make Sense?

A NEW ``South Pacific dollar?'' Neither the New Zealand nor Australian government is big on the idea yet. But business leaders, particularly among the Kiwis, are starting to agitate for a common currency.

``I think it's going to happen much quicker than anybody believes. It will be seriously talked about within the next two to three years. I'd be amazed if it wasn't a fact within five years,'' predicts Len Bayliss, a Bank of New Zealand director and private economist with Integrated Financial Services, a Wellington-based consulting firm.

Both countries are rapidly becoming a single market, and this is proving a catalyst for a common currency.

Trade barriers began to break down with the Closer Economic Relations (CER) agreement in 1983. Last year, CER was broadened to include services. And, by next July nearly all import barriers and export subsidies affecting trade between Australia and New Zealand will be gone.

``The degree of economic and financial integration between the two countries is happening at a rate (that) even a few years ago seemed impossible,'' Mr. Bayliss says.

Direct Australian investment in New Zealand has tripled between 1984 and 1987. During the same period, New Zealand investment in Australia has soared from 2 percent to 25 percent of total overseas investment in Australia's manufacturing sector.

Scarcely a day goes by without a report of an Australian takeover of a New Zealand business or a New Zealand firm funding a new factory in Australia.

``It's already a single labor market,'' claims Bayliss. And increasingly, companies see Australia and New Zealand as the ``domestic'' market and the rest of the world as ``foreign'' markets.''

As more and more companies straddle the Tasman Sea, daily fluctuations in exchange rates between the two currencies play havoc with profit projections and affect investment plans. As a result, there are increasing calls for a common currency.

``The New Zealand dollar fluctuates so wildly it not only affects your profit, [but] you can end up with no profit. It's not just the odd percent. Since the floating in 1985, our dollar has gone up 45 percent against the Australian dollar,'' says Wally Gardner, director of the New Zealand Manufacturers' Federation, a nationwide employers organization.

Mr. Gardner says the New Zealand government should be concerned about the loss of jobs and manufacturing to Australia. New Zealand corporations looking to build new factories often consider locating them in Australia, where they will be close to a large market. The fluctuating New Zealand dollar can tip the balance in favor of an overseas plant.

While Gardner says a common or linked currency is ``absolutely essential,'' his counterpart in Australia is less keen on the idea.

Daryl George calls a currency union ``a very long-term concept.'' The chief executive of the Confederation of Australian Industry says, ``There are a lot of other things to get right first: harmonization of business laws, trade practices, product standards, consumer protection, unified health codes.''

And both sides say there are many obstacles to a currency union.

``To do it, you need to go a long way down the track of harmonization of tax and monetary policies. And, you need to go a long way down the track toward political union,'' says Sir Frank Holmes, professor emeritus at Wellington's Victoria University and government adviser on CER.

The subject of losing political sovereignty to Australia is a touchy one. Former New Zealand Prime Minister David Lange wouldn't hear of it. Public surveys show little support.

``It sounds very unpatriotic to raise the idea,'' admits Bayliss, who says politicians have a vested interest in the status quo. ``If New Zealand joins Australia, the bureaucrats and politicians cease to be national politicians and become merely state figures.''

There's an economic obstacle, too. Although Australia is New Zealand's largest export market (16.7 percent of total exports, tied with Japan) it's not sufficiently dominant to hitch the New Zealand dollar to the Aussie dollar, Sir Frank notes.

And Australia's economy depends more on mineral prices than does that of New Zealand. If the currencies were tied and mining boomed, the value of New Zealand's dollar would be distorted as it followed the Australian dollar.

Gardner responds, ``If the European Community with all their various cultures, economic strengths, and weaknesses can achieve an alignment in currencies by 1992, then we ought to be able to figure something out.''