Cunliffe David: International Finance Agreements Amendment Bill — Second Reading 
Text is incorporated into the Bound Volume 
Cunliffe David: International Finance Agreements Amendment Bill — Second Reading 
[Sitting date: 25 September 2012. Volume:684;Page:5620. Text is incorporated into the Bound Volume.] 
Hon DAVID CUNLIFFE (Labour—New Lynn) 
: 
 I rise to take a call on the International Finance Agreements Amendment Bill to reiterate the comments made by my colleague David Parker that Labour supports this bill. It supports the ratification of the changes to the Articles of Agreement of the International Monetary Fund. It does not however support the change that would allow future updates to the articles to be made by regulation. The reasons for that are quite simple: that our commitments to the IMF and its special drawing rights are very substantial in terms of their fiscal implications; and that this is a core part of the international financial institutional structure and it requires the consideration of this House should significant changes be made to its Articles of Agreement. 
Having noted those formalities I wish to concentrate the bulk of my remarks on the contribution to economic debate currently being sponsored by the IMF because the IMF has become a voice of reason at a time of great turmoil in international economic debate. Members will know that the former director-general Dominique Strauss-Kahn had quite a reputation. He had quite a reputation— 
Chris Hipkins 
: Not necessarily in a good way. 
Hon DAVID CUNLIFFE 
: —for a number of things but one of the best things—perhaps the best thing that he had a reputation for—was for thinking a little differently about some of the dogmas of economics that had been the hallmark of the IMF for decades until his tenure. That may have ruffled a few feathers—who knows it may even have contributed to his downfall—but let us not ignore the huge change in what the world’s probably leading classic financial institution has been telling us. For years since the mid-1970s and the oil shocks and the rise of neo-liberalism the International Monetary Fund was a champion of monetarism of light-handed regulation of fiscal rectitude of balanced budgets and of a very very conservative style of economic management. It represented par excellence the economic orthodoxies of the 1970s 1980s and 1990s. It was the gold standard for conservative economics. It was famous for imposing its view of the world on struggling Third World countries forcing for example massive fiscal consolidations massive cuts to State sectors massive lay-offs massive economic contractions in order to achieve fiscal targets. 
Hon David Parker 
: Russian oligarchs. 
Hon DAVID CUNLIFFE 
: Russian oligarchs spring to mind and Central American banana republics crashing and burning to name a few. 
Times have changed. The old orthodoxies the Washington Consensus have been swept away by a little something that the National Government does not seem to have noticed—unless it wants an excuse—and it is called the global financial crisis. One of the things that it swept away was the so-called Washington Consensus on monetary policy. The idea was that the only thing that mattered and it may have made sense immediately post the oil shocks of the 1970s was price stability and the control of inflation—that somehow price stability according to the then IMF equalled financial stability and that financial stability equalled economic stability and economic stability equalled social stability. If you controlled inflation all the rest would take care of itself said Milton Friedman and the Chicago school acolytes. And then in 2008 the immense asset bubble built up by shonky real estate loans magnified a 100-fold or a 1000-fold by derivatives like collateralised debt obligations and other things that were supposed to spread risk but actually magnified it and all of the orthodoxies about lowering interest rates that Mr Bernanke and Mr Greenspan had been following in the US were swept away. 
The IMF to its credit had the courage to say “We were wrong; we were wrong.” There is an old saying that only a fool when confronted by new information refuses to change their mind. To the IMF’s credit it did and Mr Strauss-Kahn deserves some credit as does his successor Christine Lagarde for having the courage to say times have changed. What does it mean for us? Well is it not interesting that New Zealand and the shared history between both sides of the House was the poster child for the IMF prescription of the 1980s—Rogernomics and then the shiraz full-bodied version Ruth Richardson were the most extreme and pure form of neo-classical economics and neo-liberal politics almost anywhere in the world. It was IMF textbook. And where are we now? 
Hon David Parker 
: And then Don Brash took over— 
Hon DAVID CUNLIFFE 
: And then Don Brash who was the ultra-orthodox Governor of the Reserve Bank took over the National Party and it has never recovered. 
Hon David Parker 
: Then ACT. 
Hon DAVID CUNLIFFE 
: And then ACT. So while the doyens of this world view have moved further to the right across the New Zealand political spectrum—I think Don Brash flirted with Labour youth when he was a pimply teenager or something— 
Hon David Parker 
: Oh don’t tell me that. 
Hon DAVID CUNLIFFE 
: No no; I’m sorry. But some people dry out so far that it becomes almost laughable. But the point is this and it is a very serious point: what was once absolutely mainstream has now been stranded like a fish on a receding riverbank flapping around gasping for air. That is what is left of the monetarist consensus. And almost the only people who still believe in it are the New Zealand National Party and the ACT Party. The IMF does not believe it. Olivier Blanchard their chief economist whom my colleague Mr Parker has just been to visit does not believe it and he has just co-authored a book about why it no longer applies. It builds on a whole lot of other literature including Kahneman and Tversky and Rogoff and Reinhart with  
This Time is Different 
 which is a history of 300 years of financial crises. This time is different they said and every time a bubble bursts a society takes a decade to work its way out of the heap of bad debt. In those circumstances institutions like the IMF become very important. 
What has the IMF said of New Zealand? What advice have we received from the IMF? 
Hon David Parker 
: CGT. 
Hon DAVID CUNLIFFE 
: Well let us just note. My colleague Mr Parker is getting rightly excited by this because we part-time economists think this is pretty juicy stuff. Let us first note what it has said is wrong. Is it our huge public debt? No. Does it think we have a public debt problem? No. Why? Because our public debt is less than a quarter of the OECD average. We do not by relative terms have a significant public debt problem. That does not mean we do not want value for money; we do. But the issue is not that. The issue according to the IMF is that we have two key problems: a lack of private savings and too much private debt and an under-diversified commodity-driven low-value export profile that is getting the country further and further behind the guard. And what is the National Government doing about those two key problems? Nothing. Would it support a strong savings policy that would build our savings up? Would it support a capital gains tax that would help us to save in real assets? No. Would it support monetary reform that would help our exporters close the current account deficit? No. Would it take any of the advice of the International Monetary Fund about how to fix the New Zealand economy? 
Hon Members 
: No. 
Hon DAVID CUNLIFFE 
: Why then is it paying the bill? If it is not listening to the doctor why is it paying the tab? Why are we here saying that we agree to pay the tab when the New Zealand Government is not listening to the answer? The answer is clear: New Zealand needs a change of direction. The old orthodoxies are not working. But do not take the Labour Opposition’s word for it. Talk to the Spring Creek miners talk to the guys laid off at Nuplex Industries this week and talk to the guys and girls laid off at Tiwai Point or Norske Skog. Talk to the people all around the country whose livelihoods are drying up and whose children are at the departure gates. Then ask yourself: is it not time we listened to the IMF?