The soaring New Zealand dollar has those in the export and manufacturing industries in discussion about whether drastic changes are necessary to stay afloat.

Brian Willoughby laughs when you ask him how exporters are doing. For many, it is that dire.

As president of the New Zealand Manufacturers and Exporters Association and the Christchurch-based managing director of two export companies, Willoughby is well placed to see the implications of a high and volatile New Zealand dollar (US81.78c yesterday).

His members manufacture $2.6 billion worth of products annually, of which about half is exported. How each is faring depends on their circumstances, he says, but a significant core are battling to survive.

He says it's "as plain as the nose on your face" that something needs to be done.


In his Morningside factory - a five-minute drive away from yesterday's union-organised summit on the issue - Murray Fenton, managing director of Auckland plastics designer and manufacturer Adept, is not so sure.

"The high dollar reduces our margins quite drastically on all of our exports, but we can live with it by continuing to be more and more economical and to watch our costs."

Fenton welcomes the debate but is unconvinced radical measures are necessary.

He thinks the priority the Reserve Bank Act puts on low inflation has been effective in avoiding the chaos of rampant inflation and volatility of the 1970s and 1980s.

The debate over how to manage the New Zealand dollar - which can have a major effect on exports, jobs, interest rates and inflation - stepped up a few notches this week, as recent currency-lowering moves by our trading partners sparked claims that we should do the same.

The European Central Bank has announced a major bond-buying programme, and the US Federal Reserve is beginning a third round of open-ended quantitative easing (see Q&A) - increasing the money in circulation by buying millions of dollars worth of Government bonds and mortgage-backed securities in its bid to stimulate the US economy.

It is a ploy that contrasts with the more orthodox approach to easing monetary policy - the lowering of official interest rates - which most other central banks use including New Zealand's.

Most economists regard this as a desperate measure as it could damage international trust in New Zealand's central bank and that could lead to the country being charged more by overseas lenders.


But the export sector says these are desperate times. Company failures and higher unemployment are among consequences (though a lower dollar also has a range of implications).

Yesterday's jobs summit, attended by unions, economists and business and political leaders excluding the Government, focused on possible solutions to the high dollar, which has been blamed for the declining manufacturing sector. The summit, which aims to convince the Government that there is a developing crisis in the manufacturing sector, was called by the Engineering Printing and Manufacturing Union in response to job losses at Solid Energy's Spring Creek and Huntly East mines, Tiwai Pt aluminium smelter, Fisher and Paykel Appliances and Norske Skog paper mill.

The Greens point out that the International Monetary Fund has estimated the kiwi is 15 per cent above the level it needs to be to stop New Zealand's overseas debt growing.

They have called for the Reserve Bank to take pressure off the dollar by creating currency (quantitative easing).

Prime Minister John Key described that as "pretty wacky" and said "if printing money made you rich, Zimbabwe would be the richest country on the planet".

Economics commentator Bernard Hickey called the unconventional measures "heresy" but said in these unusual times it was worth thinking about how our central bank would operate if it had to muddy its waters with fiscal policy. The global financial crisis had shattered the myth that orthodox economic policy made the economy more stable, Hickey said. "It's time to think the unthinkable."

For Willoughby a thorough debate can't come too soon.

"I'm concerned that this vitally important discussion is degenerating to the point that it is the guy with the biggest foghorn that is going to get heard the most." The Government, he said, had the biggest foghorn.

"What is starting to irritate me is, here I am just down the road in Christchurch, representing manufacturers producing $2.6 billion [worth of product]. So why doesn't someone from the Prime Minister's department pop along and see me? I am far easier to get in touch with than the guys in Hollywood, and I don't need any special concessions. The ones I need are the same ones with the dollar that the film industry needs."

He welcomed a strong film industry, even though a high proportion of the jobs in it were contract. "But the issue is to develop a more balanced economy."

"There are a whole lot of people [in manufacturing] who are hanging on by the skin of their teeth and there are a whole lot of redundancies going on that the public never hears about."

Those who imported a lot of raw materials (cheaper with a high dollar) and sold the added value product into Australia, benefiting from a favourable cross-rate, were doing fine, as were manufacturers who imported raw materials and sold locally. But those who added most of the value to their product in New Zealand suffered most with the high dollar. "These are the people who [New Zealand] wants to prosper and they are the ones getting hurt the most."

Few of these manufacturers sold much to Australia, he said. Plinius, one of Willoughby's companies, a manufacturer of high-end audio equipment, sold less than 10 per cent of its exported product across the Tasman, for example.

"The other thing that is poorly understood is that manufacturing jobs support three jobs outside - the courier guy, the guy that cleans the towels, the cafes near the factory. We have the contractors and suppliers - the guy that supplies the nuts and bolts and screws, the guy that does the laser cutting, the guy that does the painting, the guy that does the polishing, the guy that provides the plating service."

If not quantitative easing, something else had to be done, he said. "It's wrong to sit on our hands and say there is nothing that we can do.

"We need a proper debate because it is extremely important to the New Zealand economy as a whole, not just to my members. In the long run, exporters ensure that we have a reasonable standard of living. If we can't sell off-shore with good added value margins, we'll go broke."

The association's core message was the same to the last Labour Government. "You have to change the environment that manufacturers work under because if you don't you will continue to see it decline."

At the moment the dollar was "dreadfully important" but a review of the wider policy settings was needed. The economy had been going backwards for more than 40 years. Changes had to be made if the current account deficit is to be reduced.

Willoughby's two companies together employ 20 people, down from 35 people 18 months ago. "And you didn't hear about that in the press. You only hear of the big ones, or when they all come in a rush."

A few months ago Murray Fenton explored hedging as a way of easing the impact of the high dollar. He didn't do it, largely because of conflicting advice and has instead concentrated on cutting costs and looking for product design advantages.

His company Adept is a major supplier of plastic clips to the meat industry which it has been selling at a loss in Europe and at tiny margins in the United States to try to sustain dominant market share.

Investment in machinery and robotics (bought from overseas, aided by the high kiwi) meant he could reduce staff and the company has flexibility many don't because it sells a range of products, including higher-margin medical items.

"Our intention is to develop more and more of our own products in niche markets where the margins can be much better."

New products include an Ikigun for efficiently killing fish (it fires a captive bolt through the fish's brain), and a carbon fibre device for holding a patient's arm in place during heart treatment via the radial artery.

He's glad to see that political leaders are considering the issue but warns there are disadvantages to a looser monetary policy.

"My own feeling is that New Zealand is actually not doing so badly in the world as it is today."