Big bangs, bailouts, and bulldust

Governments around the world are getting it in the neck for doing too much or too little to pull their economies out of the global recession. So why should John Key go scot-free when he talks about bailing out F&P Appliances – and what is he doing to stimulate the rest of us?

There is nothing unusual about a Prime Minister calling the chief executive of a major company that runs into a sudden, life-threatening problem, but John Key’s now well publicized call to John Bongard at Fisher & Paykel Appliances has sparked a reaction that says much about the recession-hysteria that is gripping our news media.

Key is under pressure to explain. What are his government’s criteria for bailing out a troubled business? What does he mean when he suggests there could be a danger that F&P might fall into the wrong hands? What is the emergency plan to help important companies facing collapse? Why has the government started picking business winners? What is he going to do to protect the workers?

All fair questions, if F&P was asking for a bailout, and the government was giving serious consideration to the proposition.

Bongard gave no hint of it in his fulsome account of the call on National Radio. It seems the New Zealand-based appliance-maker’s dream of a more export friendly exchange rate has come true at exactly the wrong time, just as F&P is due to repay some foreign debt incurred in his effort to “off-shore” company operations. It can be tough when you suddenly get what you want.

The Prime Minister confirms Bongard’s line. F&P Appliances remains profitable, has other options to explore, and has not sought government help. He adds his government would be “derelict in its duties” if it did not have a contingency plan for helping major New Zealand companies facing collapse under the crushing pressure of a near-global recession.

It appears that contingency plan is not too well developed yet. Certainly, Finance Minister Bill English, regards it as “a last resort”. He is putting his focus on “protecting people from the sharp edge of the recession.”, but he is not about to become a soft touch for every troubled business in the land. “There is going to be a recession and that will take some businesses” is his line.

The Prime Minister’s call to Bongard was probably prompted by the possibility that “the last resort” plan might be needed sooner rather than later. We are assured by both parties that it is not.

News of the call put seven cents on F&P’s depressed share price – confounding critics who suggested that talk of a bailout could make the company less attractive to potential international investors. It remains to be seen if F&P can follow Fonterra’s lead and raise money in the market. The big dairy has just raised $800 million in an oversubscribed bond issue on the heels of its foreign venture problems. Meantime, Key and Bongard have pledged to keep in touch.

Over on the stimulus front, some of my Pundit colleagues have been taking Key & Co to task for over-egging their infrastructure investment programme. I say “not guilty”.

“The government is re-announcing already promised money,” says Tim Watkin.

True, up to a point. The real point is that the projects and the spending are being brought forward to provide jobs and additional income now when they are needed, and many of them will start generating economic benefits sooner rather than later. Accelerated spending is a stimulus.

“It has not added a cent to its spending since last December”.

True, but misses the point. Last December the government confirmed in its Budget Policy Statement that it would provide allowance for an additional $1.75 billion a year in operating funds and a total of $5.8 billion in additional capital expenditure between now and 2013. Has there been some catastrophic development in the last two months that merits a further addition to this increase in spending?

“They are policies and promises that would have been going ahead whatever the state of the global economy,” says Nicky Hagar.

These comments are based on “some well-placed government leaks”. The leaks provided Nicky with a list of “big ticket items” that he, I and most interested New Zealanders already knew were in the pipeline. However, there are some notable omissions, particularly in terms of energy generation and transmission that are also in the pipeline, so it is a pretty deficient list.

Nicky also probably knows that whatever a party promises in its election manifesto cannot be regarded as a foregone conclusion before the process of coalition-building is complete – and not so long ago the prospect of a bank collapse, let alone a global financial crisis, provided National with the excuse for reneging on a campaign pledge: “no ifs, no buts, no maybes – the super surtax will go!” So, post-election confirmation is a welcome necessity these days.

Further, the National-led coalition government did not have to adopt all the additional spending commitments [let alone some unfunded ones] entered into by its Labour-led processor. It chose to do so. Its preference would have been to cap State spending, drive for more productivity in the public sector, and provide more reductions in taxation. It chose not to do so. Both choices were influenced by the state of the global economy.

Most critics of the stimulus programme seem to be yearning to see the new government produce some “Big Bang” solution – some local equivalent to the dramatic bailouts and hand-outs produced by Barak Obama, Gordon Brown, or Kevin Rudd.

They do not seem to realize that, by accident rather than design, a failing Labour-led government in New Zealand jumped the gun on all of them last year in its desperation to buy votes.

Clark, Cullen & Co more than emptied the coffers to commit the country to a massive spend-up, to provide the tax reduction programme they had spurned for the previous nine years, and – without any knowledge of the global crisis to come – set in train a stimulus programme that ranks, per capita, at what English now describes as “the upper end of international reaction to the current situation.”

So, no more big bangs, bailouts, or bulldust till the next Budget, please.