New Zealand constitutional crisis, 1984

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The New Zealand constitutional crisis of 1984 was an important constitutional and political event in the history of New Zealand. The crisis arose following the 1984 general election, and was caused by a major currency crisis.

Contents 1 Background 2 Currency crisis 3 Constitutional crisis 3.1 Resolution 4 Result 5 References

[edit] Background

Prior to 1985 the New Zealand Dollar was controlled centrally by the Reserve Bank of New Zealand at a fixed exchange rate to the United States Dollar. In early 1984 the Deputy Governor of the Reserve Bank, Roderick Deane, became concerned that the dollar had become significantly overvalued and was vulnerable to currency speculation on the financial markets in the event of a "significant political event".

[edit] Currency crisis

Media speculation followed a leak that an incoming Labour government would be likely to significantly devalue the dollar upon election. The Reserve Bank advised the Prime Minister, Sir Robert Muldoon, that the dollar should be devalued. Muldoon ignored the advice, owing to his belief that it would hurt poorer New Zealanders in the medium term. In June 1984 Muldoon announced a snap election to be held in July. This caused an immediate run on the dollar, as currency speculators believed a Labour win would mean devaluation. Despite a deepening foreign exchange crisis, Muldoon continued to refuse to devalue, forcing the Reserve Bank to take some extraordinary steps, such as the temporary closing the forex markets for a short period of time to slow down devaluation.

On 14 July, Muldoon and National lost the general election, and the Fourth Labour government was sworn in on the 26 July.

[edit] Constitutional crisis

By constitutional convention, between election day and the return of the writs for the election, an outgoing caretaker government defers to the wishes of an incoming government. On Sunday 17th July, following a meeting between Reserve Bank officials (Spencer Russell, the Governor of the Reserve Bank, Roderick Deane, his deputy and Bernie Galvin, head of the Treasury) and the incoming government at Auckland International Airport, the incoming government requested that the dollar be devalued.

The outgoing Prime Minister Sir Robert Muldoon refused. The foreign exchange market was closed the following Monday. In an impromptu television interview with Richard Harman that evening that he had been asked to devalue the currency by the incoming government but was not going to. Prime Minister elect David Lange responded with an interview of his own. He stated: "This nation is at risk. That is how basic it is. This Prime Minister outgoing, beaten, has, in the course of one television interview tried to do more damage to the New Zealand economy than any statement ever made. He has actually alerted the world to a crisis. And like King Canute he stands there and says everyone is wrong but me".^[1]

This provoked a further crisis in the foreign exchange markets - when the exchange was finally opened on Tuesday 19th July, millions of foreign exchange dollars left the country as currency speculators expected a devaluation of the New Zealand dollar. Lange later remarked "We actually were reduced to asking our diplomatic posts abroad how much money they could draw down on their credit cards! That is the extent of the calamity that had been ground into us by the briefings that we'd got".

[edit] Resolution

Roderick Deane and Spencer Russell then spoke to several senior ministers within the National Party caucus. The next morning, after an emergency caucus meeting, Muldoon relented and agreed to devalue the currency upon Lange's wishes. It seems most likely that Muldoon's most senior Cabinet members, led by the soon to be Leader Jim McLay, had threatened to remove Muldoon from his leadership of the National Party and therefore strip him of his post as Prime Minister and Minister of Finance^[2]. On Wednesday, 20th July, the New Zealand dollar was devalued by 20%.

[edit] Result

As a result of the constitutional crisis, the incoming Labour Government convened the Official Committee on Constitutional Reform to review New Zealand's constitutional law, and the Constitution Act 1986 resulted from two reports by this Committee. The issue of the transfer of power from incumbent to elect governments (and hence Prime Ministers) was not resolved by this Act however, and the transfer of executive powers remains an unwritten constitutional convention, known as the 'caretaker convention' which was developed by Jim McLay.

[edit] References