Thursday 19 February 2009

Douglas urges govt to stop picking winners

As a follow up to Matt Nolan's posting on Don’t bail out F&P and my posting on Don’t bail out F&P comes this news report from BusinessDay.co.nz.
The Government's approach to a possible bailout for Fisher & Paykel Appliances and next week's jobs summit are both ill-thought out and lack logic, former Finance Minister Sir Roger Douglas said.

Shares in Fisher & Paykel Appliances fell 35 percent to 65 cents on Monday after the whiteware maker warned that it expected net profit to fall sharply, that it was looking for new capital and a cornerstone shareholder amid tough trading conditions and a debt blowout.

"The Government has started talking about a bailout of Fisher & Paykel without any financial data on the issue and without seeking independent advice on the implications of a bailout. The only known advice that [Prime Minister John] Key sought was when he made a phone call to the managing director of Fisher & Paykel," said ACT MP and finance spokesman Sir Roger.

"How is Fisher & Paykel now meant to raise the finance required when any rational investor will fear that the company will be nationalised?" Sir Roger added.
Later in the report it is said
Sir Roger said recent talk about attaching conditions to a potential bailout, such as requirements that jobs stay in New Zealand, was worrying.

"Government should not be in the business of business. We've tried that before and it failed. Companies need to be competitive and innovate. Governments tend to monopolise and stagnate. Picking winners is no way to run an economy," Sir Roger said.

He added that although bailouts might reduce fears now, we would regret them in the future when we have to pay back the debt taken on to fund them. The Government could not afford to prop up businesses given its own accounts were in deficit. More spending meant more borrowing which meant higher taxes in the future.
One would hope that the government takes such advice. Why
Treasury is continuing to monitor major companies as the global recession deepens
is beyond me. The management and shareholders of "major companies" should be doing any monitoring required. As Sir Roger puts its
Government should not be in the business of business.
I agree totally.

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