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petroleum sector. Exxon has two subsidiaries operating in Malaysia. Esso Production Malaysia Incorporated (EPMI), which is 100 percent owned by Exxon, handles offshore oil and gas production. Esso Malaysia, which is 65 percent owned by Exxon and 35 percent by a range of Malaysian individuals and institutions, refines and markets oil products in Malaysia. Bargainable employees at both companies are represented by the National Union of Petroleum and Chemical Industry Workers (NUPCIW), which has negotiated collective agreements with management. Some EPMI employees have broken away from the NUPCIW and formed a separate in-house union. Pay and benefits at both companies are well above the Malaysian norm.

The second largest concentration of American investment in Malaysia is in the electronics sector, especially the manufacture of components, such as semiconductor chips and various discrete devices. (Electronic components are Malaysia's largest single manufactured export.) Wages and benefits are among the best in Malaysian manufacturing. Fifteen American electronic components manufacturers operate 19 plants in Malaysia, employing more than 37,000 Malaysian workers.

None of the American-owned electronics plants is unionized. There is no legal prohibition against organizing unions in the electronics industry and workers at some non-American companies (mainly not in the components industry) are represented either by the Electrical Industry Workers Union (EIWU), other unions, or in-house unions. Malaysian trade union law limits a union to organizing workers in a single industry or in related industries. The Director General of Trade Unions has to date interpreted this law to preclude the EIWU from organizing electronic component workers.

In September 1988, the Minister of Labor announced that the Government would permit electronic component workers to unionize. The National Electronics Industry Workers Union (NEW) was formed, but has been denied registration as a trade union on the grounds that it is seeking to represent workers in both the electronics and electrical industries. The union denied that it represented workers in the electrical industry, but its appeal to the Minister of Labor was rejected. The previous Minister of Labor had stated in the past that only "in-house" unions would be permitted in the electronics industry. The legal basis for such a restriction is unclear.

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U.S. Department of Commerce, Survey of Current Business
August 1991, Vol. 71, No. 8, Table 11.3

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Key Economic Indicators

(Millions of NZ Dollars Unless otherwise noted 17)

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Historically, the engine for growth in New Zealand was pastoral agriculture, particularly the export of sheepmeat, wool and dairy products to the United Kingdom. British entry into the European Economic Community in 1973 sharply changed the external situation for New Zealand. The farming industry had to diversify both its range of products and its export markets. In the late 1970s and 1980s, the government sought to support this process through extensive subsidies. While incomes and output were maintained, the fiscal costs became excessive and the sector became divorced from market signals.

Manufacturing in New Zealand developed first in the processing of the primary products of the rural sector. After World War II, the government sought to promote a broader based manufacturing sector through import substitution policies. Strong domestic demand from the good performance in agriculture initially permitted this policy to function, but by the mid-1970s balance of payments problems led the government to turn to export incentive schemes to boost manufacturing. In the early 1980s, the government sought to cffset the impact of the second oil crisis through a number of "think big" investment projects in petroleum processing and petrochemicals, based on domestic gas resources. The mid-1980s fall in oil prices threatened the viability of these projects, which contributed to an increase in government debt.

In general, the performance of the New Zealand economy was lackluster from the mid-1950s until the mid-1980s. New Zealand fell from eighth in the world for per capita GDP in 1955 to twenty-second in 1985. GDP per capita grew less than one percent per annum on average for the 1965-87 period. While high employment was achieved, it was accompanied by high inflation, distortions in the allocation of resources and chronic balance of payments problems. In 1984, the newly elected Labour Party Government embarked on a program of deregulation and structural change aimed at unwinding the previous policies of protectionism and excessive government intervention. After an auspicious start, in 1988 the Party leadership withdrew support for the efforts of Finance Minister Roger Douglas, the main architect of reform, leading to his departure at the end of the year. While some progress continued, internal divisions in the party led to two changes of leadership and to defeat by the National Party in October 1990. The change of direction introduced by the Labour Party, however, has been maintained.

The Labour government reduced the fiscal deficit from 6.9 percent of GDP in FY1984 to 1.3 percent in FY1990. However, at the time the National Party assumed office, burgeoning welfare expenditures threatened to rapidly reverse this progress. With no change in fiscal policy, the deficit was projected to grow to 4.9 percent of GDP in FY1992 and to reach 6.3 percent of GDP in FY1994. In December 1990, the government introduced an Economic and Social Initiative as the first step in tackling this problem. The main elements of that package were industrial relations legislation and measures to better target welfare assistance. The FY1992 budget introduced in July 1991 extended that process to retirement benefits and introduced partial user charges for


health care and education. The result is reduced deficit projections of 2.4 percent of GDP in FY1992, 0.9 percent in FY1993 and 0.7 percent in FY1994. The most significant aspect of this improved outlook, however, is that it comes from controlling expenditure rather than raising taxes. Expenditure is projected to fall from nearly 43 percent of GDP in FY1991 to 37 percent of GDP by FY1994.

The Reserve Bank of New Zealand Act of 1989 instructed the Reserve Bank to direct monetary policy towards achieving price stability. While the Act provides the Reserve Bank greater operating independence, it also requires the Reserve Bank Governor and the Ministry of Finance to agree on policy targets. The agreement reached in December 1990 sets a goal of a zero to two percent annual rise in the Consumer Price Index (CPI) by December 1993. In the third quarter of 1991 the CPI fell to 2.2 percent compared to the September quarter of 1990. Some increase is expected in 1992 as a result of higher taxes on alcohol and tobacco, the introduction of partial user fees in health care and education, and some increase in import costs due to recent declines in the value of the New Zealand dollar. However, the CPI is expected to stay below three percent for the year, and the end-1993 target should be readily attainable.

The structural reforms introduced have brought strong productivity gains, but output gains have been elusive. The resultant "labor shedding" increased unemployment to 10.1 percent in the June quarter of 1991, the highest level since the 1930s. After growth of only 0.1 percent in FY1990, real GDP increased by 0.9 percent in FY1991. Growth of around one percent is expected again in FY1992, with a pickup to over two percent the following year. Unemployment will continue to rise in this low growth environment. Total employment is expected to fall further in FY1992, and grow slower than the labor force in FY1993. Thus unemployment may well reach 12 percent before peaking. This is the biggest economic and social issue facing the government.

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The New Zealand dollar was floated in March 1985 as part of a broad based deregulation of financial markets. Prior to deregulation, the New Zealand dollar was devalued by 20 percent in July 1984. The Reserve Bank has not intervened in the foreign exchange market since the float. In late October 1991, the New Zealand dollar was worth about 9.5 percent less on a trade-weighted basis than at the time of the float. However, the New Zealand dollar appreciated by nearly one-fourth vis-a-vis the U.S. dollar during this period. Even so, U.S. goods and services remain competitively priced in the New Zealand market.

In pursuing the objective of price stability, the Reserve Bank uses the following check list of indicators: exchange rates, level and structure of interest rates, growth of money and credit, inflation expectations, and trends in the real economy. The interest rate yield gap and the trade-weighted exchange rate are seen as the principal indicators. While not attempting to run a fixed exchange rate band, the Reserve Bank

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