It had rained all day in Auckland, and the Metro Theatre in Mangere was steamed up inside as more and more people arrived to celebrate what had once seemed impossible.
Sir Robert Muldoon had lost the 1984 election. “Piggy” Muldoon was no more.
Such was the desire to get rid of him that turnout that day had been 93.7%, the highest ever recorded in a New Zealand election.
As the night wore on and the extent of Labour’s landslide victory became evident, there was jubilation.
The real significance of the result to many Labour Party members was clear when Samoan Party members paraded a pig on a spit around the, room laughing and singing as they went.
The election had been all about Muldoon
Earlier in the night, the celebrations had been more subdued, more sober, largely because David Lange’s wife, Naomi, who was a devout Methodist, had banned any alcohol.
However, Lange’s staff, realising it would be a party like Labour had not seen since 1972, quietly secreted away a quantity of cheap wine and champagne, which they began serving to the VIP guests (and media) in the Metro’s kitchen after David and Naomi had left shortly before midnight.
Such was the press of the crowd that much of it ended up on the floor.
The Mangere Bridge strike trade unionist and star of Geoff Murphy’s “Utu”, Zac Wallace, was there with his guitar, so was ad man and future Labour Party President and Waitakere Mayor Bob Harvey.
About-to-be Cabinet Minister Mike Basset brought his son, and Roger Douglas was there, but he was not there to celebrate.
Lange himself had been oddly detached all night. He didn’t drink (or at least he didn’t in front of Naomi), and he was irritable.
As TVNZ’s Chief Political Correspondent, I bore the brunt of much of that, as he found fault with the broadcast and its commentators.
But TVNZ wasn’t the problem — or at least, not the main one.
That was located at the Kohimarama bowling club in the form of Sir Robert.
What we didn’t know at the Metro Theatre was that New Zealand was on the brink of a financial crisis, the import of which we had not seen since the 1930s and the Depression.
Muldoon had tied the New Zealand economy up with a web of regulations and controls.
After a visit to Wellington in August 1982, the Editor of the Australian Financial Review, Paddy McGuiness, had written an editorial saying that Muldoon had created a “climate of fear” within New Zealand.
The editorial said the management of the New Zealand economy was based on bullying and fear.
“The result is that a government with a majority of one and with virtually unlimited powers to act by regulation can establish a reign of terror in the economic sphere,
“Far from being conducive to prosperity and progress, this system of economic management has produced for New Zealand declining living standards, a stagnant economy, a greatly overvalued currency and a threat to any fruitful development of the CER agreement.
“Unless there is a substantial change of policy in the not too distant future, New Zealand can expect to encounter not just more severe problems, but a crisis in its domestic and external economic affairs,” McGuiness wrote.
And specifically, he said that New Zealand’s fundamental external problem stemmed from the fact that its dollar was “very substantially” overvalued to the extent that a 25-30 per cent devaluation was needed to correct it.
A devaluation alone would not be a sufficient cure.
“It would need to be accompanied by a dismantling of the maze of costly distortions and subsidies which are inflicting so much harm on the New Zealand economy.”
By 1984, the Treasury was forecasting that the year’s Budget deficit would be nearly $3 billion ($12 billion in today’s money), and export incentives and farm subsidies would come to over $600 million ($2.5 billion today).
Labour’s Finance spokesperson in Opposition, Roger Douglas, influenced by a Treasury advisor, Doug Andrew, who had been seconded to Lange’s office, reached the same conclusion as McGuiness.
He secured Caucus agreement to an economic package which included a substantial devaluation but the package was opposed by the left-wing dominated party Policy Council and the Federation of Labour.
Consequently, Labour went into the election campaign with a bland “say nothing” economic policy that did not mention devaluation.
However, it was widely believed, particularly in finance and business circles, that Douglas supported a devaluation.
In what had been billed as a major economic speech, Lange told a Hamilton audience in February of that year that the Budget deficit could not be reduced as long as producers remained uncompetitive without subsidies.
He said that the government’s “National Development Strategy” clearly implied that devaluation should be favoured to improve competitiveness.
During the early part of 1984, Lange and Douglas constantly met privately with business leaders.
As well as Andrew from Treasury the party was also drawing on advice from a highly regarded former Treasury Secretary, Henry Lang.
All the advice from business and from economists was that they would have to devalue if they won the election.
Though the party’s election policy did not mention a devaluation, few in business circles believed it wouldn’t happen.
In “The Listener”, Tom Scott summed it up when he said that any businessman who did not know that Labour was considering a devaluation had been living in a coma for the last six months.
So at midnight, on Thursday night, not long after Muldoon had called the election, deputy Reserve Bank Governor Rod Deane called the Bank’s new Governor, Spencer Russell, who was on a visit to Britain and asked that he come home to deal with what Deane was sure would be a crisis.
Deane believed there would be a run on the dollar as foreign exchange dealers anticipating a Labour victory and, therefore, a devaluation sought to buy foreign exchange.
Russell refused to come home, which left Deane alone to deal with Muldoon.
As Deane had feared, foreign exchange dealers were in a frenzy on Friday morning to buy foreign currency.
By midday, the Reserve Bank was already having to draw on its foreign exchange reserves while the Treasury was trying to cash in its short-term investments.
That afternoon, Deane rang Muldoon.
He advised a range of options to deal with the crisis, including devaluing.
Sir Robert came out strongly against that.
He had always opposed devaluation because his political preoccupation was with inflation. He knew any devaluation would be inflationary, partly because of the inflexible web of regulations and restrictions that had strangled the domestic economy.
However, he did not comment to Deane on any of the other options, so the run on the dollar continued.
Dena rang Muldoon again on Saturday.
Something needed to be done before the foreign exchange market opened again on Monday, he said.
He promised to prepare a briefing for Muldoon, which would be ready the next day.
Muldoon then travelled to Whangarei for a ball hosted by the National Party’s Whangarei electorate.
A swag of journalists travelled there too because of the promise that the Prime Minister would make a speech setting out National’s campaign.
The leading (and most courageous) caucus critic of Muldoon’s “Fortress New Zealand” policies had been the Rangiora MP, Derek Quigley.
He phoned Muldoon early that Saturday evening to tell him he was resigning.
It was a clear public vote of no confidence in Muldoon.
When journalists went to Muldoon’s suite for a photo opportunity of him watching the 6.30 news, they found him slumped in an armchair, a half-empty wine bottle on the table beside him.
Later, at the ball, instead of a campaign speech, he offered a rambling account of childhood summer holidays in Northland.
And that set the tone for the campaign. It was to be a mix of nostalgia for a New Zealand that was still in the 40s and 50s and the denial of a need for change.
It was to be a battle between those who wanted a closed New Zealand and those who wanted it to open up and join the world.
On Sunday, Deane’s briefing was sent to Muldoon, with Deane requesting that he and the Secretary of the Treasury, Bernie Galvin, meet him to discuss it.
Muldoon refused.
The only concession he would make to the Reserve Bank was that it offer forward cover to the foreign exchange dealers.
Such was the demand on Monday that the Bank had to charge a premium of 20 per cent on purchases.
That saw a big drop in demand for foreign currency. There was a hope that the crisis had been averted.
Just over a week later, Muldoon went public and conceded there had been a run on the dollar.
But as a consequence of the provision of forward cover, the demand for overseas exchange would be very much lighter now for several months, he said.
“We got it down to $1 million the other day. It means that the panic is over,” he said.
But as the campaign unfolded and polls began to show Labour in the lead, there was increasing public speculation that a Labour Government would be prepared to devalue.
That saw a return of the run, and by the beginning of election week, there had been a sharp rise in foreign exchange outflows.
The Reserve Bank had now raised the premium on forward cover to 25 per cent, but forward and spot sales were continuing.
A Treasury report on the situation said that New Zealand’s then foreign reserves of $1.1 billion would only sustain the election week rate of outflow for ten days.
On Wednesday, July 11, three days before the election, Spencer Russell, now back in the country, and Bernie Galvin sent a paper to Muldoon advising an immediate devaluation and requesting an urgent meeting.
The advice was rejected, and the request was answered.
Muldoon had thus refused to meet his key monetary and economic advisors from the day he called the election.
On Friday, with the outflow continuing, Russell intimated to Muldoon that he might close the foreign exchange market altogether.
Muldoon said no.
That morning, there was a brief story in the NZ Herald about the run on the dollar.
TVNZ’s business reporter, Ewart Barnsley, reported a “matcher” for that night’s TVOne news bulletin, but then head of news, Bruce Crossan, refused to allow it to go to air.
So, though there were hints and whispers, particularly within banking circles, there was no real widespread understanding that the country was facing a financial crisis.
On his concessional phone call, Muldoon told Lange he needed to talk to him about something on Monday.
At the Metro Theatre, I asked Roger Douglas (off camera) whether he could say anything about it.
He said no. The night was one for celebration, and the new government could deal with the crisis the next day.
On the next day, Sunday, the head of the Prime Minister’s Department, Gerald Hensley, went across the road from the Beehive to the Reserve Bank and met with the senior team there.
They agreed that the situation was a crisis and that foreign exchange dealing be closed on the Monday.
Hensley asked Muldoon to meet Russell and Galvin that afternoon to discuss the situation.
Again, he refused.
But he agreed to close the foreign exchange.
Meanwhile Lange and Douglas had stayed in Auckland.
Late on Sunday, Graham Scott, then deputy secretary of Treasury, briefed Douglas on the crisis.
Deane then briefed Geoffrey Palmer, who had Lang with him, early the next morning.
Then Muldoon phoned Lange and told him that Russell and Galvin had “almost advised” him to devalue by 10 per cent.
He told Lange this would add two to three per cent to inflation.
Instead, he proposed that the pair, the outgoing Prime Minister and the incoming Prime Minister, issue a joint statement ruling out devaluation.
Muldoon told Lange he remained Prime Minister and would not implement any recommendation Lange might make.
Lange then made arrangements to meet Galvin, Russell, and at least one other senior Reserve Bank official at Auckland airport.
He stressed that they needed to meet in secret, and the Wellington officials were taken from their aircraft by a back route to the VIP lounge at the domestic airport.
The officials told Lange that three weeks ago, they had advised Muldoon that a devaluation of 15 per cent was necessary, but now a devaluation of 20 per cent was required.
Lange then told them of his conversation with Muldoon that morning and the proposal that a joint press statement would be sufficient.
An internal Treasury document says an “amazed” silence followed.
Lange then asked Galvin and Russell to tell Muldoon there would be no joint statement.
However, Galvin and Russell felt that such a comment should have come directly from Lange to Muldoon.
They returned to Wellington.
At 5.00 p.m., Muldoon, who was at his official residence, Vogel House in Lower Hutt, called Galvin to find out what Lange’s response was.
Galvin told him that Lange was likely to reject the joint statement proposal.
At 6:15 p.m., a memo from Galvin and Russell advising a 20 per cent devaluation was hand-delivered to Vogel House.
The media, by this stage, knew and were reporting that foreign exchange dealing had been closed.
Lange then called the Press Gallery chair, Richard Griffin, and advised him there would be a 24-hour news blackout on further information, which was reported on the 6.30 p.m. TV news.
The report also said Muldoon was refusing Lange’s advice on the crisis.
But he agreed to an interview with me on Eye Witness News that night.
He was defiant and perhaps unconsciously set out his fundamental opposition to devaluation.
“If we were to devalue, that would break all we’ve gained in the price freeze, give a boost to inflation and also break what we’ve done on the internal deficit.
“There would be something like $200 million that the taxpayer would have to do to subsidise the losses of the Reserve Bank.
“Now those two things together say to me, no, you don’t devalue.
“I am not going to devalue so long as I’m Minister of Finance.
“I hope that tomorrow Mr Lange can get someone to explain it to him sufficiently so that he says – ‘We will not devalue either.”
Lange was in Parliament and responded live on the programme to Muldoon’s comments.
He was impassioned and furious.
“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 boomed.
“He has actually alerted the world to a crisis, and like King Canute, he stands there and says everyone is wrong but me.”
Events then took their course.
Ironically enough, the Governor General, the Reserve Bank and Treasury officials and the Deputy Prime Minister Jim McLay were all at the Bankers’ Association annual dinner at a Wellington restaurant where they heard Eye Witness over a telephone.
McLay raced back to the Beehive and convened a meeting of senior Ministers.
They agreed that McLay would confront Muldoon the next morning and tell him that if he did not devalue, he would inform the governor general that he had lost the confidence of the cabinet.
But it never came to that.
The next morning, Muldoon folded, and the devaluation went ahead on Wednesday.
And with that Douglas also removed all the controls on interest rates. In his first Budget later in the year, he removed many of the export and faing subsidies which the over-valued dollar had made necessary.
The move to have New Zealand rejoin the world and become a modern economy had begun.
But as the drama was happening at Parliament that Monday night, another crisis, was emerghing in another part of town.
The US Secretary of State, George Shultz, had arrived, and he wanted answers from the new government about its relationship with the United States.
Tomorrow: ANZUS and the how New Zealand got an independent foreign policy
