1984 New Zealand constitutional crisis
Encyclopedia
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
.
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".
, 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
led by David Lange
was sworn in on 26 July.
implements the directions of an incoming government. On the morning of Sunday 15 July, Reserve Bank officials (Reserve Bank Governor Spencer Russell, deputy Roderick Deane, and Treasury Secretary Bernie Galvin) met with the head of the Prime Minister's Department Gerald Hensley, and agreed that the currency market could not open on Monday unless there was a devaluation. Contacted by Hensley, Muldoon refused to meet that afternoon but told him that they could close the market on Monday if they liked, and agreed to meet them at 8:30 am on Monday 16 July. Russell closed the market on Sunday evening. The Reserve Bank officials also wrote a letter to Lange, and a senior Treasury officer unofficially briefed the incoming Finance Minister Roger Douglas
on the situation.
After their meeting on Monday morning, Russell and Galvin flew to Auckland to advise Lange, and Deane reluctantly briefed Labour's Deputy Leader Geoffrey Palmer
, before escaping from waiting journalists out a back door. Muldoon called Lange at 10:30 am and suggested they make a joint statement that the currency would not be devalued. Lange said he would give Muldoon an answer after meeting with Russell and Galvin. The meeting, which also included Douglas and David Caygill, took place at Auckland International Airport
. On being advised that a joint statement would not solve the currency problem, Lange told Russell and Galvin to inform Muldoon there would be no joint statement. Lange then travelled to unrelated meetings with the U.S. Secretary of State in Ohakea and the Australian Foreign Minister in Wellington, before returning to Auckland. Meanwhile Russell and Galvin decided while travelling back to Wellington that they should not tell Muldoon, but that Lange should do so himself. Muldoon was left waiting for a response and despite Hensley's appeals to Galvin, received none before going home around 5 pm. His wife told him to have a rest and took the phone off the hook without telling him. By now, Deane had decided Muldoon had to be told what had happened, but could not reach Muldoon by phone.
Lange had meanwhile imposed a 24 hour news blackout on the currency problem, and was reported in the 6:30 pm television news as saying that Muldoon was "refusing his advice on the matter". Muldoon had his press secretary issue a statement that this was untrue, and agreed to a television interview with Richard Harman that evening. Shortly afterward he received a handwrittten note from Deane explaining the situation, followed by a letter from Lange. In the interview, Muldoon went over the events of the day from his perspective. He said Lange had not yet responded to him, that "I am not going to devalue, as long as I am Minister of Finance", and that he hoped Lange would agree tomorrow not to devalue. 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".
This provoked a further crisis in the foreign exchange markets - when the exchange opened on 17 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".
, 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. The New Zealand dollar was devalued by 20%. In a 1994 documentary on the crisis, former Cabinet minister
Hugh Templeton
confirmed that McLay, working with Bill Birch
and Jim Bolger
, was ready to approach the Governor-General
, Sir David Beattie
to have Muldoon removed as Prime Minister (Beattie had suggested he could remove Muldoon prior to the Cabinet meeting on 19 July).
.
(a major plank of Labour's 1984 election campaign) was produced in New Zealand in 1995. This mini-series, written by Greg McGee
and Tom Scott
, starred Mark Mitchell as Lange and Ian Mune
as Muldoon.
New Zealand
New Zealand is an island country in the south-western Pacific Ocean comprising two main landmasses and numerous smaller islands. The country is situated some east of Australia across the Tasman Sea, and roughly south of the Pacific island nations of New Caledonia, Fiji, and Tonga...
constitutional crisis
Constitutional crisis
A constitutional crisis is a situation that the legal system's constitution or other basic principles of operation appear unable to resolve; it often results in a breakdown in the orderly operation of government...
of 1984 was an important constitutional and political event in the history of New Zealand
History of New Zealand
The history of New Zealand dates back at least 700 years to when it was discovered and settled by Polynesians, who developed a distinct Māori culture centred on kinship links and land. The first European explorer to discover New Zealand was Abel Janszoon Tasman on 13 December 1642...
. The crisis arose following the 1984 general election
New Zealand general election, 1984
The 1984 New Zealand general election was a nationwide vote to determine the shape of the 41st New Zealand Parliament. It marked the beginning of the Fourth Labour Government, with David Lange's Labour Party defeating long-serving Prime Minister Robert Muldoon of the National Party. It was also the...
, and was caused by a major currency crisis
Currency crisis
A currency crisis, which is also called a balance-of-payments crisis, is a sudden devaluation of a currency caused by chronic balance-of-payments deficits which usually ends in a speculative attack in the foreign exchange market. It occurs when the value of a currency changes quickly, undermining...
.
Background
Prior to 1985 the New Zealand DollarNew Zealand dollar
The New Zealand dollar is the currency of New Zealand. It also circulates in the Cook Islands , Niue, Tokelau, and the Pitcairn Islands. It is divided into 100 cents....
was controlled centrally by the Reserve Bank of New Zealand
Reserve Bank of New Zealand
The Reserve Bank of New Zealand is the central bank of New Zealand and is constituted under the Reserve Bank of New Zealand Act 1989. The Governor of the Reserve Bank is responsible for New Zealand's currency and operating monetary policy. The Bank's current Governor is Dr. Alan Bollard...
at a fixed exchange rate
Exchange rate
In finance, an exchange rate between two currencies is the rate at which one currency will be exchanged for another. It is also regarded as the value of one country’s currency in terms of another currency...
to the United States Dollar
United States dollar
The United States dollar , also referred to as the American dollar, is the official currency of the United States of America. It is divided into 100 smaller units called cents or pennies....
. In early 1984 the Deputy Governor of the Reserve Bank, Roderick Deane
Roderick Deane
Roderick Sheldon "Rod" Deane is a New Zealand economist, public sector reformer, and businessman. He has served as Deputy Governor of the Reserve Bank of New Zealand, and as CEO and chairman of the country's largest telecommunications company, Telecom New Zealand.-Education:Deane grew up in...
, 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".
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 MinisterPrime Minister of New Zealand
The Prime Minister of New Zealand is New Zealand's head of government consequent on being the leader of the party or coalition with majority support in the Parliament of New Zealand...
, Sir Robert Muldoon
Robert Muldoon
Sir Robert David "Rob" Muldoon, GCMG, CH served as the 31st Prime Minister of New Zealand from 1975 to 1984, as leader of the governing National Party. Muldoon had been a prominent member of the National party and MP for the Tamaki electorate for some years prior to becoming leader of the party...
, 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
Foreign exchange market
The foreign exchange market is a global, worldwide decentralized financial market for trading currencies. Financial centers around the world function as anchors of trading between a wide range of different types of buyers and sellers around the clock, with the exception of weekends...
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
Fourth Labour Government of New Zealand
The Fourth Labour Government of New Zealand was the government of New Zealand from 26 July 1984 to 2 November 1990. It enacted major social and economic reforms, including reformation of the tax system. The economic reforms were known as Rogernomics after Finance Minister Roger Douglas...
led by David Lange
David Lange
David Russell Lange, ONZ, CH , served as the 32nd Prime Minister of New Zealand from 1984 to 1989. He headed New Zealand's fourth Labour Government, one of the most reforming administrations in his country's history, but one which did not always conform to traditional expectations of a...
was sworn in on 26 July.
Constitutional crisis
By constitutional convention, between election day and the return of the writs for the election, an outgoing caretaker governmentCaretaker government
Caretaker government is a type of government that rules temporarily. A caretaker government is often set up following a war until stable democratic rule can be restored, or installed, in which case it is often referred to as a provisional government...
implements the directions of an incoming government. On the morning of Sunday 15 July, Reserve Bank officials (Reserve Bank Governor Spencer Russell, deputy Roderick Deane, and Treasury Secretary Bernie Galvin) met with the head of the Prime Minister's Department Gerald Hensley, and agreed that the currency market could not open on Monday unless there was a devaluation. Contacted by Hensley, Muldoon refused to meet that afternoon but told him that they could close the market on Monday if they liked, and agreed to meet them at 8:30 am on Monday 16 July. Russell closed the market on Sunday evening. The Reserve Bank officials also wrote a letter to Lange, and a senior Treasury officer unofficially briefed the incoming Finance Minister Roger Douglas
Roger Douglas
Sir Roger Owen Douglas , is a New Zealand politician who formerly served as a senior New Zealand Labour Party Cabinet minister. He became arguably best-known for his prominent role in the radical economic restructuring undertaken by the Fourth Labour Government during the 1980s...
on the situation.
After their meeting on Monday morning, Russell and Galvin flew to Auckland to advise Lange, and Deane reluctantly briefed Labour's Deputy Leader Geoffrey Palmer
Geoffrey Palmer
Sir Geoffrey Winston Russell Palmer, KCMG, AC, SC , served as the 33rd Prime Minister of New Zealand from August 1989 until September 1990, leading the Fourth Labour Government...
, before escaping from waiting journalists out a back door. Muldoon called Lange at 10:30 am and suggested they make a joint statement that the currency would not be devalued. Lange said he would give Muldoon an answer after meeting with Russell and Galvin. The meeting, which also included Douglas and David Caygill, took place at Auckland International Airport
Auckland International Airport
Auckland Airport is the largest and busiest airport in New Zealand with over 13 million passengers a year, expected to more than double by 2025...
. On being advised that a joint statement would not solve the currency problem, Lange told Russell and Galvin to inform Muldoon there would be no joint statement. Lange then travelled to unrelated meetings with the U.S. Secretary of State in Ohakea and the Australian Foreign Minister in Wellington, before returning to Auckland. Meanwhile Russell and Galvin decided while travelling back to Wellington that they should not tell Muldoon, but that Lange should do so himself. Muldoon was left waiting for a response and despite Hensley's appeals to Galvin, received none before going home around 5 pm. His wife told him to have a rest and took the phone off the hook without telling him. By now, Deane had decided Muldoon had to be told what had happened, but could not reach Muldoon by phone.
Lange had meanwhile imposed a 24 hour news blackout on the currency problem, and was reported in the 6:30 pm television news as saying that Muldoon was "refusing his advice on the matter". Muldoon had his press secretary issue a statement that this was untrue, and agreed to a television interview with Richard Harman that evening. Shortly afterward he received a handwrittten note from Deane explaining the situation, followed by a letter from Lange. In the interview, Muldoon went over the events of the day from his perspective. He said Lange had not yet responded to him, that "I am not going to devalue, as long as I am Minister of Finance", and that he hoped Lange would agree tomorrow not to devalue. 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".
This provoked a further crisis in the foreign exchange markets - when the exchange opened on 17 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".
Resolution
Roderick Deane and Spencer Russell then spoke to several senior ministers within the National Party caucus. On the morning on Wednesday 18 July, after an emergency caucus meeting, Muldoon relented and agreed to devalue the currency upon Lange's wishes. Muldoon's most senior Cabinet members, led by the soon to be Leader Jim McLayJim McLay
James Kenneth McLay, CNZM, QSO , generally known as Jim McLay, is a former New Zealand politician. He was Deputy Prime Minister, leader of the National Party and Leader of the Opposition for a short time. McLay is currently New Zealand's Permanent Representative to the United Nations.-Early...
, 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. The New Zealand dollar was devalued by 20%. In a 1994 documentary on the crisis, former Cabinet minister
New Zealand Cabinet
The Cabinet of New Zealand functions as the policy and decision-making body of the executive branch within the New Zealand government system...
Hugh Templeton
Hugh Templeton
Hugh Campbell Templeton QSO AO is a former New Zealand diplomat, politician and member of parliament for the National Party.-Early life and family:Templeton was born in Southland...
confirmed that McLay, working with Bill Birch
Bill Birch
Sir William Francis Birch, GNZM , usually known as Bill Birch, is a former New Zealand politician. He served as Minister of Finance for several years in the fourth National government.-Early life:...
and Jim Bolger
Jim Bolger
James Brendan "Jim" Bolger, ONZ was the 35th Prime Minister of New Zealand from 1990 to 1997. Bolger was elected on the promise of delivering a "Decent Society" following the previous Labour government's economic reforms, known as Rogernomics...
, was ready to approach the Governor-General
Governor-General of New Zealand
The Governor-General of New Zealand is the representative of the monarch of New Zealand . The Governor-General acts as the Queen's vice-regal representative in New Zealand and is often viewed as the de facto head of state....
, Sir David Beattie
David Beattie
-External links:*...
to have Muldoon removed as Prime Minister (Beattie had suggested he could remove Muldoon prior to the Cabinet meeting on 19 July).
Result
As a result of the constitutional crisis, the incoming Labour Government convened the Officials Committee on Constitutional Reform to review New Zealand's constitutional law, and the Constitution Act 1986 resulted from the 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 McLayJim McLay
James Kenneth McLay, CNZM, QSO , generally known as Jim McLay, is a former New Zealand politician. He was Deputy Prime Minister, leader of the National Party and Leader of the Opposition for a short time. McLay is currently New Zealand's Permanent Representative to the United Nations.-Early...
.
Dramatisation
A television mini-series, Fallout, dramatising both the events surrounding the crisis and the initiation of New Zealand's nuclear-free policyNew Zealand's nuclear-free zone
In 1984, Prime Minister David Lange barred nuclear-powered or nuclear-armed ships from using New Zealand ports or entering New Zealand waters. Under the New Zealand Nuclear Free Zone, Disarmament, and Arms Control Act 1987, territorial sea, land and airspace of New Zealand became nuclear-free zones...
(a major plank of Labour's 1984 election campaign) was produced in New Zealand in 1995. This mini-series, written by Greg McGee
Greg McGee
-Biography:McGee was born in 1950 in the South Island town of Oamaru. In his early 20s McGee was a Junior All Black and an All Black trialist. He graduated from the University of Otago with a law degree in 1972....
and Tom Scott
Tom Scott (cartoonist)
Tom Scott is a New Zealand cartoonist, and is regarded by some as one of the best New Zealand cartoonists since the 1970s.Scott has been the regular cartoonist, initially for the New Zealand Listener magazine and then for the Evening Post newspaper and its successor the Dominion Post, for most of...
, starred Mark Mitchell as Lange and Ian Mune
Ian Mune
Ian Barry Mune, OBE is a New Zealand character actor and director. He co-wrote and starred in Roger Donaldson's first film, Sleeping Dogs. He also directed Came a Hot Friday, which featured comedian Billy T. James as the Tainui Kid, and What Becomes of the Broken Hearted?, the sequel to Once Were...
as Muldoon.