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Dáil Éireann debate -
Wednesday, 29 Oct 1986

Vol. 369 No. 3

Ceisteanna—Questions. Oral Answers. - Exchange Rate.

26.

asked the Minister for Industry and Commerce if he is aware of the difficulties being experienced by indigenous exporters because of the exchange rate situation; and the steps now open to him to see to it that there are no further closures and job losses in these industries.

(Limerick East): The effects of the exchange rate situation are difficult to quantify and are not all negative.

Ireland is a member of the European Monetary System; the UK is not. While that situation continues sterling is free to fluctuate without limit in relation to EMS currencies. The present exchange rate of sterling has enhanced the competitive position of Irish firms which import raw materials and capital goods from the UK. Those imports which are significant, are now substantially cheaper.

Th recent devaluation of 8 per cent of the punt in the European Monetary System has provided a competitive advantage to Irish exports to continental EEC countries which now account for a greater share of total Irish exports than the UK.

Moreover, the competitive position of Irish Exporters in the UK market has been enhanced vis-à-vis those of other EMS countries whose currencies have strengthened against sterling.

It is precisely because of exchange rate difficulties that CTT launched, in September 1986, a major initiative to help indigenous exporters to direct their efforts away from the UK and US towards markets where no such difficulties exist. This initiative seeks to reap the benefits in European markets arising from the recent devaluation of the punt against EMS currencies. I am glad to report that about 300 firms have already committed themselves to taking part in the campaign. The new initiative is, of course, supplemental to CTT's existing range of services to exporters.

I might add that, in common with wages, quality, marketing, delivery and after sales service, exchange rate fluctuations are but one of a variety of cost elements which affect the competitive position of any firm. It follows that firms must adjust the balance of these elements as best they can.

It is difficult to understand the Minister's continued complacency in this matter. Does he realise that two-thirds of our total trade is outside the EMS anyway? Does he really believe that indigenous Irish industries manufacturing and exporting, and without the import content from outside our own jurisdiction, are in grave difficulty? Does the Minister accept that to be the case?

(Limerick East): The Deputy is probably aware of a survey of Irish industry carried out earlier in the year where people were asked to nominate their preferred exchange rate against sterling. Speaking from memory, it ranged from about 78p to the pound right up to 126p. There is no possibility of having an exchange rate with sterling which satisfies all manufacturing industry because they do not have the same constraints or the same objectives. I accept that certain companies have had difficulty and that the devaluation of the punt last August has helped them.

Would the Minister agree that the study indicated that 80 per cent of those involved stated that their preferred rate was less than 85p to the pound? Is the Minister aware that some 80 indigenous exporting firms employing about 7,000 people are in danger of closing in the immediate future because of the difficulties of exchange rate control? Has the Minister undertaken any industrial cost relativity study in this area?

(Limerick East): My Department constantly monitor the difficulties of Irish industry and use the resources of the State agencies in so doing. Obviously the exchange rate with the pound sterling is a major factor in the cost competitiveness of Irish industry especially exporting to the United Kingdom, but there are swings and roundabouts. Those who are importing substantial amounts of raw material, especially from the UK, are gaining. Those who are trading into the EMS countries are at an advantage due to the devaluation of the punt. People competing with European exporters in the UK markets have also gained as a result of the devaluation. We are monitoring the situation. I appreciate the difficulty of some firms but the difficulties of some are not the practice of all. Is the Deputy advocating a devaluation? There will be no devaluation of the Irish pound.

No, I am advocating something entirely different. I am advocating that the Minister might take some steps to bring about an improvement regarding basic input costs. This is a matter directly under the Minister's control but he will not do anything. Is the Minister aware that by his inactivity he is forcing Irish exporters to source their inputs from outside this jurisdiction and that this is causing grave difficulty? Will he accept that half of the output of indigenous exporters goes to the UK? That is the market where there is greatest difficulty. Only one-third of our total exports goes to the EMS countries. I am not recommending devaluation — the Government made a botch of it the first time they took that step. They were forced into it and everything went wrong. However, there are areas related to basic industrial inputs which the Minister could adjust, thereby saving 7,000 jobs. Will the Minister take the initiative?

(Limerick East): That has already been done. As far as my Department have power — and I still have all the powers under the Prices Acts — the benefit of declining energy and import prices is being transferred as rapidly as possible to industry. The Deputy seems to want it both ways. We cannot be tied to two different currency systems: we cannot be tied to sterling and to the EMS. It was the administration from the other side of the House who took the decision to enter the EMS and I regard that decision as right. When we are part of the club we must keep the rules. As well as being tied to the EMS we cannot be tied to a currency which is constantly swinging up and down. It cannot be done.

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