1984 New Zealand Constitutional Crisis - Constitutional Crisis

Constitutional Crisis

By constitutional convention, between election day and the return of the writs for the election, an outgoing caretaker 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 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".