It's not as big a problem as it was - as a % of GDP, we've reduced the deficit in our international investment position somewhat over the past few years. Not a lot though. On our side have been improving trade balances - mostly helped by oil exports offsetting our imports (which had become the least manageable part of our trade deficit prior to Tui, Kupe, Maari etc coming on stream) and through strong prices for commodities.
However, on the current account side we get hurt by the fact that for every $1 of New Zealand assets held by overseas investors, we only hold about 54 cents in overseas assets. It looks as though the majority of this is in debt markets. So we have the continual drain of interest payments - although fortunately the rates are quite low at the moment, with the government able to raise long term debt at under 2.5% interest. A big chunk of September Quarter deficit looks to have come from increased government debt issues purchased by overseas investors.
It would all be great if the government could find ways to invest this money that generated more than 2.5% return from overseas (buy italian bonds?!). :) Unfortunately, it is more likely that this money will be spent on overseas goods for the construction industry than on creating export industries.
Another problem of late is that overseas assets declined in value relative to NZ assets over the September Quarter - possibly this is exchange rate related. However, we tend to hold a much higher proportion of overseas assets as equity rather than debt, so perhaps more volatile in value.
One of the most curious things about this months figures is the big jump in financial derivatives on both sides of the equation that I can't find an explanation for.
It's a biggish issue as to what it might take to return the net IIP to something more balanced. The biggest windfall gain that could contribute would be to alter the trade balance on energy through more petroleum exports - or perhaps, more radically, the long term move towards locally generated energy sources for transport industry.
Otherwise, it will be a slow slog to get to a point where we own as much of overseas economies as they do of ours - investing wisely offshore and repatriating the profits is good, but pumping it into spec shares and losing the lot is not...
Btw, for comparison, Australia has an IIP liability to GDP ratio of 53% by my calculation, compared to NZ at 73%. Despite being the beneficiaries of a major resources boom over the past few years, they are still running a current account deficit, albeit smaller than NZ's in this particular quarter.