WELLINGTON (BLOOMBERG, REUTERS) - Jacinda Ardern will become New Zealand's youngest prime minister in more than 150 years after winning the backing of a minor nationalist party to form a coalition government.
After 12 days of negotiations, New Zealand First leader Winston Peters threw his support behind the 37-year-old, saying an economic slowdown was looming and that capitalism needed to regain its "human face".
The announcement caps a stunning rise for Ardern, who became Labour leader less than two months before the Sept 23 election and will now take it into office for the first time in nine years. The local currency plunged on concern the new government's policies, such as a potential cut in immigration, may curb economic growth.
"In terms of political risks, we've gone from zero-out-of-10 to four-or-five-out-of-10," said Annette Beacher, head of Asia-Pacific research at TD Securities in Singapore.
"Given that Peters is on the record for slashing immigration, reducing offshore ownership, changing the RBNZ's mandate, until we get clarity on all of those policies, we're going to have a lot of jitters and political and economic risk."
Peters, who argued on the campaign trail that the New Zealand dollar has been persistently overvalued and is a long-term critic of the Reserve Bank of New Zealand's inflation-targeting mandate, had proposed a system in which the central bank could directly control, and devalue, the currency. Labour has proposed a Fed-style dual mandate for the central bank of full employment and price stability.
The local currency plunged as much as 1.6 per cent amid concerns that policy changes may curb economic growth. It traded at 70.39 US cents (96 Singapore cents) as of 7.48pm local time (2.48pm Singapore time).
Ardern's rise has drawn comparisons with the generational change in leadership seen in countries like Canada and France. Even though New Zealand's economy is growing strongly, she has argued that too many people have been left behind during nine years of conservative government and pledged to tackle social issues such as child poverty and housing affordability.
With the additional support of Labour's ally the Green Party, the new government will control 63 of the 120 seats in parliament. The National Party, led by Bill English, won 56 seats.
New Zealand's proportional representation electoral system has favoured coalitions since it was introduced in 1996, but today's decision is the first time the party with the most votes hasn't led the government.
Labour got 36.9 per cent of the vote while National, which was seeking a rare fourth consecutive term, secured 44.4 per cent.
Ardern said Cabinet positions in her new government would be discussed with her party caucus on Friday. Ardern confirmed that the position of deputy prime minister had been offered to Winston Peters after the leader of the small nationalist New Zealand First party threw his support behind Labour to form government.