Peter Westmore is National President of the National Civic Council
A s the far Left and anarchist protestors ready for violent confrontation over globalism as represented by the World Economic Forum, recent economic data reveal the degree to which Australia’s future is being determined not in Canberra, but in the board rooms of Tokyo, New York and London.
The June quarterly figures on Australia’s foreign debt were released last week, shortly after this comment had to be submitted for publication. But the unmistakable evidence — clear before the official figures were released — is that the blow-out of Australia’s current account deficit, and the rise in the foreign debt, is becoming uncontrollable.
The nature of the problem can be seen most clearly not in the official figures, but in the trend over the past 17 years.
In 1983, Australia’s net foreign debt was approximately $20 billion. During the 13 years of the Hawke-Keating era, the foreign debt blew out to about $196 billion, prompting Mr Costello, then Shadow Treasurer, to declare that the growth of the foreign debt “is an indictment of [Labor’s] economic mismanagement”.
In the last four years, with Mr Costello as Treasurer, the foreign debt has risen by a further $65 billion, contributing to the fall in the value of the Australian dollar which, even before as the Federal Government has cut its own debt levels through asset sales, and other countries have comparable debt levels.
However, a consequence of Australia’s chronic balance of payments deficit, which has risen to over $30 billion a year, is that an increasing share of Australian industry is now in foreign hands.
Foreign equity investment — used to buy Australian shares or businesses — has soared from $86 billion in the year ended June 1996 to $130 billion in the year to June 2000.
Inevitably, this means an increase in foreign ownership of Australian business, making Australia.
However, the growth of the foreign debt has now reached the point at which the Government may be forced to take unpalatable decisions.
Judging by the decline in the Australian dollar, foreign lenders are becoming increasingly reluctant to lend to us, as the value of their money is being eroded by the Australian dollar’s decline.
Like a drug addict, the Australian economy has become dependent on the flow of foreign capital, to bankroll our consumption-based economy, and to underpin the 4-5 per cent economic growth which the country has experienced over the past four or five years.
To continue to attract foreign capital from abroad, the Reserve Bank may be forced to lift interest rates — although the direct effect of this policy will be to depress economic activity within Australia, at the very time when it is beginning to contract.
Other international factors are already beginning to affect the Australian economy, particularly rising interest rates in the US and rising oil prices, which will flow into prices over the months ahead.
The domestic economy is already seeing a slowdown in retail sales, an end of the Sydney building boom, linked with Olympic Games, and an end of the home building boom, due to rising interest rates and the artificial surge which preceded the introduction of the GST.
Having actively espoused the theory of globalisation, based on the notion that Australia should remove all restraints on the flow of goods and capital into the country, the Treasurer now risks being hoist on his own petard.
The challenge facing the Federal Government will be to reverse the likely consequences of its economic policies, and keep the economy growing at a time when the flow of foreign capital coming into Australia could either slow down, or even dry up completely.
All this is bad news for a government which faces an election in a little over a year’s time.
If the Government is to survive, it will need to:
– change direction to bring down the foreign debt;
– slow down the flow of “hot money” which has made the Australian currency a favourite of speculators;
– assist the development of import-replacement industries; and
– encourage the growth of small business and farming, on which this country depends.
While this will be difficult, other countries have pursued policies designed to address similar problems.
Three years ago, Malaysia successfully imposed currency controls on financial speculation, and a generation ago, Singapore established a Compulsory Provident Fund, which has been outstandingly successful in mobilising domestic saving for local investment.
Another aspect of this involves Australia’s depleted defence industries, which should be rebuilt to address the new strategic realities facing Australia in the unstable “inner rim” of countries which stretch from New Zealand to Indonesia, instead of relying on expensive imports of everything from computer equipment to rifles.