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ECONOMICS LEGISLATION COMMITTEE
DEPARTMENT OF THE TREASURY
Subprogram 1.2--International economy
- Committee Name
ECONOMICS LEGISLATION COMMITTEE
DEPARTMENT OF THE TREASURY
- Sub program
Subprogram 1.2--International economy
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ECONOMICS LEGISLATION COMMITTEE
(SENATE-Monday, 18 August 1997)
- Start of Business
DEPARTMENT OF THE TREASURY
- Subprogram 1.1--Domestic economy
- Subprogram 1.2--International economy
- Subprogram 7.4--Superannuation
- Subprogram 1.2--International economy
- Subprogram 7.4--Superannuation
- Subprogram 1.5--Fiscal
- Subprogram 1.8--Financial and currency
- Senator Kemp
DEPARTMENT OF INDUSTRIAL RELATIONS
Program 1--Workplace Relations Framework
- Subprogram 1.1--Industrial Relations Policy
- Subprogram 1.2--Legal and standards
- Subprogram 1.4--Australian Industrial Relations Commission and Australian Industrial Registry
- Subprogram 1.6--Office of the Employment Advocate
Content WindowECONOMICS LEGISLATION COMMITTEE - 18/08/1997 - DEPARTMENT OF THE TREASURY - Program 1--Treasury - Subprogram 1.2--International economy
Senator SHERRY --I want to refer to former Senator Short's appointment to the position of alternate director of the European Bank for Reconstruction and Development. Following on from the last estimates--perhaps something for you specifically on this question, Senator Kemp--the Treasurer's answer was that Mr Short's nomination was considered and approved by cabinet. Were there any other nominees considered by cabinet or was former Senator Short the only nominee considered?
Senator Kemp --We do not normally canvass the deliberations of cabinet. I do not think I have anything to add to what the Treasurer said.
Senator SHERRY --Do you know whether the recommendation to cabinet by Mr Costello was a written or a verbal recommendation?
Senator Kemp --I do not have any particular knowledge on that. I am not sure whether anyone at the table can add any thoughts to it. I will put that question to the Treasurer.
Senator SHERRY --As a matter of interest: were you at that meeting of cabinet?
Senator Kemp --No, I am in the outer ministry--like Schachty was for such a long period.
CHAIR --I think we should refer to him as `Senator Schacht'.
Senator SHERRY --I knew you were in the outer cabinet. I will not make a comment about whether that is a good or a bad thing, but I thought you might have been present for this discussion.
Senator Kemp --As shadow Assistant Treasurer, you have to be careful what you say about this position.
Senator SHERRY --I am anticipating a different structure when we are elected to government.
Senator Kemp --Does Mark Latham know that?
CHAIR --You will be far too old for that, Senator Sherry!
Senator Kemp --That is the first sort of news item this morning, I think.
Senator SHERRY --It was confirmed at the last round of estimates that Mr Short did not make a written application and that his nomination was made after the closing date. Can you tell the committee what other government appointed positions have been determined in this manner and what other appointments in future will be determined in this manner?
Senator Kemp --I have not got the information at hand. As I said, I will take the question on notice. You are referring specifically to the Treasurer's portfolio?
Senator SHERRY --Yes, only to his portfolio.
Senator Kemp --I will bring your question to his attention. I do not know whether he will wish to provide further information, but I will bring it to his attention.
Senator SHERRY --I think, Mr Evans, at our last hearings you referred to a couple of other positions that would be dealt with in this manner. Was it you? It might have been one of your colleagues.
Mr Evans --I do not recall what particular detail of it you are speaking of.
Senator SHERRY --The positions to like organisations such as the European Bank for Reconstruction and Development. There are other international organisations. Is Treasury aware of any changes to procedures for any other international or, for that matter, domestic appointments?
Mr Hyden --There have been no subsequent appointments to international organisations since the appointment of Mr Short.
Senator SHERRY --As I recall it, at our last estimates hearings when we discussed this matter there was a process and the process was aborted. I do seem to recall that there was some indication from Treasury that there were indications that similar appointments would be made differently in future. Do you recollect that, Mr Hyden?
Mr Hyden --I recollect the discussion we had in the last estimates committee. I think in that discussion it was indicated that the procedures that had been followed in Mr Short's appointment might well be followed in future appointments. It is up to the government each time as to what appointments it wishes to adopt.
Senator SHERRY --What other appointments similar to the European Bank for Reconstruction and Development are to occur over the next two years?
Mr Hyden --I would need to check to make sure about the period. I think there is an appointment due as Executive Director of the World Bank in about two years time. It may be a little less or a little more than two years; I would have to check the precise timing.
Senator SHERRY --A possible position for you, Senator Kemp.
Senator Kemp --In view of the line of questioning, Senator Sherry, I wondered whether you were putting in an application for it. If you are, again, I would certainly bring that to the Treasurer's attention.
Senator SHERRY --I am very confident that--
Senator Kemp --A few more hard yards from you, I think, Senator, before you could properly be considered. But, if you wish to take a punt--
Senator SHERRY --I suspect I know how a private phone call from me to the Treasurer would be treated in relation to my request for the position of Executive Director of the World Bank.
Mr Borthwick --There is a position of Alternate Director of the Asian Development Bank which will be made some time early in 1998.
Senator SCHACHT --Are we rotating that directorship with New Zealand?
Mr Borthwick --No.
Senator SCHACHT --When Mr McCawley was appointed to the Asian Development Bank as a representative from Australia, what was his title?
Mr Borthwick --He was the Executive Director of the Asian Development Bank. He is currently not there.
Senator SCHACHT --He has now left the position?
Mr Borthwick --Yes.
Senator SCHACHT --Can you tell me the difference between the executive director and the alternate director?
Mr Borthwick --The executive director is the senior position; the alternate director is the second level position.
Senator SCHACHT --Is the alternate director a full-time position?
Mr Borthwick --Yes, it is.
Senator SCHACHT --Do we have an arrangement in relation to the Asian Development Bank that, if we have the executive director, another country in the group has the alternate director and vice versa?
Mr Borthwick --No, we have both positions.
Senator SCHACHT --We have both positions?
Mr Borthwick --Yes.
Senator SCHACHT --I am glad I walked in when Senator Sherry was raising this because it brings back memories to me of a major dispute that the Joint Foreign Affairs, Defence and Trade Committee had with Treasury in relation to a recommendation back in 1989-90 when we discovered at that stage that appointments to the Asian Development Bank, the IMF, the World Bank and then of course the newly created European Bank for Reconstruction and Development were all in-house from senior Treasury officials--and that happened up until 1991. That was correct, wasn't it, Mr Borthwick?
Mr Borthwick --You are testing my memory, but I think it would have been predominantly--
Senator SCHACHT --I will test your memory even further: up until 1991 nobody other than a Treasury official had ever been appointed to the ADB, the IMF or the World Bank.
Mr Hyden --No, that is not correct.
Mr Evans --That is not correct.
Senator SCHACHT --Give me the examples.
Mr Evans --I will give you one; Mr Hyden may be happy to give you others. A senior officer of the Reserve Bank of Australia was appointed--
Senator SCHACHT --The same club, for goodness sake. It is not exactly--
CHAIR --Senator Schacht, let Mr Evans answer the question.
Mr Evans --A senior officer of the Reserve Bank of Australia was appointed as Executive Director of the World Bank.
Senator SCHACHT --Did he at any stage serve in the Treasury before he was at the Reserve Bank?
Mr Evans --No.
Senator SCHACHT --He had never served in the Treasury of Australia?
Mr Evans --No.
Senator SCHACHT --Was he the only non-Treasury person?
Mr Hyden --I would need to check our records on that.
Senator SCHACHT --When he was appointed--I do not know how long ago that was--were applications for the position called for in the general Public Service?
Mr Evans --I would think not; it was not the practice.
Senator SCHACHT --It was not the practice. It was a rorted practice that, unless you were in the club, you never got appointed to the ADB, the IMF, the World Bank and now the European Bank for Reconstruction and Development--that is, until the Joint Foreign Affairs, Defence and Trade Committee made it an issue that nobody at the ADB, until Mr McCawley had been appointed, had ever had any experience in a development agency. The Joint Foreign Affairs, Defence and Trade Committee unanimously recommended changes to this process, which Treasury resisted greatly because it was an in-house job. Isn't that correct, Mr Evans?
Mr Evans --I was not involved, but I am prepared to accept your comments.
Senator SCHACHT --They are irrefutable; they are in the report of the committee.
Senator Kemp --Oh, that--
Senator SCHACHT --Your mob signed off on it too.
Senator Kemp --I do not think one follows from the other.
Senator SCHACHT --If you want to attack--
Senator Kemp --I am not attacking it. I am just saying--
Senator SCHACHT --the Liberal members of the committee--
Senator Kemp --Senator Schacht, this morning we have had a very constructive discussion lasting something over two hours. It would be a pity to spoil the tone of the hearings.
Senator SCHACHT --What I find interesting is that unanimously the Joint Foreign Affairs, Defence and Trade Committee recommended procedures whereby no longer would the appointments to the ADB, the IMF and the World Bank and now the new one be filled in-house without calling for applications from even within the Public Service, and that was accepted. We convinced the then Treasurer, Mr Keating, to allow advertisements to be placed. I think we then had a fight to say whether people outside the Public Service would be eligible. I think someone in Treasury had the temerity to suggest that someone who is not a member of the Public Service--I think Professor Helen Hughes, who was not a member of the Public Service, applied for one of these positions--could not be trusted to maintain the confidentiality of the material, which was again an outrageous suggestion. But when we made that decision we never thought it would be rorted by a subsequent government to appoint someone to the European Bank for Reconstruction and Development.
Senator Kemp --I do not accept that it was rorted. I do not accept that language. I think it is unfortunate you made those comments in relation to Senator Hughes--
Senator SCHACHT --No, not Senator Hughes. She was never a senator.
Senator Kemp --Your comments on Professor Hughes were unfortunate. You have a view, the committee has made a recommendation and it is up to governments in the end to determine the processes.
Senator SCHACHT --For the ADB appointment of an alternate director, will an advertisement call for applications from both within and without the Public Service?
Senator Kemp --It is a matter for the Treasurer to determine the process.
Senator SCHACHT --There has been a change in policy, then, has there? You have now rejected the policy of the previous government?
Senator Kemp --These are matters for the Treasurer, and it is a matter for the Treasurer to determine the process.
Senator SHERRY --Do you have the `Guide on key elements of ministerial responsibility' there?
Senator Kemp --Not on hand.
Senator SHERRY --Do you accept that these appointments are outlined in the `Guide on key elements of ministerial responsibility'?
Senator Kemp --I do not have the guide here. If there is a particular clause you wish to bring to my attention--
Senator SHERRY --Yes, there is with respect to these appointments. If we look at page 11 of the `Guide on key elements of ministerial responsibility'--and I must say that I am a bit shocked and surprised you do not have it with you.
Senator Kemp --You gave us notice of a range of things, so we brought a big pile of stuff in. If you want to give us notice of other things, we will bring another pile of material in.
Senator SHERRY --I would have thought this was the holy grail, the holy bible, of your conduct over recent years.
Senator Kemp --We are always happy to assist you.
Senator SHERRY --Could I draw your attention to page 11. We had some discussion about Senator Short, and we got onto future appointments and you have asserted that it is up to the Treasurer, but page 11 of the guide says:
Ministers should not exercise the influence obtained from their public office, or use official information, to obtain any improper benefit for themselves or another.
.Particular attention needs to be paid to ensuring that the scope for adverse comment is minimised if it is proposed to appoint someone who is the close relative or associate of a minister.
.Subject to provisions in legislation or other formal documents relating to the establishment of government bodies or positions, government appointments are to be made on the basis of merit, taking into account the skills, qualifications, experience and any special qualities required of the person to be appointed.
Do you think that Senator Short's appointment fulfils these criteria?
Senator Kemp --I think it certainly does. I think former Senator Short is a man of great merit, and he certainly has the qualifications for that job.
Senator SHERRY --Even if we accept that--
Senator WATSON --I raise a point of order. I think the premise of the question is wrong, Senator. At the time of his appointment, he was a backbencher; he was not a minister.
CHAIR --It is not a point of order, Senator Watson.
Senator WATSON --The premise is wrong.
CHAIR --Whether the premise is right or wrong, the question is still quite acceptable.
Senator Kemp --Senator Watson, we have often found in these hearings that the premise that Senator Sherry brings forward was wrong. But, if we accepted that, we would have very short hearings, and Senator Sherry would not want that.
Senator SHERRY --I draw your attention to that second point that I read: `Particular attention needs to be paid to ensuring that the scope for adverse comment is minimised.' Do you seriously contend to this committee that there was not significant adverse comment about former Senator Short's appointment?
Senator Kemp --There was adverse comment, and the adverse comment essentially came from you. You can judge whether it was significant or not.
Senator SHERRY --Was it minimised?
Senator Kemp --We, Senator Sherry, did not regard your comments as particularly significant. You conducted, I have to say, a rather unpleasant campaign against a very distinguished colleague.
Senator SCHACHT --You are there only because he did. He was successful.
Senator Kemp --He conducted a campaign against a very distinguished colleague which I think in the end probably reflected more on you, Senator Sherry, than it did on former Senator Short.
Senator SCHACHT --You did all right out of it; you are sitting at the table as the minister.
CHAIR --Order! Senator Schacht!
Senator Kemp --What on earth are you on about?
Senator SCHACHT --If Jim was not knocked over, you would not be sitting at the table as minister.
CHAIR --Order! Senator Schacht, Senator Sherry has the call.
Senator SHERRY --You would contend that the scope for adverse comment was minimised on the last occasion?
Senator Kemp --Senator, my response probably will not please you. In making the decisions of government, we do not always have a little line which says, `Will Senator Sherry approve of this?' and, `Will he make an adverse comment?'
Senator SHERRY --I refer you to page 17 of `A guide on key elements of ministerial responsibility'. It talks about the process. Let us concentrate on the process and forget yours, mine and former Senator Short's backgrounds. It says:
The process for making complex or sensitive decisions needs to allow plenty of time for due process including proper consultation--starting too late may lead to pressure for shortcuts which involve legal risk.
The decision-making process needs to be carefully documented to allow for statements of reasons to be prepared or for the defence of a decision on review.
It goes on in this document. Do you seriously contend that the process of former Senator Short's appointment and the proposed process of appointment for future positions such as that which former Senator Short now holds is due process?
Senator Kemp --I think it was a fair process. It was a process that ultimately went to cabinet. Senator, we have nothing to apologise for.
Senator SHERRY --But advertisements were placed. Nominations were called for by, I might say, fairly glum-looking Treasury officials who were involved in that process--some of you were involved in that process. I understand that an interview committee was appointed. Some people from Treasury in fact may have been applicants. Do you believe that due process was being followed?
Senator Kemp --Senator, we had this debate--which I would think stretched possibly over an hour, maybe a couple of hours--last time. All those issues, indeed these questions, were well canvassed in that debate, if I remember correctly. Let me just summarise the position precisely: the matter went to cabinet, and a decision was made about former Senator Short. He is a most worthy person to be appointed to that job. We, Senator, stand by that decision, and we are very comfortable with that decision.
Senator SHERRY --Minister, do you stand by the guide on key elements and ministerial responsibility?
Senator Kemp --Of course. That guide is government policy. No-one argues that. But the reality is that--
Senator SCHACHT --It is ignored every now and again.
Senator Kemp --No, it is not. You have failed to demonstrate, Senator, that the guide was not followed.
Senator SHERRY --So you stand by the guide?
Senator Kemp --We stand by the guide. Yes.
Senator SHERRY --Could you outline for us what due process will be for future appointments?
Senator Kemp --This process is a matter for the Treasurer to determine. I will bring your question to his attention.
Senator SHERRY --You accept he is bound by the guide on ministerial responsibility?
Senator Kemp --Senator, we do not argue on the issue of the guide. The government follows the guide.
Senator SHERRY --You claim that, in the case of former Senator Short, the guide was followed?
Senator Kemp --You have failed to demonstrate that the guide was not followed, Senator. That is what you have failed to do.
Senator SHERRY --I will let other people be the judge of that.
Senator Kemp --I am sure they will, Senator. I hope that they will not judge you too harshly.
Senator SHERRY --They certainly did not judge me harshly. For future appointments, do you intend to review the process that occurred for former Senator Short's recent appointment?
Senator Kemp --The process is a matter for the Treasurer. The Treasurer will determine the process.
Senator SCHACHT --You say that the Treasurer will determine the process. What is wrong with the process that the previous government adopted as a result of recommendations of the Joint Foreign Affairs, Defence and Trade Committee? What was wrong with that process that now does not exist?
Senator Kemp --I am not here to defend a policy that at some late stage your government put into effect.
Senator SHERRY --You supported it.
Senator SCHACHT --Your people on the committee supported it.
Senator Kemp --I am not here to defend that. Those questions should have been put to previous committees of the previous government. I am just saying that the process that we put in place in relation to former Senator Short was a fair process. We appointed an excellent candidate, and the government is delighted with the appointment.
Senator SCHACHT --For future reference, you said here a while ago, to me and now to Senator Sherry, that you could not even guarantee that the process of open advertisement, job interviews and so on--which had only been operating since about 1990--would be available for the next appointment. Next year we have the alternate director for the Asian Development Bank coming up, and you cannot give us any information--despite the fact that there was a fair chance that this was going to be raised again at this hearing--other than that the Treasurer may consider doing what he likes.
Senator Kemp --The process is a matter for the Treasurer to determine, and I will refer your remarks to the Treasurer. But I am not sure what weight he will give them.
Senator SCHACHT --We are trying to get a fair, transparent process, so that people with good qualifications can at least apply. Now you will not even give us a guarantee that applications will be called for or that there will be advertisements placed or that there will even be interviews. All you have said is that the Treasurer will consider it. It seems to me that it is much more likely that Ron Walker, the bagman for the Liberal Party, will have a bigger say than the Treasurer over who gets appointed in the future. Because you have no process. You will not defend any process, you will not explain any process other than that involving whoever comes off the top of the Treasurer's brain.
Senator Kemp --I would have thought that we had some important issues to discuss before this committee. Prefixing any question you may have with a range of insulting comments does not add to the--
Senator SCHACHT --You have just insulted--
Senator Kemp --Just hold on. You have had your say.
Senator SCHACHT --You are the one who has been insulting.
CHAIR --Order! Senator Schacht, if you have asked the question, at least you could wait until you get a reply.
Senator Kemp --You have asked the question and, in the context of asking the question, you have again been able to intrude comments to demean people. My view--and I have put it to you--is that this is very transparent and accountable, because we have had prolonged debate on this appointment before this very committee.
Senator SHERRY --Does that make it right?
Senator SCHACHT --After the event.
Senator Kemp --Senator, we think it is right. You do not think it is right. We are sorry that you do not, but we think it is right. We think the person who was appointed to that position is an eminently qualified person and will certainly do an outstanding job.
Senator SHERRY --But we are dealing here with the process. I do not want to continue to reflect on the late decline of Senator Short's career. I do not get any personal enjoyment from doing that, but do you not accept, Senator Kemp, that the key elements of ministerial responsibility were a very important part of the Prime Minister, Mr Howard's election manifesto? He referred to it in his election speech, as I recall--his campaign speech.
Senator Kemp --Of course they are important. And you have failed to demonstrate that those guidelines were not met.
Senator SHERRY --You still stand by these guidelines as a government?
Senator Kemp --Yes.
Senator SHERRY --You do?
Senator Kemp --Yes.
Senator SHERRY --Would you outline what you consider to be due process in the appointment to a position. What is due process?
Senator Kemp --The important thing is that the government appoints properly qualified people to these jobs. That is the responsibility of the government. And the government is judged on whether it appoints appropriately qualified people or not. Do we need to go through all the appointments that your government made and the way that those appointments were made? We can assess those. But we are very comfortable with the process. We are particularly happy with the appointment.
Senator SHERRY --We are dealing with the process here. Let us put aside whether we are happy or unhappy with the person appointed--and his skills and background and whether he is a failed Assistant Treasurer who lost his position and had to resign. Let us put aside those outstanding qualities of Senator Short.
Senator Kemp --We do not accept those comments at all.
Senator SHERRY --It happened. That is why you are sitting where you are.
Senator Kemp --The fact of the matter is that you are well aware of the circumstances. However you may attempt to demean Senator Short, he is a man of considerable experience both on the parliamentary and the Public Service side, and he is a man who is eminently qualified to fulfil the position.
Senator SHERRY --Let us put Senator Short aside.
Senator Kemp --Hold on, I will finish. You had your go, I want to have mine.
Senator SHERRY --I want to go on to due process.
Senator Kemp --If you are not happy with the process, I will make your views known to the Treasurer, but we are comfortable with the process.
Senator SHERRY --You are comfortable with the process?
Senator Kemp --It has produced an outstanding person. The process that--
Senator SHERRY --So the end justifies the means?
Senator Kemp --Don't be trite, Senator.
Senator SHERRY --Trite! You are saying that, so long as we get a person who, you argue, is of outstanding quality, because of his background, the process does not matter?
Senator Kemp --Senator, the government put a process into effect, and we are happy with the outcome. I have nothing further to add.
Senator SHERRY --What do you understand as due process?
Senator Kemp --What I understand is that the Treasurer determines the process, having regard to the nature of the appointment and seeking to ensure that appropriate people are appointed. That is precisely what happened.
Senator SHERRY --Where does the guide to ministerial responsibility include that interpretation of due process?
Senator Kemp --You have the full text there, Senator, but you have comprehensively failed to demonstrate that the government has not taken an appropriate decision in this manner. We have.
Senator SHERRY --Does due process involve an objective assessment or a subjective assessment, Senator Kemp?
Senator Kemp --Senator, the process which is important is the process which ensures that we can appoint appropriately qualified people to very important positions. That is exactly what the government is doing.
Senator SHERRY --But you are not answering the question I have asked.
Senator Kemp --I am not answering in the way that you may like, but I am answering it in a way which I believe is appropriate, and I have nothing further to add.
Senator SHERRY --Can due process include an objective assessment?
Senator Kemp --I am sure an objective assessment was made by the Treasurer. He objectively decided that we had an outstanding candidate.
Senator SHERRY --Do you think similar appointments should be made in the same manner?
Senator Kemp --I think we are perfectly happy with the manner in which it was made. If the Treasurer wishes to follow a similar process, I am sure that that would be quite appropriate.
Senator SHERRY --And we have every indication that a similar process will be followed in respect to other appointments that we have talked about this morning.
Senator SCHACHT --Which means Prosser ends up at the World Bank.
Senator Kemp --I do not think you will end up anywhere, regardless of what government is in office, Schachty.
CHAIR --Order! Let us keep things on an even keel.
Senator Kemp --I was slightly provoked, Mr Chairman.
Senator SHERRY --Outside the specific positions we have discussed this morning, would you argue that the process followed by the Treasurer in respect to Senator Short could be followed in respect to other appointments within Treasury?
Senator Kemp --We are looking at an appointment which is made on the recommendation of the Treasurer. It is an appointment to be determined in the process in which he has determined it.
Senator SHERRY --We had a committee, we had advertisements, we were to have interviews and we had written applications. They seem to me to be all the hallmarks of the criteria of due process, of an objective process, but that is not the process the Treasurer followed in this case, is it?
Senator Kemp --I am sorry you are not happy with the process the Treasurer followed. You have made that point time and time again. We understand that Senator Sherry is not happy with the process the Treasurer followed. Therefore, the Treasurer will undoubtedly closely read this transcript and he will be made aware of that and he will reflect on your comments. But I have to tell you that the Treasurer is comfortable with the process.
Senator SHERRY --So the Treasurer would be comfortable with appointments based on a similar process?
Senator Kemp --The Treasurer is comfortable presumably with the process. It is up to him to determine, in relation to future appointments that come under his ambit, what is the process which he should follow. Perhaps I could just for the record read some statements that the Treasurer made, because he was aware of Senator Sherry's comments--
Senator SHERRY --I have read them, if they are a response to the committee.
Senator Kemp --Let us just get it for the record.
Senator SHERRY --They are already on the record, Senator Kemp.
Senator Kemp --Because people will read this transcript afresh, it is important that we put these questions into context. I am lucky to have some comments by the Treasurer with me. He said:
Let me make it clear, as I did, how this appointment was made. The government called for expressions of interest. I decided who was the best candidate, and the best candidate was Senator Short. Senator Short's recommendation was signed off by the Australian cabinet.
Then he said some unkind comments about you, Senator Sherry, which I will omit from the record. But if anyone wishes to read them they can do that.
Senator SHERRY --I have been getting under his skin recently.
Senator Kemp --He said:
Yes, it was a very good decision and he was unquestionably the most qualified person for the position. Who was in the Australian cabinet when Neal Blewett went to London as High Commissioner? Who was in the Australian cabinet when Kerry Sibraa went off to Zimbabwe?
Then there was apparently a silence in the House of Representatives.
Senator SCHACHT --Or Michael Baume to New York.
Senator Kemp --There were then some further remarks. He went on:
As I have said before, the Treasurer takes responsibility for the Treasurer's decisions and, what is more, he makes them. The Treasury does not make decisions on senior appointments in this area. I make them.
that is, Mr Costello--
I looked at all of the applications. I considered Senator Short, and I am afraid to say that Senator Short was the best qualified. Why would you be surprised? Why would you think that somebody who had been a bureaucrat in the Treasury department would be more qualified than somebody who had been the Assistant Treasurer? Do you consider someone to be unfit for office while they are running the department?
There are some useful comments from the Treasurer which he put on record.
Senator SHERRY --Would you accept that after April of last year we have a brand spanking new guide of ministerial responsibility?
Senator Kemp --We have an important guide to ministerial responsibility. You have failed to demonstrate that that was not met in this case.
Senator SHERRY --Do you believe that the appointment process followed in respect to Senator Short and foreshadowed for other like appointments is consistent with the government's proposed overhaul of Public Service legislation?
Senator Kemp --The appointments that we are referring to are matters that come within the ambit of the Treasurer, and it is up to him to make decisions. We make no apology for that.
Senator SHERRY --Would you like to see the overhaul of the Public Service legislation include these positions that we have been discussing?
Senator Kemp --I think there are issues relating to the Public Service; there are issues relating to the appointments that the Treasurer himself has the right to make and come within his ambit. So I have no further comment to make on that.
Senator SHERRY --So you say there are appointments that come within his ambit. Do you argue that these appointments are different?
Senator Kemp --They come within the ambit of the Treasurer; it is the Treasurer's responsibility. I doubt whether that has been argued anywhere.
Senator SHERRY --Do you know what other positions come within the ambit of the Treasurer's responsibility?
Senator Kemp --I do not have a list here. I do not know if anyone can assist us.
Senator SHERRY --What about the secretary to the department? Does that come within the ambit of the Treasurer's direct responsibility for appointment? Someone must be able to tell me that.
Mr Evans --The answer is no, Senator. I could not give you complete information on your other question, but there are a wide range of statutory appointments, for example, that would come within the Treasurer's responsibility for recommendations to cabinet.
Senator SHERRY --Does the appointment of the head of Treasury under current legislation go to cabinet?
Mr Evans --I am not aware.
Mr Hyden --I do not think the legislation would refer to cabinet. The appointment is made by the government.
Senator SHERRY --So the Treasurer would have a role in the case of that position?
Mr Hyden --I am sure he would be part of the decision making process.
Senator SHERRY --In the proposed overhaul of Public Service legislation, are there to be any other positions within Treasury that would fall within the significant personal input of the Treasurer?
Mr Evans --All appointments under that act, when the bill becomes an act, will be made by the secretary to the department. Appointments under that act--that includes all appointments within Treasury--would not include any of the positions that you have been discussing here.
Senator SHERRY --That might be a useful hint for some Senate amendment to that legislation, Mr Evans.
Mr Evans --Legislation, Senator, deliberately does not go to those other positions. It is confined to the Public Service.
CHAIR --Asking the secretary to the department whether the Senate should amend legislation in that area would hardly be in order.
Senator SHERRY --No. I am not putting a question. I am just reflecting on his excellent suggestion. We will have a good look at that, I think.
Senator Kemp --I do not think the secretary made a suggestion, Senator.
Senator SHERRY --I was taking it as a suggestion.
Senator Kemp --He was stating the facts of the matter. I do not think he was making a suggestion.
Senator SHERRY --I appreciated his gesture and his comments, put it that way.
Senator Kemp --You appreciate his comments: we are very pleased with that.
Senator SHERRY --As I appreciate most of Mr Evans's comments and contributions, that one is certainly appreciated. It does give us an idea to avoid these controversies on future occasions. We are keen to ensure that the guide to ministerial responsibility is vigorously upheld, Senator Kemp, even if you are not.
Senator Kemp --I am glad to hear your comments, Senator.
Senator SHERRY --I should thank Treasury. They sent me a copy of the last annual report of the European Bank for Reconstruction and Development. Thanks for forwarding that on to me.
In regard to the international economy, are there any significant changes since we last met at estimates which are of concern to Treasury in the international economy? I highlight one very recent issue: the particular problem surrounding the Thai economy and speculation about problems that could emerge with other East Asian economies. Are there any other issues, either that or of a similar nature, that are of concern?
Mr Evans --I will ask Mr Hyden to respond. I would say that we certainly would not want to add to any speculation about other economies.
Mr Hyden --The broad answer is that we still see the international economy very much as we saw it at budget time, when we had some concerns about potential problems in a number of Asian countries. As you say, in the case of Thailand that situation has developed since the time of the budget. But, in broad terms, the outlook for the national economy remains much as it was at budget time.
Senator SHERRY --Concerning the importance of Thailand to the Australian economy, do you think it is an important regional trading partner?
Mr Hyden --It is an important element of a region which is very important to us as a trading partner. Obviously, Thailand's own role as an export market for us is a relatively small one--a little over two per cent--but it has been growing quite rapidly. The region as a whole--that is, the East Asian economies, of which it is a key part--is a very substantial export market for us and, again, one that has been growing very rapidly over the last five or 10 years. It is important for the Australian economy, for growth and stability in the region as a whole, for that to continue.
Senator SHERRY --Was the recent $1 billion swap--the involvement of the IMF in supporting the Thai economy--the largest swap certainly in the last decade, or has there been some other similar type of regional assistance that the Australian government has given?
Mr Hyden --The Thai government is working with the International Monetary Fund on a program of measures which has not been completed. The IMF board is likely to continue that package. This week an announcement will be made. A number of countries have agreed, in principle, to provide support as part of that package and conditional on it. So what we are talking about is not something that is already in place but which is proposed to be put in place on agreement by the IMF board and between the Thai government and the IMF.
Senator SHERRY --There is Australian government commitment to a figure of approximately a billion dollars.
Mr Hyden --Let me go on to that. As part of that package the Australian government has announced that it is prepared to contribute up to $US1 billion and we envisage that that would be done as a swap between the Reserve Bank of Australia and the Bank of Thailand. The details of that arrangement are still being worked out. It is an in-principle agreement at this stage; it is not something that is fully set in concrete.
The support that the Australian government is providing on this occasion is certainly larger than any previous support that we have provided in the past. The Reserve Bank does, of course, undertake swaps with other central banks as a part of its normal business and some of those swaps would be quite large. What is different on this occasion is the purpose of the swap, which is to directly support Thailand as part of the package with the IMF, and the term of the swap, which would extend over a period of three to five years; a medium-term swap, possibly as a series of shorter term swaps rolled over. The arrangement is quite new for Australia in terms of its character and its size. But in terms of the normal business of the Reserve Bank, it would be a large swap but not necessarily an extraordinary one.
Senator SHERRY --Has Treasury been consulted about the swap?
Mr Hyden --Yes.
Senator SHERRY --Is there any element of risk involved in an up to $US1 billion swap of this character?
Mr Hyden --There is always risk involved in any financial transaction. The nature of a swap is that the two banks concerned exchange assets. As far as the transaction itself is concerned, there is no risk from the point of view of interest or exchange rate movements. The swap would be set up in a way which involved no cost to either side. But there is a credit risk; that is, if in extreme circumstances the Bank of Thailand were not able to repay the swap when it came due for repayment, the Reserve Bank of Australia would still hold the assets which had been swapped and therefore the extent of its risk would be limited to the movement in the value of the asset since the swap was set up. So it would not be the full value of the swap.
Senator SHERRY --What would the asset be?
Mr Hyden --As I said, the details have not been worked out but we would expect the Reserve Bank to obtain Thai bhat from the Bank of Thailand.
Senator SHERRY --When you talk about an asset are you talking about some sort of paper asset?
Mr Hyden --It would be a bank deposit denominated in Thai bhat.
Senator SHERRY --You have said that it is immune from currency movements. So if the bhat goes down or is at a lower value at the end of the period of the swap, does that matter?
Mr Hyden --No because the swap agreement provides for the exchange rate at which the amount is to be repaid to be settled at the time of the swap. It is a fixed exchange rate--fixed forward--and a fixed interest rate.
Senator SHERRY --But what if the Thai government cannot purchase its asset at the end of whatever the period is for the end of the swap?
Mr Hyden --That is the situation I was describing. If it were not able to pay then the Reserve Bank would be holding the Thai bhat and could sell them for their market value.
Senator SHERRY --So if there was a potential loss and the bhat was at a lower value, that would be where the loss would occur?
Mr Hyden --That is right.
Senator SHERRY --Has Treasury done any projections or review of what the likely value of the Thai bhat will be in, say, five years time?
Mr Hyden --That is highly speculative. We do not have specific projections for that. The Thai bhat has, of course, fallen quite significantly over the last few months. The official rate has fallen with the floating of the Thai bhat; there was some movement in non-official rates before then. The substantial depreciation that has already occurred would help limit the risk of further falls, but that is not out of the question given the current state of the markets. Over a five-year period I think one would expect the Thai economy to return to health given the very strong policy measures that the government has already announced, including the floating of the exchange rate, fiscal changes and tightening of monetary policy, and reforms in the financial sector.
Senator SHERRY --Have you factored into account any possible military takeover of the Thai economy or removal of the Thai government? It has happened in the past, I understand.
Mr Hyden --Obviously there are a whole range of possibilities that could occur. But the Bank of Thailand would be tied to the contracts that it signed, irrespective of a change of government.
Senator SHERRY --Or removal of a government by military force. You make the comment `highly speculative' about what the value of the asset would be in five years or whatever the period is. It seems to me there is an element of risk there, but you would argue that it is an acceptable risk?
Mr Hyden --In the context of an IMF program and the support being provided by other official sources, and I think also the support from the private sector that is being expected.
Senator SHERRY --If they could not purchase the asset at whatever the period of time is and if the exchange rate did go down, who would carry the loss?
Mr Hyden --In the first instance it would be the Reserve Bank, and that would be reflected in its profit, and that would be reflected in the budget.
Senator SCHACHT --To put it round the other way, if after five years everything goes well, and we all hope it does, the economy in Thailand grows, the stability in the baht appreciates et cetera, is it possible actually to make a profit when the exchange rate comes back and it goes up? Is there an outcome that means that for the billion dollar investment, in a sense, at the end of five years we could actually get back more than we put in, that we actually get a profit when it is concluded?
Mr Hyden --No, the swap would be on the basis of neither profit nor loss to either side, with only the risk of a default occurring.
Senator SCHACHT --But you said to Senator Sherry that if there was a military coup, there was further instability, the baht kept dropping et cetera--not outcomes you expect to happen, and no-one wants that to happen--therefore there would be a loss that in the end would reflect back through into the budget. What I am trying to say is, conversely, do we actually get an advantage, that there could actually be a profit or a surplus reflected in the budget if the Thai economy strengthens and the baht gets stronger et cetera? Do we actually end up having a good outcome where we have put the billion dollars in and we end up not only getting our billion back but we actually make a profit on it? I notice that the other day President Clinton was publicly saying that the similar arrangements, though not in the detail, to Mexico two or three years ago have been repaid early and it has turned out to be initiative which, although criticised at the time, has turned out to be no loss to America. Do we actually have a chance to make a quid out of the deal?
Mr Hyden --I think the situation is very comparable to the Mexican one in the sense you were saying. The strengthening of the Mexican economy enabled them to pay back their loans, which benefited the United States. Similarly, I would expect recovery of the Thai economy to be of direct benefit to Australia through maintaining our export markets in a regional sense.
Senator SCHACHT --I understand that. I am saying that, specifically on the deal of the exchange of just over a billion dollars, you said to Senator Sherry that if it all went wrong the loss would come back through the Reserve Bank and then be reflected in the budget. I was hoping to hear from you that if it all went right not only would our billion dollars be secure but that we actually might make a profit on the interest and the increase of the value of the baht and in five years time we would end up coming out ahead. You would be able to claim then at the subsequent estimates committee hearing how well you had done.
Mr Hyden --The nature of the transaction has the character of debt rather than equity, so we are not taking a profit position.
Senator SCHACHT --You are not telling us that unfortunately it can go wrong and we have to sustain a loss, but if it goes very right we only get our money back? Is that right, that the best thing we can hope for is that we do not suffer any losses?
Mr Hyden --The best thing we can hope for is the recovery of the Thai economy, regional stability and growth in our export markets.
Senator SHERRY --I understand that argument. But, putting it succinctly, there could be a loss that we have to carry but there is no possibility of a profit.
Mr Hyden --There is the profit that I was talking about to trade.
Senator SHERRY --I understand that. Direct finance to budget: there could be a loss but there is no possibility of a profit to budget?
Mr Hyden --There is a very small risk of a loss. The loss would only occur in the most extreme circumstances, and you put the question to me in that form. It would be only if Thailand were to default and be unable to repay the swap. There is a long history of swaps between central banks. I think there would be very few cases where they have not been repaid.
Senator SHERRY --Is this the largest swap we have been engaged in to date?
Mr Hyden --Of this kind? Yes.
Senator SHERRY --In that sense it is new territory for Australia, isn't it?
Mr Hyden --Yes, along with other countries that are participating. We are not on our own in this. We have very good company.
Senator SCHACHT --These are reasonable comments you are making, but I just want to get it clear. As you know, there has been some controversy in some sections of the community where people have claimed that we actually took a billion dollars out of our budget and put it into the Thai economy. That is the way some critics have put it, and I have heard the public say, `Why have we given a billion dollars out of our budget into Thailand?', as if it is off our budget rather than putting a billion dollars into schools in Australia or something. They have not understood the nature of the currency swap.
I think it is not unreasonable to explain, as you have, that if everything went bad in the Thai economy we could still be up for a loss, which would have to be borne by the budget. I agree with you that that is probably unlikely. We all hope it is not likely. We want the economy to grow in Thailand for our own export market et cetera. But some people might say to you, `If you have a risk of some loss, shouldn't there be an upside, that if it goes very well you make at least an equivalent percentage profit, risking a billion dollars in a currency swap.' It is not an actual loan, as I think a lot of people misunderstand it as.
Mr Hyden --Your description of the situation is quite right. This is not a budget expenditure. It will not cost the budget anything in the normal course; it is only in extreme circumstances that a loss could occur. That loss would be limited to the extent of the depreciation of the value of the baht, as an outside measure of the loss. The actual loss that occurred would probably be much less than that.
Senator SCHACHT --To put it round the other way, in an experience where these currency swaps have occurred elsewhere in the world from time to time when countries collectively act, like in Mexico, there was no way the American government could make a profit, in a narrow sense, on their lending in a currency swap to support Mexico. The best they could hope for is that the Mexican economy would grow quickly with stability and it would repay the loans quicker. But there was no profit to the American treasury or its central bank by paying it quickly, other than it removed the possibility of a loss quicker.
Mr Hyden --Yes, that's right.
Senator SCHACHT --And that is the standard practice of these sorts of involvements in helping a country with a financial problem. You are saying the Thailand situation is similar to Mexico and these arrangements are understood, and it is not usual for a country to say, `We carry some risk, minimal as it may be, but we can also make a profit out of it in real terms'? That is just not the way these things are done.
Mr Hyden --That's right. The details of how things are done can vary. In some cases there may be a loan between banks rather than a swap. In some cases there may be loans between governments. In the case of the Papua New Guinea crisis a couple of years ago, the Australian government made a loan. In that case you could say there was more risk in that we are dependent on the Papua New Guinea government repaying the loan and have no security. But in the case of the Thai crisis we are proposing to make a swap through the central bank.
Senator SCHACHT --From your knowledge--and you may want to take this on notice--are there any examples where a similar currency swap has occurred in the postwar period in Australia, or since 1958 and the creation of the Reserve Bank as an independent central bank, where there actually has been a loss?
Mr Hyden --From a quick examination of the records and the material that we have information on, we have not identified a comparable case involving a swap.
Senator SCHACHT --This is the first swap like this that we have done?
Mr Hyden --Oh yes, but I am not talking about--
Senator SCHACHT --Not just in the size, but in the procedure.
Mr Hyden --No, Australia has certainly not suffered any loss. What I was looking to was swaps between other countries.
Senator SCHACHT --Irrespective of the size of the money involved and at stake, is the procedure with Thailand the first time that we have conducted such a swap as a process?
Mr Hyden --For Australia?
Senator SCHACHT --Yes.
Mr Hyden --Yes.
Senator SCHACHT --Oh, I see.
Senator SHERRY --There was recently a Pacific forum of economic ministers and a briefing that was prepared found its way into the media and was publicised. Which section, and who, in Treasury was responsible for the preparation of that brief for the Treasurer?
Mr Evans --To the extent that the work and preparation was done in Treasury, it was My Hyden's division.
Senator SHERRY --Mr Hyden--
Mr Evans --Do you have another question, Senator?
Senator SHERRY --Yes, I am just looking to Mr Hyden. This was a Treasury briefing that was given to the Treasurer?
Mr Hyden --The Treasury coordinated the briefing but there was an interdepartmental committee which was responsible for compiling it.
Senator SHERRY --Who was on this interdepartmental committee?
Mr Hyden --The Treasury, the Department of Foreign Affairs and Trade, the Prime Minister's department and Ausaid.
Senator SHERRY --Who were the individuals from each of those departments on the committee?
Mr Hyden --We could give you details of that. I do not have the names with me.
Senator SHERRY --What about the Treasury representatives? Do you know who--
Mr Hyden --It was one of my officers, or several of my officers.
Senator SHERRY --Several? Why were there several?
Mr Hyden --More than one person would have attended meetings.
Senator SCHACHT --Did the IDC actually have formal meetings?
Mr Hyden --Yes.
Senator SCHACHT --In the three months preceding the meeting of the finance ministers of the South Pacific Forum, how many meetings of the IDC took place?
Mr Hyden --I cannot tell you offhand.
Senator SCHACHT --Could you take that on notice? That is, actual meetings where everybody sat around a table in someone's department. Secondly, a lot of IDCs, as I understand it, do not have formal meetings as such; they can often conduct their business by a series of phone calls where they think they can reach agreement. Can you give us an indication of whether the preparation of this brief was conducted as well by phone calls between the representatives on the IDC, or was all the business conducted at the meetings?
Mr Hyden --I am sure there would have been telephone conversations between the relevant departments on a bilateral basis.
Senator SCHACHT --Who was the chair of the committee?
Mr Hyden --It was chaired by Treasury.
Senator SCHACHT --By yourself?
Mr Hyden --No.
Senator SCHACHT --Then who was the chair from Treasury?
Mr Hyden --One of my officers.
Mr Evans --Mr Chairman, could I make a comment on that?
CHAIR --Yes, Mr Evans.
Mr Evans --It is not my practice to disclose the names of individual Treasury officers involved in particular duties, unless there is a real need to do so. In this particular circumstance I do not see a need to do so and I do not see it as being of any benefit to the committee, but I will rest on your judgment on that. For the rest of the questions, of course, we will help you to the extent that we can. Indeed we have done so by my sending the committee a copy of the full report of my investigation of the incident. All members have a copy of that now. It mentions no names and it should not mention names.
Senator SHERRY --But this, Mr Evans, regrettably became a very major issue and an issue of major embarrassment, not just to the Treasurer but to Australia as a nation. Why would you argue that the individual officers concerned should not be identified?
Mr Evans --Because, Senator, there are prescribed disciplinary procedures for dealing with that circumstance. Those procedures have been followed and the individual officers concerned have been disciplined. That is in the statement that you have. Beyond that, you have my name. I take responsibility for anything that goes beyond what is in that statement.
Senator SHERRY --What has been the form of the disciplinary action?
Mr Evans --Would you like me to read from the document?
Senator SHERRY --Not the total document, but just with respect to that matter.
Mr Evans --I can table it, if you wish. You do have it.
Senator SHERRY --I was not aware that it had been tabled, no.
Senator SCHACHT --No, neither was I. Had you got a copy before?
Senator SHERRY --No, I have not seen a copy.
Senator SCHACHT --Has that document yet been made public?
Mr Evans --This is its first publication to this committee. It was sent to the secretary admittedly only late last Friday, so that made it difficult. But it was sent to the committee to help the committee. If you turn to page 5 of that document, in the first full paragraph you will see mention made there of four officers and of the disciplinary action taken in respect of those four officers. That is all in that one paragraph.
Senator SCHACHT --Mr Chairman, I think we should move that the report be tabled, and it is automatically published. You have tabled it now?
Mr Evans --Yes, I am happy with that, Senator.
CHAIR --I am happy that the report be tabled. It may answer the questions.
Senator SHERRY --It will answer some of them, I am sure. It is just a pity we were not aware of this until you drew our attention to it. I do not think I have anything more on international economy, could we come back to--
Senator SCHACHT --I have to say, just flicking through it now, it is a bit hard to continue asking questions about it. Mr Chairman, and I think Senator Sherry was going to say the same thing. Could we defer until later today?
CHAIR --The only thing is that Mr Evans will be going at 1 o'clock because he cannot be here after 2 p.m. So it is very difficult for us to defer it until a later hour this day.
Senator SHERRY --I do not think that is satisfactory. We have only just had the document drawn to our attention. We do have a range of questions. I do not want to waste the committee's time by going through questions that may be covered by the document. I would like to deal with it later in the day.
CHAIR --Mr Evans, is it possible for Mr Borthwick or another officer to answer the questions that might come out of this or not?
Senator Kemp --Mr Evans has to leave at 2 p.m., but another alternative is for the committee to break at 12.30 and come back at 1.30, and that would give you half an hour.
CHAIR --Would you be happy with that?
Mr Evans --Certainly.
CHAIR --So we will have a half an hour after lunch and we will come back to that particular item. That might be the best way we can get around it.
Senator MURRAY --Mr Evans, in preparation for those questions at half past one, perhaps you could make a brief statement to us of exactly how that document came to be there in the first place.
Senator SCHACHT --Is it mentioned on page 2?
Senator MURRAY --If it is not covered in this report.
Mr Evans --It is all covered in the report, Senator.
CHAIR --We will defer any further questioning on subprogram 1.2, International economy, until we come back at 1.30, at which time we will go back to it.