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Monday, 20 October 1997
Page: 9208

Mr SINCLAIR —In light of the recent rhetoric by the Prime Minister of Malaysia, Dr Mahathir, and the weekend resignation of the Thai finance minister, following that government's scrapping of the fuel tax, induced largely in response to the IMF, I ask the Treasurer whether he will advise the House how countries in South East Asia have responded to recent financial instability, in those two countries and elsewhere, and what steps have been taken against this general background to protect the economy of Australia and our region?

Mr COSTELLO —Members of the House will be aware that recently the Indonesian government made an announcement that it would seek technical assistance and financial support from the International Monetary Fund, the World Bank and the Asian Development Bank to assist in managing its current economic situation. The Australian government welcomes the decision of the Indonesian government to do so. An IMF mission is currently in Indonesia assessing economic developments and undertaking negotiations with authorities on that program.

Given the state of reserves in Indonesia, and given the proposed fund program, it is not expected that Australia will be asked for bilateral support. The Managing Director of the IMF, Mr Camdessus, has stated that Indonesia's economic fundamentals are generally sound and its international reserve position is quite strong. There are, however, a number of structural issues to be addressed as part of looking at the Indonesian financial sector. We are confident that, with the IMF's assistance, those matters can be effectively managed.

As members of this House will also know, Australia is a contributor, as a member of the International Monetary Fund and on a bilateral basis, to a package which has been put forward in relation to Thailand. The Thai government announced an economic reform package on 14 October in response to the IMF-sponsored package. The government has committed itself to total spending cuts of 159 billion baht, or $US4.5 billion, over 1997-98.

There have been reports recently that the Thai government has decided not to proceed with an increase in oil excise, announced as part of the package. We are concerned that the Thai authorities comply fully with the IMF package. The IMF package provides the basis for the support to which the countries involved have contributed. We are monitoring developments closely in Thailand, and we urge the Thai authorities to continue to cooperate with the IMF. Australia's contribution is firmly linked to the IMF program, and disbursements are conditional upon the Thai authorities meeting the IMF conditions. We expect that the IMF will consult with the Thai authorities on any changes in the announced policy program. Risks to Australia in swap arrangements are minimal given the strong IMF link and the fact that interest and exchange rates on the swap have been agreed in advance.

As the government has said repeatedly: we believe that the IMF packages in Thailand and Indonesia have the capacity to improve economic developments in those countries. That is, by attending to fundamental changes, particularly in relation to the financial sectors in those countries, those countries will get long-term benefits and long-term gains, notwithstanding short-term downturns in growth and the instability which have resulted from currency and stock market movements.

Australia, as a member of the IMF and as an important regional player, has an interest in seeing the economies of the South East Asian region strengthened and has an interest in seeing those countries engage in the kind of economic reform which has now been recommended to them. We welcome the developments and the cooperation which has occurred to date, and we encourage those countries to continue their cooperation with the IMF.