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Tuesday, 22 June 2010
Page: 6138


Mr LAMING (5:43 PM) —As the previous coalition speaker alluded to, we strongly support the International Monetary Agreements Amendment Bill (No. 1) 2010. This is also an opportunity to go through part of the history of the IMF, its important function in providing stability to developing and emerging economies and also the important role Australia plays as not only a member state but a key contributor to the fund we are debating today.

By way of history, from 1947 the IMF has played a very important role. It is sometimes criticised for being too economically austere and placing too stringent regulations on economies that have fallen into trouble, but generally there has been very strong support from nations like Australia, and this will continue with this bill. In 1997 it became obvious around the period of the Asian financial crisis that additional requirements above and beyond the General Agreement to Borrow were necessary. I recall working at the World Bank in the Human Development Network at the time that the first agreement was struck for additional requirements from member states, of which there were initially 26. It is good to see that just recently the G20 has agreed to expand that by another 13 nations, including, importantly, Russia, China, Brazil and India among nine other nation states.

That now strengthens what is effectively a great big safety net which sits under developing and emerging economies. It increases the confidence in that we can trade and engage in financial transactions between states and know that in the end there will be as little sovereign risk as possible, keeping in mind that often what goes on behind the books of many nations is not revealed often until the government changes—something we saw in Europe just recently. The IMF has the important role of raising the revenue to put it in a position to give this kind of support through the three instruments. The first component of that is the special drawing rights, which have been alluded to by previous speakers. In that respect, Australia pays according to the size of its economy—that is, around three billion SDRs, about a quarter of our contribution. We also contribute with our own currency. The IMF also has gold stores of around 3,000 tonnes, of which it is divesting itself of 12 per cent at the moment.

Finally there are the special borrowing arrangements, with the most recent ones from the last 13 years referred to as the NAB. Obviously the NAB has to be expanded and this bill fulfils the commitment made back in May 2009 by this Treasurer when in a press release he made a commitment to work with other member states to increase that from a quarter of a billion to three quarters of billion, and therein lies the additional $500 billion that needs to be committed. Australia plays its part according to the size of its GDP. It is very important that we play our role along with every other nation state, to make sure that happens. We do not really, truly and genuinely have an option to pull out on this and simply pass the burden on to other economies. That would not be responsible.

Everyone in this chamber and everyone outside hopes that the NAB is never called upon, but it is very interesting to note what happened in Greece. Greece, being two per cent of the OECD, is effectively to the EU what Australia is to the world—a fairly small player at about two per cent when you measure it in economic figures. Yet the bailout in Greece, in Australian terms, was $155 billion, larger than anyone initially imagined. That money can disappear quite quickly, even in moderately small economies where the calls upon those economies are significant. Let us just note that there are a number of economies where that is still to be priced and written to the market, still to be revealed, and we have some concerns that the NAB needs to be resilient enough to deliver in those circumstances as well.

There is a lesson for every member state. Australia is a resources based commodity based economy. We should be the island of certainty surrounded by a sea of chaos and uncertainty, given the blessings we have with our commodities and the core resources we are lucky enough to be able to exploit. I note Charlie Aitken from Southern Cross Equities wrote only two days ago that we have some of the highest cash rates in the OECD, among the lowest unemployment rate in the world and the highest prospective divided yield of any First World equity market at around 4.6 per cent.

Our equity markets should be trading far better than they are. If you look at the long-term performance of our dollar, historically it sits in the mid-70s against the US dollar. We should not be far behind Canada, when you look at the size of our economy. Canada is approaching parity with the US; Australia is not. We need to find reasons why Canada is and Australia is not. I put to you that the key discussion in the Australian community on the RSPT is the major reason Australia truly is struggling. That does not mean that individual mining companies will not be reporting small increases in their share prices, as was pointed out in question time today. Imagine where they would be trading if we did not have that sovereign induced risk which is the RSPT. We would have completely different share prices, I suspect.

So in a world where certainty is incredibly precious, it is important to remember that governments need to be doing everything they can to offer certainty to investment. Let us face it: about half of all investment coming from overseas is to fund Australian banks. Half of all the financial resources we need to lend to Australians who hope to own a house comes from overseas. We must not be fearful of foreign investment, but we also cannot afford to be twiddling these knobs as a government and raising great uncertainty.

The Financial Times again reported today—and this will be big news tomorrow—Canada saying thank you very much for all the uncertainty delivered by that mining tax because Canada stands to benefit. I remember from Canada’s mineral council a statement by one of their key spokespeople saying that Kevin Rudd should be Canada’s mining man of the year. The Prime Minister has already been named as Australia’s man of the year. I do not see why we should be debating policies in 2010 that make him somebody else’s man of the year because the key thing for him to be doing is making Australia an island of certainty for investment that maximises our opportunities to deliver to the world the commodities which are so sought after.

Why do I diverge there? Obviously the previous speaker has already talked about the three elements of the stimulus package being timely, temporary and targeted. I will concede that the Prime Minister was timely. Temporary? Absolutely not. The pedal is still to the metal and we are looking at the Australian crisis through the rear-vision mirror. Targeted? No. Splashed in every corner of our economy are people wondering just where those $900 cheques are now.  No-one said to put 4.7 per cent of our GDP into a stimulus package.

The MYEFO which came out in August 2008 said that this recession will be only half the size Treasury described it at early in 2008, but it did not help us one bit, it did not pull up the spending one bit. That is why we are now fundamentally a medium-sized debt economy trying to find the money to help other nations when we should be running a strong surplus. We have all of the antecedents to do that. I make that point because, as we seek to provide up to seven-point-something billion dollars to the IMF to do their utterly essential work, the question is: we are no longer a surplus economy, so where does the money come from? Our economy is running at deficit and will have significant government debt until at least 2013, even in the most manufactured of Treasury modelling—and we have seen a lot of it in the last three years. So where does the money come from if we get a call from the IMF between now and 2013? We borrow it. Who from? From someone else, from countries running surpluses like those in the Middle East and China. We borrow it so that we can lend it, so that the IMF can lend it to someone else.

I raise that paradox because never would we not support doing this, but the responsibility of any head of state is to put us in the strongest financial position. As I said, Charlie Aitkin can attest to that—that our currency and our share market are running nowhere near where they should be. We need to be maintaining sensible, steady state, foreign capital attracting policies, not ones that suck investment away to other nations.

Even the international trade minister from Canada has said, as reported this week, that this is great news for Canada, and we have seen international investment advisers saying that other countries will be looking at the RSPT and saying, ‘Whatever we do, make sure it is less than Australia’s so that we look more attractive compared to Australia.’ That is the savage reality; that capital chases certainty. I think anyone can see that that is what is missing at the moment in the current RSPT debate and lack of consultation.

Let me move now to the arrangements to pay it back. To pay back any money that we commit through the IMF is predominantly done by an undertaking from the IMF to pay it back within five years and with interest as an average of European, Japanese and US bond rates. That all made sense when countries did not run massive debts themselves. The IMF, very smartly towards the end of 2009, allowed themselves to do paper issuance of debts which means: ‘We can’t pay you back but we will write you a chit. That remains as a monetary asset for you but, of course, there is a possibility that that may be what we hold onto for a long time and you don’t actually see that money.’ Again, I can understand it is more important to have stability in emerging economies than to be demanding our moneys paid back within five years. So it would be important as a member of the IMF and G20 to be able to do some options appraisals to make sure that that money is achieving the stability we want.

I still raise the point: where does that money come from? The money is an opportunity cost on the Australian people. If we were running a surplus we would be in a very, very strong position to be able to help. We have seen in Greece that there will be, absolutely, a priority that sovereign states are too big to fail. If these calls come again this is exactly what the IMF has to do. I note that in the media there has been some criticism referring to the potential for global inflation by having more of this money washing around the system. In the end the obverse is actually something you would never wish to contemplate, which is that investors look upon the entire developing world as a place that is too dangerous to go because there is not an investor of last resort who can actually save administrations should that arise.

There are plenty of examples in history where administrations have not been able to repay those moneys and where they have had to go back to the World Bank and say: ‘These investment and spending decisions were made by previous administrations. It was not a democratically elected one. The people of our country should not be held to ransom nor made to pay back the exorbitant amounts of money,’ and some of this has been written off. The intention of the IMF is to intercede and intervene before we reach those points. You would never not want to see a proactive forward-leaning IMF doing everything that they can with the 186 member states to make sure that international trade and finance remains strong.

I just want to say that there is an issue here of money being provided purely as an insurance policy to the IMF and that both sides of the chamber support it. But I would also point out that the one element that makes Australia the strongest possible contributor in the international financial world is to run a strong, stable, reliable economy that does not introduce uncertainty and lead to the flight of capital. The sooner this government can resolve the RSPT, sit down in good faith negotiations and put this dreadful period of uncertainty to an end, the sooner Australia can be a strong player and do exactly what it can, both in its region and also with the IMF, to commit to those sums.

Australia will do it, and I point out that it still requires an act to actually send that money to the IMF when that call comes. There are no true budget implications here. There will obviously be another act at another time to debate when that money is moved out as an appropriation bill. There will be a time again to debate that but what should be beyond debate is the fact that we will support the IMF and the strong contribution that they make to maintaining stability in international financial arrangements.