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Thursday, 13 September 1984
Page: 998

(Question No. 955)


Senator Childs asked the Minister representing the Treasurer, upon notice, on 7 June 1984:

(1) Can the Treasurer confirm the accuracy of the claim in an article in the Sydney Morning Herald of 5 June 1984, in relation to the top five United States banks that '. . . in all cases their loans to the four big Latin American debtors-Mexico, Brazil, Venezuela and Argentina-represent more than 100 per cent of their shareholders funds.'

(2) What effects will the current international debt problem have on the Australian economy and in particular the Australian financial system.


Senator Walsh —The Treasurer has provided the following answer to the honourable senator's question:

(1) Up-to-date, complete and consistent official information on lending by United States banks to individual Latin American countries is difficult to obtain. However, the information set out in the table below supports the claim in the press report to which the honourable senator refers. These figures indicate that total loans to Mexico, Brazil, Venezuela and Argentina from each of Citicorp, Bank America, Chase Manhattan, Manufacturers Hanover and J. P. Morgan considerably exceed shareholders' equity of each of these banks.

Lending to:

Shareholders'

Mexico Brazil Venezuela Argentina Total Equity4

Citicorp1 2,874 3,073 1,435 na3 7,382 6,044 Bank America1 2,358 2,347 1,524 na3 6,229 4,310 Chase Manhattan1 1,567 2,308 1,220 823 5,918 3,684 Manufacturers' Hanover2 1,915 2,130 1,084 1,321 6,450 2,575 J. P. Morgan2 1,174 1,785 464 741 4,164 2,973

1 Lending data is sourced from the United States Federal Financial Institutions Examinations Council's (FFIEC) Country Exposure Information Report as at 31 March 1984.

2 Lending data is sourced from company Annual Reports as at 31 December 1983.

3 Loans represent less than 1 per cent of Bank's assets.

4 Shareholders' equity is obtained from FFIEC as at 31 March 1984.

(2) The Australian commercial banks have relatively small exposures, for the most part, to developing countries with debt servicing difficulties. It would therefore be reasonable to expect the direct effect of these difficulties on the Australian financial system and the Australian economy to be limited.

The indirect effects of the international debt situation on the Australian economy and financial system are more difficult to assess. Initially, lower economic growth rates and foreign exchange shortages in debtor countries might adversely affect Australian exports to such countries. Australian exports to third countries might also suffer, either because of the more vigorous promotion of debtor countries' exports in these markets or because such third countries themselves have experienced lower export demand. As against that, net capital inflows to Australia might be higher than otherwise as foreign investors seek to place their assets in countries with more favourable economic prospects.

In general, the implications of the international debt problem for the Australian economy, and for the Australian financial system, cannot be expected to be favourable. But how unfavourable they might be will depend partly on the success of efforts currently being made internationally to manage, and overcome, debt servicing problems. To the extent that debtor countries are successful in restoring their economies to a healthy state, the adverse implications of the international debt problem for countries like Australia will be minimised. Apart from that, adverse implications for the Australian economy will also be minimised to the extent that Australia can achieve stable and non-inflationary growth as a result of its own domestic economic policies.