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Australians brace for the pain of rising interest rates

Broadcast: 03/05/2006

Australians brace for the pain of rising interest rates

Reporter: Ros Childs

KERRY O'BRIEN: Welcome to the program. As rescuers enter the final phase of a desperately tricky
effort to extricate the two trapped miners in Tasmania in what has been a tortuously long day for
all concerned. Drilling only began after nightfall, and we'll cross to Beaconsfield shortly to
explain why.

On the national front, Australians are tonight confronting a new interest rate regime. A higher
one. And while a rise of a quarter of one per cent doesn't sound like much, in a nation addicted to
debt, every cent of that increase in mortgage repayments will be felt in many households across the
country, not to mention the tough environment of small business. It's the first rate rise by the
Reserve Bank for more than a year, but it's been one of the more controversial ones with some
economists questioning the wisdom of pushing up the lending rate at a time of record-high petrol
prices. It's a less than welcome present for the Government from soon-to-retire bank chairman, Ian
Mcfarlane and we'll be looking at the sting in the tail for both John Howard and Kim Beazley. But
first, Ros Childs measures the impact out in the community.

STEPHEN KOUKOULAS, TD SECURITIES: The economy is doing well. We've got inflation pressures
building. Unemployment is low. That's when the RBA has to put rates up.

CRAIG JAMES, COMMSEC: The risk that the economy potentially could go backwards for one quarter.
Certainly we're not expecting a recession to flow from this, but the economy under significant
pressure from a number of sides. Higher petrol prices, higher health insurance costs and now higher
mortgage interest rates.

NENAD NIKOLIC, STORE OWNER: They are having to cut costs in other areas so they are more careful on
what they are spending. They come into the store and look at prices and are working from
week-to-week.

ROS CHILDS: Small businessman Nenad Nicolic here is being hit on all fronts.

NENAD NICOLIC: Since I've been here three years, every year it's become a lot more difficult to run
a small business.

ROS CHILDS: Higher petrol prices were already affecting trade at his shop, The Friendly Grocer on
Sydney's otherwise affluent North Shore. The way he reads it, customers were paying for their more
expensive fuel by spending less with him. Now he expects business to drop off again as locals cope
with higher mortgage repayments and all that as he, too, faces a hike on his own loans.

NENAD NICOLIC: It will affect our repayments on our loan, our business loan. All of our profits are
going towards paying back our business loans, so we've had to - we've been affected by having to
pay more on our debts and we've had to reduce our staff levels.

MATT INGLIS: With a young family I think every spare $10 we have will have to go back into - well,
mortgage or, Education. So, yeah, it's a little bit tough.

ROS CHILDS: For many households a quarter of a per cent interest rate rise is no big deal but for
Georgie Clune and Matt Inglis it hits hard and it comes after they had already decided enough was
enough. Their half million dollar mortgage became too much to manage when this double-income family
suddenly had to rely on one.

GEORGIE CLUNE: We thought we'd be fine because at the time we were both working full-time and it
all just seemed to fit into place for us, but as the time went on I was retrenched and things
became more difficult.

ROS CHILDS: The couple are getting married on Saturday and higher interest rates are the sort of
wedding present they didn't want. The house they put on the market to relieve the financial strain
remains unsold and now they're going to have to pay more each month to live there.

GEORGIE CLUNE: It was meant to have sold about two months ago, but there's not many buyers out this
at the moment because I don't think many other people want to be in the same situation.

ROS CHILDS: Homeowners are the obvious casualties of an interest rate rise. Today's rate rise means
that on a 30-year loan being repaid at a new rate of 6.87%, people with a mortgage of $250,000 will
now be paying out an extra $41 each month. Those who owe $400,000 will have to find another $66 a
month and repayments on a half million dollar mortgage will rise by $83 a month. Interest rates
control the economy. They govern people's decisions to borrow or save, buy or sell. It's the
Reserve Bank's job to keep inflation in check, putting rates up to cool things down if the economy
starts overheating. The Central Bank tries to move pre-emptively striking before the iron gets too
hot and for the past 14 months the board has left well alone. But today it moved. And economists
are divided about whether the Reserve Bank has made the right decision. Craig James of Commsec
questions its timing, unsure whether consumer also be able to cope with the extra financial burden.

CRAIG JAMES: Certainly we have reservations that the Reserve Bank is moving at this time. The risk
is that the economy could soften more than what the Reserve Bank expects. The consumer spending was
a little bit more fragile than the Reserve Bank had had assumed.

ROS CHILDS: Others, though, believe the Reserve was right to act now.

STEPHEN KOUKOULAS: We know that actual inflation is starting to accelerate and in that sort of
climate the Reserve Bank needs to be withdrawing some of the stimulus that's in the economy.

DAWN SMITH, LIFELINE: For families and people who are already struggling financially, an increase
or the increase in interest rates will have a significant effect. There's no question about that.

ROS CHILDS: Dawn Smith is the CEO of Lifeline, a 24-hour telephone counselling service. She says a
lot of people are already financially overstretched and expects today's rate rise to keep
Lifeline's debt counsellors busy in the weeks ahead.

DAWN SMITH: Our experience is particularly with our financial counselling services we are seeing
unprecedented demand for those services. We are experiencing that long waiting list for the first
time in a long time for people to get financial counselling. So I expect an increase of this nature
is likely to continue to increase that demand on services.

ROS CHILDS: For grocer Nanard Nicolic there's not much choice. To cope with the added financial
burden he'll have to pass on his higher costs to his customers.

NENAD NICOLIC: There's a lot of customers and handicapped people in the area and we usually do
deliveries for them. We have to charge them a little bit more on delivery fees now because of our
costs. So it's a little bit difficult to have to charge someone who's already on a fixed income,
but we have to do it. It's for all of us to survive.

CRAIG SMITH: This is a major hit for Australian consumers, but the good news is wages have been
increasing and the job market is strong. That's unlikely to change too much in coming months. So
there are some positives to offset the negatives. But, not too many positives.

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Michael Brissenden's Political Report

But, not too many positives.

Ros Childs with that report. Today's interest rate rise caps off a bad couple of months for the
Government but, politically, the rise will be as much a test for Opposition Leader Kim Beazley as
it will be for the PM. The PM and the Treasurer both say the economy is still in fine shape but
you'd think even they would be starting to worry about the political impact of steeper mortgage
payments and higher petrol prices. But with his leadership once again in the spotlight after
another bad opinion poll, Mr Beazley also knows that having failed to capitalise on a range of
negative headlines for the Government in recent weeks, he has to be seen now to press home the
advantage to improve Labor's stocks from the political gift this rate rise represents.
Coincidentally, he was scheduled to deliver an important speech to the National Press Club today to
jettison some of Mark Latham's perceived policy baggage from the last election. Politcal editor
Michael Brissenden reports. This week marks the point where we become closer to the next election
than we are to the last T official campaigns themselves typically last five or six weeks, but Kim
Beazley says the campaigning for 2007 has already begun.

SONG: # I got a plan #

I will train Australians first, I'll lift all schools up, first, I'll lift all schools up, not drag
some down.

What would you do about petrol prices?

I'd put out a blueprint a few months ago.

SONG: # I've got a plan #

What's your strategy for keeping interest rates down?

We have two fundamental

down?

We have two fundamental budget rules that we are following at this moment.

SONG: # I've get another plan # This time it will work #

They'll look at me and say, "Yes, They'll look at me and say, "Yes, he can do the job."

In fact, Kim Beazley has already released as Beazley has already released as many as six policy
blueprints and as six policy blueprints and there's perhaps a dozen more to come and today at the
National Press Club he delivered his big vision for delivered his big vision for lifting and
rewarding middle Australia. But the real question is: is anybody taking any notice?

Your speech was strong on rhetoric uplifting middle Australia and the rest of it, but the polls
suggest that middle Australia isn't listening at the moment and the government hasn't moment and
the government hasn't had a particularly good run this year a particularly good run this year so
far with the AWB scandal, the Kovco mix-up, petrol prices on the rise, interest rates going up
again today, can I suggest to you that the interest rate rise again today is perhap as double-edged
sword and if you can't make headway in the polls after that then your position might be in trouble?

I'll be leading the Labor Party to the next election, you can be sure of that. I'll be leading them
with a platform and a program that is aimed directly at middle Australia and the injustices that
the Howard Government has inflicted upon them. I'll tell you, there's something about voters.
there's something about voters. I've been in politics a long time now. When they make up their
minds it's in the last few weeks. If somebody is going to change his or her mind from Liberal to
Labor that's a very big decision. It's big decision going back the other way, too. Some do it. Most
don't.

And this week's Newspoll bears that out. Despite a tough few months for the Government still
struggling to sell its unpopular IR changes, Kim Beazley appears to be making little progress. His
personal support progress. His personal support level has fallen to just 24% behind both his
frontbenchers Julia Gillard and Kevin Rudd. Labor's primary vote Kevin Rudd. Labor's primary vote
has fallen to just 37%, well short of the numbers needed or expected even at this time of the
electoral cycle. All of this predictably enough, has set the tongues wagging. Some in set the
tongues wagging. Some in the party and Labor movement are privately expressing concerns again about
Kim Beazley's performance and his likely successors, should it come to that, are quietly come to
that, are quietly attracting some favourable publicity, all the while continuing to profess the
sincerest loyalty.

Kym will be our leader at the next election because he's done a great job as leader so far.

I would trust Kevin Rudd as Foreign Minister of this nation and that's what he will be - Foreign
Minister. I'll be leading the Labor Party to the next election and we will be winning that
election.

Once again, though, the polls at this stage show he'd even have trouble beating Peter Costello. For
the first the time Kim Beazley's personal rating has been overtaken the preferred Prime Minister
stakes by the Treasurer. So does Peter Costello think he's got the Labor leader's number? Even he
is being unusually coy.

I think the I'll let that ball go through to the keeper.

At this stage, you'd have to Abu Sayyaf that's probably the most unlikely contest at the next poll.
The Prime Minister still doesn't look like moving on and despite the bravado, Kim Beazley's
position is far from secure. The next few week also be extremely important. His budget reply will
be closely watched, as will the next few polls, of course. But while the future is undoubtedly
crucial, so, too, is undoubtedly crucial, so, too, is the past and today he came to bury past and
today he came to bury those bits of it that might still bury him.

You'd all be aware that Labor took to the last election a policy to cut funding to about 70 non to
cut funding to about 70 non-Government schools. I'm going non-Government schools. I'm going to
change that policy. I'm absolutely convinced that the modern Labor Party should be all about
improving Australian schools, not attacking them. That's why I won't take money from Australian
schools.

And so today it was out with Mark Latham's devisive schools' policy and his Medicare Gold as well.
The two key platform of the Latham experiment. Whoever leads the Labor Party in 2007, alongside
industrial relations, the economy is sure to relations, the economy is sure to be front and centre
in the campaign front and centre in the campaign and with interest rates creeping up and petrol
prices on the rise, possibly contributing to inflation, there will finally with some fertile ground
on this front for the Opposition. Even so, some things in Labor's past will still be hard to shovel
underground and will no shovel underground and will no doubt be continually unearthed. On a day
that saw rates rise 25 bases points, the Treasurer still found plenty of blue sky to point to.

Under this Government mortgage interest rates have been as low as 6% and as high as 10.5% when we
were elected. 7.5% is around about the mid is around about the midpoint is around about the
midpoint between those two areas. Mortgage interest rates under the previous government averaged
12.75%.

We'll hear a lot more of that for sure, but the pact is that Australian families are is that
Australian families are more heavily depoerd than they have ever been and another point or two now
could cause even more grief than could cause even more grief than the dark days of 17%. Next
Tuesday dark days of 17%. Next Tuesday Peter Costello hands down his 11th butt. There'll be a big
surplus, more There'll be a big surplus, more than likely small tax cuts and there likely small tax
cuts and there will be a lot of talk, as usual, about economic responsibility. Mr economic
responsibility. Mr Costello will once again be hoping this will be his last budget as Treasurer. be
his last budget as Treasurer. Kim Beazley will be hoping it won't be his last as Labor leader.
He'll certainly be looking to this budget reply to finally start shifting the voters his way. Well,
that's the plan anyway.

SONG: # I've got another plan # This time it will work #

High Court challenge against new IR laws begins

Broadcast: 03/05/2006

High Court challenge against new IR laws begins

Reporter: Heather Ewart

KERRY O'BRIEN: Tomorrow, the Federal Government's industrial relations laws will confront,
arguably, their toughest test when the High Court begins hearing a challenge to their validity. The
challenge has united all State governments and some unions against the Federal Government, which is
nonetheless, confident of the outcome. But the states plan to argue that the industrial laws will
open the door for the Commonwealth to take over State responsibilities, which they say goes to the
heart of constitutional guarantees of states' rights. Heather Ewart reports.

HEATHER EWART: As workers turned out in record numbers at Brisbane's annual Labor Day march this
week, Labor leaders around the country hailed it as a powerful protest against the Federal
Government's new industrial relations laws. For state premiers, it vindicated the next step in
their campaign, which tomorrow goes to the highest court in the land.

PETER BEATTIE, QLD PREMIER: We'll challenge them in the High Court, and know we've got a fight on
our hands.

STEVE BRACKS, VICTORIAN PREMIER: I think there is quite a deal at stake, and that is sovereignty.

PAUL LENNON, TASMANIAN PREMIER: Our advice is we've got a strong case.

MORRIS IEMMA, NSW PREMIER: It's an arguable case, so we owe it to workers and their families to
prosecute the case.

MIKE RANN, SOUTH AUSTRALIAN PREMIER: This is very serious for South Australia.

ALAN CARPENTER, WA PREMIER: The Commonwealth can't just come in and take away the responsibilities
of state governments. Otherwise, we're going to end up just being an out post of Canberra, and
people have to think about that.

HEATHER EWART: They may not be thinking about it yet, but they soon will be if premiers succeed in
ramming home their claims that the Federal Government's IR overhaul is not just about the
workplace, but is also an attack on the right of states to exist. That's the thrust of their High
Court challenge to the Federal Government's use of the corporations power the constitution to take
over state industrial relations systems.

PROFESSOR GREG CRAVEN, CONSTITUTIONAL LAW, CURTIN UNIVERSITY: think this is probably one of the
most important, if not the most important constitutional case in the last 50 years, because it Is
effectively going to decide whether the Commonwealth can do whatever it likes under our
constitution.

KEVIN ANDREWS, FEDERAL WORKPLACE RELATIONS MINISTER: We've had consistent legal and constitutional
advice about this matter and that advice is that we are on sound constitutional grounds in using
the corporations power.

HEATHER EWART: That will be tested over the next week by every State and some sections of the union
movement, who'll have legal representation in the High Court in a case that's expected to cost
hundreds of thousands of dollars. But, say the states, it's a cost well worth it.

ALAN CARPENTER: The states can't afford not to challenge, because otherwise we just lie down and
get the Commonwealth to roll in over the top and take all our responsibilities away from us. And
that's not on.

STEVE BRACKS: This is a takeover by one level of government to another. Why? For this very reason -
because they've got the power and they want to use it.

KEVIN ANDREWS: Oh, look, that's a very predictable sort of argument that you get from time to time
by the states. I mean we, for example, have ruled out taking over the health system of the states.
I think we've said we're not interested in taking over the education system, it's run by the
states. If that's their best argument, then it's not much of an argument.

HEATHER EWART: Do you accept that if you do win this case, it does leave you room to take over
areas like this in the future if you see fit?

KEVIN ANDREWS: Well, as I said, there are a number of major areas of state responsibility that we
have no intention of taking over.

HEATHER EWART: No intention now maybe, but the Federal Government is pushing for an expansive
interpretation of the Commonwealth corporations power, and what they could mean down the track is
the subject of growing debate amongst constitutional experts.

PROFESSOR GREG CRAVEN: This is a case about who controls Australia. This really is a case about
whether or not the Commonwealth has, if not a blank cheque, then a cheque for about as much power
as it could ever want to have. This really is the end game for federalism under our constitution.

JULIAN LESER, EXECUTIVE DIRECTOR, MENZIES RESEARCH CENTRE: It's certainly not going to be the end
of the states, as some people have suggested. The states continue to have a vigorous and important
role within the Federation.

PROFESSOR GREG CRAVEN: If one accepts that the corporations power allows the Commonwealth to
control anything that touches upon a trading corporation, I think it follows that the Commonwealth
can completely control universities, completely control private schools, private hospitals, control
large aspects of town planning, significant aspects of local government.

JULIAN LESER: This Federal Government doesn't want to see the end of the states. Indeed, the
Federal Government has probably been the most generous to states of any government since the war,
giving all the GST revenue to them.

HEATHER EWART: Julian Leser was a constitutional legal adviser to the Federal Attorney-General and
he's adamant the Commonwealth is on safe ground.

JULIAN LESER: It's not a revolutionary idea and it hasn't been dreamt up overnight. It's an idea
that's been used by the Labor Government before, when Paul Keating was Prime Minister in 1993. He
used the corporations power to put forward the Enterprise Bargaining Act.

HEATHER EWART: But the states argue the latest move goes much further and at least one Federal
Government minister fears they may be right. Gone, it seems, is the long-held tradition of the
Liberal Party staunchly supporting the principles of federalism and states' rights. But a few
months back, there was a lone voice in the wilderness, when Nick Minchin addressed the HR Nicholls
Society and spoke of the line he took in Cabinet.

SENATOR NICK MINCHIN: I can assure you that one of the things I did on every occasion of discussing
this was to test Ruddock and Andrews, to the best of my ability, on the status of their legal
advice on this question of whether or not the Corporations power really did support and
substantiate these sorts of changes. And I continue to have my doubts.

HEATHER EWART: Not surprisingly, he's keeping those doubts to himself these days, but he did also
raise concerns at the HR Nicholls Society gathering that the conservative make-up of the High Court
bench would not necessarily work in the Federal Government's favour. While the common view in legal
circles is the states don't have a hope in hell of winning, there are reservations.

JULIAN LESER: It's difficult to speculate. It really is. We've got a number of judges who have not
made any pronouncements on this before.

PROFESSOR GREG CRAVEN: I suspect that what will be happening is that there will be something of a
tension on the court between their usual approach to these cases, which tends to be expansive of
Commonwealth power, but a genuine worry that maybe this time, you really are letting the genie out
of the bottle in circumstances where you're never going to be able to put it back.

HEATHER EWART: For now, the odds look stacked against the states. But there's been no shortage of
surprises in the High Court in the past. It's expected to be several months before the bench hands
down its decision.

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Drilling begins to free two trapped miners

Broadcast: 03/05/2006

Drilling begins to free two trapped miners

Reporter: Scott Bevan

KERRY O'BRIEN: Now to the Beaconsfield mine site in northern Tasmania where after a long day of
very cautious preparation, the final critical round of drilling to free Brant Webb and Todd Russell
began tonight at about 6.45pm east coast time. For the latest, I'm joined at the mine by Scott
Bevan. Scott, now that the drilling has finally recommenced, can you just bring us up-to-date?

SCOTT BEVAN: Certainly, Kerry. I can tell you it is absolutely freezing here. It is very, very
cold, which I guess in some ways reflects the chilled mood in the town - one of apprehension and
tension and frustration, but that mood certainly would have been lifted a bit by the news that just
over an hour ago drilling finally began. There was some confusion earlier in the day about
midafternoon when there was talk that drilling had begun. It hadn't and I guess that's also a
reflection of how much caution surrounds this.

KERRY O'BRIEN: It has been three days now since the men were - it was discovered the men were alive
and they made that contact and that initial jubilation has faded somewhat. What are the key things
that have forced them to take this long time to get back to the drilling?

SCOTT BEVAN: I guess there are two major things. One is that when it was discovered that the two
men were alive and then it was ascertained they were in good health, good spirits and that they
could get food and water through to them, that bought time. Now it bought time not only for Brant
Webb and Todd Russell, but it also bought time for the rescue crews. It meant that they could take
a step back and think about the safest way and the most accurate way to drill through those 12
metres of rock and reach those men. The other issue is one of technical - I guess a technical issue
where the drill was bought over from the west coast of Tasmania and it is 5 tonnes of equipment and
they had to get it a kilometre below ground. But before that they had to create a platform for it
so 8 tonnes of concrete was poured. Now for anyone who's built a house they would know how long it
takes for a concrete slab to cure. They had to wait for that and then reassemble a kilometre down
with tradesmen these 5 tonnes of equipment to make the drill that will now be working through the
rock.

KERRY O'BRIEN: The mine management has been at pains to stress this final process could take a good
48 hours, but are they still saying that? Are they still using that 48-hour figure?

SCOTT BEVAN: No. That magic number we've all heard, which I guess an entire community, a state, a
country has been hanging on is not being said by the company. The company is at pains to say they
can't put an exact time figure on it. They keep saying it will take as long as it takes to do it as
safely as possible. Bearing in mind while it is only 12 metres of rock, there are a lot of unknown
in those 12 metres and they are trying to ensure that they don't create any more seismic activity
and create any more rock falls. Sources close to mineworkers with whom I've spoken have said if all
of the conditions are right it could be quicker than 48 hours, but the key word there is "if".

KERRY O'BRIEN: What is the latest, Scott, on the men's condition?

SCOTT BEVAN: Well, we've heard today, Kerry, that they are still in extraordinary health and
spirits, considering the predicament they are in. But a paramedic told the media, he's been down
there talking to the men down the PVC piping, and ascertaining what they are like physically and I
guess psychologically and he says for everyone concerned on both ends of that pipe it's like
running a marathon. There are peaks and valleys, there are highs and lows and there were a couple
of highs today I guess for the men. One is they had sent down the pipe digital cameras and not just
to take any old snaps, but snaps that would help get them out of there. Now these pictures that
they took were then sent back up on the disc through the pipe to give an idea to the rescue crews
where exactly they should be drilling towards and the conditions that these men are in at the
moment and the other thing that Brant Webb and Todd Russell have also received are personal music
devices known as ipods and we've learnt that Brant Webb asked for his to be loaded up with the
American rock band the Fu Fighters, rather loud guitar music, while Mr Russell has asked for a
selection of mixed country music. So while they might be physically in cramped space, at least they
will have a bit of space in their heads with this music.

KERRY O'BRIEN: Scott Bevan, thanks for that.

SCOTT BEVAN: Thanks, Kerry.

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ABC Learning loses Supreme Court appeal

Broadcast: 03/05/2006

ABC Learning loses Supreme Court appeal

Reporter: Mick Bunworth

KERRY O'BRIEN: Over the past few months the 7:30 Report has presented several stories about the
country's largest child care operator, ABC Learning. The first of those stories examined ABC
Learning's appeal against a $200 fine imposed after a child scaled a fence at one of its centres in
Melbourne. ABC Learning argued it wasn't to blame and that total responsibility for the incident
rested with the employees on duty at the time. But in the Victorian Supreme Court today, Mr Justice
Bell dismissed the appeal. Mick Bunworth.

MICK BUNWORTH: On the face of it, all ABC Learning Centres had at stake was a $200 fine and legal
costs, but this morning's decision by Justice Bell was about so much more.

JUSTICE KEVIN BELL, VICTORIAN SUPREME COURT: The critical consideration in this case is that the
policy of the children's services about is the protection of children, young children in the
absence of their parents or guardians for potentially long periods of time during the day are an
extremely vulnerable group in our community.

MICK BUNWORTH: Three years ago a 2-year-old boy climbed the fence of this ABC Learning Centre on
the outskirts of Melbourne and wandered the surrounding streets for 10 minutes before being found
by neighbours. Victoria's Department of Human Services successfully prosecuted ABC for breaching
the Children's Services Act. ABC appealed, arguing that its staff were responsible for supervising
the child and that blame could not be shifted to the company. The appeal was dismissed this
morning.

JUSTICE KEVIN BELL: I conclude that the obligation to protect and supervise children may be
criminally enforced against both the proprietor company and its staff. Where such a company
operates a childcare centre with staff who fail to perform these obligations, the company can be
held accountable and the staff do not bear the potential liability alone.

LYNNE WANNAN, COMMUNITY BASED CHILDREN'S SERVICES ASSOCIATION: I think parents should have been
nervous. I think they need to have confidence in the provider and if this had gone through saying
provider is not responsible, well then you have to ask who is and for staff they need to be in an
environment where they are protected against things going wrong for which they have no control.
Something that's outside of anything they can do.

MICK BUNWORTH: ABC chief executive Eddie Groves was unavailable for interview today. A company
spokesman said ABC was disappointed with the decision and was reviewing its options.If that case
continues, so will our stories.

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