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Wednesday, 10 April 1957

Mr R W HOLT (WANNON, VICTORIA) .- I do not think that anybody could seriously disagree with the specific tenor of the comments made by the Minister for External Affairs (Mr. Casey) in regard to the necessity for borrowing overseas. The reason the Opposition opposes this bill is, first, to express its disapproval, in general terms, of the type of overseas borrowings we had prior to the war, and, secondly, because we think it is timely now to issue a warning that unrestricted and uncontrolled borrowing - and I stress the word " uncontrolled " - both in the public sector and the private sector overseas could have a most adverse effect on our economy.

It is generally said, and I am sure that every one will agree, that it is much more desirable that our borrowing programme overseas relates to the public sector rather than to the private sector of our economy. If it is necessary that we should have to purchase American technological skill, the Government should consider the desirability of purchasing it with money borrowed in the public sector rather than permitting it to be purchased, at much greater cost, through private investment by overseas borrowings in the private sector.

I want to compare the position in regard to Australia's overseas borrowings with that in other countries and, for this purpose, I shall quote from what I consider to be an excellent essay on international finance in one of a series of publications of Princeton University, New Jersey, entitled " Essays in International Finance ". The publication from which I quote is No. 27, published in December, 1956. A table contained in it shows that although in the pre-World War II. period from 1870 to 1940 - seven decades - Australia borrowed £stg. 800.000,000 of its total capital investment, compared with £stg.600.000,000 in the ten-year post-war period to the end of June, 1956. That means that the rate of borrowing in ten years in the post-war period was far in excess of the rate in the 70-year pre-war period. That, of course, is indicative of an expanding economy and of the great needs of our economy. The Minister said, if I interpreted him correctly, that our proportion of overseas borrowings amounted to 5 per cent, of our total capital raisings.

Mr Casey - For developmental expenditure.

Mr R W HOLT (WANNON, VICTORIA) - Figures in a table in the essay from which I quoted show that in Australia the total capital formation in the period since the war was £A. 8,500,000,000 and the capital inflow from overseas was £A.750,000,000. The external capital, as a percentage of the total, was 9 per cent. 1 appreciate that the Minister was speaking from an unprepared statement. In comparison with the New Zealand figure, which is as low as 5 per cent., our figure is not bad, and bears out the statements of the honorable member for Wentworth (Mr. Bury) and other honorable members.

Mr Casey - I was speaking of the last few years.

Mr R W HOLT (WANNON, VICTORIA) - I am speaking of the ten years of the post-war period. The figures bear out what the honorable member for Wentworth and other honorable members on the Government side have said, which is that, at the moment, we can bear this load. The Rhodesian percentage of external capital borrowings, in comparison with total capital raising, is as high as 45 per cent. I do not share the equanimity which members of the Government display in regard to the fact that we are a fair risk now, and that everything is lovely. Our economy is fundamentally no different from, indeed it is similar to, what it was in 1931. In other words, we are still dependent entirely for our income on the sale of our primary products overseas. We have seen how a fall in the prices of rice and rubber very adversely affected the economies of Malaya and Burma. The demand for international price fixing through United Nations agencies and so forth was created purely by the difficulties which the economies experienced due to a sudden fluctuation of the prices of primary products on the national market. The same applies to this country. We could be in difficulties, and therefore the cost of servicing our overseas capital commitments could become a very real embarrassment to us again until such time as we were able to take the necessary remedial steps. I shall outline what those steps should be later.

We then turn to the point which was stressed by the honorable member for Melbourne Ports (Mr. Crean), who said that borrowings of this nature cannot be considered just on their face as separate isolated events. They must be taken into consideration with the over-all plan of our economy, and that means taking into consideration what is happening in the private sector of investments.

The Government has no direct control whatsoever over investment in the private sector of our economy. If it has some indirect control, it is very inadequate. If the Commonwealth had capital issues control it would be able to control that part of the economy and gear its overseas borrowings for public purposes accordingly. The Government doss control the overseas borrowings in the public sector. Therefore it is right that much of our borrowing should be done on that basis. We on this side of the House believe that the majority of our capital raisings should be internal. In that regard the Government should take steps to ensure that the raising of local capital is facilitated by the necessary financial and fiscal policies.

When we look at table 3 on page 13 of this report we find that in Aus- tralia in the pre-war period our total public capital inflow from overseas, was £600,000,000 sterling, and our private capital inflow, £200,000,000 sterling. In the post-war period the position has been reversed. The public amount raised overseas is £100,000,000 sterling and the private amount, £500,000,000 sterling.

If we turn to table 5 of this report we find the break-down of the sources of supply. The sources of supply of capital are most relevant because they can affect adversely our dollar exchange position. We find that of the total overseas capital raisings of £600,000,000 sterling in the post-war period, £350,000,000 sterling came from the United Kingdom, £100,000,000 sterling from the United States, £100,000,000 sterling from the world bank, and £50,000,000 from other sources. That means £350,000,000 sterling from the United Kingdom and £200,000,000 sterling from the dollar area. When we consider the extent of the borrowing in the private sector- £500,000,000 sterling - which is uncontrolled, we can see that the position could well be very dangerous at any time, depending on one thing only, and that is the international market prices for primary products. Compared with 1931, the difference is only one of degree. We are again dependent entirely upon our exports of primary products for the maintenance of the expansion programme that is necessary if we are to make any progress at all.

The inflow of American capital into the Australian economy has been largely in the fields of oil and General Motor-Holden's Limited. There have been a few other fields, but the main field is oil. Apart from the profits which have been ploughed back into the industries concerned, if we are to meet the commitments, increasing year after year, of 10 per cent, 15 per cent, and 17 per cent., this loan, together with private investment, may well mean that at this stage it is desirable that we have no further borrowings, or that if there are to be further borrowings the Government should seek and obtain the necessary control over overseas investment in our private sector. Another step which the Government could take of course, would be to give much more encouragement to the raising of local -capital for financing works which are now being carried out by loans from overseas. However,I agree that that is a very small proportion.

Another way in which the Government could assist greatly would be by encouraging and facilitating exports of secondary and tertiary industries. Last year, the Government brought down export guarantee legislation which received support from both sides of the House. That measure was designed to facilitate exports of goods. But when one looks at the record that the Export-Import Bank of America has achieved through government assistance to private enterprises in the export of services - by that I mean the construction of railways, roads, bridges, and irrigation works in the developmental countries - and when we consider the services that could be provided by Australian man-power and technical know-how in the fast-developing industrial economies of our neighbours in the East, we realize that much greater assistance could be given by the Commonwealth Government of the type extended by the Export-Import Bank of America in the provision of this kind of service.

Lastly I believe that the resources of the International Bank should be placed more at the disposal of United Nations agencies such as Sunfed, that is, Special United Nations Fund for Economic Development - which undertake developmental schemes in backward countries. Funds such as we are now seeking should be available more for that type of thing and less for developing or further developing an already developed economy such as ours. I believe there are alternatives which the Government should seek rather than take support from admirable purposes such as the one I have mentioned - Sunfed.

I conclude by emphasizing that now is the time to take stock and ensure that we do not over-indulge in a form of finance which could lead us back to disaster again.

Question put -

That the bill be now read a second time.

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