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Australia - stability in the Asia Pacific: address to the Australian-American Association, Harvard Club, New York



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C^lCf

S p e e ch

by th e

M in ister for Foreign Affairs T he Hon. A le x an d e r D ow ner MP

to th e

A u stra lia n -A m e ric a n A ssociation

Australia - Stability in the Asia Pacific

H a rv ard C lub New York, 8 J u n e 1998

(C heck A g a in st Delivery)

Australia - Stability in the Asia Pacific

S peech by th e H on A lexander Dow ner, MP, M inister for Foreign Affairs, to th e A ustral!an -A m erican A ssociation, H arvard C lub, New York.

In tro d u ctio n

T h a n k you very m u c h M r G avin A nderson, M r J o h n Merow, C h a irm a n of th e A u stra lia n A m erican A ssociation; Mr Perry W elch, P resid en t of th e AAA

D istin g u ish ed m e m b e rs of th e A ssociation, lad ies a n d gentlem en.

A u stra lia is in a s good econom ic sh a p e a s it h a s b e en for a generation.

T h a t is a fu n d a m e n ta l m e ssa g e w hich I w a n t to convey to you today.

C ertainly th e la s t twelve m o n th s have p re se n te d g rea t difficulties for a n u m b e r of

econom ies in th e A sia Pacific. In a n e ra of in c re a sin g globalisation, world b e s t

p ractice - in c o m m u n ic a tio n s, in tra d e a n d in finance - is increasingly the m e a s u re

by w hich all o u r e co n o m ies a re ju d g ed .

I a m very glad to be able to tell you here to d ay th a t A u stralia, th a n k s in large p a rt to

reform s im p le m e n te d over th e la s t two y ears, h a s w ithstood th e close sc ru tin y of th e

in te rn a tio n a l m a rk e ts in re c e n t m o n th s. T h a t’s b e c a u se A u stra lia now h a s

econom ic a n d fin an c ia l policy se ttin g s w hich will ste e r u s into th e n ex t cen tu ry . We

h av e th e b e s t s e t of fu n d a m e n ta ls in A u stra lia we've se e n sin ce th e 1960s.

I’d like therefore to begin to d ay by telling you in m ore d etail how th e A u stra lia n

G ov ern m en t h a s gone a b o u t se c u rin g o u r fu tu re in th e A sia Pacific a t a tim e w h ich

h a s proved so tu r b u le n t for m a n y regional econom ies. Second, I’ll a d d re ss w hy w e

still co n sid er th e A sia Pacific region to be likely to r e tu r n to good grow th in th e n o t

too d is ta n t fu tu re . Finally, I’d like to say so m e th in g a b o u t In d o n esia ’s c u rre n t

situ a tio n a n d th e h o p e we h old for its g re a te r sta b ility a s a key player in the region.

Part One: Australia’s Stability in Troubled Times

T he sto ry of th e A u s tra lia n econom y a t th e m o m en t is one of stro n g fu n d a m e n ta ls.

W h en th e G o v e rn m e n t cam e to office in 1996 we w ere concerned th a t A u stra lia , th e n

ru n n in g a c o n sid e ra b le b u d g e t deficit, co u ld be exposed to in te rn a tio n a l sh o c k s of

exactly th e k in d w e’ve w itn e sse d in A sia over th e la s t year. B ut o u r G o v e rn m e n t h a s

ta k e n th e n e c e ssa ry a ctio n to h e lp A u stra lia w ith sta n d ex tern al sh o c k s. To a large

ex ten t, o u r econom y h a s b e en sh ie ld e d from th e ravages affecting several regional

econom ies.

W e’ve im proved th e G o v e rn m e n t’s fin an cial position su b sta n tia lly . In th e sp a c e of

tw o y e a rs w e’ve se e n a deficit of a ro u n d $A10 billion tu rn e d into a s u r p lu s of $A 2.7

billion for th e com ing fin an cial y ear. A nd w e’ve im plem ented a C h a rte r of F iscal

H onesty w hich m e a n s th a t you c a n be co nfident th a t th e prom ised s u r p lu s will be

delivered.

W e’ve also im p le m e n te d a n a g re e m e n t w ith o u r Reserve B ank w hich c o m m its th e m

to k eeping in flatio n w ith in acc ep tab le lim its. Inflation now sits a t a ro u n d 1.5 p e r

cen t, th e low est ra te in over thirty-five y ears. And th a t low inflation is u n d e rp in n in g

w h a t are also th e low est in te re s t ra te s in a generation.

G ov ern m en t d e b t is a n o th e r a re a w here w e’ve achieved s u b s ta n tia l s u c c e s s in

p u ttin g A u s tra lia ’s econom ic h o u se in order. A pro g ram of deb t re d u c tio n is well

u n d e r w ay a n d we will see G o v ern m en t d e b t a s a p ro portion of GDP fall from its level

of 20 p e r c e n t in 1996 to a m a x im u m of 10 p e r c e n t by th e y e ar 2000.

A nd we in te n d to com plete th e p riv a tisa tio n of o u r n a tio n a l telecom s c a rrie r, T elstra,

w ith a view to re d u c in g th a t d e b t level to a s low a s only 1.5 per cen t of GDP.

As a c o n seq u e n ce of p u ttin g all of th e se reform s in place A u stra lia ’s stro n g g ro w th is

c o n tin u in g d e sp ite th e im p a ct on o u r ex p o rts of th e E a s t A sian econom ic crisis.

Specific e x p o rts to som e A sian m a rk e ts a re being affected b u t th is h a s b e e n offset, at

le a s t to som e e x ten t, by in c re a se d ex p o rts to o th e r m ark ets.

As a re s u lt of o u r expected low er ex p o rts to A sia in th e next fin an cial year, we expect

to be grow ing a t a ro u n d 3 p e r c e n t p e r a n n u m in 1998-99, ra th e r th a n c o n tin u in g to

grow a t 3 .7 5 p e r cen t a s we a re doing in 1997-98.

We will, how ever, still be th e fa s te s t grow ing of th e m ajor OECD econom ies a n d well

above th e OECD average.

N or sh o u ld th a t com e a s a n y su rp ris e . S u sta in a b le low inflation a n d low in te re s t

ra te s, a so u n d fiscal a n d d e b t re tire m e n t stra te g y a n d o u r p ro -b u s in e s s policy

se ttin g s h a s c re a te d a very positive clim ate for su s ta in a b le lon g -term grow th.

It is b e c a u se A u stra lia is in s u c h excellent econom ic sh a p e th a t we hav e b e en ab le to

com e to th e aid of o u r regional n e ig h b o u rs in th e ir tim e of need.

A u stra lia is one of only two c o u n trie s- th e o th er b ein g J a p a n - to h av e c o n trib u te d to

all th re e IMF p a ck ag es - for T h aila n d , Korea a n d Indonesia. T h is is a c o n trib u tio n

t h a t is in A u stra lia ’s n a tio n a l in te re s t, b u t is also som eth in g we w a n t to do a s a n

‘all-w e ath er frien d ’ to th e region.

A u stra lia is also providing tra in in g to econom ic a n d tra d e officials from C en tral

B a n k s a n d D e p a rtm e n ts of T rad e a n d F inance in T hailand, M alaysia, th e

P hilippines, In d o n esia a n d V ietn am in policies for reg u latio n a n d m a n a g e m e n t of

fin an cial services.

We a re alread y doing th is o n a b ila te ra l b a sis th ro u g h o u r aid p ro g ram . And we also

will b e c o n trib u tin g to a region-w ide effort th ro u g h sim ilar tra in in g p ro g ra m s

a n n o u n c e d by APEC F in a n ce M in isters in C a n a d a la s t m onth.

A u stra lia , so stro n g in th e a re a s of fin an ce a n d c o rp o rate governance, is m ak in g a

rea l c o n trib u tio n to a s s is t affected regional econom ies move b eyond th e crisis.

Part Two: The Outlook for the Region

T h ere is no d o u b t th a t E a s t A sia’s econom ic difficulties have focused th e

in te rn a tio n a l a n d regional sp o tlig h t o n se rio u s underly in g p ro b lem s in th e financial

se c to rs of som e regional econom ies. It is clear th a t th e developm ent of th e s e se c to rs

failed to keep p a c e w ith th e sp e c ta c u la r inflow of c ap ita l and re so u rc e s w hich fuelled

th e E a s t A sian ‘m ira c le ’.

T he key to th e reg io n ’s recovery - s h o rt a n d long te rm - therefore lies in do m estic

econom ic reform a n d c o n tin u e d trad e lib eralisa tio n , leading to freer a n d m ore open

m a rk e ts , a n d ren ew ed in v estm en t in th e region.

T h is is th e c le a r le sso n from th e experiences of L atin A m erica in th e late 1980s a n d

early 1990s a n d m o re recen tly th e M exican exp erien ce in 1994-95. T he L atin

A m erican econom ies, w ith th e help of th e IMF a n d o th ers, were able to p u t th e ir

fin an c ia l sy s te m s o n a s o u n d e r footing, a n d h a s te n th e ir re tu rn to econom ic grow th.

T h a t is w hy im p le m e n ta tio n of th e IMF p a c k a g e s in Korea, T h ailan d a n d In d o n esia is

so im p o rta n t. It will h elp b o o st in te rn a tio n a l m a rk e t confidence in th e region’s

p ro sp e c ts. We a re a lre ad y seeing positive in te rn a tio n a l m ark e t re a ctio n to th e

im p le m e n ta tio n of th e IMF pro g ram s in K orea a n d T h ailan d . Indeed, th e c u rre n c ie s

of th e s e eco n o m ies h av e ap p re cia te d by a ro u n d 20 p e r c e n t th is year.

In d o n e sia is, of c o u rse , u n d erg o in g a m u c h b ro a d e r tran sfo rm a tio n b u t I will com e

b a c k to th a t sh o rtly .

W e m u s t all k eep in m in d th a t th e econom ic s tre n g th s w hich m ade E a s t A sia highly

a ttra c tiv e to global in v esto rs in th e first place over th e la s t two d e ca d es have n o t

v a n is h e d - h igh sa v in g s ra te s, a n in creasin g ly skilled a n d e d u ca te d w orkforce a n d a

d y n a m ic b u s in e s s e n v iro n m en t are still in te g ra l p a rts of th e econom ic fram ew ork.

T h e G o v e rn m e n t h a s confidence th a t th e se s tre n g th s will c o n trib u te to fu rth e r

stro n g grow th once th e c u rre n t sto rm s are b e h in d u s.

In a d d itio n to th e c h a lle n g es of im p lem en tin g th e IMF packages, th e re rem a in a

n u m b e r of h a z a rd s for th e regional econom y. T he crisis could be prolonged - a n d a

r e tu r n to p ro sp e rity d elayed - if th e following e v en ts w ere to com e in to play:

. if th e J a p a n e s e econom y e n tered a very d eep recession;

. if th e C h in ese Y u a n w ere to be d ev alu ed significantly; a n d

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. if th ere were to b e a re s u rg e n c e of p rotectionism in the region a n d h e re in the

U nited S tates.

B u t th e G overnm ent believes th e re is c a u s e for optim ism th a t th e region c a n avoid

th e s e pitfalls.

To tu r n first to J a p a n , Prim e M in ister H ashim oto’s stim u la to ry p a ck a g e of a ro u n d

USD 190 billion s h o u ld provide a m u c h -n e e d e d b o o st a n d h elp sta b ilise th e

J a p a n e s e econom y. E ven m o d e s t grow th in J a p a n - th e w orld’s se co n d la rg e st

econom y - w ould be a s h o t in th e a rm for th e region.

A s u s ta in e d recovery in J a p a n will d e p en d , however, on full im p le m e n ta tio n of th e

p a ck a g e ’s a d d itio n al m e a s u re s - stro n g prom otion of econom ic s tr u c tu r a l reform a n d

m ore rap id w riting-off for b a d lo a n s. A critical issu e for the region will b e th e e x ten t

to w hich th e J a p a n e s e econom y c o n tin u e s to d e-reg u late a n d o pen u p to th e region’s

exports. The im p le m e n ta tio n of c o m m itm e n ts already m ad e by J a p a n in th is a re a

will be very im p o rtan t.

Second, th e C hinese G o v e rn m e n t re m a in s strongly com m itted to e n s u rin g th a t th e

Y u an is n o t devalued. A nd C h in a is d eterm in ed to achieve key m a rk e t-o rie n te d

reform s in its state-o w n ed e n te rp ris e s a n d financial sector, in clu d in g th e b a n k s .

Finally, th ere h a s n o t to d a te b e e n a re su rg en c e of p ro te c tio n ist se n tim e n t.

However, it m u s t b e sa id t h a t s y m p a th is e rs a n d p ro p o n e n ts of th is type of se n tim e n t

lu rk on th e fringes of political d e b a te feeding off the co n cern a n d d isco m fo rt som e

people w ith th e sh o rt-te rm im p a c t of som e econom ic change.

We sh o u ld all be e n c o u rag e d b y th e fact th a t we have se en even th e m o s t affected

econom ies c o n tin u e th e ir c o m m itm e n t to reform a n d econom ic lib e ralisa tio n in a

ran g e of relev an t fo ru m s.

T he APEC m eeting in V an co u v er la s t y e a r show ed th e w ay forw ard - it w a s a ‘vote of

confidence’ in lib eralisa tio n a t a m o st difficult time.

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Also, in April th e OECD M inisterial C ouncil M eeting reaffirm ed th e c o m m itm e n t of

all OECD c o u n trie s to m a in ta in in g a n d fu rth e r o p en in g access to th e ir m a rk e ts .

O n th e o th e r h a n d , it is tru e th a t a ris k re m a in s - if th e US c u rre n t a c c o u n t deficit

blow s o u t - t h a t p ro te c tio n ist forces m ay g a in new a d h e re n ts in th e U n ited S ta te s.

B u t we h av e b e e n h e a rte n e d by P re sid e n t C lin to n ’s sta te m e n ts a t th e WTO

M inisterial M eeting w here h e strongly e n d o rs e d th e benefits of lib e ra lisa tio n a n d

called for sw ift a ctio n in low ering tra d e b a rrie rs .

So provided regional econom ies can s ta y th e c o u rse on reform a n d avoid th e p itfalls I

have o u tlin e d th e G o v ern m en t re m a in s co n fid e n t t h a t E a s t Asia c a n r e tu r n to stro n g

s u s ta in a b le grow th ra te s. Indeed, I a m co n fid e n t th a t Asia will em erge from its

c u rre n t c risis a ra th e r different place th a n it w a s a y e a r ago: it will be m ore

dem ocratic, m ore a cc o u n ta b le , m ore tr a n s p a r e n t a n d all in all a b e tte r political a n d

econom ic p a rtn e r for th e re s t of th e w orld.

Part Three: Indonesia

As I have sa id th e w ay forw ard for regional e co n o m ies a t th is tim e m u s t b e th ro u g h a

c o n tin u e d co m m itm en t to econom ic lib e ra lisa tio n a n d by bringing a b o u t

tra n s fo rm a tio n s in th e w ay in w hich th e ir fin an cial se cto rs operate.

In In d o n esia, how ever, we are seeing m u c h m o re sw eeping tra n sfo rm a tio n s ta k e

place a s th e c o u n try e n te rs a new era.

We have se e n th e econom ic p re s s u re s b ro u g h t to b e a r by the c u rre n c y c risis in te ra c t

w ith d e sire s for b ro a d e r political reform . A u stra lia w elcom es th e re s u ltin g

c o n stitu tio n a l tra n s fe r of pow er from form er P re sid e n t S u h a rto to P re sid e n t H abibie.

P re sid e n t H abibie’s swift m ove to a p p o in t a c o m p e te n t Cabinet, in clu d in g a n u m b e r

of cap a b le eco n o m ists, is a very positive sign. M oreover, P resident H abibie h a s

m ad e a co m m itm en t to p a rlia m e n ta ry ele ctio n s b e in g held by th e e n d of 1999, w ith

elections for th e position of P re sid e n t to follow n o t too long after th a t.

P re sid e n t H abibie clearly reco g n ises th e n e ed for political reform if In d o n esia is to

re g a in th e political a n d econom ic sta b ility w hich it h a s enjoyed for som e d e ca d es

now . A nd A u stra lia certain ly w elcom es P re sid e n t H abibie's ta k in g th e se ste p s, a s

w ell a s th e release of p riso n e rs h eld p u re ly for political reasons.

T h e d e ta ils of how far In d o n esia p ro ceed s dow n th e p a th of reform is, how ever, a

m a tte r for In d o n e sia n s to decide. It c a n n o t be any o th e r way.

T h e in te rn a tio n a l c o m m u n ity sh o u ld be en co u rag in g reform b u t n o t in a p a tro n isin g

o r p a te rn a listic way. To do so w ould sim p ly derail th e reform p ro c e ss j u s t a s it is

b e g in n in g to develop its ow n h e a d of ste a m .

T h e In te rn a tio n a l M onetary F u n d is playing a critical role in h e lp in g th e In d o n e sia n s

p u t th e ir econom y b a c k o n its feet a s c o o rd in a to r of th e rescue p a ck a g e p u t to g eth er

b y th e in te rn a tio n a l co m m u n ity .

T h e early re tu rn of IMF re p re se n ta tiv e s to J a k a r t a a fte r P resid en t H ab ib ie’s

su c c e s s io n w as th erefo re m o st w elcom e. W e believe th e p ro cesses for co n sid erin g

fu r th e r m u ltila te ra l fin an cin g for In d o n esia sh o u ld be resu m ed a s so o n a s possible.

T h e se re s o u rc e s are vital for In d o n esia given th e c u rre n t state of its econom y a n d

th e s u b s ta n tia l h u m a n ita ria n p ro b lem s it faces.

T h e IMF sh o u ld c o n tin u e to play its c e n tra l role in advising o n econom ic reform s

w h ic h will accelerate In d o n e sia ’s recovery b u t it sh o u ld do so w ith o u t se ttin g

c o n d itio n s w hich a re e sse n tia lly political in n a tu re . T he IMF, it s h o u ld be

re m e m b e red , is a n econom ic a n d n o t a political in stru m e n t of ch an g e. E nco u rag in g

p o litical reform is one thing: being se e n th ro u g h th e IMF to b u lly a n d cajole

In d o n e s ia into a p a rtic u la r political p a ra d ig m will n o t only invite a negative a n d

la s tin g b a c k la s h from In d o n esian s; it will u n d e rm in e th e acceptability of th e IMF to

m a n y c o u n trie s a n d th a t could be a b a d th in g for th e global econom y.

A u s tra lia e n c o u rag e s th e U nited S ta te s to e n s u re th a t th e IMF is ab le to play a n

a p p ro p ria te role in re sto rin g In d o n e sia ’s stability.

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In d o n esian sta b ility is vital to A u s tra lia ’s in te re sts a n d I believe to th e region m ore

broadly. As a key p la y e r in ASEAN, In d o n esia h a s su b s ta n tia lly c o n trib u te d to

peace a n d p ro sp e rity in th e S o u th E a s t A sian region for th e la st th irty y e ars. It is

im p o rta n t to c o n tin u e to do so.

W here In d o n esia n e e d s o u r im m ed iate help is in m a k in g th eir econom y m ore

efficient. T he in te rn a tio n a l c o m m u n ity , b o th th ro u g h th e In tern a tio n al F in a n c ia l

In stitu tio n s a n d b ilaterally , s h o u ld be doing all it c a n to help on th a t front.

Conclusion

I w ould like to c o n clu d e m y a d d re s s to you today by re tu rn in g to m y o p e n in g them e.

A u stralia is w ell-eq u ip p ed to face th e rig o u rs of global sc ru tin y of its econom y.

The A u stra lia n G o v e rn m e n t h a s tu rn e d a ro u n d a h u g e deficit in two y e a rs, h a s p u t

in place a low in flatio n a n d low in te re s t ra te regim e a n d h a s b eg u n a p ro g ra m of

m assive G o v e rn m e n t d e b t re d u c tio n . T hese reform s h a v e b u ilt a p latform w h ich h a s

allowed o u r econom y to re ta in co n sid era b le stab ility d u rin g th e sto rm s w h ich have

sw ept A sia over th e la s t y ear.

A u stralia th erefo re h a s b e e n ab le to provide a s s is ta n c e w hen o u r regional

n eig h b o u rs n e ed e d it.

And th e A u stra lia n G o v e rn m e n t re m a in s confident t h a t w ith th e help of th e

in te rn atio n al c o m m u n ity econom ic stab ility will r e tu r n to the region. O nce a g ain the

p h ra s e s "E ast Asia" a n d "rapid grow th" c a n be sy n o n y m o u s - provided th e region

can s u s ta in its c o m m itm e n t to econom ic reform a n d liberalisation.

Indeed, a s I h av e sa id , I believe A sian econom ies will em erge a s m ore open, m o re

tra n s p a re n t, m o re a c c o u n ta b le a n d m ore dem o cratic a fte r com ing th ro u g h th e

c u rre n t sto rm - a fte r all, all s to rm s do p a ss.

For th a t to h a p p e n , how ever, th e in te rn a tio n a l c o m m u n ity - an d h ere th e U nited

S ta te s h a s a vital role - h a s to sta y on th e case a n d provide help w here it is m o st

effective. B u t we m u s t n o t se ek to be too in te rv e n tio n ist or o u r a c tio n s m a y be

c o u n te rp ro d u c tiv e .

A u s tra lia ’s certain ly will be sta y in g on th e c ase. O u r com m itm ent to o u r reg io n is

deep a n d a b id in g one. A u stra lia is no "fair w e a th e r friend".

We will c o n tin u e to help o u r n e ig h b o u rs in w ays w h ich will a s s is t th e m to m ove

b ey o n d th e crisis.