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Parliament House, Canberra, Thursday 3 December 1997, 12.30pm: transcript of doorstop [Korea, IMF, Economy]


TREASURER: The International Monetary Fund has reached an agreement with the Korean Government in relation to substantial restructuring of the Korean economy and the international agencies are going to make available a fund of up to $34-35 billion to stabilise the situation in Korea, whilst that restructuring is put in place. The International Monetary Fund has also asked a number of countries, including Australia and the major economies of the world, if they would stand ready to provide a second line of financing in the event that it was needed outside of that package. The Australian Government has agreed that it will consider providing assistance to that second line of financing should it become required. And that we would make available up to US$1 billion dollars. This would be done by way of a currency swap and it would be done on commercial terms with interest payable and the monies repaid in full. The reason why Australia will be joining that line of financing, if required, is that Korea is one of our major export destinations. The strength of Korea is very much in the interests of Australia. And it is in the interest of Australian exports and Australian jobs that the situation is secured in Korea and that is why the Australian Government has agreed to consider being part of that second line of financing if required. We are doing this as part of the region but we are also doing it as part of an international effort to stabilise the situation in Korea. An effort that is very much in the Australian national interest.

JOURNALIST: How likely do you think it is that it might be required?

TREASURER: Well, the anticipation of the International Monetary Fund is that the first tier will be sufficient. That is their anticipation at this stage. But lest anybody should be in any doubt as to the seriousness of the world financial community, the second line will be there and will be available. It's a statement really by major economies around the world of the importance of securing the situation in Korea and that is why those countries, including Australia, have agreed to provide a second tier if required.

JOURNALIST: What is the second tier worth in total?

TREASURER: The second tier is up around the order of $20 billion making the package in total up around the order of US$55 billion plus.

JOURNALIST: What is the advantage of a currency swap?

TREASURER: Well there are ways in which you can do these financing arrangements. The advantage of a currency swap is that you can lock in the transaction in advance to be unwound at particular exchange rates and you can also lock in the interest rates that are payable under such a tier. But let me make it clear the Australian Government has advanced no monies and will advance no monies under those arrangements until such time as the International Monetary Fund notifies that it is necessary for second tier financing.

JOURNALIST: How much does Korea have to do to get this support, you have made it clear in the past that Australia is conditional on economic reform in that country. How long will that reform take to have an impact on restoring growth in Korea?

TREASURER: Well it is a very wide ranging program that has been agreed. It involves Korea taking steps in relation to its fiscal position and building fiscal surpluses, it involves monetary policy, it involves restructuring the finance system. The Korean Government has already announced that it is dealing with nine merchant banks, but plainly it will have to secure the situation in relation to other financial institutions. It will have to open and liberalise its financial markets and it will also have to ensure that good corporate practice is implemented in relation to its financial institutions. Now all of that will open and liberalise the Korean economy. That will be good for Korea but it will also be good for Australia, to open and liberalise the Korean economy which will not only get Korea on a stronger path which is good for our economy but it will enhance long term trade opportunities for Australia.

JOURNALIST: How much pressure are these bailouts putting on the IMF and other international financial institutions in particular in Japan?

TREASURER: Well the IMF now has packages in Thailand, in Indonesia, a small package in the Philippines and a major package in Korea. This is the largest financial package that has ever been put together. But the IMF has not only its deep reserves but it has been resourced by Governments for a long period of time and it has the financial resources in conjunction with the World Bank and the Asian Development Bank to put together a sum of that size. The IMF and the multilateral institutions of course just draw this down over a period of time in response to progress made in relation to restructuring and it provides the finance if you like to get these countries over their immediate problems until such time as the economic reform puts them on a sustainable, medium term secure basis.

JOURNALIST: How long do you think it will take....Korea's current crisis?

TREASURER: Well I think the restructuring in Korea is going to take numbers of years. But the short term problems, provided the package is implemented successfully, I think can be dealt with in a short term way.

JOURNALIST: Having seen the details of the package Treasurer, has it eased your concerns somewhat about the impact on the Australian economy?

TREASURER: The good thing about this is that we now have in place an arrangement to secure the situation in Korea. That means that there is now an international plan to start pulling things back up in Korea. That is good for Australia. This package is good for Australia, not just Australia, it's good for the world because this is a decisive intervention. And so I think we can all say the good thing is that there is now the decisive intervention. The hard work begins, but the prospects as a consequence are much better than they were say a week ago.

JOURNALIST: Has the IMF indicated any other, if the worst of the trouble's over, or if there are any other economies maybe in danger ...?

TREASURER: Well look the IMF publishes reports on economies from time to time and you can read those reports, they're all out there, I've got nothing to add to that.

JOURNALIST: But do you think this will be the last country that Australia is asked to help out in this way or ...?

TREASURER: Well we wouldn't be, we think that if the situation can be secured in Korea that means that the situation can be secured generally. But I say this, if the situation had not been secured in Korea the fallout could have been much greater.

JOURNALIST: Particularly in Japan?

TREASURER: Oh. I'm not going into that.

JOURNALIST: There've been suggestions this week that the Reserve Bank was reluctant to get involved in the Indonesian package because of its concerns of corruption and other things. What do you say to those claims and is the Reserve Bank involved in arranging this currency swap?

TREASURER: Well, who are they?

JOURNALIST: Brian Toohey ....

TREASURER: Well you'd better ask Brian Toohey.

JOURNALIST: But is the Reserve Bank.......

TREASURER: You can't say to me that there are suggestions that the Reserve Bank was reluctant to be involved and not cite anybody from the Reserve Bank, and cite Brian Toohey.

JOURNALIST: But is the Reserve Bank involved in the currency swap?

TREASURER: The Government and the Reserve of course are working closely in relation to this and this is supported not only by the Government but by the Reserve Bank of Australia.

JOURNALIST: Treasurer, with the economy growing so strongly a lot of people were predicting it would reach a real head of steam late next year. Do you think these Asian problems will to some extent smooth out the economic cycle so that we can get that long sustained growth you used to talk about.

TREASURER: Well yesterday our national accounts, you should never take too much from one quarter of the national accounts. You always have revisions. I've made that point when the national accounts have been low, I'll make that point when the national accounts are high. You always have revisions. What you can say in relation to the last two quarters is if you take them together, if you look at a figure in the last two quarters which is up around 3 per cent for two quarters, even allowing a margin for error, this is a very high growth economy. This is probably the fastest growing economy in the developed world at the moment. Now the growth that's coming in the Australian economy is principally coming from domestic sources and as we saw in relation to the last quarter principally coming out of private demand.

My view is that that private demand is continuing in the December quarter which we are now in, the current quarter, and if that continues you have a very strong growth economy for the course of 1997- 9- 98. I think that we will continue to have a strong growth economy through 1998 and 1999 but as I've said, if you're looking for threats to that the one threat that we can see on the horizon is an external threat, it's out of our control, except to the degree that we are part of international efforts to ameliorate the damage. But the good thing about it is that having taken the corrective action ourselves in relation to our own position, having got to a situation where we are now growing strongly, we will weather those external events better.

We will not be able to ensure that they have no impact. As I've always said they will have an impact. What it means is maybe we won't break the records that we could have broken otherwise. But we are in a much stronger position to weather those external events.

JOURNALIST: What will that mean for jobs?

TREASURER: What that means is good jobs growth, we've seen good jobs growth in the last couple of months and we will continue to see strong employment growth in the Australian economy and that is the consequence of high growth. We are high growth because that's pro-employment, that's projobs. But I've also always made the other point and that is that jobs growth will follow the cycle but if Australia really wants to crack the unemployment issue we've also got to engage in the structural change. And the structural change comes back to a whole host of factors, principally of course industrial relations.

JOURNALIST: Treasurer just on the question of retiring debt. Now you've said consistently that the proceeds of the Telstra sale should be put straight into retiring debt. Are you concerned about any pressure particularly in an election environment to start spending some of this money that you saved?

TREASURER: Well I say to the public this, that the sale of Telstra is a one-off event. If we sold a one-off interest in Telstra and then spent the money immediately what you would have done is you would have sold off the family silver to pay the grocery bills. But the grocery bills keep on coming in. But if we have this one-off event, we sell one-third interest in Telstra and we pay off debt, we reduce our mortgage as it were, we get the benefits forever. Our interest bill goes down forever. That's why I've always said that the right thing to do with privatisation is to retire debt. You see that's what makes us different from Labor. When Labor sold Qantas they expended the money in one year. When Labor sold the Commonwealth Bank they expended the money in one year. No Commonwealth Bank and the bills kept rolling in. That's why our Government is different and that's the important thing to understand. If we can retire Australia's debts, get them down, then we can reduce the cost of paying the interest bill. At the moment in Australia the interest bill that we pay on the Keating/Beazley Labor debt is $9 billion a year. You've got to pay $9,000 million a year in taxes to service the Beazley/Keating Labor debt. If I could get that debt down then people's taxes would go on building their schools and their hospitals and their roads. And that will just be a much more productive thing.