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Transcript: February 1991 balance of payments press conference

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NO [ press! RELEASE I





T: I just thought I would give you first of all, a few

preliminary comments on the balance of payments figure for February 1991 which was $1434 million, seasonally adjusted, which is I think a pretty reasonable number. It is lower than market expectations and it means that we are keeping steady progress on reducing the current

account deficit and interestingly we have got exports up 5 per cent, the highest monthly result on record, and need I remind you that exports are up

notwithstanding the fact that prices for exports are down substantially. So it means the volumes are

running very strongly indeed. So exports are doing well. Imports up 2 per cent but because there is a lot of lumpy unlikely imports there. What we call

endogenous imports, that is the underlying level of imports, are down by 2 per cent. So if we look at the current account deficit for the 8 months of this year compared to the first 8 months of last year, we have got the current account deficit improved by 23 per cent, we have got exports up by 8 per cent and imports down by 4. And if you take civil aircraft and a few of the exogenous imports out, you have got underlying

imports down 7 per cent over the 8 months compared to the 8 months of the previous year. So the current

account improved by 23 per cent or by $3.5 billion over the 8 months of the previous year. Exports up by 8, imports down by 4, but underlying imports down by 7. And the graphs in the release on balance of goods and

services and on merchandise trade looking rather encouraging. And merchandise exports FOB looking very encouraging. I mean that long export line, again, I have made this point now a number of times recently, , and with the balance of payments figures for the last

quarter, they are all showing those very solid upward lines trends for exports from the middle 80s onwards. So that is just continuing today and looking




You missed out on the debt servicing cost, Mr Keating, when you were running through those figures. I think that is up by $1 billion over the 8 months so far of

this year, but by 9 per cent. That doesn't look too promising. That is in fact just about equal to the current account deficit for the whole period of this

financial year.

Well that service component of the net income deficit is the hard part of the numbers. And that is why the focus is on the merchandise trade. And we have got merchandise trade recording a surplus of $178 million, up $136 million on January and I might just also add

that gold is up 90 million or 33 per cent. So all the people saying that the national accounts only showed positive growth for gold, you were one of them, for the quarter, please take note. That means it is

continuing. And it means that because we have got a substantial stock of debt and the servicing of that debt remains a problem it just means the trade account has got to perform that much better which it is doing.

Are you going to see any great benefits here from the abolition of the floor price for wool?

Well there would be no change in wool prices in this release I should imagine.

Net export volumes, no problems....

Well volumes should improve, volumes have to improve don’t they. I mean we are seeing a much diminished buy in now by the Commission and a higher sale of

offerings, Tom. So that must help the volumes. But can I make this point again about exports. Exports are up substantially, but the prices are down so it means the volumes are very up, right up very strongly. In other words, if we had not this very large fall in the

terms of trade which I referred to at the last press conference, the export earnings would now be

ballooning, ballooning us into a very strong

merchandise trade position. I mean, if we had export prices running with these volumes we would be in a very advantageous position.

Are export volumes offsetting the $18 billion forecast in the Budget?

Well I would have to wait and see I think on that but the fact is the 18 is comfortable I think at this point against the context of falling prices. I mean, when the 18 was set, prices have fallen since and yet we are still going to make the 18.


J : Mr Keating, are you concerned with the exchange rate moving up will present a problem for selling exports in the coming period?

T: Well, when you say moving up, I think you have got to

say all exchange rates move up and down from time to time. It is where it is relative to where it was. And it is somewhere between 22 and 25 per cent down on 1985 on the trade weight, and it is about 100 per cent down against the Yen.

J : So you are not worried about improving the dollar?

T: There are lots of influences in the exchange rate, I have said in these press conferences often. This is I think still essentially a commodity driven currency and the terms of trade are down but the exchange rate has come off about 11 per cent in the last year as the

terms of trade themselves have come off about 14. So, you know, the forex market is noticing that shift. And of course interest rates are off.

J : Is there any chance at all for the Government focussing more on the level of the dollar, that the dollar as a government policy or not?

T: No, I think that we have had a very mature attitude

towards the exchange rate. And I think the foreign exchange market is now quite deep and quite well


J: So what do you think of Mr Dawkins' comments on the

exchange rate?

T: Well to the extent that he thought that the floating exchange rate in the early days was an unhappy

experience for us, I don't think that is right. I

think the floating exchange rate has served Australia very well. We went through an enormous fall in the terms of trade and enormous improvement in

competitiveness in the 1985-86 period and yet with relatively modest interest rates compared to a lot of other countries and you can only put that down to the float. And since then, the foreign exchange markets

just got better and better at dealing with the

exigencies of our economy and its trading environment.

J: Have you discussed this matter at all with Mr Dawkins, either before he gave the speech or since he gave the speech?

T : Well it was discussed in Cabinet today. The Prime

Minister in my view quite appropriately raised some of the context in which the speech was given. But John Dawkins made it clear, and apparently in his delivery of the speech in Melbourne, that references to this

sort of orthodoxy, what is described as a current


orthodoxy, references to the orthodoxy of the

free-marketeers in this country, on the right of Australian politics, eventhough I think we would regret the fact that in the transmission of that in the speech

it is not all that clear. But by and large, he made it quite clear to the Cabinet that he was supporting the Government's policy structure.

J : Mr Keating what do you say when there seems to be a

fairly widely held view both within the bureaucracy and within the private sector that the currency is


T: Well I'm not here to give a long treatise on the

currency. I answered about 10 questions of yours at the last press conference on the national accounts and couldn't score more than one paragraph in the front page of the Sydney Morning Herald. So why should I bother this time?

J: In Cabinet today did you raise any concerns about

Mr Dawkins' remarks?

T: I did. But in the context of the Prime Minister quite I think properly raising the fact that discussions about policy . . . look we all have to face with the

difficulty of trying to talk to groups in the Labor Party about policy and we try and do so in a way where you can keep the discussion informative but relatively private to those groups. This is a difficulty for us.

I think on this occassion the writing of it and the perhaps failure to communicate some of the context which Mr Dawkins actually put the remarks means that such discussions are best left for the Government in

the Cabinet. And that is the point the Prime Minister made and he made it clear that as the Cabinet agreed it would be unacceptable for Ministers to be having a policy debate in public when they can have it within

the Government.

J : Does that mean that Mr Hawke censured Mr Dawkins for speaking publicly outside his portfolio area?

T: No. It means that he raised the issue, as I think he

should have raised the issue, in the Cabinet at the first opportunity and made it clear that he regarded discussions which end up being of a material nature as to policy, that is, them being outside the Cabinet room, as being unacceptable.

J : The fact that Mr Dawkins made his speech readily

available to the media would tend to show that he was stretching the point to say it was within the Party.


T: Oh no. We have all made speeches available to the

media when we have been talking to Party. But things he said in the delivery of the speech were not really adequately reflected in the speech. And I think that made the transmission of them a little harder than they

might otherwise have been. That is, his extemporaneous remarks were more clear about who he believed was setting some of the agenda rather than the printed text.

J : That was his defence, as it were?

T: Well that is one of the things he said.

J : Is there a danger as Mr Dawkins implies that the

targetting of lower inflation will lead to the exchange rate being too high?

T: Well, look I'm not here to give you running commentary on the exchange rate or inflation except there is no easy ways of reducing costs in lifting

competitiveness. And a competitive depreciation of the exchange rate with other countries is what has driven some contries to resist such things. Britain is the most recent obvious example by tying the pound to the European monetary system so that British managers and

British unionists were faced with the problem that if they wanted to be competitive they had to draw the productivity from the floor of the business and not from the exchange rate because while in various times past the depreciations have been entirely appropriate

they have revalued up the stock of Australian debt and they have lifted Australian inflation. So they are not costless, they are quite costly. And therefore one serious way of keeping competitive rather than

depreciating the value of the nation's assets is for genuine productivity improvements and that means smarter work practices, better management and it means tackling the issues in productivity rather than asking

the Central Bank would they please change the exchange rate.

J: I think in terms of Mr Dawkins speech it can only be

interpreted as calling for a change in exchange rate policy?

T: Paul (Kelly), can I say this, if that is the way you

interpret it, I can very clearly say to you that policy won't be changing, will not be changing. That is we will not be operating a policy which gathers to

Australia more debt, which lifts the inflation rate and which takes the naive view that governments can set a rate. You know, I have proselytised about this point at press conferences like this ad nauseam in the past,

and I am quite happy to do it again today. I mean, we won't be changing. But the fact is that people have


views about competitiveness from time to time but the way to be competitive, truly competitive is to get the productivity out of Australian companies, out of

business, out of the way businesses are operated. And that means the management, labour, understanding of the needs of competitiveness. Just as we are seeing right throughout most countries. I mean, it is no accident that the wealthy countries all have very high exchange


J : Mr Keating, did you speak to either Mr Hawke or

Mr Dawkins before today's Cabinet meeting?

T: No. I spoke to Mr Hawke, but not to Mr Dawkins.

J : Well presumably you spoke to Mr Dawkins during today's Cabinet meeting. Did he elaborate on his proposals here. Did he extend them or did he duck away from them?

T: Well, I'm not giving you the cheek-by-jowl discussion in the Cabinet meeting. He elaborated to some point but I think again, the Cabinet took the view that if Ministers wish to have a discussion about these issues,

they have only to ask and their wish will be met.

There will always be a discussion available. In fact, we had a one day discussion on the economy as a prelude to the economic statement. And of course, many

discussions in the course of it. So we have had many economic discussions of late. But if Ministers wish to discuss some of these things, you know, the Prime Minister and I have always been most obliging and will

continue to be, as we ought to be.

J : Has Mr Dawkins ever raised his position in Cabinet before today?

T: Not in this way, not directly. Now look I'm not here

to go through Mr Dawkins' speech ad nauseam.

J: Did you raise this subject with Mr Hawke before today's Cabinet?

T: He raised it with me and then we had a discussion about it before we went to the Cabinet meeting.

J: Do you consider at all that this may have caused

uncertainty in financial markets over the rest of Australia?

T: I think they are more clever than you give them credit for.


J : Did Mr Hawke comment about keeping discussions within Cabinet extended to other issues such as the Uranium debate or what is going on in Victoria?

T: Well Uranium was discussed, but Uranium is in a

different category to matters which, in an underlying sense, have a broader ramification to them. And

Uranium has been a celebrated debate in the Labor Party for nearly a decade, for over a decade, and obviously people have their views about it.

J: Did Mr Dawkins specify to whom he was referring the right-wing views in his extent on his remarks?

T: I think we all know which organisations out there

believe in only sort of market solutions but he made the point himself in the speech and he made also the point in Cabinet that the Accord is a non-market

solution to income determination. He also mentioned savings via occupational superannuation. He didn't but he could have mentioned the training levy or a number of other initiatives which the Government has

introduced. I mean, the Government has had a very pragmatic approach to policy having flexibility and sense. And I think that is there, he has made those

references to them.

J: There were two other points which Mr Dawkins also

mentioned. He wanted the Accord to formally include employers and he also wanted very significant changes to tax policy. Were those issues raised today?

T: No but can I just say that the Accord point has been a

matter which we have all been discussing of late, and to some extent there has always been some tripartite quality because we've mostly consulted employers before the various Accord/wage cases have been concluded.

It's a matter yet for discussion and for resolution and we've got to talk to the ACTU about it as well. But

that doesn't worry my, him flagging that, that's fine by me.

J: What about his views on the fact that the Very Fast

Train project has raised the question of distortions in the taxation system?

T: Well I don't think there are distortions and we're having a committee discussion on that. There aren't distortions and I'm quite happy to talk to you about this another time. But in the end the distortion claim

is a distortion, that is a financially weak company wants tax benefits to build a $12 billion train, the moral of that particular tale being if you are

financially weak don't try to build a $12 billion project. It's as simple as that.


J: Has Mr Dawkins agreed that he won't do this again, that he won't speak out of economic matters again?

T: Well I think that it's not a matter of whether he

agreed. The Cabinet has taken a view that it would be unacceptable for Ministers to be speaking out, to be making speeches, no matter how well intentioned, which end up being for some reason or another being reported

as though they are critical of or questioning of policy when Ministers have the unique opportunity of

discussing these things within the Cabinet..

J: But do you believe his line that he wasn't questioning policy in light of the interventions he has made over the last ...?

T: It's not a matter of what I believe and I'm not here

answering questions all day about it. Now can I get back to the Balance of Payments?

J : Can I ask you about imports, Mr Keating? Can you give an explanation as to why if you look at that trend line it's up about $200 million a month on the low point (inaudible) and seasonally adjusted up by about $300 million? Is there any reason why imports are rising?

T: I thought imports on a daily rate were down.

J: Just on this once they are but if you look over the

last 6 months, you get imports rising (on page 3).

J: Actually, the trend on imports has been up 6 months in a row now.

T: The trend has risen, they are down, but the trend over the last couple of months has been for them to see a modest rise. I don’t know why that is.

J : The trend estimate on imports has been up 6 months in a row.

T: But it's still down overall, over the year. The level is down. The trend may be up, but the level is down.

J : Would you agree, Treasurer, that imports are still holding up surprisingly strongly given that we're in a recession or have been?

T: Well they're down. No, I wouldn't agree with that,

they're down substantially. They're down substantially but they're not down as much as perhaps you would

believe. Put it that way.

J : Why?


T: Well it’s very hard to say why that is so. Maybe it’s

because the economy is more open than it has been; maybe it's because that in a more open economy goods are being traded in this country that have not been traded into here before. I don't quite know. But, of

course, one of the issues has been in the main

investment goods which are a large part of the increase in imports. That is, recapitalising Australian industry. Now, some of that is still on, obviously. Some of it's still on there, which is of course in the long term a good thing. You know, you have to pay for the imports to produce the product. But given the fact that, see food, beverages, tobacco down for the month by 17 per cent. We've got retailing pretty flat, which means that it's unlikely that whatever is happening here is happening from consumer items or consumer durables. But the main point is the proof of the

pudding is in the eating, and the proof of the pudding is a substantial improvement this year over last year, the first 8 months over the last, in the current

account deficit.

j ; We've been in a coma, Treasurer, what happens when we wake up? How come w e ’re not just going to have another import surge?

T: Because we will not be waking up with a boom like we

had in '88-'89, because for a start the terms of trade are down, credit growth is down markedly, and monetary policy is carrying a fair strain, as is fiscal policy, in making sure that demand does not outstrip supply.

J: Treasurer, this morning the Australian Chamber of Manufacturers issued their March Quarter survey, and they say that the recession is not over by a long shot and it now seems that Australian industry is just on a

' care and maintenance' basis. Now that's a very

pessimistic picture.

T: Yes, but they're not exactly part of our cheer squad, are they, the Australian Chamber of Manufacturers? They're not out there barracking for us. Look, the fact of the matter is we went back to positive growth

in the last quarter. Now it is a remarkable fact of Australian life that that was barely reported in our two biggest broadsheets, but that's a fact of life. For a country in recession I should have thought it was

a page 1 lead story but somehow the Age and the Sydney Morning Herald decided that they didn't want the rest of the country to know about it. But w e ’re back to positive growth - .6.

J: Will it keep going?


T: I think so, I do, for the reasons I've been through

before - the change in stocks; turn-around in consumer sentiment; the All Ordinaries Index is up. I mean, if you want a measure of sentiment just look at the stock

market. Why read me a Chamber of Manufacturers'

release, read me today's All Ordinaries Index and read me the one 3 months ago. I know what the difference is - a substantial lift.

J : ... rhythm all around the world - Tokyo is rising, then we rise.

T: Well, there’s a devastating observation!

J: (inaudible)

T: But what do you think it's built on - prognostications of profits and earnings.

J : The survey also reports that biggest decline in exports in a 7-year history of the survey and with further declines forecast in the June Quarter.

T: Well how do they square that with the export growth here. Look at the line on page 2 - exports from 1987 onwards. It's unambiguously good. And manufactured exports have grown by 50 per cent a year every year. So you can just regard that as a piece of misplaced pessimism.

J : Mr Keating, do you think the Government should create (inaudible) by improving exports of uranium by

(inaudible) new mines to open?

T: I corrected your story, your interpretation of what I said with a letter to the Financial Review. Perhaps someone might get back to the quaint habit of letting the readers decide what we actually mean when we say things, rather than you decide what we mean and then not tell the readers what we said in the first place.

J : Nick Greiner made it quite clear last week what he

thought of your feet-dragging on Commonwealth/State financial relations.

T: He paid me his compliment, he said, well unless I'm interested in things, not many things happen. I

thought that was a tremendous compliment.

J : Yes, are you interested in this one?

T: Well, I've got a letter today in the Fin Review. It

says everything I want to say about it adequately.


J: Mr Keating, (inaudible) the banks have cut their

housing rates (inaudible) in response to the easing of monetary policy?

T: Well, you see, they cut the half when we reduced the

half and I said that there was more there, and I had been saying to you that there is more there, and then one or two of them went the extra quarter. So I think that what I've been saying about it was justified and

they've done, by and large, the right thing.

J: Do you think they will get them down another half

without another easing?

T: Look, let's deal with cash rates as they are. With

cash rates as they are, you've got some banks at 13.75, which is fair enough, I think.

J: Mr Keating, if Qantas hadn't flogged off a couple of its aeroplanes your 5 per cent improvement in exports

T: Now we've got an aeroplane (inaudible), have we?

J: ... would have been down to about 1 per cent. Is this

the sort of export-led revival that we're looking for?

T: If you . . .

J: If Qantas hadn't have flogged off used aeroplanes, well why are they spending more and bringing in one new one?

T: If you doubt the strength of exports, just get any of the Statistician's references on manufactured exports, let alone the more comprehensive merchandise FAB chart in here.

J: Machinery is down 22 per cent, (inaudible) exports rose $141 million and $123 million of that was used


T: Seasonally adjusted exports rose $202 million, or 5 per cent.

J: (inaudible) a couple of used aeroplanes.

T: No, that's not right. It says gold was up $90 million or 33 per cent. Look at the breakdown of it.

Non-rural exports rose to $143 million or 5 per cent; coal, coke and briquets - $109 million or 24 per cent; gold - $90 million or $33 per cent; transport equipment

up 63 per cent, largely reflecting the two aircraft. OK?


J: (inaudible)

T: So one month, what's one month got to say about

things? If you’re trying to make a case that

manufactured exports have not been rising, you're wasting your time, wasting your time. They've been rising strongly and have been really since the middle ' 80s and continue to rise. And particularly now that

domestic demand is not growing, there is a larger exportable surplus and they're going to exports, which is the point of policy. I mean, why do you think the line is the way it is? In terms of exports FAB, it is there, and more explicitly in the Quarterly Balance of

Payments release you can see the dip there coinciding with the pick-up in domestic demand coming off the terms of trade in 1987-88. I mean, don't try to take any credit from us from the fact that we've managed to

get Australian exports going again, particularly manufactured exports.

J: Treasurer, do today’s figures say anything about when the Recession will begin easing, given that the labour market figures are looking particularly bad?

T: Well, let me just make this clear about the labour

market. We created 1.6 million jobs between 1983 and 1990, from a labour market of 6 million to 7.6

million. We've lost but 160 000 of those. Now, while unemployment has risen, we've got a much fuller, a much more complete labour market with a higher level of participation. Now, the unemployment rate has gone up,

that is true, but it will come down just as sharply as the economy starts to grow. And as you know,

employment is a lag indicator of activity. It will be one of the last things to show a turnaround. There will be a lot of other leading indicators, and all the leading indexes, well a number of leading indexes, are

now pointing up.

J : The Prime Minister signalled in a newspaper interview on the weekend that we could expect some further easing of interest rates. What are you looking at?

T : No, he was talking about housing rates coming off

official cash rates, that's what he was talking about.

J: Were you talking about that? What do you say?

T: All I had to say about interest rates was said in a

press statement last week.

J: (inaudible)

T : OK, I've done enough, thank you. I don't want to

overfeed you.