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STATEMENT BY THE TREASURER, THE KON JOHN HOWARD. MP

EXTERNAL SITUATION .

THE TREASURER, MR JOHN HOWARD, TODAY COMMENTED ON AUSTRALIA'S

EXTERNAL ECONOMIC POSITION, . · ‘ ' .

THE TREASURER RECALLED THAT, AT THE TIME THE 1977-78 BUDGET

WAS INTRODUCED, THE GOVERNMENT HA) INDICATED AN EXPECTATION THAT

AUSTRALIA'S TRADE AND CURRENT ACCOUNT POSITIONS WOULD STRENGTHEN

DURING THE YEAR. . ·

AGAINST THIS BACKGROUND, AND PENDING THE RESUMPTION OF A ‘MORE

NORMAL RATE OF PRIVATE CAPITAL INFLOW, THE GOVERNMENT HAD . .

ANNOUNCED IN SEPTEMBER THAT IT PROPOSED TO UNDERTAKE AN EXPANDED

PROGRAMME OF OFFICIAL BORROWING OVERSEAS TOTALLING $1700 MILLION

IN 1977-78.

THE TREASURER SAID THAT HE WANTED TO MACE IT QUITE CLEAR THAT,

SHOULD ANY ADDITIONAL SUPPLEMENTATION OF AUSTRALIA'S INTERNATIONAL

RESERVES BE REQUIRED IN SUPPORT OF THE AUSTRALIAN DOLLAR, THE

GOVERNMENT WOULD NOT HESITATE TO UNDERTACE SUBSTANTIAL FURTHER

BORROWINGS OVER AND A30VE THIS PLAINED PROGRAMME.

AUSTRALIA’S OUTSTANDING OFFICIAL OVERSEAS DEBT WAS STILL LOW

BY 'HISTORICAL STANDARDS AND THERE WERE SUBSTANTIAL RESOURCES

AVAILABLE TO AUSTRALIA FROM INTERNATIONAL'MONETARY INSTITUTIONS

AS WELL AS LARGE SCALE SCOPE FOR INCREASED OVERSEAS BORROWING

IN PRIVATE CAPITAL MARKETS. .

THE TREASURER SAID THAT THE GOVERNMENT CONSIDERS THAT IT IS

APPROPRIATE FOR AUSTRALIA TO BE A MODERATE NET IMPORTER OF

OVERSEAS CAPITAL SO AS TO SUPPLEMENT THE RESOURCES AVAILABLE

TO .THE COUNTRY FOR DEVELOPMENT PURPOSES. .

WHILE NET INFLOWS OF PRIVATE CAPITAL CONTINUED AT A: LOW LEVEL

THE GOVERNMENT WOULD CONTINUE TO PURSUE AN EXPANDED OVERSEAS

BORROWING PROGRAMME ON OFFICIAL CAPITAL ACCOUNT. .

IT WAS IMPORTANT TO UNDERSTAND, HOWEVER, THAT THE POLICY OF

EXPANDED OFFICIAL BORROWING OVERSEAS WAS FIRMLY BASED ON A

SOUND CURRENT ACCOUNT POSITION.

IN FACT, THE TRADE AND CURRENT. ACCOUNT POSITIONS HAVE

STRENGTHENED.EVEN MORE RAPIDLY THAN HAD BEEN EXPECTED AT THE

TIME OF THE BUDGET. . .

THIS SATISFACTORY DEVELOPMENT, AND THE GATHERING STRENGTH OF

AUSTRALIA'S UNDERLYING ECONOMIC PERFORMANCE, STILL APPEARED

NOT TO HAVE BEEN FULLY PERCEIVED IN SOME QUARTERS BOTH IN

AUSTRALIA AND ABROAD.

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WHAT WAS NOT GENERALLY APPRECIATED, FOR EXAMPLE, WAS.THE EXTENT

TO WHICH Th e t r a d e a n d c u r r e n t p o s i t i o n s h a d IMPROVED OVER 1 9 7 7.

FOLLOWING A SMALL OVERSEAS TRADE DEFICIT IN THE MARCH QUARTER,

THERE WERE SEASONALLY-ADJUSTED TRADE SURPLUSES OF $88 MILLION

IN THE JUNE QUARTER, $372 MILLION IN THE'SEPTEMBER QUARTER,

AND AN ESTIMATED $400 MILLION- OR MORE IN THE DECEMBER QUARTER.

LARGELY AS A CONSEQUENCE, THE SEASONALLY ADJUSTED CURRENT ACCOUNT

DEFICIT HAD BEEN ALMOST HALVED IN THE FIRST SIX MONTHS OF

1977-78 COMPARED WITH THE PREVIOUS SIX MONTHS.

IN FACT, THE ESTIMATED SEASONALLY ADJUSTED CURRENT.ACCOUNT

DEFICIT IN THE RECENT DECEMBER QUARTER WAS RUNNING AT THE LOW

RATE OF ONLY ABOUT $1,4 BILLION PER ANNUM. ■

EVEN THOUGH ONLY A MODERATE RATE OF GROWTH IS EXPECTED IN

ECONOMIC ACTIVITY OVERSEAS, AUSTRALIA'S TOTAL EXPORT RECEIPTS

- SHOULD RECORD FURTHER GROWTH IN 1978. .

MOREOVER REGARD HAD* ALSO TO BE PAID TO THE OTHER SIDE OF THE

TIRADE BALANCE. ‘

THE NOVEMBER 1976 DEVALUATION, AND THE REDUCTION IN AUSTRALIA'S

INFLATION TO ABOUT THE AVERAGE RATE OF INTERNATIONAL COMPETITORS,'

HAD SIGNIFICANTLY IMPROVED THE COMPETITIVENESS OF AUSTRALIAN

PRODUCERS. . .

IMPORTS COULD THEREFORE BE EXPECTED TO SHOW ONLY MODERATE GROWTH

DURING THE COURSE OF 1 9 7 8s INDEED THEY COULD WELL BE MUCH THE

SAME IN 1978 AS IN 1 9 7 7. '

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AGAINST THIS BACKGROUND, AND WITH THE STRONG PROSPECTIVE GROWTH

IN DOMESTIC INVESTMENT, THE GΟΛΓΒENMENT .EXPECTED PRIVATE CAPITAL

INFLOW TO STRENGTHEN.

IN THE MEANTIME, THE TREASURER SAID, THE GOVERNMENT WAS

DETERMINED TO MAINTAIN THE OVERALL THRUST. OF ITS DOMESTIC

ECONOMIC POLICIES UNTIL THE TASK OF BEATING INFLATION WAS

COMPLETE. . .

THERE SHOULD BE NO DOUBT THAT EXPENDITURE RESTRAINT, FIRM

MONETARY POLICY AND WAGES RESTRAINT WOULD REMAIN THE BASIC

ELEMENTS OF AUSTRALIA'S DOMESTIC ECONOMIC POLICY IN THE

FORESEEABLE FUTURE.

MOREOVER THE GOVERNMENT1S PURSUIT OF DOMESTIC ECONOMIC OBJECTIVES

WOULD CONTINUE TO PAY FULL REGARD TO POSSIBLE EXTERNAL

IMPLICATIONS. .

EQUALLY, THE TREASURER SAID, THE GOVERNMENT REGARDED IT AS ' "

IMPORTANT THAT EXTERNAL POLICY OPERATED, SO FAR AS OVERSEAS '

DEVELOPMENTS PERMITTED, IN A MANNER CONSISTENT WITH DOMESTIC

ECONOMIC OBJECTIVES. ■

THE TREASURER SAID THAT, IN THIS CONTEXT, HE WANTED TO REFER

TO THE GOVERNMENT'S POLICY ON MANAGEMENT OF THE EXCHANGE RATE.

5

WITH MANAGEMENT OF THE EXCHANGE RATE, IT IS OF HIGH IMPORTANCE

THAT A RIGHT BALANCE BE MAINTAINED IN THE EXTERNAL VALUE-OF

THE AUSTRALIAN DOLLAR, WITHOUT SHORT-TERM SWINGS IN RESERVES

BEING PERMITTED TO HAVE ANY.UNDUE EFFECTS.

IN THE SECOND HALF OF 197? POLICY IN THIS AREA HAD TO CONTEND

WITH A VERY UNSETTLED INTERNATIONAL CONTEXT, WITH TURMOIL IN

FOREIGN EXCHANGE MARKETS ABROAD AND A SHARP WEAKENING OF THE

US DOLLAR AGAINST ALMOST ALL MAJOR CURRENCIES„ .

IN THESE CIRCUMSTANCES OF CONSIDERABLE UNCERTAINTY ABOUT THE

FUTURE COURSE OF OVERSEAS EXCHANGE RATES, THE GOVERNMENT HAD

TAKEN THE VIEW THAT, WHILE IT WOULD HAVE BEEN INAPPROPRIATE

FOR THE VALUE OF THE AUSTRALIAN DOLLAR TO BE LINKED TO THE

US DOLLAR, IT SHOULD NOT ALLOW THE AUSTRALIAN DOLLAR TO

APPRECIATE AGAINST THE US DOLLAR TO THE FULL EXTENT THAT WOULD

HAVE OCCURRED IF THE TRADE-WEIGHTED BASKET RATE FOR THE

AUSTRALIAN DOLLAR HAD BEEN HELD CONSTANT. THIS HAD NECESSARILY

REQUIRED SOME LOWERING OF THE TRADE-WEIGHTED RATE IN THOSE

CIRCUMSTANCES.

MORE RECENTLY, NOT ONLY HAVE FOREIGN EXCHANGE MARKETS QUIETENED

BUT EVEN MORE IMPORTANTLY, WITH MOUNTING EVIDENCE OF OUR SUCCESS

IN WINDING DOWN INFLATION AND THE IMPROVEMENT ON CURRENT ACCOUNT

THE BASIC STRENGTH OF THE AUSTRALIAN DOLLAR SHOULD BE BETTER

UNDERSTOOD THAN IT IS IN SOME QUARTERS. .

AS INDICATE?.} EARLIER, THE GO VE RN ME NT WOULD USE ITS OVERSEAS'

BORROWING .PROGRAM TO ENSURE THAT THE EXCHANGE RATE WAS

ADEQUATELY INSULATED FROM PRESSURES THAT COULD ARISE FROM

SHORT-TERM FLUCTUATIONS IN THE LEVEL OF INTERNATIONAL RESERVES.

CANBERRA, ACT 5 FEBRUARY 1978