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Thursday, 10 November 1983
Page: 2579

Mr HAWKER —My question is directed to the Treasurer. Is the Government concerned that, because the effects of the March devaluation have been totally eroded, there has been an alarming rundown in reserves of the Australian Wool Corporation, to the extent that the Corporation in the last month has had to intervene in the market to the tune of $90m? As the Government supported the Corporation lifting the wool floor price by 7.5 per cent following the March devaluation, what does it now intend doing, given that the continued appreciation of the dollar is placing the wool industry at risk?

Mr KEATING —I answered a question on this matter only a week ago. I observe that the depreciation which the Government embarked upon within a day of its election was essentially caused by a political run on the currency, promoted in part and very largely by the irresponsible statements of the present Leader of the Opposition, then a Minister, during the election campaign, and supported by other members of the coalition parties and other members of the former Cabinet. I made the point last week that there was no basic underlying reason in terms of the balance of payments why that devaluation should have taken place. Contrary to the forebodings of the honourable member for Kooyong, within a week or two of that devaluation having taken place funds had returned to Australia. Since then the market has taken the view that all things being equal, the dollar was undervalued, and over time the currency has regained its value. The trade weighted index is roughly back to where it was in March.

We were experiencing some substantial problems with capital inflow as a consequence of a number of things. The first was the quality of and high degree of confidence in the policies of the present Government. Another was the weakening position of the United States dollar. However, at the moment the United States dollar is strengthening, and for that reason and other reasons we are not now seeing the capital inflow that we saw in the last month or so. To try to deal with the problems the Government was experiencing, it embarked upon changes in the exchange rate management regime which drew the complimentary support of the Opposition, which I was pleased about. Those changes will have the effect of making it more difficult for people to speculate in currency on an intra-day basis, peppering us with capital inflow and pushing up the value of the Australian dollar.

The basis of the honourable member's question was whether there was a conscious policy on the part of the Government to revalue the dollar because of some overriding anti-inflation policy. The answer to that is no. But at the same time a very difficult part of the monetary management of the exchange rate is trying to lessen the capital inflow and the monetary growth which we have experienced. It is in those terms that the Government is taking a very moderate approach in trying to preserve our international competitiveness while at the same time trying to rid ourselves as far as possible of the problems of monetary growth.

I make this final observation: The Australian dollar has been markedly devalued over the period from its cyclical peak in late 1981. It has gone down about 10 per cent during that period. So the underlying basis of the question, that the Government in some way is trying to ratchet up the exchange rate, having in mind some anti-inflation notion, at the same time ignoring competitiveness-by the Wool Corporation or any other body-is simply not sustainable in fact or in argument.