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Tuesday, 1 November 1983
Page: 2098

Mr HOWARD —I preface my question to the Treasurer by saying that I welcome the changes announced by the Treasurer and the Prime Minister in relation to the management of the Australian exchange rate and future arrangements in respect of forward exchange. I think they are sensible steps in the right direction. Is it a fact that successive appreciations of the Australian dollar in recent months have eroded the competitiveness of Australian industry and damaged job prospects ? Did the Prime Minister inform the parliamentary Caucus today that there would not be any further appreciations in the Australian dollar? What new anti- inflationary measures, therefore, will the Government take to replace the anti- inflationary effects of further appreciations of the Australian dollar?

Mr KEATING —The Prime Minister said no such thing at the Caucus meeting today. He was asked a question about monetary management and he made it quite clear that he was not in the business of speculating about the dollar. Apart from the Deputy Leader of the Opposition trying to damn me with faint praise, he would understand that in the end the exchange rate reflects all the fundamentals in the economy. When the Government came to office a devaluation took place which had nothing to do with those fundamentals or with the balance of payments. It took place essentially because of the irresponsible statements of the present Leader of the Opposition and some of his colleagues, who were suggesting that there would be a flight of capital from this country which would not return.

Indeed, the Leader of the Opposition flung to one side the interests of the nation and suggested that Australia was moving down the path of France and other countries, which had embarked on an expansionary policy, and that we would be damned to continuing devaluations of the Australian dollar. Not only was that not true but also the fact is that the funds which were lost in the week before the election were returned within almost two weeks of that period. If anything, if capital inflow is to be a measure of the international acceptability of a government, the Leader of the Opposition ought to start munching his words. Quite obviously Australia is regarded, under the policies of this Government, as being a very sound place to invest.

Let me deal with a couple of other points inherent in the Deputy Leader's question. Essentially the exchange rate has now reflected the fact that there was no balance of payments problem at the time of the devaluation. The trade weighted index is back up to about where it was-we know it moves to some degree day by day-at the time of the devaluation, or about 10 per cent below where it was at the peak of the period of revaluations which took place under the previous Government. If you like, the dollar has gone down 10 per cent and back 10 per cent as a result of the capital inflow. The point needs to be observed that as the United States dollar has weakened around the world we, like most other countries, have been copping a poultice of money as a result. The difficulty in the final analysis will be that the strength which the United States dollar has attached to it will weaken over time, and I think that Australia, as with Japan, West Germany and Britain, will experience some of that problem.

There is also the day to day problem which the Deputy Leader of the Opposition referred to in commending the Government in respect of changes in the exchange rate. The fact that we set a mid-rate with the United States dollar at 9.30 a.m. and sit with that rate all through the day while people see whether or not the United States dollar weakens on Asian markets leads us to the position where we are exposed. That has resulted in capital movements intra-day which we are now trying to avoid and which I think these changes will avoid. If anything, it is those intra-day movements which have been the difficulty in trying to deal with the exchange rate. The fundamental element suggested in the Deputy Leader's questions is that in some way competitiveness can be adjusted by a movement in the exchange rate independent of the fundamentals in the economy.

Mr Howard —No.

Mr KEATING —The honourable member says no. I recognise the fact that that is not , in fact, what he implied and what I thought he implied. I would reject absolutely that the way in which the fundamentals in the Australian economy are going to be restored is if the fundamental parameters in the economy are going to be restored, including our inflation rate, and the fact that that is much more a measure of our international competitiveness than any dickying around with the exchange rate for political purposes. So for this Government's part, on the question of the exchange rate, we have implemented changes which I think were long overdue, which will deal with the intra-day problem of capital inflow and which will, I think, perhaps make monetary management and exchange rate management that much easier. But fundamentally, what has happened is that there was no underlying reason for the devaluation. At the time the Government took office the market reflected that fact. The exchange rates now very much reflect the fundamentals of the Australian economy.