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Transcript of doorstop: Sao Paulo, Brazil: 8 November 2008: G-20 Finance Ministers Meeting; Washington meetings.

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DOORSTOP Sao Paulo, Brazil

8 November 2008


SUBJECTS: G-20 Finance Ministers Meeting; Washington Meetings

TREASURER: I’ve just come from meeting with G-20 Finance Ministers who are doing important preparation for the Leaders’ Meeting in Washington next weekend. This is indeed an historic meeting. This meeting and the meeting next weekend is historic because it’s the first time that the G-20 has been the principle body dealing with a global crisis - in this case a global financial crisis. The G-20 brings together developed countries and developing countries. Something like 85 per cent of the world’s GDP is represented at this meeting, and therefore it’s appropriate given the nature of the dramatic slowdown we are facing that the G-20 deals with the crisis and works to put in place enduring solutions to ensure that the globe does not experience these events ever again.

The G-20 is important because world growth so far has been slowing dramatically in the developed world. But we’ve heard reports today from the World Bank that this is now spreading to the developing world, that emerging economies are now much more dramatically impacted by the global financial crisis. This is yet another reason why there is an urgent need to put in place preparations to deal with the global financial crisis and to put in place enduring solutions for the future.

JOURNALIST: Is there a consensus emerging at the meeting of the correct policy response to this, whether it’s more regulation or a stronger role for the IMF?

TREASURER: I think there is a consensus that all nations must stand ready to act as swiftly and as decisively as possible. It is very clear that in the past month or so, particularly when it comes to emerging economies, that they have entered a dangerous new zone. That is the description of the World Bank in their report before Finance Ministers today. I think there is a consensus on the need for coordinated and decisive action globally, going to first of all fiscal policy - very important that those countries that have the capacity to stimulate their economy do so; the capacity to lift demand; the capacity to protect jobs, that they make the necessary investments and do so as swiftly as possible. Certainly a consensus that there’s a need for a further loosening of monetary policy where that’s important in different parts of the world. Thirdly, very important that all that can be done to stabilise financial systems within the world be done. And fourthly, a consensus about the need for there to be

fundamental reform to the international financial architecture. Ministers in the room today believe that all of those four approaches are required to deal with the dramatic slowdown that the globe is facing in terms of the international economy.

JOURNALIST: The World Bank has said that the crisis is worse that expected, as you said. Does that change the outlook for the Australian economy?

TREASURER: Well, certainly what it means is that the emerging economies, or developing economies particularly in our region, will most probably slow more dramatically than many had thought, and that will have a further knock-on impact on Australian growth.

We had already factored in a slowing of Australian growth and a slowing of world growth. But it appears from this World Bank report that that slowing in growth will be more dramatic than many had thought previously.

JOURNALIST: Does that mean that more fiscal stimulus might be required in Australia to shield the economy from this effect?

TREASURER: Certainly both the Prime Minister and I have made it very clear that should further action be required then all options would be on the table. This report indicates that there will be a further slowing in the developing world that will have knock-on effects to countries in our region and countries with which we trade extensively. Nevertheless, I and many others are still more optimistic that growth in countries like China will be stronger than

it may be in other developing countries around the world.

JOURNALIST: You’ve already announced a stimulus package. Is there room to manoeuvre in the Budget or have you gone really as far as you can go for this financial year?

TREASURER: Certainly, we have announced swift and decisive action. We’ve now got a fiscal stimulus of around 1 per cent of GDP. On top of that we’ve also got very swift and decisive action from the Reserve Bank when it comes to monetary policy. But that means there’s monetary policy and fiscal policy both working in tandem. But should further measures be required, the Government will not hesitate to take them.

JOURNALIST: How’s your call for restraint in executive salaries been received? Has there been any plans to implement that at a global level?

TREASURER: That’s part and parcel of a package of reforms that the Prime Minister put forward over a month ago at the United Nations, and it is part of a series of measures that will be considered here at the Finance Ministers’ Meeting and at the Leaders’ Meeting in Washington next Saturday - an important part of that package.

JOURNALIST: And Australia - are there plans to implement legislation to enact that restraint before Christmas?

TREASURER: We’ve asked for a report from the relevant regulators. We have those matters before us at the moment and when we’ve considered all of those things - and these things are considered internationally - we will then reach a conclusion.

JOURNALIST: Are you expecting to meet President-elect Obama in Washington?

TREASURER: No, I’m not expecting to meet President-elect Obama but I am expecting to meet a range of senior decision-makers in Washington when I’m there later in the week.

JOURNALIST: Where is the financial crisis headed?

TREASURER: The financial crisis is having a dramatic impact on world growth. We’ve seen that in the latest World Bank report. What all of that makes clear is that what governments need to do is take a range of actions across fiscal policy, monetary policy, stabilisation of the financial system, and then for the long run, putting in place the necessary reforms to ensure we don’t experience an event like this ever again.

JOURNALIST: Is the broad thrust of the consensus that’s developing, as you said at the start, is it based more on the EU model - the five-point plan that they had which was more surveillance of ratings agencies and better prudential rules - or is it more towards the American/Canadian model?

TREASURER: I think there’s a greater degree of common ground on these questions than that question assumes. There’s no doubt we need greater transparency. There’s no doubt we need to deal with capital adequacy. There’s no doubt we need to deal with the incentive systems internally in banks. There’s no doubt we need to agree on risk management procedures. All of those things are common to solutions being put forward by both the Europeans and the Americans. But we’ll work our way through these issues both here today and tomorrow and in Washington next Saturday.