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Thursday, 3 May 1973
Page: 1706

Mr SNEDDEN (Bruce) (Leader of the Opposition) - The Treasurer (Mr Crean) has returned from the meeting of the Committee of Twenty of the International Monetary Fund held in London last month. The IMF is based on Washington but this meeting was held in London. The Treasurer made a statement to the House and I now reply to that statement. It was largely a factual account of the discussions on reform of world monetary system. Obviously the ground covered was broad and several points need to be made. The first is that there has been a growth in acceptance of floating currency rates as against the traditional IMF stance insisting on stable par values adjustable only in cases of fundamental disequilbrium. The United States dollar was in fact in post World War II the crucial element in this stability.

The United States dollar became the major international currency. Most nations official exchange rates were expressed in terms of United States dollars and it was the major international reserve currency. Since August 1971, however, the United States dollar has not been convertible into gold, although remaining readily convertible into other currency for payments and transfers. The problem the world faces - this forms the basis of the second point to be made - is that the world is facing a continuing surplus of dollars.

The Committee met at a time when the United States dollar was under strong pressure. The Treasurer has judged the United States actions as significant. But as yet it cannot be known whether these actions can be judged sufficient if there is continued monetary expansion in that country and the pressures on the dollar continue. Before I refer further to the surplus of dollars, mention should be made of the need for the balance of payments process to function in a better manner. This I note the Committee of Twenty saw as a necessary development.

One mechanism about which there was a great deal of discussion is 'objective indicators'. It is said by some that this would help the process, but there must be doubt about how much this discussion means and whether such a process is real. It is understandable that there should be a search for stability that the IMF once ensured. It is argued that 'objective indicators' will provide the stable indices to trigger off an automatic parity change. In fact a floating exchange rate would suffice in most cases. If there were to be a lag between the indicator being observed and the exchange rate being adjusted - as I believe there inevitably would be - I feel that the speculator could step into this lag period, and make a 'killing' and force bigger movements, bigger changes than would otherwise be necessary, and even bigger changes than have occurred by international monetary speculation which has been so common over the last couple of years. It is because of this factor that the proposal is pitched in terms of automatic parity change. But what country would accept that this fundamental of economic management should be determined by formula solely. Would the Australian Labor Government agree to this?

In regard to funding the 'overhang' or the excess' holding of United States dollars in the Committee's statement, the mechanism by which this is to be done is not disclosed. The Treasurer has recognised the dangers, but I hope that the full terms of any such proposal are disclosed before further consideration is given to 'them and certainly before the Australian Government were to express a willingness to accept them. I ask the Treasurer to undertake to do so. The concept of primary reserve assets entering and leaving the United States can be regarded as a form of discipline against the United States. This is technically called the reserve assets scheme, but whatever one calls it it needs the country to discipline itself.

Of course the use of statutory drawing rights may be the alternative. The SDR could be elevated into a pre-eminent position and if countries refuse to exchange dollars for this or other assets, then alternative assets will need to be made more attractive. For instance, SDR interest rates could be increased. As I stated in the past, you cannot make SDR work by decree and this notion is reinforced when countries complain about a dollar problem but do not take the opportunity to convert their dollars into other asset forms including the special drawing right. The implication is clear - there are no satisfactory assets at present into which it is possible to switch. Australia has a very large holding of United States dollars, which has risen strongly. In February 1973 they represented 45 per cent of Australian total official reserve assets, and this is a problem which must be borne in mind. We are very much interested in the mechanism by which these so called excess' holdings of US dollars are to be managed, and if they are to be exchanged for some other asset value. This is a problem to be resolved, not merely for us but for many countries.

However, as I have said before, the international monetary system must not be conceived as an end in itself. The ultimate aim is to facilitate the flow of international trade and commerce. This is important when countries with chronic balance of payments deficits try to place countries like Australia with surplus balance of payments at a disadvantage in terms of trading relations with one another. This has particular relevance to Australia at a time when the United States and Japan, each with different balance of payments problems, are seeking a special relationship with the European Economic Community. I have argued the general case before the International Monetary Fund, but we want a world monetary system which is fair to all parties, not a system that would place in the hands of an international organisation a power of direction which would weaken legitimate national interests.

Up to this stage I have dealt with Australian vis-a-vis the international monetary system and its effect on overseas trade. I want to deal with the questions of foreign exchange control, but before I do so I should like to say I believe that in relation to the reform of the international monetary system the Treasurer will have attitudes which are not very different from the views which I put as Treasurer. I would hope, and I think it likely, that in relation to this the overriding attitude of the Treasurer, like that of myself, will be that we must put forward as vigorously as possible, without any inhibitions and not permitting any obstacles, the expression of our own national interest. But of course, in putting forward our own national interest, we cannot expect that other countries will agree to formulate a system which suits Australia. It will have to be a system which suits all countries, and therefore there will need to be for us periods of give and periods of take. I think the Treasurer will recognise that I stand very strongly for Australia expressing its independent view, and it will not weaken the independent view which we express simply because there will be times when the view we are expressing is precisely that of a powerful ally. We are not to be thought in any way subservient to that powerful ally because we are saying the same thing, because there will be other occasions on which we will be saying the very opposite.

Mr Crean - You are not antagonistic if you say it.

Mr SNEDDEN - You are not antagonistic if you say the opposite. We will be saying the opposite on occasions. On an issue such as whether trade should accompany international monetary reform, of course, we will take the same attitude, for instance, as the United States, which wants to break down trade barriers to get access to trading blocks, etc. So we ought not to be reluctant to side with countries on the basis that we may be thought to be subservient to them, and we must not be reluctant to be in total opposition to the view of a powerful country when our national interest is not the same as theirs.

I shall now lastly deal with the question of foreign exchange control. I am afraid that the bipartisanship I have been expressing - and the Treasurer has been giving me clear indications across the table that he shares the bipartisanship - now disappears. I deal now with the question of foreign exchange control and parity of the dollar. To the man in the street these most directly affect what is happening in the domestic economy. Australian controls of foreign exchange are vested in the Reserve Bank and the official exchange rate is fixed accordingly in line with the government policy. The Labor Government's excursion into international monetary matters has seen 2 changes in the value of the Australian dollar. Let us review the background.

Last year this country had a substantial trade surplus consequent upon stable import levels and a sharp rise in exports. The import situation reflected a shakeout which had occurred in Australia in that there had been lower importation of producers materials and capital equipment and high levels of imports pf finished goods. The export situation was largely due to the jump in world prices for some of the major rural commodities, notably meat and wool. The combination of these factors resulted in a balance of payments surplus of $ 1,669m, which added to our official reserve assets but provided no benefit in the supply of extra goods and services within Australia. This was not necessarily a situation for adjustment of the foreign currency rate even though it was a position we knew was not benefiting us. The previous LiberalCountry Party Government had recognised the problems and taken appropriate steps to resolve the position in such a manner as to avoid adding to inflationary pressures stemming largely from wage cost forces. These measures included removal of controls on banks to increase the availability of domestic finance and other measures.

In December 1972 the new Government flexed its economic muscles and revalued the Australian dollar effectively by 7.05 per cent. More was to come on 23rd December 1972. Control on overseas borrowing was further tightened with the imposition of a variable deposit requirement which increased the interest burden by one third. The issue of restriction in overseas borrowing lies not only in its economic application but in its excuse for certain members of the Government to display their xenophobia for all foreign capital. The Treasurer himself shows a remarkable ambivalent attitude. One moment he is preaching international co-operation in the very best Sunday school master manner, and the next moment he cautiously states the fact that any monetary system of the future will need to pay due attention to the sovereignty of national government. We know that the honourable gentleman's economics stop somewhere in the 1930s, but it is the very fact that there is an international economic machinery and that there is a better understanding of the underlying forces than there was in 1930 that the currency troubles have not generated a severe crisis in world trade and employment.

As I said to the board of governors of the IMF last year, clearly no country can have a monetary system which is of its own unilateral design. The saga of the foreign exchange control continued with the devaluation of the United States dollar on 12th February 1973. Like Horatio, the Treasurer stood firm and by default our currency bounced upwards in the sea of floating currencies. Compared with the pre-December revaluation situation, Australia's currency was now appreciated by 19.6 per cent against the United States dollar; 12.7 per cent against Sterling; and 5 per cent against Japan and Germany. It would be difficult to sustain any argument for any appreciation of any kind against the competitive economics of Japan and West Germany. As an act of self-flagellation it has few comparisons.

However, I suppose our gallant Treasurer swaggered off to the Committee of Twenty feeling very much the economic Titan. He has come back with a policyless statement, and presumably to help the more somnolent members on his own back-bench, a glossary of terms One of these terms is 'fundamental disequilibrium' - not well denned but one which the Treasurer should re-examine if he feels that our economic ills can be all resolved by fiddling the foreign exchange button. A spending spree is about to take place in the Labour Party and there is no concern for the 'cost-push' spiral. Everyone knows that devaluation tends to reinforce inflation and set a new and higher plateau of domestic costs. The Government must have regard to the real threat of inflation that exists in Australia today, and about which it shows no realism in its approach to it. The next time the Treasurer visits the Committee of Twenty, let us hope that the Australian economy is not cracking and he is not shuffling shame facedly into the Committee bearing what remains of a once stable Australian economy.

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