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Transcript of press conference: G-20 Media Centre, Crown Promenade Hotel, Melbourne: 17 November 2006: G-20, energy; climate change; IMF Reform; World Bank; labour markets; foreign aid; Milton Friedman.\n

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Press Conference

G-20 Media Centre

Crown Promenade Hotel, Melbourne

Friday, 17 November 2006

12.40 pm

SUBJECTS: G-20, energy, climate change, IMF Reform, World Bank, labour markets, foreign aid, Milton



Ladies and Gentlemen, the delegates of the G-20 have mostly now arrived in Melbourne and throughout the course of

today will be engaging in bi-laterals with each other and regional and global partners. The delegates will be welcomed at a

formal dinner tonight where we will be showcasing a little of Australia and Australian culture and then the serious

business of the weekend commences first thing on Saturday morning.

The conference will last for two days - Saturday and Sunday. It brings together the Central Bankers and Finance

Ministers of around 90 per cent of the world economy and about two-thirds of the world’s population. The 19 countries

that form the Group of Twenty plus the European Union represent the significant and systemically important economies

of the world.

The Group was formed in the wake of the Asian Financial Crisis of 1997 when there was a view in this part of the world -

in the east Asia part of the world - that the international institutions did not properly see the difficulties emerging, were

slow to respond and initially misdiagnosed the problem. And it was felt that we needed a broader group of countries that

could discuss global economic issues, prepare for challenges, strengthen the financial system and make sure that global

prosperity was available to all. That is how the G-20 was formed and these are the countries that it brings together.

This morning I have also addressed the Energy and Minerals Business Council, which is meeting here in Melbourne,

bringing together leading mining companies of the world, oil companies and other energy companies. And the Council,

which consists of chief executives of those companies, will actually be reporting to the G-20 Finance Ministers and

Central Bankers at a lunch tomorrow on energy issues.

The agenda which I have also released today, as you can see, will begin by discussing the global economy, current

economic and development issues. There will be sessions on global energy and minerals markets, there will be sessions on

demographic change and what that will do to the world economy. We will be having a further session on the reform of the

IMF World Bank, the so-called Bretton Woods Institutions and then there will be further discussions in relation to aid

effectiveness and the international standards and codes which are being recommended. It is a full agenda, it is an exciting

agenda, it is one of the premier economic forums of the world and I thank the people of Melbourne, the city of Melbourne

for the warm welcome that they have shown to this very significant international event. We hope not only to engage in

important discussion on economic issues but also to showcase a little bit of Australian hospitality to the world. Questions.


Treasurer, would you like this conference to wind up with an agreement to develop a set of principles covering energy and

resource security?


I would like us to see if we can get some consensus on where demand is going in the world, what will be required to meet

that, how those people that import energy and minerals can be guaranteed supply, how those people that export them can

be guaranteed demand, a consensus on how best effectively to manage global demand and global supply in a way which

will avoid the jostle for resources and the potential destabilisation that that could have for the global economy.


With a formal agreement (inaudible)?


Well I hope that we get a consensus and if we can get a consensus, record that consensus, and that would be a major step





Oh sure. I don’t think you can expect to solve these issues all in one hit but it is obviously an issue which is on the minds

of policy makers, it is on the mind of the people we represent. It is critical to the future development of the world

economy. And if we can get some consensus here we can take the work forward through the G-20 and through some of

the other agencies around the world which are important for these issues.


What are the key things that you are hoping to come out of this weekend’s meeting?


Well it is a very broad agenda. Obviously the global economy will be a key issue. Global inflation prospects will be

discussed, the monetary policy response, not just in Australia but around the world, where Central Bankers around the

world see monetary policy going. And that is critical for all of the people we represent. The energy issue I have talked a

little bit about, the demographic issue, what this is going to do, the changing pace of global population, the aid

effectiveness issue and of course I hope we can throw our weight behind continuing reform of the Bretton Woods

Institutions. The G-20 has been quite significant in moving reform along. The G-20 was quite significant in the

breakthrough that we got in Singapore and I hope that the G-20 will put its weight behind continuing momentum.


Treasurer, (inaudible) be basing your conversations with the Chinese this afternoon. Do you (inaudible)?


Well I have already raised the issue of minerals and energy with the Business Council including key Chinese buyers at the

meeting that I had with the private sector this morning. I will also be discussing this obviously with the Chinese Minister

to get a fix on where he thinks Chinese demand is going and it is a very important aspect of the Australia-China

relationship, the demand that our companies are getting for energy, for base metals and it will be a big feature of our

discussions. I want to see an energy freeway between Australia and East-Asia where we are supplying needs that a

growing East-Asia will have, principally China but not just China - Japan, Korea. This is an enormous opportunity for

Australia but it is important for these countries. They are going through with China, massive industrialisation, they need to

be assured that they are going to get energy and they are going to get metals. They have got a big population. They have

got 1.3 billion people that are going to have demands for housing and transport and energy and they are looking for long-term continuity of supply.


You mentioned global warming this morning Treasurer, and the British delegation has been pushing hard for progress

towards it, a new agreement beyond Kyoto, how far do you think, you’ll get (inaudible)?


I am sure it will be a big part of the discussions that we have in relation to energy because you can’t talk about global

energy demands without talking about global pricing, you can’t talk about global pricing without considering the

implications of emissions and carbon trading. So it will be a big part of discussions. And I have already raised this in fact

with the private sector at the meeting that I had with the Energy and Minerals Business Council, they will have something

to say about it I am sure when they come to the dinner tonight and the lunch tomorrow. Now, we won’t be negotiating a

Kyoto-type agreement here - the climate change convention is going on in Nairobi at the moment, - but we will certainly

be discussing pricing moves and how that affects energy.


Australia and China still seem to be at loggerheads in Nairobi according to the reports today, is it realistic that you can

bridge your differences over who should be sacrificing what in terms of emissions?


Look, I think in relation to emissions generally, you work towards a consensus which can include all countries. This is the

criticism that we have of Kyoto, it doesn’t include all countries. You work towards the consensus that can include all

countries. Now that means that the progress is sometimes slow, slower than we would like but that is the only way you

can do it.


Treasurer, on reform of the IMF quotas, do you think there’ll be (inaudible) speed up those reforms (inaudible)?


Look we had a important breakthrough in Singapore for reform of the IMF but it was only the first stage. A lot of

countries think it wasn’t enough, they think that we should have gone further. But the way we put it forward was for a two-stage process. The down-payment and a second round to come. And we are serious about that second round and that is

why we will be trying to get the G-20 to put momentum behind the second round and we have here in Melbourne today

the Managing Director of the IMF, the President of the World Bank, they want to see progress in relation to this and I

hope we can get it over the next year or so.


(inaudible) with the reform of the World Bank get a start here and I am from Finland, I am Eeva, nice to meet you.


Good to meet you, welcome to Australia.


Thank you.


The focus will be on the reform of the IMF, but I think as the reform of the IMF progresses attention will naturally fall

towards the World Bank as well and I think there have been good signals coming out of the World Bank itself as to the

need for reform.


Treasurer what is your agenda for (inaudible) this afternoon?


Well I have got a series of bi-laterals today. I have already had bi-laterals with the South African Finance Minister, the

Japanese Finance Minister, the Indian Finance Minister, the German Finance Minister. This afternoon I will be having

further bi-laterals including with the American Finance Minister and also the Chairman of the US Fed. As you can

imagine in these discussions there will be discussion of the global economy, global prospects, the way they see their

economy in the world, the way we see our economy in the world and the implications for economic policy. Yes. I am

sorry, there are some polite people that put hands up so I am going to acknowledge them, if I may.


Treasurer, is it true that you’re going to be advising America to slow down or giving them some economic advice, that

you’re going to be telling America (inaudible) should actually (inaudible) will you be advising them on how to avoid a



Well we don’t give other countries advice, that is not for us. What we do is we share our own experience, if people are

interested in the way we’ve handled issues they will ask us and we will share that with them. But we wouldn’t be so

presumptuous as to tell other countries how to manage themselves. We have got a full-time job managing ourselves.


Do you think, you were talking about the energy freeway before, I was just wondering if it can be resolved (inaudible) in

terms of climate, global warming?


Well that is another item that will have to be negotiated in relation to the freeway. Here is what I think we need for a

energy freeway: continuity of supply, continuity of demand, prices fixed in a free and open way where countries don’t try

and lock up resources against each other, increased transparency so buyers know what stocks are on hand, what capacity

there is for new investment, so that supplies know what stocks and inventories buyers have and markets price properly.

Now, as part of that over the longer term you are also going to have to make sure that that free supply in open markets

complies with environmental issues. That is just another issue to be negotiated within that framework. It makes it more

complicated but it can be done.


Did the Indian Foreign Minister raise the issue of Australia’s (inaudible) and what was your response to that?


Yes, we had a discussion about India’s nuclear energy proposals and Australia’s position and also the proposal that the

Indians have with the United States which is before the US Congress. As you know Australia is a major supplier of

uranium; we had a discussion about our requirements in relation to safeguards and our capacity to meet Indian demand.



I wonder if (inaudible) energy markets (inaudible).


Well, yes, even in discussions we have had to date, we have had discussions about labour markets and Australia’s facility

for bringing in people with skills, that has already arisen. From a lot of countries there is a lot of interest in getting their

people the opportunity to work in Australia. I explained what Australia’s policy is - our policy is where people have skills

that are not available in Australia that those people can qualify to come in to Australia and there is a lot of interest in that.



(inaudible) try to lock up their resources, can you elaborate on what you meant there (inaudible)


Well, countries that have huge energy demands and energy demands which they see as lasting decades - ten, twenty,

thirty years - they think to themselves that by buying a resource or by influencing a country that has a resource, they can

get better security of supply. And if other countries felt that resources were being locked up against them that could lead

to bad relations. I think a better way of going is to encourage the producers to meet the demand and for the product to be

available in an open market priced at competitive prices.


You are not against long-term contracts?


No, I am not against long-term contracts, in fact I think long-term contracts are perfectly reasonable. But what I am

putting forward is for energy and minerals to be traded under contracts not for countries to try and get control of resources

as against other countries.


But you are (inaudible) country buying mining companies (inaudible)


Well, I think where investment can actually increase supply, then investment will be welcomed. But what I am saying is if

the supply is locked up, if there are countries that feel that they are being locked out of resource markets that will be very

destabilising. If you look back through history, the attempt to lock up resources and keep other countries out of markets

has been very destabilising. Yes?


I was just wondering…


I will take three more questions from people who have not asked them.


(inaudible) foreign exchange (inaudible)?


Look, in my experience at these forums, exchange rates always get a fair hearing and there is always a lot of discussion,

but it has to be done delicately. Countries do not generally respond to lectures from other countries, but in my experience

these issues quite frequently come up and I would be surprised if some one did not raise it - don’t take that as an open

invitation, but it is just the voice of experience that is speaking.


Early today your brother, Tim Costello, was trying to raise consciences over the Make Poverty History thing, he said that

the Federal Government had short changed foreign aid to the tune of $4.5 billion. (inaudible). What is your response to



Well, I’ve said a lot about this in interviews over the last couple of days. The reality is in Australia since 2000 we have

increased foreign aid by 81 per cent. Our foreign aid in 2006-07 will be three thousand millions of dollars and we have

also budgeted to increase that to $4,000 million. Not only the greatest amount of aid that has ever been provided by

Australia, but as I said a build-up of 81 per cent. Now, you can always say ‘Oh, only 81 per cent, it should have been 90

per cent or it should have been 100 per cent’ but let’s recognise that there has been a very, very substantial increase. Yes?


Are you an acolyte of Milton Friedman?


An acolyte I think by definition is an altar boy. Somebody who lights candles at an altar, as I recall. So, in that sense no.

But Milton Friedman was a very substantive economist, there is no doubt about it. His work “Free to Choose” was quite

significant. It gave a lot of inspiration to free market economics during the eighties. It probably had a lot of influence over

world leaders such as Margaret Thatcher. I know that he has died today, a sad passing, he was a very substantive

economic figure who had a huge influence upon the globe and the world through his writings. John?


Treasurer, what is your assessment of the risk involved in global financial imbalances and your diagnosis of what caused

the inherent (inaudible)?


Well, financial imbalances, technically speaking, refer to the situation where large trade surpluses and large trade deficits

are built up as between countries. And those very large trade surpluses and large trade deficits lead to huge movements of

capital. And in the case of the deficits have to be financed. And when you get those huge movements of capital you get a

lot of pressure on exchange rates. Some people say fix the exchange rate you will fix the capital price. Some people say

fix the trade and you will fix the exchange rate. The reality is that there is nothing wrong with flows of trade and flows of

finance. As long as the adjustment is an orderly adjustment. Now, we think the best way that we found in Australia for the

adjustment is having a floating exchange rate. That has been our experience in Australia. During the period that I have

been Treasurer in Australia I have seen the Australian dollar at 80 cents US and I have seen it at 47 cents. It is a huge

volatility but we have managed to keep growing throughout. Last two questions here.


Treasurer, do you agree with Ian Campbell’s comments about China being the worst polluter in the world?


What I would say is this - China is an emerging economy, it is going through huge industrialisation, it has 1.3 billion

people. That means that it is going to have a very large emission. You would expect that. Now, I also say for an emerging

economy they look at greenhouse issues differently to the way developed countries do. An emerging economy may well

say “it’s alright for you developed countries, you have been through industrialisation, you have plonked all of your carbon

into the atmosphere and now that we want to do the same you want to stop us”. It is a fair argument. It is a fair argument,

but I think eventually, globally, the world will have to deal with these issues, and we will have to deal with them with all

of the big players as part of it. And China, with 1.3 billion people is a big player. A very big player.


With your model for an energy super highway is there a role for OPEC or do you think that it should be disbanded or a

different mechanism even set up?


Well, I do not think energy markets or mineral markets perform best if there is monopolisation or cartel activity. I think

they perform best when there is open development, open trade and free pricing. And that would certainly by my





Well that is my answer. Thank you all very much.

© Commonwealth of Australia 2000