The Crest of the Commonwealth of Australia Treasury Portfolio Ministers
Picture of Peter Costello

Peter Costello

Treasurer

11 March 1996 - 3 December 2007

Transcript of 27/04/01

Transcript No. 2001/046

Transcript
of
The Hon Peter Costello MP
Treasurer

Bloomberg forum with Emily Schwartz
Friday, 27 April 2001
2.30 pm
Washington DC

E&OE

SUBJECTS: IMF, economy, Budget, dollar, Shell/Woodside

JOURNALIST:

Welcome to the Bloomberg Forum. Im Emily Schwartz and joining me is Peter Costello, Australian Treasurer. Mr Costello, the IMF has indicated that its going to support a new large package for Turkey and possibly continue support in the near future for Argentina. How would this reassure capital markets in the currency market?

TREASURER:

Well obviously, the world has an interest in stabilising the financial system. Where you have significant countries like Turkey and Argentina, which are in trouble, then it is the role of the IMF to bring stability. Of course, the IMF will always make sure that its financial assistance is accompanied by structural reform to deal with the problems which have caused the immediate difficulty in the first place. So I think the announcements in relation to Turkey are positive. They are to be welcomed. It is another example of the IMF responding to a crisis. And with the structural reform put in place, that should add to confidence.

JOURNALIST:

Now, theres been a year of criticism of the IMF, searching for what the IMFs proper role should be, suggesting perhaps that it over-stepped its bounds. What does the importance of these two events right now - the package for Turkey and the continuation of the package for Argentina - what does that say about where all that debate has ended up?

TREASURER:

Well, I think its important that there be a great deal of scrutiny on the IMF. No international organisation should be immune from scrutiny. I think its important to make sure that it is managed well and efficiently and the scrutiny thats been put in place, I think, will prove to be of long-term positive benefit for the IMF. In relation to Turkey, the fact is it has been able to respond in quite a prompt way. It has put in place some positive moves. I believe that the real test, of course, will be the degree to which structural changes are put in place. And that obviously will take some time. It will require on-going monitoring by the IMF and lets hope that as the months and the years unfold it proves to have been successful and a positive intervention.

JOURNALIST:

Has there been a cost in this year of searching for changes in IMF policy - a cost to its centrality or its importance?

TREASURER:

I dont think there has been a cost. What we now know is with the way in which money can transfer so quickly across national borders, and with the enormous private capital flows, then international organisations dont have the monopoly on resources that they may have had forty or fifty years previously. That was something that we also became aware of during the Asian financial crisis of 1997-1998. So, I think the role of the IMF is going to be a little more limited in the sense that private capital is growing so fast and at such a rate that its resources are not going to be the dominating resources perhaps of the past. I wouldnt call that a cost. I think thats just a reality. It will have to learn to work within that framework.

JOURNALIST:

Now in terms of Australia, has the Government revised down its growth forecast in light of the IMF report that predicts that growth will slow to 1.9 per cent?

TREASURER:

The Government will be putting out its forecast for the next financial year in the Budget in May. So well be announcing that next month. The IMF World Economic Outlook put forward the fact that there had been a downgrade of growth in the world as a whole. Obviously, that has affected Australia in the current financial year. But we expect that things will strengthen in the forthcoming financial year. The precise growth forecast that we put, well be announcing in our Budget.

JOURNALIST:

And what is going on with the Australian dollar? It seems to be falling?

TREASURER:

Well, the Australian dollar depreciated against the US dollar in the latter part of 2000 and the beginning of 2001. In part, that was caused by the rise of the US dollar against currencies throughout the world. But in terms of fundamentals, we dont think that the Australian exchange rate reflects fundamentals in the Australian economy, which is still based on low inflation, a very strong Budget position, good growth in the economy, an improved taxation system and what we expect to be a strong rebound in growth in the 2001-2002 financial year.

JOURNALIST:

Will it help exports?

TREASURER:

Obviously if an exchange rate is more competitive, it helps exports. Australian exports have been booming over the last year. They have gone up very significantly. They have also been helped by the fact that weve recently undergone major taxation change, which has taken taxes off exports. But you have seen improvement in Australian exports, which is now contributing in a very positive way to growth.

JOURNALIST:

And will your Budget be in surplus this year?

TREASURER:

Well, weve now delivered four surplus Budgets in a row and Australias fiscal position is very strong. We have used those surplus to pay down debt. Our debt to GDP ratio is now about 8 per cent, which is incredibly strong compared to industrialised countries of the world. And our proposal is, while growth continues to keep the Budget in balance, we expect growth to continue in 2001-2002.

JOURNALIST:

So youre not concerned about losing that string of surpluses?

TREASURER:

Well, as I said, with growth continuing we expect to keep the Budget in balance. But we dont need to turn surpluses in order to strengthen the fiscal position. The fiscal position is already a very strong one. With debt at around 8 per cent of GDP, it makes us one of the strongest in the world - probably in one of the strongest positions amongst any of the developed countries of the world.

JOURNALIST:

Australia has rejected Shells $3.2 billion bid for Woodside and thats one of the things that helped send the Australian dollar in a decline. How does the Government recover the confidence of overseas investors after rejecting this bid?

TREASURER:

Australia probably operates one of the most liberal foreign investment regimes in the world. We have a screening process where foreign investment can be screened for national interest and I think the number of foreign investment applications which have been rejected is something like 0.1 per cent. So, it is one of the most open, liberal economies in the world. In relation to this particular application, Shell has a major stake in the North West Shelf. Theres a question as to whether it should also take the operation of the North West Shelf. We think its better if the operation of the project is kept in the hands of Woodside. But Shell will continue to be one of the major investors, as will other foreign companies like BP, Chevron, Mitsubishi, Mitsui. And the project will be managed by an independent company for the benefit of all joint venturers.

JOURNALIST:

And finally, returning to the IMF and World Bank, what do you see as the most important thing to come out of these meetings in terms of a message that will be coming out around the world?

TREASURER:

I think the most interesting part of these meetings will be an assessment of the world economy. Obviously things are very delicately poised. It is clear that world growth has turned down. It is clear that the US economy has slowed. It is not entirely clear where the pattern of growth is going to be going in the forthcoming year, and I think the most interesting part of the discussion well be involved in, is trying to get a grip on what the economic developments will be, how strong recovery will be, when it will come. It is of obvious benefit to all of us for the world economy to pick up again.

JOURNALIST:

Well thanks very much for joining us. This has been the Bloomberg Forum. Im Emily Schwartz in Washington and joining me was Peter Costello, the Australian Treasurer.

I was just wanting to back to that question I had before. What were doing is a story about how a year after all this debates gone on, the IMF still seems to be pretty central. You know, once Colin Powell said everyone loves to hate the United States but then when they get in trouble, you know, they call them over like, well, theyre the cops, you know. You dont like the cops but you call the cops when you have a problem. Is there something like that going on here with the IMF that see?

TREASURER:

Look, I think the when a nation gets into financial trouble, obviously one of the calls for support it will make is to the IMF. But I think it is important to understand the role of the IMF. It doesnt have unlimited means. It is not a lender of last resort. What it can do, is, it can provide bridging finance. But at the end of the day, that will only work if theres fundamental structural reform which will recover the confidence.

JOURNALIST:

Do they play a role that no-one else does? I mean, is it just sort of proof that it cant be replaced or ?

TREASURER:

Well, if this is not to be done on a multilateral basis through the IMF, it would have to be done on a bilateral basis. From time to time, there are individual countries who will come to the aid of a nation which is in trouble. But obviously the resources involved means that burden sharing can be more effective. The IMF is one of the organisations that can do it. But I think even the IMF cant do it alone these days. You are going to have to involve the private sector in many of these questions. And that really is still one of the great unresolved issues, as to how you bail in the private sector in relation to financial crises.

JOURNALIST:

Are you saying that if it werent for the IMF, youd have all these countries acting individually and that wouldnt work?

TREASURER:

Well, if you didnt have the IMF, you might have to invent something else, so youre better to work with what youve got.

JOURNALIST:

Perhaps there are people who will realise it. Yes. Okay, well thanks very much. I really do appreciate it.

TREASURER:

Thats great. Its a great pleasure for me.