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 17/11/06

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 Friedman

TREASURER:

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.

JOURNALIST:

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

TREASURER:

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.

JOURNALIST:

With a formal agreement (inaudible)?

TREASURER:

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 forward.

JOURNALIST:

(inaudible)?

TREASURER:

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.

JOURNALIST:

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

TREASURER:

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.

JOURNALIST:

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

TREASURER:

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.

JOURNALIST:

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)?

TREASURER:

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.

JOURNALIST:

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?

TREASURER:

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.

JOURNALIST:

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

TREASURER:

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.

JOURNALIST:

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

TREASURER:

Good to meet you, welcome to Australia.

JOURNALIST:

Thank you.

TREASURER:

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.

JOURNALIST:

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

TREASURER:

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.

JOURNALIST:

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 recession?

TREASURER:

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.

JOURNALIST:

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?

TREASURER:

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.

JOURNALIST:

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

TREASURER:

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. Yes?

JOURNALIST:

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

TREASURER:

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. Yes?

JOURNALIST:

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

TREASURER:

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.

JOURNALIST:

You are not against long-term contracts?

TREASURER:

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.

JOURNALIST:

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

TREASURER:

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?

JOURNALIST:

I was just wondering…

TREASURER:

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

JOURNALIST:

(inaudible) foreign exchange (inaudible)?

TREASURER:

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.

JOURNALIST:

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 that?

TREASURER:

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?

JOURNALIST:

Are you an acolyte of Milton Friedman?

TREASURER:

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?

JOURNALIST:

Treasurer, what is your assessment of the risk involved in global financial imbalances and your diagnosis of what caused the inherent (inaudible)?

TREASURER:

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.

JOURNALIST:

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

TREASURER:

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.

JOURNALIST:

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?

TREASURER:

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 recommendation.

JOURNALIST:

(inaudible).

TREASURER:

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