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Wayne Swan

Deputy Prime Minister and Treasurer

3 December 2007 - 27 June 2013

16 October 2008

Interview with Jim Middleton

Newshour, Australia Network

16 October 2008

SUBJECTS: Global Financial Crisis, G20, Economic Security Strategy

MIDDLETON:

Treasurer, welcome to the program.

TREASURER:

Good evening.

MIDDLETON:

You were in Washington at the weekend, what was it during those meetings that (inaudible) Finance Ministers from around the world from, if we can put it, from an alert to alarmed?

TREASURER:

I think it’s pretty fair to say that the global financial crisis has moved to a new and damaging phase, and that is something that has occurred largely through the last couple of weeks and through many of the events that everybody is familiar with.  But the view of Finance Ministers was that this needs to be dealt with swiftly.  It needs to be dealt with in a coordinated way and it does require very substantial policy action – substantial action when it comes to monetary policy, substantial action when it comes to stabilising our banking system and substantial action when it comes to fiscal policy.  And really, what all of them were saying was that the way this has unfolded so far, what it actually requires is very swift coordinated action.  And the encouraging thing coming out of the weekend was we have begun to see around the globe governments acting across the range of issues that were discussed over the weekend.  That’s a very encouraging sign.  But what I would say is that the mood was sombre but very determined.  

MIDDLETON:

Australia’s prosperity is dependent, to a large degree, on growth in Asia.  What have the Chinese, for example, been telling you about their ability to ride out the current firestorm?

TREASURER:

The discussion at the IMF over the weekend was that growth in advanced economies would be around zero and that growth in developing economies would certainly be slowing much more than had previously been thought.  I think the view generally around the room was that the Chinese were probably in a better position in those emerging economies than many others.  But the fact is that everybody has drawn the lesson that the so-called decoupling is not the reality, that we are all interconnected and therefore a global problem does require global solutions.  I’m encouraged to see the response from the Chinese in recent days and I think that they understand very well, like everyone else does in the emerging world, what a problem this is for all countries in the world.

MIDDLETON:

So, it’s by no means certain then, given what you heard in Washington, that Australia will be able to avoid recession?

TREASURER:

Jim, I certainly believe that this will have an impact on growth in the Australian economy but on all of the advice available to me, I think growth should remain positive.  But what this is all about is avoiding the worst consequences of what could happen as a result of the events of recent weeks, and that means acting early and acting in a decisive way.  And that’s why we’ve put our Economic Security Strategy out there, which is a fiscal stimulus and it will work in tandem with the monetary policy stimulus announced by the Reserve Bank over a week ago, and in tandem with the measures that we’ve already announced to strengthen our financial system, particularly our deposit-taking institutions.

MIDDLETON:

How certain are you that what you have announced – the $10 billion package this week – will not be either too little, or worse, too much?

TREASURER:

The advice of all the policymakers was to be bold and to be decisive and to act as soon as possible.  We believe this is a responsible package – around one per cent of GDP.  It is designed to give the stimulus, the boost, if you like, as soon as possible, and also designed, as I said before, to work in tandem with monetary policy.  I believe that the boost that we have given is appropriate.  It will have some of these payments flowing through the system from the 8th December.

MIDDLETON:

Now, an immense amount of money has been pumped into the world economy in recent days and weeks, not least the Australian $10 billion injection.

TREASURER:

Well Jim, it has yet to flow.  That’s part of the challenge.  What Finance Ministers were talking about in Washington is that there tends to be a time lag between announcement and implementation, and that’s why we were so swift in our response, in terms of fiscal policy, so it could work in tandem with monetary policy and our other initiatives to strengthen our deposit-taking institutions.

MIDDLETON:

What I was wondering, though, is over time when there is recovery, with all this extra money slopping around the world, there must be a danger of an inflation breakout down the track.

TREASURER:

All the advice to us is that the risk is on the side of growth and that’s what we are attending to.  There has been a huge shock to the world financial system and to the global economy and that’s why these measures that we’re taking aim to counter that impact.  I don’t believe that there is a risk on the inflation side here.  I do believe that we need to strengthen our economy by measures which will lift growth to protect all of our people and our businesses from the impact of this financial crisis on the real economy.

MIDDLETON:

We were talking a moment ago about China but what about Japan, which has had a pretty sick economy for some time and a fairly fragile banking system.  How worried are you about the possibility of a real turn for the worse in Japan following on from Europe and the US?

TREASURER:

I don’t intend to single out any particular country.  Japan is part of the G8.  It has been working through that process.  I think it would share the view, but I don’t directly know, share the view of the G7 which was announced on the weekend.  I think all countries in the world understand that this is a global problem, it requires a global solution and that requires implementation of measures appropriate to national circumstances across all countries.

MIDDLETON:

Just before we wrap us, capitalism is obviously going through a major shake-up.  How do you think it will be improved by the experience?  What would you hope to see emerge?

TREASURER:

What I’d like to see emerge is a long-term solution to this problem.  Following the Asian crisis of 1998, the G20 was formed but it did not progress the reforms to our financial system which were required.  We must now learn the lessons of these events and progress a reform agenda through the G20 Finance Ministers meeting, working with the IMF and the Financial Stability Forum, to get long and lasting reform in the system so we’re not back here in 10 years’ time repeating the mistakes of today.

MIDDLETON:

Does that mean better international regulation and the outlawing, perhaps, of some of the more exotic instruments that we’ve seen develop over the past decade?

TREASURER:

It most certainly means the full implementation of the existing recommendations of the Financial Stability Forum.  I think it also requires measures over and above that, and some of those measures have been outlined by Prime Minister Rudd in a recent speech and we will be working actively through the G20, with all of the countries involved there, to make sure that we do progress this reform agenda for the long term.

MIDDLETON:

Treasurer, thanks very much for your time.

TREASURER:

Good to be with you.