I am grateful to the Australian Institute of Banking and Finance for allowing me this opportunity to speak at the 52nd International Banking Summer School.
Having read through your schedules I see that you have been very busy over the last two weeks. The breadth of topics covered, particularly the emphasis on practical exercises has impressed me.
I must say the exercise entitled 'Retail bankbuilder' caught my eye. I imagine this included a section on a personal favorite of mine; bank fees and charges.
I would be fascinated to hear what sorts of fees and charges such a diverse group of bankers have managed to devise.
And more importantly how you chose to explain them to the customers!
Seriously though, I believe that it is particularly apt that risk has been chosen as the central theme of this year's summer school.
In the last few years this region of the world has learnt some very harsh lessons about risk.
The recent Asian recession has been the most severe in the region's history. Much of the difficulty we are witnessing can be traced back to both inappropriate and ineffective risk management practices. Inappropriate and ineffective at all levels, I might add, not just at the corporate or government level.
And it is the Governments role in risk management that I would like to discuss today, with a particular focus on the recent Australian experience.
The three main sorts of risks that concern government are, in no specific order, social, political and economic risks.
Being a politician, perhaps it is appropriate that I begin with political risk.
While no country can claim to have totally clean hands as far as political risk is concerned, a key factor in terms of overcoming any exposure is the existence of a strong and independent legal system.
Australia's legal system is based on the common law model. It is a stable and robust system, resilient to political change, and, under the separation of powers provided for in our constitution, is independent.
Furthermore, our legal system is accountable and transparent and incorporates appropriate appeals processes.
However the provision of a reliable legal system is not enough. Another key factor in managing political risk is to ensure the actions of Government are transparent to the community.
Transparency, and the ability of the public to freely examine the decisions taken, is necessary for the public to have faith that the system is strong and that it can be respected.
The Government that I represent is keenly aware of this link between transparency and confidence. We believe in giving the public and the markets adequate notice of our stratgeic policy direction, which is exactly what we did before the 1998 election concerning our taxation policy.
Perhaps the decisions of governments that have their greatest real impact on this broader risk spectrum are those affecting the health of their country's economy.
To ensure the long‑term health of their country's economy, governments need to undertake responsible macro‑economic management and sensible micro‑economic reform.
Sound fiscal and monetary frameworks play a significant role in achieving and maintaining stable, low inflationary growth.
In achieving this, governments should outline both their short‑ and long‑term objectives, explaining the strategic priorities on which the budget will be based, and the setting of fiscal measures upon which performance will be assessed
The International Monetary Fund has identified four broad requirements which it considers to the basis of good practices for fiscal transparency. They are:
- clarity of roles and responsibilities of governments;
- the public availability of information;
- open budget preparation, execution and reporting; and, finally
- independent assurances of integrity.
Australia's fiscal framework is certainly consistent with the principle features of this IMF code.
In the past three years, we have pursued a credible, transparent and forward‑looking framework for macroeconomic reform.
In 1996 the Australian Government introduced the Charter of Budget Honesty through legislation which aims to improve our transparency in, and accountability for, fiscal policy formulation.
The Australian Government has also set itself the target of a balanced budget over the cycle to ensure that we have a strong and healthy foundation for low‑inflationary growth.
Improvements in our macroeconomic policy framework have played a key role in improving Australia's economic fundamentals, laying the foundations for Australia's current economic strength.
The Government's medium‑term frameworks for monetary and fiscal policy are focused on the current account and inflation constraints that have previously limited the economy's capacity to grow.
We have no doubt that the pursuit of sound macroeconomic policies has been fundamental to the economy's resilience in the face of the financial crises in the world of recent years.
I think the results speak for themselves.
Australia combines the strongest growth rates in the developed world with the lowest national inflation rate since man walked on the moon. All while the Asian region has been in recession, with our two biggest trading partners, Korea and Japan, approaching depression.
It has been the successful implementation of our policy framework that has allowed us to maintain the confidence of foreign investors during these turbulent times.
Our monetary policy framework, together with a more competitive economy has played a key role in maintaining low inflation through the 1990's.
The Government has strongly supported our central bank's low inflation target and enhanced its independence in setting monetary policy.
To ensure that the RBA acts in a transparent and accountable manner, especially in relation to the development and implementation of monetary policy, it is required to inform the Government of its policy from time to time and report to the Parliament.
The RBA also publishes regular reports on the state of the economy and on the operation of monetary policy in Australia.
But to maximise sustainable economic growth, the government of a country needs to go further than its fiscal and monetary policies. Microeconomic reform is also very important, especially as it can be used to support macroeconomic policy objectives.
Microeconomic reform improves the efficiency of an economy by making it more competitive and dynamic. In the long run, such policies also contribute to economic stability by reducing the economy's susceptibility to large scale corrections.
Effective competition in markets for goods and services provides the main impetus for firms to improve their efficiency and encourages greater innovation in product design, production processes and management practices.
Such improvements deliver real benefits to consumers in terms of higher incomes, lower prices and improved levels of service and choice for consumers and businesses.
Our Government continues to be committed to a program of structural reform aimed at increasing the long run growth potential of the economy and raising living standards.
Evidence of the broad benefits of structural reform can now be seen at the economy‑wide level, especially through the resilience of the Australian economy.
With continuing global integration and internationalisation, the long term well being of Australians will depend significantly upon the productivity performance of the economy. Policies that improve national productivity will contribute to higher national growth and enhance employment opportunities and household incomes.
Structural reforms and productivity improvements also underwrite our capacity to provide effective and sustainable healthcare, education, welfare support and other social infrastructure. With increasing capital, labour and product mobility, such measures position Australia to take advantage of the new opportunities presented by a dynamic global economy.
The Australian Government has also embarked on a major overhaul of its taxation system.
Legislation has already been passed which will allow us to remove most of the present indirect taxes in Australia, substantially reduce personal income tax and implement a broad based consumption tax.
We are also currently reviewing our company tax structure. The proposed reforms, which I can only describe as breathtaking, will be released to the public in the near future.
Combined with indirect taxation reforms Australia will now be equipped with a taxation system that will carry us well into the new millenium.
But it is the Government's reforms in the financial sector that will be of most interest to you here today.
The reforms of our financial sector are being done in two parts.
The first part of these reforms, as some of you may already know, has resulted in the regulatory arrangements for our financial system being fundamentally reformed.
The new system will ensure that regulation, consistent with the basic goals of maintaining financial system safety and stability and consumer protection, will:
- be better focused on its underlining objectives;
- minimise restraints on new entry and competition;
- remove unnecessary regulatory barriers; and
- apply in a competitively neutral way across existing and newly emerging market sectors.
As such, these reforms allow the financial sector to operate more freely and efficiently by giving it the flexibility to innovate and adapt to change, but at the same time tighten the safety net for consumers.
The second part of these reforms has become known as the Corporate Law Economic Reform Program, or CLERP.
CLERP is aimed at modernising our corporate law, giving it an economic focus and streamlining regulations while maintaining consumer protection and, more importantly, market integrity.
This will be achieved by, among other things, giving our accounting standards a more commercial and international focus, streamlining fundraising regulations, clarifying directors' duties and facilitating a more competitive takeover market.
The reforms will also harmonise and update the regulation of financial products, service providers and markets.
I have spent most of my time here talking about, in one way or another, governments. One of the major influences on governments all around the world that must be taken into account is the people that they govern.
But the people that make up a country have a greater impact on the risk profile of their country than just through their influence on the government.
The factor that has the most immediate relevance for businesses is the level of education. This will determine the cost of and access to the people needed to perform the duties required for a company to succeed.
Australia has well educated and trained people, a valuable resource to draw upon for any company doing business here. In fact, Australia has the largest domestic source of highly educated personnel in the region 45 per cent of Australia's workforce have university, trade or diploma qualifications. In addition, 30 per cent of Australians with tertiary degrees also have post‑graduate qualifications.
Australia today is a multi‑cultural society and is accepting rather than merely tolerant. It is also a very stable environment.
One of the benefits of our history is that more than 2.4 million Australians speak a language other than English at home. That is around 15 per cent of our total population. And many English speakers learn other languages.
Thus it is easy to see why Australia considers its people and its society to be an asset rather than a risk.
The climate and quality of life, as I hope you all have experienced during your stay here, is a further bonus.
I suppose that I can't really end this speech without commenting on one of the biggest potential risks facing everyone in just about every place in the world, and that is the Y2K or Millennium Bug.
While the Y2K problem is more of a business continuity problem, the task of keeping everyone informed of what's happening has fallen to national governments around the world because of the scale of its potential impact.
This is particularly important because there is good reason to believe that fears about what might go wrong, and the reactions to this, might be a greater problem than any direct consequence of a technical problem.
According to the Gartner Group, Australia is ranked as one of the most Y2K ready countries in the world.
Year 2000 preparedness of the Australian banking and financial sector is also well advanced, with preparations internationally recognised as being at world's best practice.
In summary, I have attempted in my address to identify the nature and implications of what I have referred to as broad spectrum risks.
I hope that I have been able to convey the message that unless countries address these risks then their financial systems are likely to operate on fairly shaky foundations.
In other words, successfully addressing them is an essential prerequisite, although not a guarantee of, an efficient financial system. The latter will also, of course, depend on the financial institutions operating there.
I believe that Australia has addressed these risks better than many other countries in the world.
We have a stable economy, a healthy society and a mature government. These assets, combined with a world's best practice regulatory structure, has allowed us to develop an innovative and sound financial centre, thus laying the basis for Australia to become a global financial centre.
Thank you again for providing this opportunity to speak to you. I trust that you have enjoyed your time here in Australia.