20 February 2014

Opening remarks, G20 – Institute of International Finance Conference, The G20 agenda under the Australian presidency, Sydney


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First of all can I add my welcome to all of you coming to Australia. I know the Treasurer welcomed you this morning, and we are very keen to capitalise on this great opportunity that we’ve got to preside over the G20 this year, to make a difference to the global economic debate and global economic policy.

While I’m thinking about the G20 in broad, can I take the opportunity to recognise two former distinguished Australian Treasurers, Peter Costello, who now heads the Future Fund, who was Treasurer for eleven-and three-quarter years and his successor, Wayne Swan, who was Treasurer of Australia for six years, both of whom were instrumental players in the G20 Finance Ministers meeting. And of course under the previous Government, there was also the evolution of the G20 into the leaders’ meeting.

Now the particular topic we’re discussing here today, emerging markets, the strength of the challenges that emerging markets face, first hit me around 1997-98 when we had the Asian Financial Crisis.

Peter Costello will remember then the role that Australia played in the region. We were involved in I think every one of the bailouts in the region. It was then that it struck us, the extent to which capital market issues and financial market issues had obviously played a role, in putting some of those economies in a difficult situation. But the question then became, where do you go from there? Some countries, Malaysia for example, reacted by putting on controls to protect the economy for a period and in the short term sense it had an impact.

One of the great lessons that came out of that period for many of those countries was that you do have to get your own house in order. You have to focus on being as competitive as you can. Some of them did stay with fixed exchange rate for a while that’s true, but many of them recognised, that the path to prosperity lay in becoming more open rather than closing in again.

The challenge today I believe with capital markets, particularly in emerging economies, is how we in the West, particularly countries like Australia which have developed particular expertise, can assist them to further liberalise their markets, not only for their own benefit, but for the benefit of the world.

One of the things that I’ve been involved in this week is a number of meetings and discussions and events with major banks from China: China Construction Bank on Monday, Bank of China on Tuesday. In both cases they were promoting greater use of the renminbi. China Construction Bank announced what they were going to be doing in relation to settlement services here in Australia in that regard. On Tuesday the Bank of China along with the Australian Stock Exchange announced that they would be providing settlement services for the renminbi and then on Wednesday, I think it was Wednesday, I went to a meeting between the Bank of China and Hancock Prospecting, where they had signed a memorandum of understanding to further promote the use of the renminbi in Australia, Australian trade and investment.

Now I mention that in particular because I think we have a role to play, countries like Australia, in helping to encourage, that greater financial liberalisation and opening of capital markets. We have an ambition to build on the success we’ve had of 30 years of financial deregulation and the development of the superannuation retirement income sector here. We’ve built a very vibrant financial services sector which has been a major centre of jobs growth for the last 20-30 years, particularly in centres like Sydney, and our ambition is to export more of that expertise and those financial services to the region.

And we’re seeking to play a role in promoting, for example, our funds management capabilities in the region, but also making it easier for others to do funds management here through things like the Asian regions Funds Passport, which the Treasurer, Joe Hockey, signed onto at the first APEC meeting he went to in Bali.

Now these are all attempts on our part to further develop our capability in the region, and in doing so to engage with the maturing emerging economies, as well as the more newly emerging economies in the region and help them to become to more resilient in a financial sense.

One of the debates that has gone on in the context of the G20, and I think Wayne Swan in particular in recent years will remember this from meetings in Cairns and elsewhere, leaders meetings, has been the focus on developing things like local currency bond markets in emerging economies. Trying, in other words, to find financial instruments, more sophisticated financial instruments and markets that can then attract more investor interest from the West.

Not all economies in the region are at the same stage of development, some are more developed than others in terms of the sophistication of their financial market infrastructure, but it is important that we try and increase the maturity of those markets. Because when we look at the mismatch between infrastructure supply and demand in the region, what we need to do is to create a circumstance in which there is greater product sector interest in providing those funds into those particular markets.

Issues around local currency bond markets, there are things like the ASEAN Infrastructure Fund that we can build on in the region. So it’s not as if we’re starting from scratch, but the important point is to have that engagement. By what Australia is doing with China, in terms of promoting the greater use of the renminbi is an example of how we take that process forward in other markets.

I should also add that Mark Johnson, a distinguished Australian banker, did a report for the previous Government a few years ago on how we promote Australia as a financial services hub. Now the ambition here is not to displace Singapore or Hong Kong or Shanghai or whatever. There are reasons why those particular centres do particularly well, but we have good infrastructure, we have great expertise here, a great lifestyle. We have attributes we can build on. But through measures we’re taking, for example in terms of the taxes that apply to funds that are invested in management vehicles here, we are trying to make Australia more attractive as a destination for funds management.

But in turn, we’re also seeking to promote that expertise more in the region. So on things like the Johnson Report there is more for us to do. We’re looking, for example, at how we develop a retail corporate bond market in Australia. We’re looking at products around infrastructure which can be more accessible to retail investors or those who, in the case of Australia, operate their own self-managed super funds.

So for us further financial development is both in our own interest, for domestic reasons, but we also believe it provides a spring board for us into the region. Importantly in terms of emerging markets, one of the great benefits, if we can achieve greater liberalisation of capital markets in the right way and get more use of savings in those countries or productive investments in those countries, is we also contribute to that broader international debate that’s been going on about rebalancing growth, in broad terms between the West and other parts of the World. And we start to come to grips with some of the issues that the US, for example, has raised for many years around the focus of economies like China on export-led growth. Now China is changing, China is transitioning to more consumption-led growth, but in many of these economies providing a capacity for high national savings to be channelled into productive domestic investment will contribute to attenuating some of those external imbalances that we’ve seen.

So there is a strong and big agenda here. You’re going to hear from four and five speakers who are a lot more distinguished than me around the actual mechanics of what is happening with the emerging markets. But from Australia’s perspective, we believe we can play a role because of our expertise, because of our proximity to this region, as being a bit of an honest broker in how we can develop more appropriate, more resilient and stronger financial market infrastructure to the benefit of those countries and of course to the benefit of all of us.

Thanks very much for listening.