Australia - Weathering Regional Storms
Speech by the Australian Deputy Prime Minister and Minister for Trade, The Hon Tim Fischer at the University of El Salvador
Buenos Aires, 24 November 1998
(Check Against Delivery)
Dr Juan Antonias [Rector of the University]; [names of VIPs]; distinguished guests, ladies and gentlemen.
Its my great honour to be here today, not only because of the great compliment you have paid me by conferring on me this Honorary Doctorate, but because it is awarded by one of the most prestigious academic institutions in Argentina. It is with gratitude and humility, therefore, that I speak to you today.
I have come to South America having just attended the APEC ministerial meetings in Manila in the middle of this month. A major focus of those discussions was the serious economic difficulties faced by many countries in the region for over a year now, and so I thought it would be topical for me to address some of those matters with you today - the East Asian economic crisis and its implications for Australia, how we have responded to these challenges, and what implications there might be for Argentina.
East Asia's crisis - its worst in 50 years
One reason why the economic troubles experienced by East Asia since the middle of 1997 have seemed to hit harder is that they came after a period of almost unparalleled economic growth, growth so strong and sustained that only 18 months ago it seemed likely to last forever. Confidence in continued expansion was high both within the region and elsewhere, and East Asia's position in the global scheme of things had consequently become more important.
Now East Asia is still dealing with the fallout from an economic crisis that is the worst it has faced since the end of the Second World War, and it is likely that many countries in the region will suffer the effects for several years to come.
The IMF's October 1998 World Economic Outlook has again revised down East Asia's growth forecasts. The region's currency and equity markets will probably remain well below their levels at the beginning of 1997. It is expected that there will be some recovery next year, but much will depend on how countries address their own structural economic deficiencies and also on developments in the external environment. Most analysts will tell you that there are still several years of economic dislocation in store for East Asian economies.
East Asia's economic crisis has had a global impact, and the outlook for world economic growth has worsened. The key word seems to be "uncertainty", with 1999 looking like a difficult year for many.
The IMF's 1998 GDP growth forecast for the global economy now sits at 2 per cent, down from the previous forecast of 3 per cent, and growth for next year is projected at 2.5 per cent. Contrast those figures with the average rate of growth of 3.5 per cent over the past 20 years, and the 4 per cent growth we saw in the past three years.
World trade is also down, with the IMF expecting trade in goods and services to grow by only 3.7 per cent in 1998 and 4.6 per cent in 1999. Again, that is much less than half the average growth from 1995 to 1997.
For the East Asia region, as for the rest of the world, developments in Japan, the United States and the EU will be critical to stability and recovery.
We've seen strong economic growth in the United States in 1997 and 1998, but may have growth at more moderate levels in 1999. Some attention will focus on whether slower growth affects the ability of the US to absorb imports in 1999 and beyond. The major EU economies have gained momentum, underpinned by strong domestic demand, and the IMF expects aggregate growth to increase slightly in 1998, moderating in 1999. Japan's economic growth forecasts have been continuously revised down, with the IMF now forecasting a contraction of 2.5 per cent in 1998. Japan's Economic Planning Agency in mid-October said the economic downturn could last into March 2000.
The international outlook is, therefore, mixed. Within the East Asia region, we expect that recovery will not be uniform, and that economies further down the reform path (which include Thailand and Korea) will probably recover sooner than economies such as Indonesia which are experiencing more fundamental problems.
The impact of the regional crisis has also been felt outside the economic sphere. There have been some big changes in the political environment, perhaps the most remarkable being the end of the Soeharto era in Indonesia. But we've also seen new Governments in Thailand, Korea and Japan, and significant political developments in countries like Malaysia, PNG and New Zealand.
We may also see some shift in the balance of strategic relationships in our region as the economic troubles continue. Many factors are in play, such as the relative performances of large economies like China and Japan, and the possible decline in confidence of some South-East Asian countries and of ASEAN as a bloc. The United States indicated at the APEC meeting its determination to play a major role in the resolution of the region's problems - for Australia's part, we are happy to see continued US involvement and influence in East Asian affairs.
Our region is fluid and unsettled. For Australia, as for any country, the possibility that we could see economic and political instability continue in our region for some time must be a matter that demands our constant attention.
Australia - weathering the storm
Australia's trade has for many years been closely linked with the East Asia region. It was inevitable, therefore, that the regional crisis would have an impact on us.
In the financial year 1997-98, Australia's merchandise exports to East Asia - AUD47.2 billion - were actually up by 5.5 per cent over the previous year. But our exports to the region declined sharply in the first two months of 1998, contributing to a fall of 5 per cent in the first eight months of this calendar year compared with the same period in 1997.
Since May 1998 we have seen monthly exports to the region pick up slightly, in trend terms, on the back of good export sales to Japan, Hong Kong, Taiwan and some smaller regional markets, like Vietnam. The latest trade statistics for September indicate a flattening of that improvement. Clearly, we are dealing with a very volatile market in East Asia, and great caution must be taken in assessing any statistical trends.
While we have been selling less to our region, Australia has been importing more from the countries of East Asia. Although in a few areas Australian manufacturers have thus been facing increased competition, many of the items concerned are not produced in Australia, and so our consumers and producers are benefiting from lower prices.
In the face of all the bad news from the East Asian region, Australia's overall trade performance has held up remarkably well. Exports of goods and services in 1997-98 grew by 8 per cent over 1996-97 - merchandise exports were up 9 per cent and services exports 5 per cent.
Importantly, we have been maintaining modest growth in 1998. The figures released in October showed that for the first nine months of 1998 the export of goods and services grew by 3 per cent over the same period in 1997. If factors such as the one-off gold sale by Australia's Reserve Bank in 1997 are discounted, our merchandise exports were up 7 per cent in the same period.
Two factors lie behind this very pleasing performance. The first is diversification by Australian exporters into markets outside the East Asian region, a move strongly encouraged by our Government since coming to office in 1996. Exports to non-East Asian markets rose by 23 per cent in 1997-98. We've seen very good growth in our exports to the United States and the EU, but also in a range of emerging markets including Latin America (an area of great personal interest for me), where our trade grew by over 10 per cent.
The second factor underpinning our export performance has been the development within our domestic economy of the best economic fundamentals since the 1960's and before. Our levels of economic growth have been amongst the highest in the world, while our inflation and interest rates have remained amongst the lowest. Our Government has delivered a national budget with a very healthy surplus, while focussing on market deregulation and other reforms that take unnecessary burdens off businesses. We have acted decisively to revitalise our economy and our private business sector, and that effort has certainly shown dividends.
Our dynamic response to the crisis
When the implications of the East Asian crisis began to become apparent, no country responded more rapidly or forcefully than Australia. Given the close nature of our ties with the region, and the depth of our economic engagement with it, that is understandable. We have been determined, from the start, to provide assistance that is both substantial and appropriate.
Our aid efforts have just been significantly enhanced with the announcement at the APEC meeting by Prime Minister Howard that Australia will implement an AUD50 million initiative over the next three years to assist countries in our region affected by the economic crisis. The aim of the package is to help APEC countries take practical measures to strengthen their economic and financial management. We strongly believe that improved economic governance - and in particular the development of strong supervisory and prudential institutions - is one of the keys to returning the region to strong economic growth.
We have also been actively involved in the global debate on the ramifications of the East Asia crisis, as more and more observers examine the shortcomings of the international financial system that contributed to the region's troubles. Our Prime Minister, John Howard, has established a task force to advise the Government on how Australia should contribute to an effective international response to the challenge of financial volatility.
At the same time, we are determined not to allow legitimate concerns over some problems with the international financial system to be used as a Trojan horse for anti-free traders bent on re-imposing trade restrictions. We believe that Australia stands as a model for the benefits that sticking with reform and liberalisation can bring. Policies of reform bring a strength and resilience to an economy that allow it to withstand domestic and international shocks, while protectionism brings short-term, illusory benefits that actually weaken an economy over the longer term.
In effect, those who argue for trade barriers are like panicked swimmers who think they can save themselves by climbing on the backs of those around them - the respite will only be temporary, their fate the same (except that two lives are put at risk instead of one). What we need is cooperation in the face of economic difficulties, not selfish knee-jerk reactions - because in reality, we will all swim together, or all sink together.
Australia and Argentina - the lessons we can learn
In many ways, Argentina's recent experience with economic reform has mirrored that of Australia.
The effort put in by your Government to developing strong macroeconomic fundamentals has been showing results, as evidenced by the recent positive comments by President Clinton, IMF President Camdessus and World Bank President Wolfensohn on the sweeping economic reforms Argentina has implemented over the last decade. Projected GDP growth, at around 5 per cent, looks excellent. Productivity is strong, fiscal accounts are on track, and your banking system is on a much firmer foundation. Of course, no one can say what effect unforeseeable domestic and international events may have on a nation's economy, but if the right policy settings are in place the chances of riding out the shocks are much improved.
The fundamental lessons of the East Asian crisis for countries like Australia and Argentina are clear. We must act in concert with the international community to address those aspects of the global financial system that need reform. But we must ensure that we have our own economic house in order if we are to withstand international economic troubles. And, above all, we must embrace the world, not turn our backs on it.
Local Date: Saturday, 22-Nov-2008 03:14:02 EST