Transcript No. 2000/56

Let me just say it is a great thing for Australia to be hosting the International

Securities Conference here in Sydney today. This is a major event for the world regulators

to be here. I congratulate the Australian Securities Commission for the work that

it’s been doing and the important work of making sure that we have good strong

corporate regulation both nationally and internationally.

JOURNALIST:

Mr Costello interest rates have gone up half a per cent in the United States. Does that

make a rise here inevitable?

TREASURER:

When we set interest rates in Australia they’re set with a view to both domestic

and international events. As you would have seen from the Reserve Bank statement when it

moved interest rates by 25 points the last month, it referred to the domestic developments

and the international developments. Obviously international developments have an influence

on our economy but our monetary policy is set with reference to both domestic and

international factors.

JOURNALIST:

This time around Treasurer the international influences are much stronger on our

currency, so what influence would that have on a possible interest rate rise in Australia?

TREASURER:

Well, when people measure the Australian currency against the US dollar you’ve got

to bear in mind that there are two currencies there, and if the US dollar is rising, as it

is against nearly every currency in the world, that has the affect of showing the

Australian currency movement by reference to a strong US dollar. And the US dollar has

been exceptionally strong, the US economy has been exceptionally strong in the first part

of this year. The authorities in the United States are obviously trying to take some of

the fizz out of the equity markets in America. They’re obviously trying to put an

influence in relation to growth which will bring it off the boil a little bit, that’s

obviously what’s moved their mind over night. But the US dollar has been rising

against every currency in the world, including the Australian dollar and the Euro and it

is obviously a very strong currency.

JOURNALIST:

Treasurer is it a difficult time for the monetary policy in Australia with the tension

between domestic economy and the international US economy, US dollar?

TREASURER:

I think it’s a, let’s go back a bit, in 1997/1998 we had an Asian financial

crisis and a regional recession. And the problem in 1997/1998 was exceptionally weak world

growth, particularly in this region. As we come into the year 2000 another problem

emerges. That is exceptionally strong US growth. And the question which is now arising in

the United States for the authorities is, how do we slow that economy? They are raising

interest rates to get some slowing in the US economy. Now, that’s the problem for the

world, and that impacts on Australia at the moment. But I keep making this point, that a

stronger world economy is a better environment for Australia than a weak world economy,

because it’s going to mean a pick up in our exports. Sure there are concerns about US

growth which is too strong, and the authorities are trying to get that down and have more

moderate consistent growth, but a stronger world economy is a better thing for Australia

than the situation that we went through in 1997/1998 which was a regional recession. That

will have benefits for us.

JOURNALIST:

Treasurer, Dr Mahatir’s statement overnight that Mr Howard’s a bully and

warning him he should stay out of Asia, that’s a bad omen for business surely?

TREASURER:

Well look, John Howard as the Prime Minister of Australia is going to conduct

Australian foreign policy in the interests of this nation. We have strong relations in the

Asian region, we have strong commercial ties and we will follow those commercial ties and

those commercial interests. I don’t think I would read any economic implication from

those particular comments. In fact Australia is one of the stronger economies in the

region with good trade ties, we have particularly strong economic interests in relation to

North Asia, Japan and Korea, and I expect as those economies pick up, the Korean economy

certainly picked up and Japan, we hope, is going to continue to pick up, but those

commercial ties will strengthen.

JOURNALIST:

(inaudible)

TREASURER:

I don’t think it’s helpful to use those sorts of words.

JOURNALIST:

Mr Costello, the Australian economy is slowing. Can the economy handle further

increases in interest rates?

TREASURER:

When you say the Australian economy is slowing, the Australian economy grew at a little

over 4 per cent for the last three years. We think in the next financial year it will grow

at about 3 -, which by Australian standards is above the long term trend, a little lower

than the record of the last three years, but that was a record breaking performance. A

growth rate of 3 – per cent over the next year would be considered a fantastic result for

places like Europe and other developed economies. Places like Japan where growth has been

zero to negative now for years. So 3 -, sure it’s slowing off its recent peak, but 3

– is good strong consistent growth and I’d certainly like to see that continue.

JOURNALIST:

Further increases won’t threaten that.

TREASURER:

Well, I never talk about future movements in monetary policy, as you know, because I

could be misinterpreted one way or the other.

JOURNALIST:

Treasurer, the Head of the US SEC (inaudible) speaking today, he recently made a speech

in the US regarding his concerns over big accountancy firms who’ll have a dual role

in both auditing and providing policy to large companies, is that a concern in Australia

as well do you think?

TREASURER:

Look, I think so. I think that some of these accounting firms are now taking steps to

try and erect what are called Chinese walls, to separate your auditing business from their

policy business. But one of the things that this Conference is working on actually is

harmonising accounting standards, so you can have raising of money in financial markets

across borders. Australia has been at the forefront of this. Australia has been one of the

world leaders in corporate regulation. We’ve come through a very bad period in this

country. In the late eighties our corporate regulation was slack, it was no good, and we

started fixing that up in the 1990’s. We now have a regulatory model with the

Australian Prudential Regulatory Authority, the Australian Securities and Investment

Commission, APRA and ASIC, which is considered a world leader. The IMF has described this

as path-breaking reform. Now, the corporate authorities have to continue their vigilance,

but the regulatory structures which have been put in place, beginning in the nineties, but

brought to a new international standard as a result of the Wallis Inquiry, which our

Government instituted in 1996, has given us some of the best regulatory arrangements in

the world. We’re making this a strength now. Once upon a time Australia was

considered a risk in terms of corporate regulation. Today we are considered state of the

art in the world, and that makes us a good base for business. It’s part of this

Government’s push to make Australia a financial centre. As I said in my speech today,

financial services now contributing double to gross domestic product, what the agriculture

sector contributes. It doesn’t mean the agricultural sector is bad by the way, it

just means this is a new industry, twice as large in its contribution to GDP as the

agriculture industry, to get some idea of it. This is a country which has the second

highest per capita ownership of computers in the world, sophisticated Internet which is

showing all of the technological improvement you would expect in a new economy. This is a

competitive new economy in Australia.

JOURNALIST:

(inaudible) accounting firms, is it something that our regulators are looking at at the

moment . . .

TREASURER:

Well . . .

JOURNALIST:

(inaudible)…..has it come before you as Treasurer?

TREASURER:

. . . the issue has come before me and I, as I said earlier, the accounting firms

themselves are starting to take some steps, and we encourage them to avoid any difficult

situations they could possibly get into.

Thanks.