TRANSCRIPT
of
THE HON PETER COSTELLO MP
Treasurer

Doorstop interview
Sunday, 9 September 2001
10.30 am (Local time)
Suzhou, China

SUBJECTS: Ansett, APEC Finance Ministers’ Meeting, US economy

JOURNALIST:

Obviously, let’s begin with your meeting last night with Dr Cullen. If you could just bring us up to date on what you talked about, particularly on Ansett.

TREASURER:

Well, Dr Cullen gave me a report on the information he had concerning Air New Zealand. He obviously will get further information when he gets back to New Zealand. He emphasised some of the commercial aspects of the arrangement. He still has before him an application by Singapore Airlines for an increased stake in Air New Zealand, which he and his Government are considering, but whether or not they approve that application, of course, is a matter for the New Zealand Government. I said yesterday that Air New Zealand is a privately owned New Zealand company. Ansett is its subsidiary. And the ownership of Ansett is in the hands of a privately owned New Zealand company, and this is a matter for the shareholders and directors of that company to determine its commercial outcome. I was pleased to be briefed on Dr Cullen’s assessment, but he, too, is awaiting further information from the directors and management.

JOURNALIST:

It may well be a private company, but obviously it’s a very important one in Australian terms. It will affect a lot of Australian workers. Does that mean your, or our Government, has no role to play in, particularly anyone who wants to invest in Air New Zealand, or Ansett? Or is there anything that government can do to aid that process?

TREASURER:

Well, I would welcome any new investor in Ansett Airlines. If there were an investor that were willing to put more money into Ansett Airlines, that would be, I believe, a good thing for the company. And it would be a good thing for the employees. It is apparent to me that Ansett requires new capital. And the new capital that it requires, unless Air New Zealand has the capacity to do so – and I do not believe it has – is likely to come from a new investor. Now, that new investor could be an overseas airline, it could be somebody that wants to get into the business, or it could be an existing player that wants to pick up the market share in Australia. But these are commercial judgements for investors, and we would welcome such an investor, but it is a question of who is prepared to put their money in it.

JOURNALIST:

If it was an overseas airline, how would the Foreign Investment Review Board review that sort of investment in this climate?

TREASURER:

Well, let me make this point: Ansett is a foreign owned airline. It is 100 per cent owned by a foreign company, Air New Zealand. If there were another foreign company that wanted to take a position in Ansett, then it would pass from one foreign owner to another foreign owner. I do not see that as a major problem. It is not as if an Australian is passing into foreign ownership. This is a foreign owned company and any application by one foreign owner to take the existing foreign ownership over would get a very, a very favourable hearing from the Australian Government. Whether there is a person that is interested in doing that, well that is a matter for commercial judgement. But I think I can indicate to you, we would not, we do not usually have concerns where a foreign owned company passes from one foreign owner to another.

JOURNALIST:

It is a bit depersonalised here, I mean my brother is an Ansett employee so therefore I want to know, at the end of the day what I am going to tell him, in terms of his future with that company and you are, sort of, not holding up much hope for him as an Australian, working in Australia for a company that was Australian until it was taken over by a New Zealand company.

TREASURER:

Well, before that it was owned by News Limited, which is also a foreign company. Ansett has been in foreign ownership for quite some time, now – through News Limited, through Air New Zealand – and I, like you, have every interest in the employees of Ansett Airlines. And I do not think the employees have done anything wrong. On the whole, they have been good and enthusiastic and great operators for their company. But it appears that their company has not been trading as successfully as one would hope, and that their company needs further capital. This is not the problem of the employees. This is as a result of management and the directors, and the management and the directors, I believe, need to come up with a commercial solution. And if that involves a new owner coming along and injecting capital, as I have said, they would get a very sympathetic hearing from the Australian Government.

JOURNALIST:

And you expressed those thoughts to Dr Cullen last night?

TREASURER:

Certainly. Dr Cullen’s main interest in this, of course, is not Ansett. It is Air New Zealand. Air New Zealand is a privately owned company, but the New Zealand Government has a share – what is called a Kiwi share – in it. So that gives it a share in that company. Not a big equity stake, but it gives it some control. And Dr Cullen has before him an application by Singapore Airlines to increase its stake in Air New Zealand. So the main focus of his activity is the parent company, Air New Zealand. We discussed the implications that some of the decisions it might make would have on Ansett, and it is clear to me that Air New Zealand itself would not be in a position to put more capital into Ansett. If somebody increased their stake in Air New Zealand, that might help it. But if somebody else was to come along and put some more capital into Ansett, that would be a more direct way of helping the business of Ansett and the employment of those employees.

JOURNALIST:

Did he give an indication that there were other airlines, or potential players, willing to invest in Air New Zealand and therefore in Ansett?

TREASURER:

I am not sure that he did. No.

JOURNALIST:

But as far as you know, [inaudible]?

TREASURER:

Did he say that there were people other than Singapore that were interested in Air New Zealand? And I said I am not sure that he did. No. I do not recall him saying, but that does not mean there were not. I, for example, know that Qantas was interested at one point in taking a stake in Air New Zealand. I know that because Qantas told me. But if you ask me, did he indicate in our discussion that there were others, he did not. But I know from other sources, there was at least one other airline. Whether it still is interested or not, I don’t know. But Qantas a week or so ago expressed a very keen interest in taking an equity stake in Air New Zealand.

JOURNALIST:

What are the other [inaudible]? Did he talk about the real threat of Ansett being put into receivership?

TREASURER:

He was really just briefing me on the situation with Air New Zealand. And it is a question for the directors of Air New Zealand what they do in commercial terms, and how they handle the immediate future of the subsidiary, which in this case is Ansett. It is clear to me that Ansett, if it is to continue, requires a new investor. Either a new investor to invest first in Air New Zealand and give it the capacity to help Ansett, or a new investor direct. And Ansett will only be in a position to get a new investor direct, if the directors of Air New Zealand decide to allow that to happen. And this is a commercial decision. You have got to understand this, that you could only get a new investor in Ansett, if Air New Zealand were to withdraw.

JOURNALIST:

I mean, I’m not asking for your opinion on exchange rates. I’m just trying to get a sense if there was any discussion of the issue in the various plenary sessions [inaudible]?

TREASURER:

Sure. We discuss levels of exchange rates and the effect that that might have on economies. We also discuss preferred methods of exchange rate. That is, the advantages of global exchange rates, as opposed to pegged exchanged rates, as opposed to currency boards. There was a long discussion yesterday about the IMF package in Argentina, and the Argentinian currency board, and the advantages and disadvantages. I have obviously had discussions with the Chinese Minister about the way in which the Chinese manage their currency rate. And these are topics of conversation.

JOURNALIST:

But during the meeting, was there any, you know, there is the big issue at the moment about the present strength of the US dollar, possible devaluation [inaudible]. I am just wondering whether Ministers, or various Ministers, expressed views about that?

TREASURER:

Well, I think the Americans have reaffirmed their strong dollar policy, as recently as a couple of days ago. I do not think there was any other great discussion about what the level of the US dollar should be. What the level of the US dollar should be is really a matter for the Americans, and where everybody else measures up against it is really a matter for everybody else.

JOURNALIST:

Was there any sense, especially after the figures which came out of the States on Friday about their unemployment, of any urgency in the meeting about what the Ministers could collectively do, or exhort each other to do?

TREASURER:

Well, there is a feeling at this meeting, reaffirmed by the IMF, that the world economic situation has turned down significantly since, in the last six months. And the significant turn down is principally the result of the turn down in the United States, whose economy stopped growing in the June quarter. And you saw with recent figures, its unemployment picked up considerably late last week. In fact, I think on Friday. The Japanese economy is probably more seriously in deficit than was hoped. The most recent contraction of 0.8 percentage was evidence of continuing weakness, but a weakness that was a little bit worse than was hoped. Europe is in the last six months weaker than was expected, and there was concern expressed that on the world scene there are really now no engines of growth. In fact, on the world scene, the engines of growth have stalled. So there was considerable concern about the world economy, and it is a concern that we in Australia have been reflecting over recent months. I have been noting it, and it was noted by the Bank in its decision to cut interest rates last week. Now, we in Australia will not be immune. It is true that we are now the stand-out growth economy, along with China, in the region. Most of the region is now in recession. Europe has stopped, America has stopped. It is true that we are recognised, in a Forum like this as the stand-out economy. But we do not want to get over-confident about that. The world downturn will affect us. The good thing we have going for us is, at a time when the world is turning down, our domestic economy is turning up. And that has given us an insulation. But some of the economies in this region, you take Singapore, for example. The Singapore Finance Minister noted two quarters of negative 3 per cent growth, nearly. This is very, very serious. And one of the things that has hit Southeast Asia so hard is the way in which they have geared themselves into ICT production. You might recall, something that was being recommended to Australia from some quarters, as recently as last year. And being heavily geared into ICT production, with the US downturn, may have taken very significant …

JOURNALIST:

You’re not saying it’s a good thing for Australia. So how does that …?

TREASURER:

Which bureau? Are you with News Limited?

JOURNALIST:

No.

TREASURER:

Who are you with?

JOURNALIST:

The Financial Times, now.

TREASURER:

Oh, are you? Oh, okay. Well, I was just going to say, I mean there were some journalists that were urging Australia to get into the ICT manufacturing business precisely at the time when the ICT manufacturing business was turning down significantly, leading those countries that were heavily reliant on it, into deep recession.

JOURNALIST:

Have you spoken to the Chinese Finance Minister about the way they peg their exchange rate. There is obviously a lot of speculation again about whether, the possibility of [inaudible]? Did he say anything to you about that?

TREASURER:

No.

JOURNALIST:

Maybe even talk about the way they do trade at the moment? There’s a very tight trading band. Some speculation is they’re going to the WTO about widening that band somewhat to reflect the increased investment.

TREASURER:

I do not know anything of that. I think you ought to ask the Chinese Finance Minister.

JOURNALIST:

Just fast forward it a bit, [inaudible] the New Zealand and the South Korean Finance Minister, I think it was, said [inaudible] by next year things would improve …?

TREASURER:

Well, I think this is the important point: I think the tone of this meeting has been serious. There has been a serious downturn, and the point about it is, it is reflected in the three big economic blocs of the world, simultaneously – the United States, Europe, Japan. And that is what makes it serious. US Secretary O’Neill takes the view that this is still just a cyclical downturn in the United States, and whilst the United States will continue to be weak throughout calendar 2001, it will recover in 2002. I hope he is right. The world hopes he is right, because you would not want the United States to continue at no growth levels for much longer. But he was quite firm on that point, and I guess that is the silver lining, albeit some way off.