Transcript No. 99/73

TREASURER:

The annual meeting of the IMF, which has been taking place over the last couple of days

has seen some important initiatives in relation to procedures for wiping out Third World

debt. And Australia has taken its part in that with an announcement of A$35 million, which

will be used for countries that have a track record and have turned their economies along

the paths of better management to be able to cancel unsustainable debt, given the

opportunity to rebuild, and hopefully a contribution to the alleviation of poverty. We’ve

made our contribution, other countries have made their contributions and I expect that to

be a very positive development. There’s also been an announcement in the last 24 hours of

a new group, a “Group of 20” which is being set up to look at the international

financial issues. Australia has been very active in pushing for reform of international

financial arrangements in the wake of the Asian financial crisis. And a new group is being

set up, which gives us the opportunity to look at those arrangements. Australia will be

part of that — part of 18 nations on it — 18 nations in the world which will be meeting

for the first time in Berlin in December to work on changes and improvements in the

financial arrangements which affect world finance. In addition to that, there have been

lots of discussions about the international economy and the IMF is predicting that the

economy will pick up over the course of next year; continued growth in the US, perhaps

some signs of recovery in Japan. Of course the Australia economy which has been in a

strong position looks as though there will be a slight slowdown, but still considerably

high levels of growth by world standards and a pick-up in the course of 2001.

JOURNALIST:

Are you concerned about the value of the yen and the steps that the Japanese

authorities have taken to try to keep the yen lower?

TREASURER:

Well, we’ve seen perhaps tentative signs of a turn in the Japanese economy and we’ve

seen some positive quarters of growth in an economy which has been languishing for years.

And that’s a good thing: good thing for Australia, good thing for the region. Japan is our

biggest trading nation. Some of the countries look at the yen and hope that that won’t be

a negative for Japanese recovery. Now, I hope the Japanese recovery continues. Obviously,

they’ll be looking at measures which are required to do that but the level of the yen is

very much a matter for them.

JOURNALIST:

In your discussions with the IMF and the World Bank — I’m not sure how much you have

yet — what are you asking for in terms of what the world can offer to reconstruct East

Timor as a separate nation. What does Australia want to see the rest of the world do?

COSTELLO:

Well, we want to see a very active aid program. There’s going to be a meeting of

donors, potential donors for East Timor, and Australia will be there and Australia will

obviously be a major donor. To date, we are the largest donor in East Timor in terms of

aid and of course in terms of military involvement. We are taking the lion’s share of the

responsibility. So, just as we are encouraging other nations to help with the military

task, we will be encouraging other nations to help with the aid task. We’ve had very

positive indications from the World Bank that they will be looking at a major effort in

relation to East Timor and we will be encouraging other countries to join in, particularly

countries in the region. This is a big humanitarian effort, a huge effort. Australia can’t

carry it alone, nor do we seek to carry it alone. This is something for the whole of the

international community and the region in particular.

JOURNALIST:

How much are we talking about? In the hundreds of millions?

TREASURER:

Well we’ve already in Australia indicated that we’re expecting our contribution in East

Timor to be hundreds of millions. And we would be hoping that other countries will be

making sizeable contributions as well.

JOURNALIST:

You spoke about the World Bank. What about other countries? Have you had positive

responses from other countries?

TREASURER:

Yes, I’ve had discussions with other countries and we are hoping that they’ll be part

of World Bank initiatives. There’s also going to be UN initiatives in relation to the

costs of peacekeeping. And it’s very important that we get contributions to that, on the

military side, as well as contributions on the aid side. Now, Australia stands ready to

play its part and we have played a very significant part, but this is not an Australian

operation. This is an international operation and we expect other countries to be part of

bearing the cost and the responsibility.

JOURNALIST:

What does all of this mean for the Budget? Military involvement, the aid package —

what does it mean?

TREASURER:

Well, this will be a significant cost on the Australian Budget. And it will be a new

cost on the Australian Budget. We brought down the budget in May of this year, and we did

not budget for 4500 troops in East Timor. We did not budget for humanitarian tragedy in

East Timor. And we will now have to make quite an increase in our expenditures. We want to

do that consistent with budgetary policy, and that’s been the key in Australia the last

couple of years, but this is going to be new and considerable expenditures.

JOURNALIST:

What about the defence component? The Prime Minister is talking about increasing

defence spending. Do you know how much that’s going to add to the Budget?

TREASURER:

Well I think there are separate issues here. There’s one issue of Australia’s defence

spending generally and second the issue of Australia’s military commitments in East Timor.

Commitments in East Timor will be substantive new expenditures and it will be in the

hundreds of millions — in military terms and there will be aid as well. Defence spending

generally is a longer term issue and we’re not entering into that at this stage.

JOURNALIST:

Are you expecting then that the projected surplus is going to erode? We won’t be able

to keep it as high as we thought we might?

TREASURER:

Well there’ll be significant new costs and this means that we are going to have to be

tight on expenditures in other areas. We’re going to ensure that the Australian troops in

East Timor do not lack for resources, do not lack at all. So this becomes the priority in

expenditure terms. It mean discipline on other areas of expenditures and we’ll have to be

quite tight in the budgetary process to ensure that we have sufficient resources for East

Timor.

JOURNALIST:

That surplus target can still be met?

TREASURER:

Well when we bring down budgets we make it clear what we expect outcomes to be. Now

they do bounce around as a result of new expenditures and changes in revenues. We’ll be

looking at it in an overall sense for our midterm review which will be coming up in

November. But I can assure you of this, the key to the Australian economy has been a

budget in surplus. Having worked so hard to get the budget in surplus, it’s our intention

to keep it there and to continue our debt retirement program. Now last financial year we

had a surplus outcome, a surplus outcome of $4.2 billion and we retired something like $24

billion of debt. We keep our debt reduction program on target if we keep our budget in

surplus and that’s what we intend to do.

JOURNALIST:

So where is the fat?

TREASURER:

Well, I don’t think there’s much fat left in the budget because we’ve been very careful

and measured. But what it means is in relation to these sorts of expenditures we’re just

going to have to prioritize defence and aid and be very tight in relation to other areas.

JOURNALIST:

Can you say which areas?

TREASURER:

Normally we say which areas at budget time so you’ll have to ..

JOURNALIST:

Broadly speaking?

TREASURER:

Well even broadly speaking we say it at budget time, so you’ll just have to wait until

then. Okay thanks.

JOURNALIST:

Group of G20 (inaudible)

TREASURER:

G20 is in fact eighteen countries. Eighteen countries announced to date and the

European Union. So this is a major forum that Australia is a member of and I think I read

various journalists suggesting that Australia may you know, not be part of it. We are part

of it and it’s quite a major forum. And its going to be looking at the international

financial architecture. Now we’ve got a lot of credibility on these issues. One is we were

the country in Asia that never missed a beat during the financial crisis. We were the

country in Asia, which when Asia went into recession, grew and outgrew the US economy and

the developed world. We were the country in Asia that was part of all of the IMF rescuing

packages. And we are the country in the region which is now working on training bank

regulators, corporate regulators and all those sorts of areas. Now that means that

Australia has a seat at the table in relation to the big international financial issues

and I think its going to be an exciting forum because this group is not just the developed

world and the G7, but it has countries in it that have been through financial crisis and

the idea is to get them together and to look at the rules of the international financial

game. You’ve asked me how will it work with the IMF. The Managing Director of the IMF and

the President of the World Bank will be at the meetings to make sure it harmonizes. But

it’s a little different in the sense that its going to be less entrenched, much smaller

bureaucracy, done at a ministerial level, have the different people from the developed and

the developing world and what’s more have an interest in changing arrangements. That’s why

it exists. And that’s what’s going to make it a more exciting forum I think.