TRANSCRIPT
of
THE HON PETER COSTELLO MP
Treasurer

Doorstop interview
Saturday, 8 September 2001
10.30 am (Local time)
Suzhou, China

SUBJECTS: APEC Finance Ministers’ Meeting, Ansett

JOURNALIST:

I just want to pick up on your bilateral meeting with Minister Xiang last night, also the Hong Kong interview, talk about what was raised there.

TREASURER:

Well, obviously we discussed the regional and the world economic situation, which will be quite important discussions at this particular meeting. The issues that came up on the bilateral were Australian LNG, which I raised, the willingness and the interest of Australian producers to supply LNG in Southern China. We discussed the need that the Chinese have in energy matters and he was certainly very well aware of our interest. We also discussed the licence application that AMP has to operate here in China. Again, he was well aware of that proposal and assured me that as China became part of the World Trade Organisation there would be stronger trade opportunities and that more licences would be granted. They were the issues at the bilateral that we discussed. Other than that, the main subject of our discussion was the regional economic situation and the world economic situation.

JOURNALIST:

And generally speaking, what’s the impression that you’re hearing from delegates and Ministers on that?

TREASURER:

Well, the situation is undoubtedly serious. The United States economy is not growing. You have seen a big lift in unemployment in the United States, just in the last 24 hours. The Japanese economy contracted by 0.8 per cent in the most recent quarter. A good deal of the Asian region is now in recession, including Singapore and Taiwan. And the outlook is, in the region, and indeed in the world, is quite serious. We’ve had discussions this morning on prospects for US recovery. The Americans believe that there are good prospects in 2002 for recovery, but it will depend to a large degree on confidence, and it will depend on getting rid of the inventory build-up.

JOURNALIST:

Economists in the US are using those jobs figures to officially put, as far as they’re concerned at least, officially put the US into recession. Is that the general view?

TREASURER:

I do not think you could say the US is in recession. We understand a recession to be two negative quarters. The most recent quarter in the US was probably zero. So, I wouldn’t say there is a US recession. But I would certainly say there has been a very, very significant downturn in the United States economy and that is affecting world growth. There has been a worse downturn in the Japanese economy, and there are certainly countries in the Asian region now in significant recession. This is quite a serious world economic outlook. We in Australia had a very strong March quarter, we are one of the strongest growing economies in the world. We will get the June quarter next week, which will show that the Australian economy is well placed, but it is well placed in a world environment which has considerably weakened in recent quarters, and that’s not good for anybody.

JOURNALIST:

You say you’re getting the next national accounts soon. Do you expect to see a slowing down in that quarter compared to the previous quarter – that growth has eased off in line with the global slowing?

TREASURER:

Well, I’m not going to make any predictions at this point other than to say that we have had good export growth in the June quarter, our domestic economy has probably strengthened, we have had good retail, we have had good housing construction. Now, they will be positive for the national accounts, but I am not making any predictions in relation to the national accounts. But the fact that the domestic economy is still quite strong, is good news in a world environment which is very weak, and as challenging a world environment as we have had in the last decade, outside the Asian financial crisis

JOURNALIST:

The one economy that reportedly is going well is China. How do you account for that and what are the Chinese saying to you about their economy?

TREASURER:

Well, if you look through the region, China is still growing strongly, which is good. A big part of that, of course, is it is starting to open itself up to international trade and that has been positive for China. But I think Minister Xiang noted yesterday, that China and Australia are the stronger growing economies in this region at the moment. And we hope that growth will continue in China. It is such a large country with such a large domestic market, that it may be less exposed to the global downturn than other countries – certainly than the other trade countries of South East Asia.

JOURNALIST:

Apart from, we’ll get onto Ansett in a moment, obviously, but are you having any other bilaterals other than with the New Zealand Minister?

TREASURER:

We are having a number of them over the course, we will try and see as many as we can, over the course of the day.

JOURNALIST:

Are you meeting the US Treasury Secretary O’Neill?

TREASURER:

I hope to have a chat to him later in the day, during the course of the conference.

JOURNALIST:

He is going on to Tokyo after this meeting. One of the questions that the Japanese have suggested would be a part of the meeting was the strengthening of the Yen. Obviously Australia imports into, exports to Japan. How do you see the Yen affecting Australia and would you like, do you feel that the US and Japan should cooperate to readjust the US dollar/Yen relativities?

TREASURER:

I do not think I would advise the US and the Japanese on the cross-rates between the US dollar and the Yen. I think I will stay out of that one.

JOURNALIST:

But a stronger Yen affecting Australia?

TREASURER:

Well, I am not sure what you mean by a stronger Yen. As against the Yen in the last couple of weeks, the $A has probably appreciated. But the long-term Yen/US dollar rate is a matter for the Japanese and the Americans. I do not think I will get involved in that.

JOURNALIST:

Is there concern generally in the region among obviously APEC members about the strength of the dollar in this region?

TREASURER:

The strength of the US dollar?

JOURNALIST:

The strength of the US dollar.

TREASURER:

Well, I think you will find that most of the economies in the region have depreciated against the US dollar. And those countries that trade into the United States would have found that a plus. There are some economies in the region that are pegged, or fixed, to the US dollar, and those that have followed the US dollar up over the last year or two would have found that probably difficult on their trade. But that is one of the downsides of a pegged exchange rate. The upside of it for them, is, that they feel it gives them stability. It is a question for those countries as to whether the net benefits are good for them. From our point of view, we run a floating exchange rate because we think it is an instrument of adjustment.

JOURNALIST:

You haven’t met with Dr Cullen yet, or is that …?

TREASURER:

Look, I have had some informal discussions with him. We are having a formal meeting later on this afternoon. I expect that, well I know, we will be discussing the Air New Zealand situation. He has this morning kept me abreast of developments, and I expect that we will have a full discussion as to the situation in relation to Air New Zealand later on today.

JOURNALIST:

There are reports in New Zealand papers about Australia being given, the Australian Government being given, an ultimatum to come in and rescue Ansett this side of Sunday night, or Air New Zealand would be allowed, will let Ansett slip into receivership. Have you been brought up to date on anything of that nature?

TREASURER:

Look, Ansett is a wholly owned subsidiary of Air New Zealand. Air New Zealand therefore, as the parent company, has the right to determine its commercial future – and the responsibility. These are matters for the Air New Zealand board. I am aware that the Air New Zealand board has sought a number of possibilities, including an equity injection from Singapore Airlines, including an acquisition by Singapore Airlines of Ansett. But I must stress that these are commercial issues and they are matters for the Air New Zealand board. Now Australia does not own Air New Zealand. In fact, we do not own any airlines. Nor do we seek to own any airlines. We think that airlines are best operated by the private sector and, where those airlines have commercial difficulty, it is the responsibility of the boards that are involved to deal with those difficulties.

JOURNALIST:

If Ansett goes belly-up, well this creates enormous problems for you with infrastructure in Australia, you are back down to one airline?

TREASURER:

Well, let me make it clear. Nobody would want to see any company go belly-up. But it is the duty of the directors that are involved to try and secure the commercial future of these organisations. These are private sector companies and, in a private sector environment, the duties of the directors is to see that they are properly run.

JOURNALIST:

What can the Government do then in this circumstance? Anything?

TREASURER:

Well, you are asking me about a company which is a subsidiary of a private New Zealand company. Let’s be clear about this. Air New Zealand is a private New Zealand company which has Ansett as its subsidiary. Air New Zealand is not owned by the Australian Government, nor is Ansett. The Australian Government does not own any airlines. Now, I have had reports that these private sector companies are experiencing difficulties. I will be very interested to know what the directors propose to do to deal with the commercial problems. But, it is their responsibility and, until such time as I have had a full brief, I will not be advising them on what to do.

JOURNALIST:

Why do you think, that you are having these discussions with Cullen and Air New Zealand’s out there saying we’re hoping that Australia can bail us out. Why, as you say, if they’re a private company in New Zealand and Ansett is a wholly owned subsidiary of Air New Zealand, why are they coming to Australia asking us for some sort of a solution?

TREASURER:

I am not sure that they are. I think the New Zealand Government has been wrestling with a foreign investment application by Singapore Airlines. That is a matter for the New Zealand Government. The New Zealand Government is the only government that can decide whether or not Singapore Airlines should be entitled to take a larger stake in a New Zealand corporation, Air New Zealand. And the New Zealand Government has been wrestling with that for some time. I think Minister Cullen wants to brief me on the progress of that application and the implication of that application. And until such time as we have discussed that, I will not be making any further comment.