Press Conference

Hyatt Regency, Coolum

Thursday, 2 August 2007

12.10 pm

SUBJECTS: APEC Finance Ministers’ Meeting, Federal hospital funding, climate change, stockmarket fall

TREASURER:

Well today the 14th APEC Finance Ministers’ Meeting will be commencing here in Coolum in Queensland, Australia.  APEC brings together 21 economies in the Asia-Pacific region, which between them represent nearly 60 per cent of the global GDP.  The meetings which will occur here today under Australia’s chairmanship will discuss the nature of the world’s economy, energy security in the Asia-Pacific region, climate change, the imbalances between saving and investment, which particularly affect our area, and of course the international financial architecture. 

We meet at a significant time.  It is now 10 years since the Asian financial collapse which engulfed our region – and some of the countries that were involved have not yet fully recovered, and many have, and have gone onto very strong growth.

APEC is a forum where both developed and developing countries come together, where they can share experiences (inaudible).  Australia has a lot to offer in relation to its own experience, its success over the last 10 years and we want to share our experience and our capacity with our friends and our neighbours at this very significant financial meeting.  And of course, this is the pre-eminent forum for Asia-Pacific bringing together some of the world’s economic super-powers, together with smaller countries that trade in the region.  I look forward to productive talks over the next two days here in Coolum, Australia and to welcoming all of our international guests.

JOURNALIST:

Mr Costello, do you have concern that the current financial instability has the potential to repeat some of the events of the Asian Financial Crisis?

TREASURER:

I think we have learnt a lot since the Asian financial crisis of 10 years ago and I think those lessons have been put to good use to strengthen economies.  But there are still risks and one of the big risks of course is the global imbalances, huge trade imbalances.  There is a huge redirection of savings, interestingly enough out of Asia and into more developed economies.  And if those imbalances are not properly dealt with, if they were to unwind in a very disorderly way, you could get further risks, you could.  The region is not immune from future shakes and the lessons that we have put in place still should be in front of us as we seek to strengthen the architecture. 

JOURNALIST:

(inaudible)?

TREASURER:

Well I think some countries take the view that one way of avoiding instability is to build huge financial reserves and whilst one can understand that view, you do have to think whether or not that leads to the best allocation of resources overall.  And I think if we had freer movement of capital and I think if we had more flexible instruments in the region, then you would get better allocation of savings.

JOURNALIST:

(inaudible)?

TREASURER:

Look, when you have a discussion of the regional issues and the global economy of course the issue of exchange rate regimes is discussed.  But I make it clear that these are matters for individual countries and I think the proper way to approach these discussions is to share experiences.  We in Australia have an experience that we can share.  We moved from fixed exchange rate regimes to floating exchange rate regimes in my lifetime, and we didn’t do it particularly well, but we have learnt a few lessons and I think we have a very valid experience that we can share with other countries. 

JOURNALIST:

Mr Costello who have you met so far and what sort of discussions have you had about the global (inaudible)?

TREASURER:

Well the bilaterals are starting this afternoon so we haven’t actually begun any of those yet.  But there has been discussion in the Deputy’s meeting over the last couple of days, of the global outlook, risks to the global outlook, the need to improve the trading regime, the global trading regime.  There has been a discussion of the savings investment imbalance which applies to the region and a preparation for the discussions which will take place over the next couple of days. 

JOURNALIST:

Mr Costello, (inaudible)?

TREASURER:

Well I can tell you that Australia’s financial institutions are very, very secure.  We stress test them through APRA on a periodic basis and they are very secure.  And I think anybody who knows anything about the Australian banking system will know that the Australian banks are quite profitable at the moment.  Now, the US sub-prime market has been an area of concern.  There has been a very high level of defaults in some aspects of the US sub-prime market.  Players in that market will therefore have to suffer the consequences of those defaults, but I have no doubt whatsoever that the consequences of that will not reflect back on to Australian institutions nor undermine their very, very secure financial standing. 

JOURNALIST:

Treasurer, how many (inaudible) climate change?

TREASURER:

Well in the APEC meeting you will have the world’s two largest emitters – China and the United States.  One a developed economy and the other a moving economy.  We know that China will have huge energy needs as it develops over the decades to come.  It needs to know that its development will not be interrupted by energy scarcity and so energy security is a very big issue for China.  Fortunately Australia has a lot to offer China in terms of energy security.  But we have to make sure that this huge energy demand that we are going to see emerging over the decades to come is met within an international framework which reduces carbon emissions and the risk of climate change.  And we will be having discussions about how you can one; guarantee energy supply and two; make sure that the energy is supplied in the best possible way of reducing the risk of climate change.  And that involves bringing the bigger players like China and the United States into the discussions. 

JOURNALIST:

What about (inaudible)?

TREASURER:

Well, the Commonwealth Government has announced its emissions trading scheme.  It is comprehensive, I think it is one of the most comprehensive in the world.  It will be market oriented and we are putting together the way in which it will operate when it comes into effect at the end of the Kyoto period.  And of course it is the Government’s intention to meet its Kyoto target, which of course puts us in a small league of nations around the world because there will be a lot of other countries, even those that have ratified that Kyoto target, that won’t go anywhere near meeting their Kyoto targets.

JOURNALIST:

Mr Costello, does the current wave of financial instability have any implications for monetary policy?

TREASURER:

I will just say that there is a lot of instability in the globe at the moment.  It is coming out of the United States with the rate of defaults you have seen on sub-prime mortgage lending.  There has been instability on equity markets as a consequence of some of the changes that China has put in place recently in relation to its stock exchange.  There is still continuing uncertainty about oil and oil prices which are still very high.  And all of these things will impact on the global economy.  They will affect Australia one way or another and economic policy has to be taken into account. 

JOURNALIST:

Treasurer who will you be meeting with in the bilaterals?

TREASURER:

Well I am going to be meeting with practically every minister over the course of this afternoon and tomorrow. 

JOURNALIST:

(inaudible) earlier on and made mention to the benefits of more flexible financial instruments.  I just wondered if you could elaborate?

TREASURER:

Well you see, one of the characteristics of East Asia is it is developing.  To develop you need investment.  For investment you need savings.  And there are high levels of savings in Asia but a lot of those savings in fact are being invested in the developed world – in fact being used to purchase US Treasuries or financial instruments in the developed economies.  So, here you have this conundrum, the area of the world that needs more investment and has high savings turns out to be an exporter of savings.  And I think it would be far more efficient if the area of the world that needs investment and has higher savings is able to utilise its own savings for investment in the same area of the world.  And I think that will require a lot better financial instruments.  You don’t see a mature bond market for example in Asia.  You don’t see mature financial markets which can mediate between the savings and the investment.  And I think if we get these sorts of things right, then you are going to see Asia’s strong savings for Asia’s strong investment and I think this would be a great step forward. 

JOURNALIST:

Treasurer, Ziggy Switkowski is out today saying the best thing the Government could do to help climate change would be to encourage other countries to take up nuclear energy.  Will you be encouraging other countries?

TREASURER:

I don’t think it is our role to encourage other countries or to direct other countries on what kind of energy they should take up.  What we can do is we can supply them with some of the materials which they need to take up those options.  We can supply uranium, we do supply uranium to the region, we can supply LNG, we do supply LNG to the region.  But I think countries themselves subject to overall framework of climate change, will make these decisions.  Australia will be a good partner for them.

JOURNALIST:

Treasurer you mentioned yesterday that the Sunshine Coast is a favourite holiday destination of yours.  (inaudible)?

TREASURER:

Well I hadn’t seen it touted and it would surprise me very, very much if it was touted, very much.

JOURNALIST:

Would you come here if it was?

TREASURER:

Look, I love coming to the Sunshine Coast and I will keep coming, to have not only international conferences but to have great recreation as well. 

JOURNALIST:

(inaudible) are you a golfer, or…?

TREASURER:

Look, I am like most Australians.  I peel myself down to my bathers, I sit in the sun and I swim in the surf.

JOURNALIST:

Treasurer, the two Macquarie funds (inaudible) are you concerned about the impact on investor confidence (inaudible)?

TREASURER:

Well, that was the point I was making earlier.  Look, if you have got exposure in the US market then you will be affected by US developments, that is obvious.  But I don’t see any grounds to think that the exposure of these funds in the US will reflect on the parent in Australia.  We know that the parent in Australia is a well capitalised highly profitable bank.  Now, I don’t see anything that will change that. 

JOURNALIST:

(inaudible)?

TREASURER:

I think the discussion about energy security and climate change will be very interesting,  particularly because we are bringing together the world’s two largest emitters – China and the United States – and we are going to do that in the framework of making sure that countries can be assured of their energy needs for development and that that development proceeds with minimal risk to climate change. 

JOURNALIST:

(inaudible)?

TREASURER:

No, I don’t think so.  I think that the representation is very high level and compares very, very well with representation of previous summits and I think I am the record holder now for attendance at previous summits, so I have got a little bit of experience to speak from. 

JOURNALIST:

Would you rather have chaired the Sydney meeting?

TREASURER:

I am very happy to be in Coolum any day.  Thank you all very much.