TRANSCRIPT
of
HON. PETER COSTELLO MP
Treasurer

Doorstop
Wednesday, 7 August 2002
12.15pm

SUBJECTS: Corporate governance; Reserve Bank; world economy; Australian

economy

JOURNALIST:

Any comments on the events in the US overnight (inaudible)…

TREASURER:

Well look, plainly there is enormous volatility on world equity markets. This

is an example of where corporate standards, which aren’t what they should be,

affect first of all the company concerned and then feed back in relation to

the real economy through consumer confidence and investment decisions. We are

not immune in Australia. We have had our own corporate failures in relation

to HIH and in relation to One-Tel. But I can assure you of this, that our regulator

is very active. We have got a Royal Commission going in relation to HIH, proceedings

have been brought already against some of the parties, and civil penalties have

been imposed and our corporate regulator, I think, has been very active in pursuing

these matters and will have every encouragement to do so in the future.

JOURNALIST:

So is the Reserve Bank doing the right thing by leaving the rates on hold at

the moment?

TREASURER:

Well, plainly it is a time when there is enormous volatility in world markets.

You have seen in the United States, with revisions to growth, that they now

had three negative quarters in 2001. That is a pretty severe recession. Now,

Australia, probably for the first time in its history, was able to withstand

an American recession and continue to grow. But with this enormous volatility

the risk is that this will start feeding back into the real economy in the United

States, and that is the engine for the global economy. And I think at the moment

you would have to say that it is an uncertain time internationally. Our economy

is still the strongest growing of the world’s developed economies, but we are

not immune from world developments, world developments affect all of us. You

have seen the effect that it has had already on our markets and it is important

that we continue with economic reform to keep Australia strong.

JOURNALIST:

Treasurer, what do Australian policy makers need to do to prepare for the possibility

of a `double-dip’ recession in the United States?

TREASURER:

Well, obviously a `double-dip’ recession in the United States if it were to

occur, and we are not forecasting that at this stage, let me say we make that

point, nor is the US administration, incidentally, which is forecasting growth

in the real economy in the United States, but if the American economy should

turn down again and that would obviously affect our exports, we would have to

make sure that our domestic economy was strong. Now how did we survive the last

US recession, the US recession of last year? Well, we had a strong house building

industry, we had low interest rates, we had low taxation with the tax cuts which

flowed through, we had good consumer confidence. Not all of those things are

repeatable, obviously, but we will be looking to business investment in the

year which is ahead to keep the Australian economy strong, and the interest

rates at the moment are very supportive for consumer demand. And we will have

to look to keeping the Australian economy to continue at the rate at which it

has been growing in the past.

JOURNALIST:

The dollar has been knocked around lately, any concerns?

TREASURER:

Well this is the consequence of world volatility which is affecting all of

the stock markets of the world and all of the exchange rates of the world. You

will not be immune from these developments. But we have lived through the Asian

Financial Crisis and we came through that. We lived through the American recession

of 2001 and we came through that. It looks to me as if there is going to be

a rocky road in the course of 2002, 2003. My message is, all the more important

to keep our economic policy strong.

JOURNALIST:

Do you believe there us any justification at all under these circumstances

for the Reserve Bank to continue with its plan to increase interest rates within

the light of the prospect that you have outlined for the world economy?

TREASURER:

Well, good question, but I never comment on the future movement in interest

rates.

Thank you very much.