IMF, economy, Budget, dollar, Shell/Woodside

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Retirement of Edward Evans AC – Secretary to the Treasury
April 26, 2001
Japan, Asian Economies
April 28, 2001
Retirement of Edward Evans AC – Secretary to the Treasury
April 26, 2001
Japan, Asian Economies
April 28, 2001

IMF, economy, Budget, dollar, Shell/Woodside

Transcript No. 2001/046



The Hon Peter Costello MP


Bloomberg forum with Emily Schwartz

Friday, 27 April 2001

2.30 pm

Washington DC


SUBJECTS: IMF, economy, Budget, dollar, Shell/Woodside


Welcome to the Bloomberg Forum. Im Emily Schwartz and joining me is Peter

Costello, Australian Treasurer. Mr Costello, the IMF has indicated that its

going to support a new large package for Turkey and possibly continue support in

the near future for Argentina. How would this reassure capital markets in the

currency market?


Well obviously, the world has an interest in stabilising the financial

system. Where you have significant countries like Turkey and Argentina, which

are in trouble, then it is the role of the IMF to bring stability. Of course,

the IMF will always make sure that its financial assistance is accompanied by

structural reform to deal with the problems which have caused the immediate

difficulty in the first place. So I think the announcements in relation to

Turkey are positive. They are to be welcomed. It is another example of the IMF

responding to a crisis. And with the structural reform put in place, that should

add to confidence.


Now, theres been a year of criticism of the IMF, searching for what the

IMFs proper role should be, suggesting perhaps that it over-stepped its

bounds. What does the importance of these two events right now – the package for

Turkey and the continuation of the package for Argentina – what does that say

about where all that debate has ended up?


Well, I think its important that there be a great deal of scrutiny on the

IMF. No international organisation should be immune from scrutiny. I think its

important to make sure that it is managed well and efficiently and the scrutiny

thats been put in place, I think, will prove to be of long-term positive

benefit for the IMF. In relation to Turkey, the fact is it has been able to

respond in quite a prompt way. It has put in place some positive moves. I

believe that the real test, of course, will be the degree to which structural

changes are put in place. And that obviously will take some time. It will

require on-going monitoring by the IMF and lets hope that as the months and

the years unfold it proves to have been successful and a positive intervention.


Has there been a cost in this year of searching for changes in IMF policy – a

cost to its centrality or its importance?


I dont think there has been a cost. What we now know is with the way in

which money can transfer so quickly across national borders, and with the

enormous private capital flows, then international organisations dont have

the monopoly on resources that they may have had forty or fifty years

previously. That was something that we also became aware of during the Asian

financial crisis of 1997-1998. So, I think the role of the IMF is going to be a

little more limited in the sense that private capital is growing so fast and at

such a rate that its resources are not going to be the dominating resources

perhaps of the past. I wouldnt call that a cost. I think thats just a

reality. It will have to learn to work within that framework.


Now in terms of Australia, has the Government revised down its growth

forecast in light of the IMF report that predicts that growth will slow to 1.9

per cent?


The Government will be putting out its forecast for the next financial year

in the Budget in May. So well be announcing that next month. The IMF World

Economic Outlook put forward the fact that there had been a downgrade of growth

in the world as a whole. Obviously, that has affected Australia in the current

financial year. But we expect that things will strengthen in the forthcoming

financial year. The precise growth forecast that we put, well be announcing

in our Budget.


And what is going on with the Australian dollar? It seems to be falling?


Well, the Australian dollar depreciated against the US dollar in the latter

part of 2000 and the beginning of 2001. In part, that was caused by the rise of

the US dollar against currencies throughout the world. But in terms of

fundamentals, we dont think that the Australian exchange rate reflects

fundamentals in the Australian economy, which is still based on low inflation, a

very strong Budget position, good growth in the economy, an improved taxation

system and what we expect to be a strong rebound in growth in the 2001-2002

financial year.


Will it help exports?


Obviously if an exchange rate is more competitive, it helps exports.

Australian exports have been booming over the last year. They have gone up very

significantly. They have also been helped by the fact that weve recently

undergone major taxation change, which has taken taxes off exports. But you have

seen improvement in Australian exports, which is now contributing in a very

positive way to growth.


And will your Budget be in surplus this year?


Well, weve now delivered four surplus Budgets in a row and Australias

fiscal position is very strong. We have used those surplus to pay down debt. Our

debt to GDP ratio is now about 8 per cent, which is incredibly strong compared

to industrialised countries of the world. And our proposal is, while growth

continues to keep the Budget in balance, we expect growth to continue in



So youre not concerned about losing that string of surpluses?


Well, as I said, with growth continuing we expect to keep the Budget in

balance. But we dont need to turn surpluses in order to strengthen the fiscal

position. The fiscal position is already a very strong one. With debt at around

8 per cent of GDP, it makes us one of the strongest in the world – probably in

one of the strongest positions amongst any of the developed countries of the



Australia has rejected Shells $3.2 billion bid for Woodside and thats

one of the things that helped send the Australian dollar in a decline. How does

the Government recover the confidence of overseas investors after rejecting this



Australia probably operates one of the most liberal foreign investment

regimes in the world. We have a screening process where foreign investment can

be screened for national interest and I think the number of foreign investment

applications which have been rejected is something like 0.1 per cent. So, it is

one of the most open, liberal economies in the world. In relation to this

particular application, Shell has a major stake in the North West Shelf. Theres

a question as to whether it should also take the operation of the North West

Shelf. We think its better if the operation of the project is kept in the

hands of Woodside. But Shell will continue to be one of the major investors, as

will other foreign companies like BP, Chevron, Mitsubishi, Mitsui. And the

project will be managed by an independent company for the benefit of all joint



And finally, returning to the IMF and World Bank, what do you see as the most

important thing to come out of these meetings in terms of a message that will be

coming out around the world?


I think the most interesting part of these meetings will be an assessment of

the world economy. Obviously things are very delicately poised. It is clear that

world growth has turned down. It is clear that the US economy has slowed. It is

not entirely clear where the pattern of growth is going to be going in the

forthcoming year, and I think the most interesting part of the discussion well

be involved in, is trying to get a grip on what the economic developments will

be, how strong recovery will be, when it will come. It is of obvious benefit to

all of us for the world economy to pick up again.


Well thanks very much for joining us. This has been the Bloomberg Forum. Im

Emily Schwartz in Washington and joining me was Peter Costello, the Australian


I was just wanting to back to that question I had before. What were doing

is a story about how a year after all this debates gone on, the IMF still

seems to be pretty central. You know, once Colin Powell said everyone loves to

hate the United States but then when they get in trouble, you know, they call

them over like, well, theyre the cops, you know. You dont like the cops

but you call the cops when you have a problem. Is there something like that

going on here with the IMF that see?


Look, I think the when a nation gets into financial trouble, obviously

one of the calls for support it will make is to the IMF. But I think it is

important to understand the role of the IMF. It doesnt have unlimited means.

It is not a lender of last resort. What it can do, is, it can provide bridging

finance. But at the end of the day, that will only work if theres fundamental

structural reform which will recover the confidence.


Do they play a role that no-one else does? I mean, is it just sort of proof

that it cant be replaced or ?


Well, if this is not to be done on a multilateral basis through the IMF, it

would have to be done on a bilateral basis. From time to time, there are

individual countries who will come to the aid of a nation which is in trouble.

But obviously the resources involved means that burden sharing can be more

effective. The IMF is one of the organisations that can do it. But I think even

the IMF cant do it alone these days. You are going to have to involve the

private sector in many of these questions. And that really is still one of the

great unresolved issues, as to how you bail in the private sector in relation to

financial crises.


Are you saying that if it werent for the IMF, youd have all these

countries acting individually and that wouldnt work?


Well, if you didnt have the IMF, you might have to invent something else,

so youre better to work with what youve got.


Perhaps there are people who will realise it. Yes. Okay, well thanks very

much. I really do appreciate it.


Thats great. Its a great pleasure for me.