Labor’s Latest Allegations Wrong Again

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Victorian Election; Bali
November 9, 2002
November 12, 2002
Victorian Election; Bali
November 9, 2002
November 12, 2002

Labor’s Latest Allegations Wrong Again



Mr McMullan has stated today that there is nothing inherently wrong with a

Government having a cross-currency swap program. This is not surprising as the

Labor Party created Australia’s cross-currency swap program. Further the Labor

Party ran up the debt which was swapped to US dollars.

Mr McMullan has also said that Labor supports the Coalition Government’s decision

to close the program.

But Mr McMullan has a lot of trouble deciding when the Government should have

closed Labor’s program.

And why the Labor Party didn’t say so at the time.

And what impact the sale of US $9 billion of Australian dollars would have

had on the exchange rate at the time of closure.

So, what is Labor’s complaint? Labor’s complaint is that the exchange rate

in 1997 is better than it is today, so with the benefit of hindsight, the Australian

Government should have dumped the A$ in 1997.

Labor thinks it would have been a good idea for the Government to heavily sell

its own currency during the Asian Financial Crisis? What signal would it have

sent to the financial markets about the Government’s confidence in the economy?

And what price would it have got if it dumped Australian dollars worth US $9

billion? Whatever the price it would not have been the historical price of the


Mr McMullan also claims that the Reserve Bank of Australia had not been involved

in the cross-currency swap program prior to 2000. This is incorrect. The RBA

has acted on behalf of the Commonwealth in handling the foreign exchange legs

of the swaps since the program’s inception in 1987-88. No Reserve Bank Governor

between 1987-88 and the ending of the program in 2000 took the view that the

Australian Government should dump the currency. And certainly not that it should

have been done in 1997. In fact quite the reverse.

The Labor Party claim that I misled the Australian public in February of this

year is completely false. On 22 February this year Treasury issued a press statement

advising there were realised savings averaging over $100 million per year since

1989. The AOFM’s 2001-02 Annual Report confirms this by reporting that to 30

June 2002 the policy has resulted in realised gains of $777.4 million in present

value terms. (p.20)

The Labor Party has also made baseless allegations regarding the Government’s

disclosure of the outcomes of the cross-currency swaps. These allegations are

completely false. The Government introduced accrual accounting to increase the

transparency and accountability of Government. The impact of the cross-currency

swaps policy is reflected in the Budget papers which are prepared in accordance

with the standards required by the Australian Bureau of Statistics and the International

Monetary Fund.

The Government also reports in accordance with Australian accounting standards,

including Australian Accounting Standard No 31 Financial Reporting by Governments

(AAS31). All unrealised losses have already been fully and transparently reported.

They are reflected on the balance sheet and above the line in the operating


Every annual report of the AOFM has disclosed its financial accounts on an

AAS31 basis. Every AOFM report has received an unqualified audit report from

the Auditor-General.

Finally, we should not forget the origin of the policy.

The policy of entering into cross-currency swaps was adopted in 1988 under

the then Labor Government.

The policy was initiated by the Labor Party as a technique for managing Labor’s

mounting debt. This debt peaked at $96 billion in 1996-97. The Coalition began

repaying Labor debt in 1997-98 reducing exposure and reducing interest rate

differentials. Lower interest rates in Australia have delivered enormous benefits

for Australia. Labor’s net debt has now been reduced by $60 billion.

No swaps to increase US exposure have been entered into after February 1999.

The policy of maintaining a 15 per cent exposure to foreign currency was suspended

in December 2000. In September 2001, following a review of the benchmark, I

agreed to a new policy of achieving zero foreign currency exposure. From September

2001 the stock has been run down in accordance with an agreed timetable between

the AOFM, Treasury and the RBA.

11 November 2002


Contact: David Alexander

02 6277 7340