Transcript No. 2000/92

TREASURER:

I’m in Jakarta today to have talks with a number of President Wahid’s new

Cabinet before going to Brunei tomorrow for the APEC Finance Ministers’ meeting.

As you know there was a terrible event yesterday in West Timor and I took the

opportunity to call on Bambang Yudhoyono, the coordinating Minister for Political, Social

and Security Affairs, this afternoon and I stressed in our meeting the deplorable events

at Atambua, the tragic loss of life of the UN personnel and the Australian

Government’s view that those responsible must be brought to justice and that the

Indonesian Government should do all that it can to bring pressure to bear on the militia

to cease cross border activity and to cease involvement in violence. The Minister assured

me that the incident would be fully investigated. He mentioned that some 15 people had

been arrested and gave assurances that there would be a full investigation and those

responsible would be brought to trial. He also mentioned to me that two additional

battalions are being dispatched to West Timor to aid in securing the border, that he had

had a number of conversations today with the UN representative and that the TNI would be

doing what it could to secure the border against militia. Can I say that the Australian

Government obviously extends its sympathy to the families of those who have tragically

lost their lives. We deplore this incident and we are exercising our influence to ensure

what can be done is done to bring to justice those responsible and to prevent further

incidents of this type.

What sort of influence is being exercised at the moment and how can you help stop this

from happening?

Well the influence that Australia is exercising is in meetings with the Indonesian

Government. In my own meetings today with Bambang Yudhoyono. The Foreign Minister in

Canberra has, I understand, spoken to the Indonesian Ambassador and we are making strong

representations at all levels of government to make our view known and we will continue to

do so.

How confident can you be that anything will change if it’s been happening for

months?

The first thing is we now have a specific incident which is a tragic loss of life and

those responsible must be brought to justice and this will involve a full investigation,

including an investigation into why the security arrangements that should have been in

place failed in this particular case. I am sure that the Indonesian Government understands

the seriousness of this and the need for such an investigation. I am sure of that. The

second ongoing issue is that it is important that the border be secured against cross

border activity from the militia. We welcome the fact that there will be extra TNI

battalions which will be dispatched to West Timor that there will be cooperation with the

UN authorities in securing the border and we hope that those steps will be concrete

improvements in the security situation on that border.

Will the Prime Minister be having another meeting with Mr Wahid in New York to press

these points home?

I understand that the Prime Minister is on his plane coming home from New York

already… The Prime Minister left, as I understand it, some time mid-day or morning

our time and is now on his way back to Australia.

Can I ask you about the Australian dollar? It hit two-year lows now and I think in

London trading it is back below 56 – is that a concern for the government?

Well we don’t comment on the particular level of the dollar as you know. We

don’t think it is useful to do that and to try to influence the markets. Obviously we

watch it carefully but we think the most important thing to do is to ensure that we have

good strong policies in place which include a good fiscal position, strong structural

policy and a strong economy. You would have seen today that the labour force figures

showed continuing strong growth in employment in Australia and there is every prospect to

think that the economy, which has now grown consistently above 4 per cent for 12

consecutive quarters will continue to do so.

Is the weakness just because of the world-wide strength of the US Dollar?

There are a number of factors going on. One, of course, is that the US dollar is

extremely strong and you would have seen that the US dollar against the Euro has

appreciated quite substantially over recent periods and it is important to bear in mind in

the currencies that sometimes movements are the result of appreciations by other currency.

But I think the important thing long term is to continue good economic policy. Obviously

we look at the exchange rate and we show an interest in it, and I don’t want to

pretend that we don’t, of course we do. But the important thing is to make sure you

keep running good economic policy.

But the central bank intervened yesterday, so is it going to intervene further if it

keeps…

I don’t know that the Bank announces its interventions. I see that there is

speculation on that, but I don’t know that it actually announces it.

Labour growth today showed strong growth again. How much further do you expect

employment growth to go before the Reserve Bank will have to move?

Well employment growth has been very strong in Australia over the last three years.

Employment growth has been growing at about two percent. We forecast that unemployment

would fall by the end of the financial year to about six and a quarter, last month it was

6.3 today it was 6.4 on an increased participation rate. But that is consistent with a

strongly growing economy. Now the economy has been growing above four percent for the last

12 quarters and we will be getting the June quarter national accounts next week and I

would expect it to show that the Australian economy continues strong growth. We are now

really coming into the fourth year of strong economic growth at four percent plus. If we

maintain strong productivity performance we can keep the growth rates at that level. We

have forecast that it will continue at about that level maybe come off a bit to the high

threes, three and three quarter during the financial year 2000-01 but the good news about

the strengthening world economy is that will improve our export performance and contribute

to growth.

Interest rates to remain the same for the rest of the year?

Well I don’t speculate on future movements in interest rates any more than I

speculate on movements in the currency.

But you’re painting a rather rosy outlook for the Australian economy, with strong

economic growth, can we expect home loan repayments to stay the same for the rest of the

year?

Well, the picture I am painting of the Australian economy is this. An economy that is

currently growing above four percent and will continue to grow strongly. An economy which

has low inflation. A budget which is now in surplus for the fourth consecutive year. A

debt-to-GDP ratio which is at very low international levels, now coming down to single

figures. Employment growth which is around two percent and a step up in productivity which

can maintain that strong performance. With a new taxation system, improved industrial

relations, productivity reform, we have very good opportunities in front of us.

Why is the dollar being punished so hard when the economy is so strong?

:

As I said, I don’t comment on movements in the currency. We follow it of course,

we note it, we note that one of the factors that is occurring at the moment is that the US

dollar in fact is appreciating. And you would have seen that particularly in relation to

the US dollar/Euro exchange rate over the last couple of weeks. But the important thing,

of course, is to maintain policies for the benefit of the real economy.

Wages growth – can we expect wages growth to remain stable with such a strong

economic outlook?

I think it is important that we set our wages with an eye to what is affordable. I have

consistently said that in a low inflation economy, if your inflation is in the twos, and

you’ve got a productivity improvement of around two percent, you can afford wages

outcomes of about four percent. But some of the wages claims which are 15 percent over two

years or 20 percent over three years, or something like that are not sustainable and I

think it is important that both employers and employees understand that in their

negotiations. But the good thing is in a growing economy we can have real wage growth.

This is an economy which is producing real wage growth, has now for the last three years.

I lived through the whole of the 1980s in Australia where the government used to boast as

one of its achievements that it had reduced real wages. We don’t consider it an

achievement to reduce real wages. Now we consider it an achievement to increase real wages

which you can do in a growing economy as long as you have a productivity improvement.

What is it going to take to get the relationship with Indonesia back on track?

Well, the relationship has obviously been tested over East Timor. Not because Australia

did anything it shouldn’t have done. Australia responded to a humanitarian crisis,

let’s be frank about that, a humanitarian crisis, in accordance with international

support. Obviously that has tested the relationship to some degree. But I think now that

the situation has been stabilized in East Timor, provided we can stabilize the situation

with the militias, and secure the border, which is very important from Australia’s

point of view, we can have an honest and productive relationship again. Now this will be

evidenced, I believe, when we have the Australia-Indonesia ministerial council which could

be in October. And the President of Indonesia, President Wahid, has announced that he

expects to visit Australia after that. I think that will be a good thing for the

relationship. Now we don’t want to over promise on any of these things. I think it is

important that we are realistic about them. But the visit of President Wahid following up

a ministerial council would be a positive step.

The ministerial council is here or in Australia?

The ministerial council we expect to be in Canberra and to be convened before the visit

of President Wahid.

How many ministers from Jakarta would that…

Well I hope that we get the senior ministers in trade, agriculture, industry –

counterparts of the Australian ministers that will be there. I had a meeting this

afternoon with the Trade Minister who fully expected to come to Australia as part of that,

the Indonesian Trade Minister, so I would expect that there will be a good meeting.

But is there a risk that Australia, and also the international community, will become

impatient with Indonesia if the security situation doesn’t improve with the militias.

Will this be a further complication in the relationship? Is there a time limit from which

you actually need to see action?

I don’t think it is useful to start setting up artificial times, but I would

underline again, and I’ve underlined it in my meetings here today – the international

community will expect that those responsible for this wanton destruction of human life of

unarmed humanitarian workers should be brought to justice. And that is only right and

proper and I think that that point is understood in Indonesia. And I hope they are brought

to justice and that is going to be very important, not just from Australia’s point of

view, but from the point of view of the UN and the international community.