February 12th 2005

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Articles from this issue:

COVER STORY: Kim Beazley - Labor's only hope?

EDITORIAL: Barking up the wrong tree ...

NATIONAL AFFAIRS: Top free-market think-tank warns of 'banana republic'

SPECIAL FEATURE: Who speaks and acts for the communist dead?

BUSHFIRES: COAG inquiry skirts the real issues

VICTORIA: Judge links pornography and sexual assault

STRAWS IN THE WIND: Iraq election and the problem of Iran / Bushrangers hanging around the hospitals / Climbing the ladder to nowhere

INTERNATIONAL TRADE: US trade deals marginalise WTO

EAST ASIA: US's new strategy in the Far East

CHINA-TAIWAN RELATIONS: First direct flights from Taiwan to mainland

OPINION: Good riddance to compulsory student unionism

The slaughtered generation (letter)

The Governor-General and the Constitution (letter)

CINEMA: Quality French film wins following - Les Choristes


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Top free-market think-tank warns of 'banana republic'

by Patrick J. Byrne

News Weekly, February 12, 2005
Australia is at risk of becoming a "banana republic," one of Australia's leading economic consultancies has warned.

Access Economics, a major free-market think-tank close to the Liberal Party, has warned in a report, launched on January 24, that Australia's current account deficit is pushing Australia into "banana republic" range.

"OK, it's panic-button time," declared Access Economics director Chris Richardson the day before the launch. "It will take longer than markets realise to rein in a current account deficit in the 'banana republic' range."

He said that debt levels, high imports and poor export levels were creating an unsustainable situation. In other words, Australia is carrying so much overseas debt that we will have difficulty servicing it.

Richardson said: "The average Australian family now spends more than it earns, and borrows to make up that cash-flow deficit. Since there are no major surpluses in either government or corporate accounts, the big-spending ways of Australia's households are translating directly into a large - and ultimately unsustainable - trade deficit."

The high Australian dollar is making exports dearer and imports cheaper. Access estimated that the dollar was 10 to 20 per cent too high.

Access also said that, while the China's rapid growth had created a boom in demand for world commodities, Australia was failing to cash in on that boom.

Meanwhile, other countries such as Canada have invested heavily in mining, meaning that, by the time Australia tries to cash in on the China boom, lower prices will offset the gains from the higher export volumes.

"Miners in Australia and around the world have been gearing up new capacity to supply China's voracious demand.

"As that comes on stream through 2005 and (particularly) 2006, it may undercut world commodity prices and so keep Australia's trade deficit rather higher than official forecasters or financial markets have currently factored into their thinking."

This means our balance of trade is likely to worsen.

Previously, it was profligate Australian governments and corporate big-spenders which were blamed for the nation's chronic current account deficit.

Now it is the "sustained bout of retail therapy" of Australian consumers that is driving up the current account deficit and foreign debt, to levels surpassing those of Paul Keating's "banana republic" warnings.

Access Economics warned that the Australian dollar was in danger of tumbling when financial markets began to take notice of our trade position.

"We repeat, neither official forecasters nor the money market are yet scared by this scenario," Mr Richardson said. "But we are."

  • Pat Byrne

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