Australian Leadership In Asia

Speech by the Hon Alexander Downer MP, Minister for Foreign Affairs, to the Austcham/AXA Breakfast Briefing

Island Shangri La Hotel, Hong Kong, 16 July 1999

(Check Against Delivery)

Thank you [name of MC]; [names of VIPs]; ladies and gentlemen.

I'm very pleased to be back in Hong Kong, and to be able to meet the members of the Australian Chamber of Commerce. As you may know, I've just been to Beijing, Shanghai and Guangzhou, so coming to Hong Kong rounds out my China visit nicely.

I do also appreciate these functions as an opportunity for me to speak to Australian business people who are working 'at the coalface', as it were, and who can offer unique, practical, and very valuable insights into the issues that really count for Australians.

Rather than spend my time this morning talking about our relations with China or Hong Kong - since I'm sure you are as familiar as I am with those topics - I thought I'd say a few words about Australia's role in Asia as a whole. It is a matter onto which new light has been thrown by Australia's reaction to the region's economic crisis. And it is a role I believe all Australians can be proud of.

I want first to say a few things about where Asia sits in our policy agenda, before looking at some of the regional issues that are of current concern, and how Australia is reacting to them. I also want to outline how Australia has been performing domestically, because that as much as anything else is having a big impact on our international performance.

The message that will, I think, come clearly from all my remarks today is one of strong Australian leadership in Asia. It is the story of how we have been at the forefront of efforts to combat the fallout from the East Asian economic crisis, including the momentous political changes that some countries are facing. And it is the story of how we have led by economic example, showing the world what commitment to transparency and reform can achieve.

Australia: in Asia for the long haul

The first time an Australian foreign minister came to China was 65 years ago. In 1934, Sir John Latham, who was both Minister for External Affairs and the Deputy Prime Minister, led the Australian Eastern Mission to promote trade and to ease tensions in the region. Latham visited seven countries - China, Hong Kong, Japan, the Dutch East Indies (now Indonesia), Malaya, Indo-China, and the Philippines. On his return to Australia, Latham told the Parliament that Asia was "the `Far East' to Europe .... but we must realise that it is the `Near East' to Australia."

Latham's visit illustrates two matters. It gives some indication of the long history of Australia's ties with Asia, and that is important because many people - Australians and Asians alike - seem to believe that our relationship only developed some time in the 1980s. And it demonstrates how our geographic location has been a major factor in the development of our foreign and trade policies. It is pure common sense that a nation should have most interaction with those countries that are closest to it. Australia's relationships with the countries of Asia are natural ties that have been reinforced by the major global events of the past 50 years - from the Second World War, to the economic rise of Asian countries.

Subsequent Australian Governments have continued this tradition of maintaining strong ties with our region. My own Government has always made it clear that Australia's future is tied up with Asia. It was a point we spelled out in our 1997 White Paper on Foreign and Trade Policy, which committed Australia to a long-term, mutually beneficial relationship with the region. And we have acted on that commitment, both by revitalising bilateral relations with all the countries of Asia, and by taking practical and quick action after the onset of the Asian crisis.

Where the region is headed

I preface my remarks on the outlook for our region with the usual caveat about the need for caution in commenting on economic trends. That said, it is encouraging to note the emergence of signs that the worst of the East Asian economic crisis may be over.

The IMF forecast is for lower than average growth for the global economy in 1999, at 2.3 per cent. But their forecast is for an upturn in 2000, with growth at 3.4 per cent.

There are several factors underlying this more optimistic outlook. The US economy continues to power along, with growth expected to remain well above 3 per cent this year before moderating slightly over next year. We may be seeing the beginnings of a revival in the Japanese economy, though it always pays to be cautious. Economic activity has picked up strongly in Korea, with more modest upturns also evident in Singapore, Malaysia, Thailand and the Philippines. Here in Hong Kong the recession seems to be easing with a return to economic recovery on the horizon, and despite Hong Kong's recovery lagging behind others in East Asia, I have been struck by the determination I've found here to work through the challenges.

Australia will continue to support Hong Kong in that process. We have substantial interests here - a large community and the largest Australian business presence in Asia - which has prospered in Hong Kong's open, transparent, law-based business environment.

Of course, we still have a long way to travel before we can confidently say that we've seen a resumption of sustained economic growth in East Asia. And there are still many potential risks to recovery.

These include the possibility of a faster than expected slowdown in the US economy (where a sharply rising trade deficit is fuelling protectionist sentiment and there are some signs of inflationary pressures), a stalling of recovery in Japan--particularly as the fiscal stimulus peters out towards the end of the year, or failure by East Asian governments to continue to push forward with needed reforms, particularly in the financial sector. And if that weren't enough, we all have the uncertainty of the Millennium Bug's effects hanging over us.

But even with these considerations in mind, and recognising that full recovery will be a long and painful process, it still must be said that the outlook for the global economy today is much more positive than it was twelve - or even six - months ago.

So APEC's leaders will meet in Auckland later this year against an economic background that is much rosier than at Kuala Lumpur. I know that some APEC member economies remain hesitant about undertaking further trade liberalisation at the same time that they are experiencing far-reaching domestic restructuring and reform. But I am encouraged that protectionist pressures are being resisted by most regional countries and the clock is not being turned back on the greater openness we won over the past decade - which is very good news for Australian business.

However, the Government is very concerned about recent actions by the United States, particularly the decision by the President on 7 July to impose unjustified safeguards barriers to the importation of Australian and New Zealand lamb. The barriers are not justified by the facts; are unfair to Australian and New Zealand exporters who have had no assistance from government and who were playing by the rules of the game; and are founded in hypocrisy in that they strike at the credibility of American rhetoric about free trade. The world wants US leadership in the lead up to the WTO ministerial meeting in Seattle. If the countries of our region had opted for popular short-term solutions, it is likely that the economic difficulties would be considerably worse than they are today.

Australia's unstinting response to the crisis

The onset of the East Asian economic crisis was a defining moment for Australia's relationship with Asia. We'd shown we could "talk the talk", but could we "walk the walk"? In the event, we did, and this has allowed us to prove, as perhaps no other event could have, that our ties with Asia are strong, substantial and lasting.

Our response was fast and effective, placing Australia at the forefront of international efforts to overcome the economic and social impacts of the crisis. In fact, if you consider the size of our economy and population, I'm confident in saying that our response was second to none.

We were one of only two countries to participate in the IMF second tier support arrangements for Indonesia, Thailand and Korea. And we took early steps to persuade the IMF to amend its package for Indonesia to respond more sensitively and effectively to conditions in that country.

We extended trade insurance cover to help Indonesia and Korea to continue to import essential commodities. We provided substantial assistance for crisis-hit countries through bilateral aid programs, and established a $50 million, three-year Economic and Financial Management Package for the region, together with our Asia Crisis Fund, doubled under the last Budget to $12 million. Our aid programs have also focussed on major governance and capacity building activities, to give officials the skills to address the causes of the downturn in their countries. And I convened a major international meeting of ministers and senior officials from 27 countries and 9 major international institutions on development cooperation responses to the Asian crisis.

And on the trade front, although our trade with the region has inevitably suffered, we did not panic. We didn't try to shut out imports - in fact, our imports from many of the countries worst hit by the crisis have increased significantly over the past two years.

Of course, the effects of the crisis are not limited to the economic sphere. We've seen significant political change as a result - perhaps most notably in Indonesia, and in relation to the status of East Timor. In both cases, Australia has acted quickly to assist the very positive political developments that the economic crisis has unleashed.

Indonesia has successfully held its first democratic elections in more than four decades. The people of East Timor will soon be able to decide their own future. Wherever Australia has found the opportunity to assist the development of greater freedoms, and the evolution of more transparent and democratic institutions, we have not hesitated to lend a hand.

In all this, Australia has shown its true mettle and worth to its Asian neighbours. We've been at the very centre of international efforts to assist crisis-hit nations, keeping our trade doors open during tough times, with firm faith in the long-term future of our region.

Australia - leading on economic performance and reform

Australia has been happy to offer assistance and advice to its neighbours on how to combat problems associated with the economic crisis. And our advice has carried particular weight for two reasons: because it comes from a country that has prospered when others have been doing it tough, and because we have shown that we are prepared to take our own advice. It has been a case of "do as we say, and do as we do".

In the face of the worst economic crisis our region has seen in half a century, Australia has turned in a world-beating economic performance. We now have one of the fastest growing economies in the OECD, with GDP growth of 4.8 per cent over the year to the end of the March quarter. In fact, we've now had growth of more than 4 per cent per annum for 8 successive quarters.

We also have interest and inflation rates that only our older generations can remember. We've put the budget in very healthy surplus, and have been able to cut unemployment. Put all that together, and you can see why the world is starting to sit up and notice Australia's achievements.

Now, those results are no accident. Our Government's determination to stick to a sound and credible monetary and fiscal policy has delivered the low interest rates that have helped sustain domestic demand. Our commitment to structural reform has removed economic distortions and encouraged competition, including in telecommunications, transport and energy. And our changes to workplace relations have created a more flexible and productive labour market, while the number of working days lost to industrial disputes last year fell to the lowest level since 1913! Labour productivity growth is at historically high levels at around 3.5%.

At the same time, our policies have emphasized the importance of sound corporate governance, independent prudential supervision and transparency in Government regulation - all of which have, to a greater or lesser extent, figured in the roll-call of the causes of Asia's economic crisis.

We've instituted a Corporate Law Economic Reform Program to modernise corporate governance and financial market regulation. We brought in the Charter of Budget Honesty, and we formalised the Reserve Bank's objective of keeping inflation between 2 and 3 per cent.

That's a very substantial package of reforms for just three years in government. But we are not resting on our laurels - the need for continued and further reform remains high.

That is why we are pressing ahead with taxation reform, including the New Tax System package that will significantly lower effective marginal income tax rates, so that 80 per cent of Australians will pay no more than 30 per cent income tax. The new broad-based GST will abolish old wholesale sales taxes and a host of State taxes to benefit consumers and lower costs for business - in particular, lifting a $4.5 billion dollar burden off the shoulders of our exporters.

We're moving ahead also with our Review of Business Taxation, which is aimed at providing a more competitive regime in Australia for local and overseas business alike. And we will proceed with labour market reform, to boost productivity and streamline enterprise bargaining.

It is on this strong basis that the Prime Minister has launched the Government's strategy to promote Australia as a centre for global financial services. Our open and stable financial system; highly skilled workforce; cost-competitive business conditions; sound macroeconomic fundamentals; and time zone advantage flowing from Australia's earlier market opening time form the basis for our push to be a global financial hub. To support our campaign, the 1999-2000 Budget provided $7 million over the next two years, including for the establishment of an International Financial Centre Task Force in Sydney.

We have set ourselves some ambitious targets. But they are also essential targets if we are to keep Australia strong, and at the forefront of economic growth and reform.

Conclusion

I believe that Australia has amply demonstrated its leadership in this region over the past two years. We were there to help our neighbours when it counted, when they needed us most. And we have shown at home that we truly believe in the benefits of economic reform and freer trade - while others have retreated from a hostile external environment, we've rolled up our sleeves and have met the challenges head-on.

The onset of the East Asian economic crisis posed quite fundamental questions about Australia's role in Asia, and whether we could stick with the cause of reform and liberalisation. If actions speak louder than words, we have positively shouted out our response to those questions.

So let no one doubt our commitment, or our resolve. We are in Asia for better not worse, and we are in for the long haul.

ENDS

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