Weak Aussie dollar fuels $26b debt blow-out

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Weak dollar fuels $26b debt blow-out

By JOSH GORDON and TIM COLEBATCH CANBERRA Friday 1 December 2000

The plunging Australian dollar has fuelled a $26 billion blow-out in Australia's foreign debt, while the Olympic Games has led the way to a $1.9 billion improvement in Australia's quarterly current account deficit.

The Bureau of Statistics estimated yesterday that by September 30, Australia's net foreign debt had shot up to a high of $295 billion - 46 per cent of GDP.

With a large chunk of Australia's overseas borrowing in US dollars, the falling dollar added $14 billion to Australia's net debt. A further $11 billion was run up by more borrowing, most of it by banks.

Treasurer Peter Costello highlighted the lower current account deficit, arguing that, for the first time in nearly 30 years, Australia's quarterly current account deficit was lower than that of the United States as a share of GDP. But he added a warning that more budget surpluses were needed to shore up the external balance.

"I do not think we should get complacent about the current account deficit, and it is something we must keep a very firm policy handle on," Mr Costello told parliament. "Can you imagine where Australia would be today if we had not paid off $50 billion of Labor's debt?"

Shadow Treasurer Simon Crean said the net foreign debt amounted to $15,480 a person and blamed the government. "Peter Costello loves to talk about paying off debt," he said. "(But) the level of foreign debt is at a record, the ratio of net foreign debt to GDP is at a record, and the growth rate in net foreign debt is at a record."

Australia's total foreign liabilities, including net foreign ownership of Australian assets, grew more slowly, rising by $14 billion to $410 billion or 64 per cent of GDP.

The current account deficit in the September quarter was the lowest for three years. The bureau estimates it narrowed by $1.9 billion or 26 per cent to $5.5 billion, well below the peak of $9.5 billion a year earlier.

But the bureau said the latest improvement came mainly because the Olympic Games delivered a $1.4 billion boost to service exports through television rights and tourist spending.

That accounted for most of the $2.1 billion increase in the value of goods and services exports during the quarter, up 6 per cent from June.

Imports rose by just $571 million or 1.5 per cent.

But in a stark contrast, the bureau figures show that while the value of goods exported shot up $6.25 billion or 29 per cent compared with a year earlier, the volume of goods exported rose by 8.5 per cent.

The figures confirm that Australia's commodity exporters (who are typically paid in US dollars) have been receiving a double windfall because of the low value of the Australian dollar at a time of rising commodity prices.

The bureau has admitted defeat in its bid to estimate the impact of the GST on consumer price rises. It came up with two estimates of 1.7 and 2.3 per cent, but concluded that both estimates were implausible. Either would imply that underlying inflation in the September quarter was running at more than 5 per cent.

http://www.theage.com.au/news/2000/12/01/FFX3D0I66GC.html

-- Martin Thompson (mthom1927@aol.com), November 30, 2000


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