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SPEECH BY THE PRIME MINISTER, THE MON P J KEATING MP
AT THE PRESENITATION OF THE BRW-ALCATEL BUSINESS AWARDS
PARK LANE HOTEL
SYDNEY, 10 DECEMBER 1992
Ladies and gentlemen,
I am very pleased to be able to join in celebrating the
achievements of some of Australia's finest enterprises and
entrepreneurs. So often we hear the doomsayers rattling around, the
jeremiabs projecting their own pessimism and self-loathing
on to the rest of the Country.
it is good to be as I often ami among people who by their
actions prove the opposite.
To re-mint an old conservative phrase, there is a silent
majority in Australia a silent majority of ders out
there.
Men and women who are going about the business of businesslooking
for opportunities, changing where change is needed,
adapting, developing and, in difficult times, succeeding.
It is a pleasure to have the chance to congratulate them.
We need their success. We need their example.
in Australia it's always a tough audience.
In sport, art and business it's the same the gloom
merchants are perched there like crows with the words
III told you Sol'-already formed in their mouths.
it's the Hanrahan syndrome -the " we'll 811 be rooned"
syndrome. But they are a minority. And, anyway, it's not so much in
their natures as in their Interests to be pessimists.
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in fact, in my experience, the great majority of Australians
are much more forgiving, much more realistic, and have much
more faith in themselves and their country.
And I think they have good reason to.
In the past decade Australians have recognised the need for
dramatic change, and they have had the imagination and the
will to make it. They continue to.
They have also recognised the need for continuity of
decent values, of the bases of equity and fairness.
That to me is proof of common sense, and the best possible
assurance of the future of Australia.
My typical Australian is a mixture of common sense and
flair. The stoic and the bold.
That seems to define most of our legendary figures from
Ned Kelly to Allan Border.
it might even define Bob Gottliebsen.
it defines most of the successful business people I speak
to.
And, in all likelihood, it defines the people we are here to
congratulate tonight.
Being the people they are, of course, none of them will be
resting on their laurels.
There are many opportunities out there for innovative-. firms.
many rewards to be had.
And you can be sure that these rewards will be a11 the
greater as the overall economy grows.
Ladies and gentlemen,
The recession has been deep and the recovery slower than we
would have liked.
We have not been helped by events overseas.
We can take eome satisfaction from the fact that, at 2.1
per cent in the year to September, we have one of the
fastest-growth rates in the OECD.
However, we all know that this is not fast enough to bring
unemployment down.
We must reduce unemployment.
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We must do it to bring an and to the hardship which the
unemployed are suffering.
we must do it to restore to them the opportunities which
Australia should offer.
And we must do it because people are our most valuable
resource. The health of our economy depends on reducing the number of
unemployed. The only way is. faster growth.
Growth of around 4 per cent or so will bring unempl~ oyment
down. It is also quite achievable.
Over the past year or so the Government has taken a number
of steps to strengthen growth interest rates have been
lowered substantially and there has been direct stimulus
from the One Nation Statement, the Youth Statement and the
Budget. These initiatives have clearly boosted demand and output.
Lower interest rates have been central to the 12 per cent
increase in dwelling investment over the past year.
Public sector demand-has been running ahead of demand in the
private sector, notwithstanding the contraction we have seen
in some of the States' budgets.
So the Government's strategy of providing stimulus is
working. But recovery has been held back by a weak international
economy and the low levels of business investment.
It is important that we understand what has been depressing
business investment, because that is the key to further
economic expans ion.
Fundamentally, it has been the result of the efforts of many
corporations and financial enterprises to reduce debt levels
and establish stronger balance sheets after the excesses of
the late 1980s.
This has been a necessary and very difficult process.
The corporate sector embarked upon an exercise of cutting
costs and reducing debt.
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The banks tightened their lending guide-lines and have
concentrated more on their traditional business.
The result has been less business investment and, for those
businesses which want to grow, more stringent tests to meet
before they can get the necessary finance.
Slower economic recovery has been the cost.
The process of debt restructuring is continuing.
But I think it is now clear that the major hurdles are
behind us.
The profit share has held up despite the recession, while
lower interest rates have seen interest payments by the
corporate sector almost halved over the past two years.
As a result, the corporate sector has had the means to
reduce their debt levels.
In fact, corporate debt/ equity ratios have been falling for
the past three years and, apart from a few notable
exceptions, appear to be at relatively healthy levels
overall. The receiverhip business has tailed off while banks' new
non-performing loans have declined sharply.
The total stock of these non-performing loans has recently
begun to turn down.
All these are significant signs of health being restored to
corporate and financial sector balance sheets.
Progress has been slow, but increasingly over the past few
months, it appears that business is increasingly looking for
new opportunities.
I notice the Chairman of the Federal Reserve, Alan
Greenspan, noted similar developments in the United States
recently. He said that " the credit crunch which has been so
debilitating to economic performance over the past two or
three years has shown no evidence of worsening in recent
months and may finally be retreating. At least this is the
implication of some stirring in'the loan markets in recent
weeks", he said.
And in Australia business confidence has been picking up,
arnd the credit ag~ regatesi hae been growing again as new
buslness has begun to outweigh repayments.
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Today's unemployment figures were again disappointing veryI
disappointing but there are some grounds for believing
that the pick-up in vacancies indicates the start of an
improved labour market ahead.
indeed, as the debt is reduced, businesses are increasingly
focusing on the positive factors that are there
the lowest inflation rates in the developed world
low interest rates
productivity up around 3 per cent over the past year
good underlying profits levels that will improve further
as volumies increase
very favourable international competitiveness
continued wage restraint
and, one hopes, continued very low levels of industrial
disputation.
Coming on top of the stimulus from the public sector that
will continue for some time, these factors give us good
reason to expect the economic recovery to strengthen.
Of course, growth in Australia will be constrained by the
weak international environment we face, but we can look to
the future with greater confidence.
Ladies and gentlemen,
We can be more confident about the future, but at the same
time we have to-learn from the past.
A central lesson has been the desirability of banks
establishing close relationships with their customers.
Lending will always be less risky if the lender has a more
complete understanding of the viability of a proposal.*
Moreover, lending has to be based much more on an assessment
of the likely cash flow of a proposition than on the
availability of security.
Financial -Institutions can no longer rely on property values
underpinning loans if they ever could.
The major banks assure me that they have recognised these
needs and have shifted their 3. ending rules accordingly.
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They tell me they are providing extra training for lending
officers so they are better able to evaluate risk and the
potential of proposals.
Cash flow lending, they say, will be the norm in the
practice of Australian bank lending.
And the banks will, I believe, more aggressively try to
expand their lending under these more disciplined credit
standards. Still, I believe we should go further with the development
of relationship banking.
It is the export of services and elaborately transformed
manufactured goods that have grown so rapidly over the past
years.
These have relied on our strengths in innovation, research
and training.
A great many of the new, successful exporters are small to
medium size firms who are out to establish niche markets
especially export markets.
our future depends on being able to build on these successes
-and that means our future depends in no small way on our
banks. As Australians increasingly develop innovative products and
seek to sell them into new markets, banks will have to
improve their skills and capacities of evaluation.
it is obvious that evaluating the quality of new proposals
will be a challenge.
There is risk associated with new product lines which may
take a number of years to come on stream.
There is risk associated with developing new export markets.
There is risk associated with lending to young firms that
are growing with new ideas.
But these are risks that banks will have to be able to
assess. This is the future they simply must embrace.
And it is where, after all, the rewards are going to be.
Where returns are likely to be rewarding, they are risks
they will have to undertake.
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It is not just in the interests of the overall economy that
adequate finance should be forthcoming for worthwhile
propositions. So long as they are able to properly assess the likely risk
and return, it can also be very much in the interests of the
institutions concerned.
An important element in the success of the Japanese and
German economies has been the very close relationship their
banks have had with business.
Of course the German and Japanese banking systemis have been
more regulated than our own, and there are many features of
their system we should not try to duplicate.
But the ready access to finance for good projects which
their businesses have is something we must work at getting
here. Poorly appraised risk-taking is the last thing our lending
institutions should engage in. My argument is that they
must do more to develop their evaluation and monitoring
skills.
How this is done will be up to the institutions concerned.
it may mean providing more finance for export business
through regional centres, rather than through individual
branches which tend to be the first port of call for many
small and medium-sized businesses.
it may involve developing clusters of skills in technology
or engineering, or in providing management and financial
advice for small businesses.
From this, expertise in evaluating ventures in new areas
could be established.
of course, these ideas are not new banks have already
taken some action along these lines.
But through whatever means the individual institutions may
choose, I believe it is very desirable for us to go further
down this path.
Ladies and gentlemen
-Through the-Commonwealth* Development Bank the Government has
played a direct role in trying to ensure that suitable
finance is available to a dynamic sector of the economy that
often has difficulty raising funds I mean the Wmall
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Over the years, the Commonwealth Development Bank has
fulfilled a limited buit -very useful role supplying loans and
some limited equity finance f or small business, including
farmers. Because it is required to lend only to businesses who are
unable to obtain sufficient finance through other channels,
the CDB operates at the riskier end of the market.
This means it attracts loan applications which it cannot
approve. Nevertheless it still approves many projects which
would not otherwise be financed.
Although it made a 1088 in the more difficult Circumstances
of 1991-92, it has recorded respectable rates of return down
the years.
It has done this despite its concentration on small risky
loans that tend to involve high overheads.
The reason for this relative success has been the COB's
ability to establish expertise in evaluating and managing
its loans, an expertise that is built on both a detailed
knowledge of the sector itself and a close working
relationship with the businesses concerned.
So the Commonwealth Development Bank has performed that
specialised role.
But the CDB grew up in the more regulated system of the
past. with the removal of interest ceilings, other banks have
expanded further into small business and rural areas, and
the CDB's lending has tended to be pushed further towards
the realms of risk.
It is important that the Development Bank is able to
continue to fulfil its special role, and to do so in a
manner that is consistent with the Commonwealth Bank making
a commercial rate of return.
Accordingly, the Board of the Commonwealth Bank is reviewing
the operation of the CD5 and its special charter to ensure
that it remains in a position to lend to the small business
and rural sectors.
This lending will continue to be based primarily on the
interest irihecrelt-of' a proposal rather than the value of
any security offered.
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in addition, the Government is prepared to Consider with the
Commonwealth Bank's Board whether there is a need for any
financial support that may be required by -expanded lending
opportunities. The CDB will always remain in a niche in the market, but a
very important niche.
I am confident that it will continue to fulfil its role and
that it is well placed to grow.
Indeed, I hope that Its characteristic reliance on
soecialist skills and close involvement with its customers
will be emulated by other financial institutions.
Ladies and gentlemen,
our financial institutions must play 8 dynamic role as
economic recovery strengthens.
They will be a vital player as Australia continues to make
inroads into world markets.
Closer relationships between banks and their customers will
help to ensure that Australian business can meet the
challenges and grow.
At the same time, it will help banks' profitability and
ensure that the experience of the past few years is not
repeated. Ladies and gentlemen,
i hardly need to say to you that I think Australia is on the
right path. I
We are now more outwardly oriented. we are more efficient.
We are more flexible.
We think in ways we never thought before about excellence,
about exports, about Asia and the Pacific, about enterprise
bargaining.
We are exporting things we never dreamt of making a decade
ago, and we're exporting them to places we never imagined
could be markets.
There has been an attitudinal change of profound dimensions
kind of -cultural change which was absolutely essential
to our success.
we have generated, as I said, other essential preconditions
like low inflation, and an acceptance among wage earners
that profits need to be adequate.
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We have made a number of the essential microeconomic reforms
in telecommunications, aviation, the wharves.
We will continue the process. Let no one imagine that
because we have done these things we don't intend to do more
or that more is not being done now.
what we have achieved has not been easy.
It is not easy to make structural changes and continue to
hold the social fabric together.
But in my view it is essential to do it that way.
Not just because it is more decent though that is a
sufficient condition but also because it is more
efficient. The economic transformation of Australia is not a Sprint for
speedy squibs: it needs stamina and we will get to the
line quicker and in better shape if we maintain and build
our momentum and hold body and soul together all the way.
We have learned that economic change demands cultural
change. It has social consequences.
There are no ways around this. And there is no better way
to go than by taking all sections of the community with us.
We are now reforming the labour market on these principles
of cooperation and mutual agreement on goals.
The 550 enterprise agreements have been built on that
cultural change I talked about.
They are the tangible manifestation of new Australian
attitudes and common goals.
They are built on that sort of realistic faith in ourselves
and each other, on that mixture of common sense and
imagination I talked about earlier.
it is on that, I am convinced, that we will build the
recovery.
And I daresay that is what the success of tonight's honoured
guests was substantially built on.
I congratulate you all.
Thank you for having me.