,\ IRsDEP.
R e r,
FOR PRESS C ~ D EC 1967 PM. NO0. 129/ 1967
STERLING DEVALUATION: CAB I NET DISCUSSES
EFFECTS ON AUSTRALIA
Statement by the Prime Minister, Mr Harold Holt
When announcing on 20th November the decision of the
Government that there should be no change made In the value of the
Australian Dollar following the British Government's amnouucement of,
devaluation of the Pound Sterling, I said that Cabinet recognised that the
effects of this decision would fall unevenly on the Australian economy,
I referred to the fact that some industries, particularly some primary
industries, are more closely linked with the British market than others,
and commented that the difficulties of affected industries were currently
under urgent examination to find appropriate ways and means of overcoming
their problems. Cabinet has had before It today a series of papers arising
out of this examination by Departments. Our discussion this morning
was directed to a paper prepared by the Treasury which dealt with the
more general Implications, together with the economic context In which
they should be seen. This paper covered recent developments overseas,
Including the extent of devaluations in various countries; our reserves
position and balance of payments prospects; our general budget position
and prospects; and trends in the Australian economy.
We recognised the difficulty, especially at this early
stage, of making anything in the nature of precise calculations of the
effects on Australia of the recent devaluations. However, It is now clear
that the Sterling devaluation has not been accompanied by an extensive
chain of devaluations on the part of other countries. Our holdings of
gold and foreign exchange now amount to about 070 million. As our
drawing rights with the International Monetary Fund stand at $ 630 million,
our total first and second line reserves amount to about $ 1,700 million.
Thus, our reserves position is quite strong.
While it Is not possible to make a precise assessment of
the direct and Indirect effects of the overseas devaluations on our balance
of payments for the remainder of the year, we believe that, so far as the
direct effect Is concerned, apart from the downward adjustments in our
Sterling balances, the net effect of the devaluations will be quite small.
We have every confidence in the longer term situation of our balance of
payments. We do not believe that the devaluations are likely to lead
to any large net effect on this year's Budget, apart from any decisions we
might take to deal with problems arising from them. We have concluded
from our study of the Treasury paper that, faced as we are with these
moderate devaluations by countries , which account for only a relatively
small proportion of our total trade, and which have little slack to expand
outward by more than a few per cent, the net direct effects on our
domestic economy as a whole should be quite small. There is reason to
believe that in the longer term, the effects on our economy should be
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favourable. We are not in a position, however-to. make firm judgments
as to indirect effects which might flow from the conditions now being
experienced throughout the world as a result of the devaluation of a major
currency. We considered this afternoon the effects of Sterling
devaluation on rural industry, secondary industry, minerals and metals,
freight rates and our Territories. These were dealt with in papers
prepared by the Departments of Trade and Industry, National Development,
Primary Industry and Territories.
Total exports to all markets of rural products In 1966-67
amounted to 051 million. Of this total, some $ 408 million, or twenty
per cent, was exported to Britain and other countries which have devalued.
The Minister for Primary Industry has asked all the Commonwealth
Marketing Boards to examine as a matter of urgency and advise him of
their view of the full Implications of the effects of the British devaluation
on the industries with which they are concerned. It is evident that it
will be some time before a full assessment of the effects on all industries
can be made, but Cabinet hopes to have a more complete picture before
the meetings it will be holding In the week of 11th December.
We have already agreed, at their request, to meet
representatives of t he manufacturing industries that week, and are
considering a variety of representations and requests from other
Industries. The Cabinet has made a good deal of progress in its
consideration of a programme of export Incentives. It has been asked
by industry representatives to defer a decision on this until the effects of
devaluation can be more clearly seen. However, it is our desire to
announce our export incentives programme In the course of the next few
weeks. We shall do this after taking into account the views of Industry.
CANBERRA, November, 1967.