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Transcripts from the Prime Ministers of Australia

Transcript 15823

Address to the East Asia Forum in conjunction with the Australian National University, Advancing Australia's Global and Regional Economic Interests

Photo of Rudd, Kevin

Rudd, Kevin

Period of Service: 03/12/2007 to 24/06/2010

More information about Rudd, Kevin on The National Archive website.

Release Date: 26/03/2008

Release Type: Speech

Transcript ID: 15823

The Australian Government's mission is to implement a reform agenda to build a modern Australia capable of meeting the challenges of the 21st century - to secure both the nation's long-term future, and a future for working families.

During its first three months, the Government has focussed primarily on the implementation of its domestic policy agenda. Now, given the uncertainty in global financial markets and the increasing challenges facing the global economy, the Government will use the period ahead to engage critical economic decision makers and business leaders abroad.

To advocate the strength of Australia's economic credentials. As well as continuing to engage our economic partners in the US, Europe and China on the best global response to the current crisis. The Government, through the RBA, the Treasury and APRA has been actively engaged in monitoring the impact of this crisis since the Government's election in November. This is because the Government believes the maintenance of global economic and financial stability is fundamental to Australia's future and therefore should command the full resources of government as a first priority.

Future Challenges for Australia

Beyond the immediate and important challenges facing the global economy, Australia faces a range of additional challenges that are as formidable as they are fluid. These include:

* inflation at its highest level in 16 years;

* the second highest interest rates among advanced economies;

* productivity growth that has been in decline throughout this decade;

* rising cost of living pressures for working families across the board, including the pressures faced by the poorest Australians;

* global demographic change, including the ageing of Australia's own population and workforce;

* economic and environmental pressures arising from global climate change;

* the continuing threat of global and regional terrorism and the spread of weapons of mass destruction;

* the security, economic and environmental challenges of our immediate island neighbours in the Pacific, and

* the adequacy of our existing global and regional economic and security architecture to deal with the challenges of the future.

Not only are the policy challenges the nation now faces formidable, the policy environment in which the nation must now operate is increasingly complex and interconnected. There is no longer a clear distinction between that which was once clinically defined as “foreign” as opposed to “domestic”; “internal” as opposed to “external”; “national” as opposed to “international”; “global” as opposed to “local”.

What we have witnessed in the post-World War II, post-Cold War, post-ideological age of the late 20th century, and now the increasingly digital world of the 21st century, is the progressive globalisation of the security and economic policy domains of the future.

Acting nationally now requires acting internationally

The challenge this presents to Australian policy makers of the future is acute. Australia today lives in an increasingly joined-up world. If Australia fails to engage with the global economic, security and environmental challenges, we will simultaneously fail to deal with their impact on our own country.

That means in order to advance Australia's interests at home, we must increasingly be engaged with other nations in responding to the challenges to those interests abroad. Foreign policy, foreign economic policy and national security policy must increasingly be seen as the natural expression and extension of the nation's domestic policy interests - not as some sort of policy exotica removed from the Australian mainstream, but as part and parcel of the interests of main-street Australia. Those who would still believe (or, for the purposes of crass partisan advantage, pretend to believe) in the splendid isolation of the Australian continent live in a fool's paradise.

For example:

* a failure to engage with the global community on climate change would exclude us from the chance to shape the global response in ways consistent with our national interests;

* a failure to act effectively on terrorism in our wider region affects our ability to act effectively on terrorism domestically, and

* a failure to act on the development challenges of the South Pacific Island states will result long term in rolling Australian military interventions, together with the risk of a large-scale influx of refugees from the region.

Australia therefore has no option other than to be fully globally and regionally engaged if we are to effectively prosecute our national interests. The purpose of my remarks tonight, the first on foreign policy since the election of the new Government, is as follows:

* to outline why the challenges Australia faces will require us to be more internationally active, not less;

* second, to outline why this will require a new period of active, creative Australian middle-power diplomacy, and

* third, to outline a range of economic policy considerations that will underpin my upcoming visit to the United States, Europe and China.

Australia acting in global and regional partnership

For Australian policymakers, this increasingly interconnected policy terrain underlines the importance of acting cooperatively with other states.

Australia's national assets are of course not insubstantial.

* Of the 192 members of the United Nations, Australia has the sixteenth largest economy.

* Australia has the fifth largest economy in East Asia.

* Australia is a major supplier of energy and mineral resources to China, Japan and the Republic of Korea.

* And, in purely military terms, the Australian Strategic Policy Institute this year ranked Australia's defence spending as the 11th largest in the world.

Nonetheless, to achieve the sort of global and regional outcomes that are consistent with our interests, we cannot simply rely on our national assets but instead must act in partnership with our allies, friends and the broader international community. Australia has a deep, abiding national interest in the furtherance of a robust, international rules-based order that underpins our long-term security, economic and environmental interests. To maximise those interests, our capacity to act effectively bilaterally, plurilaterally and multilaterally must continue to be enhanced.

Towards a Creative Middle Power Diplomacy

That is why the new Australian Government is committed to the principle of creative middle power diplomacy as the best means of enhancing Australia's national interests. It is also the best means of acting as effective international citizens in enhancing the global and regional order on which we all depend. That means operating in partnership with our long-standing ally the United States - as the Government argues that the US continues to be an overwhelming force for good in the world.

It means acting in partnership with our friends in the Asia Pacific region in organisations including APEC, the ASEAN Regional Forum and the East Asia Summit. It also means acting in partnership with the United Nations across the range of pan-global challenges from climate change, the Millennium Development Goals and the continuing challenge of nuclear weapons proliferation. In all these domains, Australia intends to prosecute an active, creative middle power diplomacy in partnership with the community of nations.

We believe this is the rational thing to do in pursuit of our own core economic and security interests. We also believe this is the right thing to do because Australia can be a greater force for good in the world. The truth is that Australia's voice has been too quiet for too long across the various councils of the world. That is why during the course of the next three years, the world will see an increasingly activist Australian international policy in areas where we believe we may be able to make a positive difference.

We have begun this process in the Government's first few months in office with our ratification of Kyoto and the active role we played at the Bali Conference on climate change. Also with our immediate response to the security crisis in East Timor.

And more recently with our new response to the acute development challenges facing the Pacific Island states through the Port Moresby Declaration - reinforced by our pre-election commitment to increase Australia's overseas development assistance to 0.5 per cent of GNI by 2015. That commitment will assist us in fulfilling our obligations towards the realisation of the Millennium Development Goals in our own immediate region. For the Australian Government, this is the beginning of Australia's renewed international engagement. There is much, much more to be done.

Australia's Global and Regional Economic Interests

The area which right now underlines starkly the absolute interconnectedness of Australia's national, regional and global interests is the impact on the global economy of recent instability in global financial markets. This global economic uncertainty has underlined the decision early in the Government's term to visit the United States, Europe and China - all critical to the shape of the global economy for the critical year ahead.

A primary reason for this visit is to communicate to the economic and business leadership of the US, the UK and China the continuing fundamental strength of the Australian economy in the face of international turbulence. I will meet with economic policymakers in Washington, New York, London, Brussels and Beijing. Decisions taken in these capitals will directly shape the global financial environment and impact on Australia's economic future. It is the Government's responsibility to influence international decision-makers as we prepare the Australian economy to the greatest extent possible for the turbulence ahead. That is why I will also be taking the opportunity to argue strongly Australia's economic case, the robustness of the Australian financial system and the strength of our corporate balance sheets in my meetings with international business leaders.

It is important for our interests that overseas observers understand the different economic conditions in Australia compared with other economies.

* That Australia has a central bank with robust and enhanced independence.

* That we have a strong regulatory framework for Australia's financial market.

* That Australia has very low domestic exposure to sub-prime mortgage defaults.

* That the balance sheets of our principal corporates are strong.

* That resources demand (from China and India) is holding up strongly and well into the future.

* That the Government continues to be committed to a conservative approach to budget policy.

* That the Government has zero net public sector debt.

* And that the Government is not complacent about the need to push ahead with further, long-term economic reform.

I remain an unapologetic optimist about Australia's long-term economic future despite the challenges that lie ahead.

The Global Financial Crisis

The current financial crisis represents the unwinding of the extraordinary global credit boom of the last several years. As with previous credit market cycles, the top of the cycle was characterised by a period of strong economic growth, low interest rates and rapid increases in asset prices (especially the housing market and share markets). These conditions created a financial boom in which credit became widely available and relatively cheap.

Advances in information technology and financial engineering allowed the development of sophisticated new financial instruments. Regulatory frameworks did not always keep up with the rapid pace of change. The risks inherent in these financial innovations were not always well understood by various ratings agencies and regulators.

Investors became overconfident and began to accept higher risks and lower returns - as reflected in the decline in corporate investment yields. In 2007 there was a sudden loss of confidence in the value of mortgage-backed securities when banks began to report large losses on mortgage backed assets.

This led banks to hold on to their cash reserves. Interbank spreads rose and interbank lending volumes fell. Banks were less willing to lend to each other because they feared that they would need the cash themselves, and they were worried about the risks in other banks.This has led to the significant tightening of credit markets that we have been witnessing.

Conditions in global financial markets remain difficult. There is continuing uncertainty about the size and distribution of losses from the sub-prime crisis. To date, banks have announced write downs totalling $195 billion. Equity markets have also fallen dramatically with several major bourses, including the ASX, having fallen more than 20 per cent from their peaks last year.

Credit markets remain tight with elevated spreads and securitisation markets are largely closed. There are concerns that the financial crisis and its flow on effects in the US housing market will cause a wider downturn in the US economy. The IMF expects the US economy to slow markedly in 2008 and to grow on average by just 0.8 per cent over the year.

Global growth is also expected to slow in 2008. The IMF expects global growth to slow from 4.9 per cent in 2007 to 4.1 per cent in 2008, with risks largely on the downside. In this uncertain environment, the Government is working with other governments and regulatory agencies on how we coordinate the most effective global response to these new challenges facing the international economy.

Engaging our global and regional economic partners

The economic challenges we face and the need for cooperative action in response highlight the importance of the Australian Government engaging closely with our economic partners around the world. The Australian Government is committed to pursuing our overriding interest in greater openness in global markets - rather than retreating towards protectionism in the face of global economic uncertainty.

For me this message is as relevant in Washington as it is in Brussels and Beijing.

The United States is the biggest economy in the world. It is the largest trading nation in the world. The US dollar dominates global financial transactions. For Australia, too, the United States is a crucial economic partner.

Our trade is robust - it was worth around AUD$47 billion last year, making the US our third-largest trading partner overall. The US also accounts for nearly 30 per cent of our incoming investment and for nearly 40 per cent of our outwards investment. The United States is more than a close economic partner. In many ways, it plays the most important role in sustaining global growth and sustaining the momentum underpinning open global markets.

US leadership is crucial to getting a good outcome on the Doha Round of trade negotiations. An outcome that delivers immediate market access gains will give a much-needed confidence boost to business with a signal that the governments of the world are committed to ongoing trade liberalisation. Of course the United States cannot achieve a result on its own.

It also requires European cooperation. That is why I will be raising these matters in Brussels as well as Washington. Australia and Europe have well known differences on agricultural policy. We also have very closely aligned interests on pushing to make it easier for services businesses to trade across international boundaries.

As the policy centre of a unified Europe, Brussels speaks for a trading group that is bigger than even the United States. And taken as a whole, the European Union is Australia's biggest trading partner. The United Kingdom is Australia's largest trading partner in the European Union and is second only to the United States as a source and destination of investment for Australia. London is now the world's largest financial centre. And in London I will argue that Australia remains a first class place to invest.

Australia's economic engagement spans the globe. But our trading interests are closest with the Asia-Pacific region. Over 70 per cent of our trade is with the member economies of APEC. Our top three merchandise export markets are Japan, China and the Republic of Korea. India is our fastest growing major export market. Our two-way trade with Indonesia, Malaysia and Singapore is worth over $40 billion.

For Australia, it is crucial that the Asia-Pacific region remains open to trade and investment. We need open, inclusive regional institutions. And we need to ensure that bilateral and regional free trade agreements support the rules-based trade system of the WTO. The region's economic importance to the world continues to grow. Japan is the world's second-largest economy with a GDP of around USD$4.5 trillion - and Japan remains Australia's largest export market. That's why Australia places great priority on the negotiation of a free trade agreement with Japan.

In Beijing I will be discussing our free trade agreement negotiations with China. Progress to date has been slow. It is a complex process to negotiate comprehensive improvements in market access with a country undergoing such rapid reform and development. I will be urging my Chinese counterparts to join with us in collectively redoubling our efforts on the negotiations to get a high quality outcome.

Australia's trade with China has already been the subject of many economic headlines - last year it became our largest merchandise trading partner, and over the last decade the value of our merchandise exports has grown by 20 per cent per year. And China's global importance continues to grow - it is already the world's third-largest trading nation and it has foreign exchange holdings in excess of USD$1.6 trillion.

In all the capitals I will visit, advancing Australia's economic interests will be at the top of the Government's agenda. But in an interconnected world, the economic agenda also has to be seen in the context of global politics and global strategic stability. That is why security policy, climate change, development assistance, humanitarian intervention and broader human rights will also feature prominently during this visit. Because on the economy, foreign policy and security policy, Australia is a nation with both regional and global interests which the Government is resolved to prosecute.

Four years ago at the national conference of the Australian Labor Party, I introduced an amendment to the party's foreign policy platform entrenching as the three pillars of our foreign policy: our alliance with the United States, our membership of the United Nations and our policy of comprehensive engagement with Asia.

That trilogy is very much reflected in the structure of this upcoming visit. We will work closely with our ally, the United States - the world's pre-eminent power.

We are committed to re-vitalising our engagement with the United Nations - and working more closely together in the UN with our partners around the world, including Europe. And we are committed to close engagement with the countries of Asia and the Pacific. It is our neighbourhood. And it is a natural focus for our foreign policy.

That is why the Government awaits with interest the views of this conference on the emerging stresses and strains of our region's existing institutional architecture.

Institutional reform is long overdue. But Australia will be moving cautiously on this score in close consultation with our partners in the region. Our common resolve must be to pursue both a peaceful and prosperous future for the Asia Pacific region.

And it is through this wider process of continuing regional and global engagement that the new Australian Government is now determined to make its contribution to the future development of a robust international rules-based order that enhances the security and economic wellbeing of us all.

Transcript 15823