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ATT: National Media Event / Story on Monday 26 March 2001

INTERNATIONAL FINANCIAL MARKETS - FRIENDS OR FOES?

The House Economics Committee's report, International Financial Markets - Friends or Foes?, which was released in Parliament today, examines the effects of the globalisation of international financial markets on the Australian economy. It is particularly concerned with the effects of that process on Australia's economic policy regime.

The Chair of the House Economics Committee, Mr David Hawker, said: "The Committee recognised the profound effects which will flow from globalisation over the next few years and that future government fiscal and monetary policies must take its effects into account."

A major focal point for the inquiry was the performance of the Australian economy during the Asian Financial Crisis. The Committee examined this period carefully and found that the restructuring process of the last twenty years, had provided Australia with an economic structure of sufficient strength and flexibility to withstand the pressures brought by that crisis.

The Committee stressed, however, that there is no room for complacency and called for continued efforts in structural reform. It recommended that Australia seek to achieve world's best practice in a number of areas related to monetary policy, risk management and transparency in financial matters. It also called for a high priority to be given to achieving success in World Trade Organization negotiations on financial services.

Mr Hawker, said: "The Committee closely examined the role of the major hedge funds in the Asian Crisis and particularly their role in the attack on the Australian currency in 1998. It recommended adoption of the proposals put forward internationally by the Financial Stability Forum related to risk management in dealing with highly leveraged institutions such as hedge funds."

The Committee also recommended continued support for international efforts to improve the transparency and accountability of the international financial system. Similarly it recommended support for the continuing international program to review the international financial architecture and to modernise its institutions.

It was recognised during the inquiry that the growth in importance of derivatives trading and the complexity of some derivatives transactions, posed a threat to the unwary investor. The Committee therefore proposed that The Treasury, the Australian Stock Exchange and the Sydney Futures Exchange should set up a working group to ensure that companies and financial institutions maintain proper transparency on their exposure to derivatives.

Mr Hawker concluded by saying: "This inquiry was a particularly challenging one. The issues involved have such an enormous scope, that the Committee had to concentrate its efforts in those areas which it considered were most appropriate and which had particular relevance for Australia."

Ends // 26 March 2001

A copy of Mr Hawker's tabling speech is attached.

To arrange comment:
David Hawker, MP (Chairman), Parliament House 02 6277 4837

Further information:
Beverley Forbes (Secretary) 02 6277 4587
Tas Luttrell (Principal Research Officer) 02 6277 2375
Email: EFPA.Reps@aph.gov.au
Geoff Dodd (House Committees' Media Adviser) 02 6277 2063

For a copy of the Committee's report see:

• internet: http://www.aph.gov.au/house/committee/efpa/ifm/Report.htm
• or contact the Committee Secretariat.

Committee Membership 39th Parliament

Chairman: Mr David Hawker MP
Deputy Chair: Ms A Burke MP
Members:
Mr Anthony Albanese MP
Ms Teresa Gambaro MP
Mrs Kay Hull MP
Mr Mark Latham MP
Ms Tanya Plibersek MP
Mr Christopher Pyne MP
Hon Alex Somlyay MP
Dr Andrew Southcott MP

TABLING SPEECH: MONDAY 26 MARCH 2001: DAVID HAWKER MP, CHAIRMAN
INTERNATIONAL FINANCIAL MARKETS - FRIENDS OR FOES?

Mr Speaker,

I present to you today, a unanimous report by the House Economics Committee, which examines the effects flowing on to the Australian economy from the globalisation of International Financial Markets.

The Committee recognised at an early stage that this process of globalisation would produce profound effects in Australia and that policy makers would need to take those effects into account when considering Australia's economic policies.

The report is based on a two-year inquiry during which the Committee received submissions and public evidence from the main participants, conducted a round table discussion with prominent members of the financial community and examined international efforts to address the rapid changes in world financial arrangements.

The inquiry was a particularly challenging one. It involved issues of such tremendous scope that the Committee had to concentrate on those areas which it considered were most appropriate and which bore particular relevance for Australia.

The report includes seven recommendations. If these recommendations are put into practice, the Committee is confident that the economy will reap generous benefits, especially in the areas of transparency and risk management within the financial system.

A number of specially appointed committees within international organisations, are reviewing various aspects of international financial arrangements - the so-called International Financial Architecture. Australia has been very active in that work. This Committee has recommended that Australia should continue to make a very active contribution and continue also, its strong support for the modernisation of international financial arrangements.

For Australia, the Asian Financial Crisis was a severe test of the strength of the economy. With a number of our major export markets in chaos, it was feared that Australia would follow them into recession.

However, the Australian economy continued to grow strongly throughout the period of the Crisis. In practice, it was revealed that the restructuring and reform of the Australian economy over the past twenty years, has left us with an economy strong enough and flexible enough, to resist the pressures stemming from the Asian Crisis. The Committee felt it was important to examine how this was achieved, when other economies facing similar financial commitments were unable to cope.

The Reserve Bank's opinion was that the flexible exchange rate maintained by Australia was the key factor. The Treasury gave more weight to the effect of structural reforms and the availability of a fiscal surplus and a sound microeconomic structure, which ensured that private investment did not suffer and the confidence of international investors was also retained.

The Committee agreed that all of these factors played a part but emphasised that the value of Australia's political stability and responsible government, should also be recognised. Proper weight should be given, in the Committee's view, to Australia's democratic processes, such as the separation of powers between an elected Parliament and the judiciary and the valuable ability to change government without disruption of government processes.

Turning to the international scene, the Group of 22 countries has made wide-ranging recommendations for the improvement of financial systems, in areas such as improved data collection, transparency, risk management and the handling of financial crises. In most of the areas covered, Australia is already equal to world's best practice - the Committee has recommended that efforts should be made to reach that standard in the remaining areas also.

In addition, it has recommended that high priority be given to achieving Australia's goals in the World Trade Organization negotiations on financial services.

Improving the transparency and accountability of the international financial system are high priorities for international financial institutions, such as the IMF. The Committee also sees this as a very important area and has recommended that the Government continue to give it a high priority.

The role of the giant Hedge Funds in the Asian Crisis and in the attack on the Australian dollar in 1998 in particular, have been subjects of considerable speculation. This led the Committee to examine these matters in some detail.

It concluded that the remedy lies in greater transparency in their operations, better risk management in financial systems and better regulatory oversight. The Committee has recommended that proposals put forward by the Financial Stability Forum to deal with these issues, should be given urgent consideration by Australian authorities.

The Committee recognised the growing importance of financial derivative products. It found particularly that this area is noted for its lack of transparency and the complicated nature of some of the products involved. It posed, the Committee felt, a threat to the unwary investor.

The need for greater transparency is clear and the Committee has recommended that the Treasury, the Australian Stock Exchange and the Sydney Futures Exchange, set up a working group to ensure that major companies and financial institutions maintain a proper level of public transparency on their exposure to derivative products.

In the wider economy, the Committee has proposed a number of areas where the public would benefit from better discussion and dissemination of information. It has recognised the need to continue assisting those displaced by the globalisation process to make the transition to the new economy.

One of the main recommendations relates to Australia's taxation regime. The Committee is aware that our ability to compete for international investment funding, relies heavily on the comparative tax regime under which investors would operate. To obtain a better picture of Australia's position, the Committee has proposed a major study to examine the taxation regimes of our major trading partners and assess them against the reformed Australian taxation system.

Mr Speaker, the globalisation processes examined in this report are ongoing and are already producing very rapid changes in economic circumstances. Their effects on the Australian economy will continue for the foreseeable future and are of such importance that it is likely that the Committee will re-examine this area during the next Parliament.

I would like to thank all Committee members for their efforts during this inquiry and for their contribution to the findings set out in the report.

I commend the report to the House.

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