February 10, 1991

Article at Reuters

Australia, despite recession, not turning protectionist

Australian Prime Minister Bob Hawke

By Wilson da Silva

SYDNEY – Australia will reduce barriers to free trade and not return to protectionism despite a deepening domestic recession, Prime Minister Bob Hawke said on Sunday.

“It would be a fair bet you should take...that we’re not going to slow the reduction of protection,” he said in a television interview when asked whether the recession had changed the government’s industry strategy.

 “The worst thing that could happen for Australia is to allow sensible, long-term economic policy making...to be submerged under short term considerations.

“Gradually protection has to be lowered,” Hawke said.

Hawke said his Labor government expects Australia to recover from recession “in the second half of this calendar year”. The recession, while regrettable, has reduced inflation and lowered the nation’s current account deficit, he said.

“The official (inflation) rate is down to six per cent, the underlying rate at 5.6 per cent – which is the lowest underlying rate since these figures have been kept in the last dozen years – and I believe it’s going to go down further.

“There’s a 28 per cent reduction this year in the current account deficit. We budgeted for A$18 billion dollars (US$14 billion) and it’s running at A$8.1 billion (US$6.3 billion) for the first six months (of the year to June 1991),” Hawke said.

In this economic slowdown Australia must try to retain gains made earlier and not return to the situation two years ago when demand growth was double that of production, Hawke said.

Australia, which produces 85 per cent of the world’s apparel wool, may scrap the regulated minimum price for the commodity and free up the market, Hawke said.

“Quite clearly, the reserve price scheme is not working,” Hawke said, speaking of the minimum price of 700 cents a kg clean (546 U.S. cents) set by the Australian Wool Corp (AWC), the commodity’s governing authority in Australia.

“We’ve got to re-examine (it)...you can’t maintain this artificial situation that has produced a position where you’re buying-in half or two thirds of the offering,” Hawke said.

In the three days before the AWC suspended sales for three weeks on February 1, the buy-in rate by the AWC was over half the auction offer, he said. Some 4.77 million bales are in storage, 83 per cent of annual production.

The cabinet will meet on Monday to consider the future of the floor price scheme.

The AWC now supports the floor price by buying stocks unsold at auction. This has produced the stockpile and forced the AWC to borrow A$2.8 billion dollars (US$2.2 billion) to stay afloat.

Australia’s recession was underlined in November when figures showed the gross domestic product had shrunk for two successive quarters in the six months to September.

Annual inflation fell to six per cent from 7.7 per cent in June. Monetary policy was eased six times in 1990 to try to revive the flagging economy.