Interview with Jim Middleton
Australia Network
23 March 2009
SUBJECTS: Global Recession; G20 Finance Ministers' Meeting; G20 Leaders' Meeting
MIDDLETON:
Treasurer, welcome to the program.
TREASURER:
Good evening, Jim.
MIDDLETON:
You've been emphasising the need for action, in particular on toxic assets, the toxic assets infecting banks around the world. Why do you think that is the key to getting the world economy moving again?
TREASURER:
Well, I think it's very important for confidence, business confidence and confidence more generally, but most importantly to get credit flowing into the international economy. And of course, it can't flow if there are doubts about the capacity of the banking system internationally. Now, fortunately in Australia we don't have that problem, but it is a problem, a very serious problem, in Europe and in the United States, which is why it was so pleasing at the Finance Ministers' meeting a week or so ago for the G20 that the Finance Ministers adopted a framework jointly put forward by both Britain and Australia, a framework for cleaning up toxic assets. And of course, if that occurs as we go through the next little while, we can all hope that the coordinated economic stimulus that has occurred across many countries in recent months can be much more effective. That's why you've got to have economic stimulus but you've also got to have credit flowing in the economy, and that is why it has been the number one priority of Australia as we have engaged through the Finance Ministers' meeting, and the Prime Minister has engaged with other world leaders.
MIDDLETON:
Were you surprised given the priority you're placing on this, that there was some reluctance at the G20 Finance Ministers on the part of the Europeans in particular to agree on coordinated action, on boosting government spending to help the banks out, particularly given that the outlook for many European banks is especially fragile at the moment?
TREASURER:
Well, I think governments in Europe and elsewhere in the world are very much focussing on the problem of toxic assets in the banking system, and of course they've all put in place, to varying degrees, fiscal stimulus. What we decided was you need to do both of those things. You need to have fiscal stimulus along with getting the credit flowing in the economy so we can put a floor in the system and restore confidence and of course restore investment eventually.
MIDDLETON:
It is the case, though, isn't it, that a country like Germany which has memories of hyper inflation in the 1920s which was one of the direct causes of World War II, and given that Britain and the US are now both printing money, that we would have concerns about overdoing it?
TREASURER:
I think all countries around the table at the G20 Finance Ministers' meeting recognise that we do need to have a commitment to long term fiscal sustainability, and everybody has signed up to this proposition. But whilst we need fiscal stimulus now and into the near future, everybody and every nation needs to have a plan for return to surplus eventually when growth internationally begins to return to trend. That is recognised across the board. And even if you look at what many European countries have done, they have put some substantial economic stimulus already into their systems. And I think what everybody around the table recognised is that different countries will make different choices about the amount they need to put into the system.
MIDDLETON:
China will have a key role in any solution to the global financial crisis. Do you understand Beijing's fear that the US and Europe, which are cash poor at the moment, would simply take China's money and then run?
TREASURER:
I think the most important thing about the G20 Finance Ministers' meeting a few weeks ago was very simply this: that many of the old divisions about reform of the IMF and quotas and so on were put to one side, and it was so refreshing to see agreement in the room between developed countries and developing countries, that there needed to be a fundamental reform of the international financial architecture, particularly when it came to the IMF, to reflect the change in balance in the international economy. It's no longer tenable for some of the old representational arrangements to survive in the 21st Century. And I think the breakthrough at that meeting and hopefully the breakthrough at this forthcoming meeting will be a reinforced commitment to more contemporary representational arrangements at the IMF and indeed in other multilateral organisations.
MIDDLETON:
Do you think that will be one of the benchmarks of success of the G20 Leaders' meeting that China in particular but also other countries – India, Brazil possibly – get a bigger seat at the table in the IMF or in any structure that looks after the world financial system in the future?
TREASURER:
Well, it's fair to say that this issue has been in the too-hard basket for a very long period of time, and of course the balance in the global economy has moved increasingly to the Asia-Pacific, and certainly many of the emerging economies have grown dramatically. So, we do need to update that representation. I don't pretend that that will be easy. But the thing that impressed me at the Finance Ministers' meeting was a willingness to consider that in a way in which I haven't seen since the time I went to my first IMF meeting about a year ago.
MIDDLETON:
China's also demanding that the US and the Eurozone countries be more transparent in their balance sheets, effectively, also that they take better coordinated strategies to help stimulate the world economy. Do you think that is a reasonable position for China to be taking?
TREASURER:
I don't think it's just the position that China is taking. There's a very substantial agenda. There's a commitment to economic stimulus. There's a commitment to doing something about toxic assets. There's a commitment to reform of the IMF. And most importantly for the future, I believe a commitment across all the nations in the room to a new system of regulation and supervision when it comes to multinational investment banks which cross borders. New regulation and new supervision which recognises the importance of markets is absolutely essential if we are going to avoid such an episode into the future.
MIDDLETON:
But is China's demand for more transparency and better coordinated action on the part of US and Europe justified?
TREASURER:
I don't believe it's just China's demand. I think many people in the room at the meeting I was at are committed to better regulation, not necessarily more regulation but better regulation and better supervision. For example, coming out of the Finance Ministers' meeting there was a determination to increase representation at the Financial Stability Forum where all the major regulators meet, and emerging countries have been admitted to that body for the first time. I think there's a real commitment around the room on behalf of both the developed and the developing world to be a lot better here in the future.
MIDDLETON:
And should that regulation and supervision be nationally or internationally based?
TREASURER:
Well, it would be a combination of both. There was a substantial upgrade to the Financial Stability Forum that will go to the Leaders' meeting this weekend. I believe that is very important, and the relationship between the FSF and the IMF is also important. All of these things are part of a pretty broad agenda in this area for the Leaders' meeting that's coming up in a week or so.
MIDDLETON:
The G20 Finance Ministers also made a point of warning of the dangers of rising protection, particularly in the current dire circumstances, to a specific point. How disturbed are you then at China's decision last week to knock back a bid from Coca Cola – $2.4 billion – for a Chinese beverage company? Does this go against the kind of sentiment that you think ought to be being displayed at the moment?
TREASURER:
I wouldn't wish to comment about one particular proposal. I think countries share the view that if we were to revert to protectionism then that would be a setback in terms of the other measures that are so important to restore confidence, and therefore growth, in the global economy.
MIDDLETON:
Wayne Swan, thank you very much for your time.
TREASURER:
Good to be with you.
