Interview with Fran Kelly
ABC radio National Breakfast
3 April 2009
SUBJECT: G20 Leaders' Meeting
KELLY:
The G20 summit has produced an impressive outcome. It says that any measure that encourages global growth will help Australia's economy. This meeting will not stop the world recession, though, but the immediate result is rosy, with a continuing rally on the world's stock markets. The Dow Jones has closed up this morning at 216 points. I spoke to the Treasurer earlier this morning from London.
TREASURER:
So much has been achieved here in areas where so little has been done for decades. If you look at what's been done in terms of supervision and regulation of the banking system and the international financial system people couldn't have dreamed of this outcome only some weeks ago. Or, if you look at what has been done in terms of the framework for toxic assets or if you look at the fundamental reform of the International Monetary Fund, the additional resources and the commitment to changed representation over time. And of course finally, is the commitment to do whatever action is necessary to restore growth and jobs through economic stimulus. I think that is a very, very impressive outcome.
KELLY:
Let's drill down a little into some of those elements you spoke of. French President Nicolas Sarkozy had a slightly different take on it. He described it as the world moving on from the Anglo Saxon model of finance. What is he referring to there, do you think?
TREASURER:
Well, I think he's got an axe to grind. But I think everyone in the room wants to see supervision and effective regulation of international financial institutions, most particularly multinational investment banks, but also hedge funds. For example, the fundamental reform of the Financial Stability Forum is now to become the Financial Stability Board. The role it will play working with national regulators. All of these things were unthinkable only a few short weeks ago. But what we are going to have is a framework for the future, and that's important. But what's also important is to deal with this very sharp contraction in global growth. And that's where it was very encouraging today to see the commitment from nations, both developed and developing, to do whatever is necessary to support growth and jobs.
KELLY:
Our Prime Minister, Kevin Rudd, has been calling for China to be given a greater role in the international financial institutions, particularly the IMF. Will that happen? Was that discussed?
TREASURER:
It's not just a matter of China. You see, what we've had in there is a meeting of the G20. The G20 represents the 20 largest developing and developed economies in the world, and so many of the international bodies don't reflect the fact that the developing world has grown significantly and countries like China, Brazil and many others have not necessarily had the representation that they deserve in many important forums. You can see that not just in the IMF but you can see it in the Financial Stability Forum. That has been fundamentally reformed and expanded. All of these things are important to reflect the reality of this century.
KELLY:
So, things will change now so that that reflection is there?
TREASURER:
Well, certainly they'll change over time when it comes to the future of regulation. There's no silver bullet here and there's no silver bullet when it comes to economic stimulus. But the really important thing was that the 20 largest economies did come together to put forward concrete proposals and a comprehensive package, because you see we are all doing things individually, and that's very important to support growth domestically and to support jobs. But if the world acts collectively then I think we can have a much more fundamental impact, and we can have a fundamental impact on confidence and trust.
KELLY:
And directly going to that breakdown of trust and confidence is the key problem of toxic debts on bank balance sheets. How does this G20 statement fix that problem, because tougher banking problems in the future won't resolve that issue now, will it?
TREASURER:
No. What the G20 is resolved to do is to put forward a clear framework for domestic governments to deal with that. But also to put forward the necessary support via the IMF and other international development banks the resources which are necessary for many countries that are affected by this fallout from toxic assets. And of course, that then plays into a further lack of confidence in the system as a whole. So it's a combination, and the interaction between these various initiatives that is so terribly important to bring back confidence in the system, and that will take time to further support growth which comes from the economic stimulus measures that have been put in place.
KELLY:
Treasurer, what is the key concrete outcome from this meeting that will most help Australia and our economy?
TREASURER:
Well, the combination of all of those measures. We have been savagely affected by sharp contractions in global demand which you can now see impacting on our major trading partners. You can see it in Japan. You can see it in China and of course you can see it in the United States. That is dramatically slowing growth domestically. So, any measure globally which further supports growth and jobs is very important for Australia because it assists the stimulus that the Australian Government has put in place to support growth and jobs.
KELLY:
One element of the communiqué is dealing with the touchy issue of bankers' pay and bonuses. Gordon Brown said, following the meeting, that bankers' pay and bonuses would be subject to stricter controls. In Australia what will that mean? Will it mean the Government doing more legislating? How will you manage that?
TREASURER:
Well, as you know, APRA in Australia is doing some very important work in this area and it has made recommendations which have flowed through to the commitments that have been made here today, and that is looking at arrangements which will ensure that executives in the financial sector are not rewarded for excessive risks and that banking supervisors and national regulators take into account when they examine those packages whether they are excessive and if they are, what action they can take in their jurisdiction. For example, they could take action to increase the capital adequacy ratio that the banks have.
KELLY:
And just finally, Treasurer, all the good news that's come out of this coordinated statement in your view, will this avoid a long economic recession?
TREASURER:
Well, certainly we have to do everything we possibly can to avoid that, which is why this meeting is so important. I personally am an optimist about these matters, but certainly it is a difficult period and I'm encouraged that the 20 largest economies in the world could come together in the way in which they have.
