Standing Committee on Economics, Finance and Public
Administration
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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