Debt seen as legacy of aggressive Antipodeans

Press, 6 October 1989, Page 38

Debt seen as legacy of aggressive Antipodeans

NZPA-AAP London The spectacle of aggressive Antipodean entrepreneurs roaming the world on borrowed money has been one of the more intriguing sights of the 1980 s, the “Financial Times” said. In a long feature article by John Plender, the authoritative financial newspaper said Sir Ron Brierley, Rupert Murdoch (pre-American citizen days), John Elliott, Robert Holmes a Court and Alan Bond — at their peak — spread fear into the boardrooms of some of the world’s most wealthy industrial giants.

“Even after the crash of ’B7 some of these entrepreneurial volcanoes are far from extinct,” the "Financial Times” said.

But in an analysis of the Australian economy in the Hawke-Keating years and a brief reference to the Lange economy in New Zealand, Plender put together his views on what he called the debt legacy left to Australia by the spending spree of its entrepreneurs in the 1980 s. “The brash march of Australian and New Zealand entrepreneurs across the world stage tells us as much about the workings of the global economy in the present decade as any dry report from the Organisation of Economic Cooperation and Development will ever do,” he said. Both countries had the problems of the 1980 s — collapsing commodity prices, excessive rigidity in labour markets, balance of payments deficits and soaring external debt.

But the answer — “the great economic • buzzword of contemporary economic policy, deregulation” — was not the simple solution it sounded.

“When it is applied to a resource-rich Third World economy with a First World financial system and a strong entrepreneurial tradition — Australia — it is a recipe for some very quirky happenings,” Plender said. What it would do for the election prospects of the Australian Prime Minister, Bob Hawke, was an open question. “There is little doubt, however, that the recent downfall of New Zealand’s David Lange had much to do with his Government’s radical venture into liberal economics.” On the face of it, any policy designed to liberalise the workings of the Australian financial system and give business more room to manoeuvre might have been expected to work well, the report said. Yet in Labour’s new economic environment the entrepreneurs “did not bat for Australia” in quite the way orthodox economists expected. “When exchange controls were lifted in 1984, the general assumption was that capital imports would be used to increase investment and enhance the capacity of the tradeable goods sector to service the rising foreign debt,” Plender said. “In practice, much of the inflow went into consumption, and the entrepreneurs were far too busy playing the new games allowed by finan-

cial deregulation to spare much thought for Australia’s export capability.” Deregulation introduced a multiplier into the process — it allowed 16 foreign banks to enter a market dominated by four big domestic trading banks. The number of merchant banks also rocketed from about 40 to more than 100. “For this gaggle to work in a newly competitive climate, the frenetic Aussie entrepreneurs were a godsend. “They had the answer to two key questions affecting the bankers’ livelihood — how to find outlets for all the liquidity swilling around the global system and how to generate fee income to make up for the declining profitability of their basic lending business.” A by-product of this marriage of convenience, according to Plender, was that the Australian dollar started to play a role out of all proportion to the importance of the domestic economy. Another was the extraordinary trail of bids, deals and share stakes that the entrepreneurs left behind them as they “careered through the corporate corridors” of the world: Texaco, Fox Broadcasting, G. Heilman Brewing, New York’s St Moritz Hotel, AlliedLyons, Standard Chartered, Courage and the M and G unit trust group in Britain, telephone companies in Chile, oil exploration in China, property elsewhere, “the list is endless.” “So was the amount of junk paper the bids and deals left behind — and

there lies part of the macro-economic problem no-one foresaw,” Plender said.

“The Federal Government has, in effect, privatised the financing of the current account deficit of its balance of payments.” The greater part of Australia’s net external debt, which had grown to more than sAustloo billion, or more than 30 per cent of GDP, was owed by the private sector. “Since much .of the debt has financed the entrepreneurs’ buying spree in world markets — instead of expanding domestic production — Australia is in a very curious position. It depends on the entrepreneurs putting their gambling chips on winners in the global casino to repay its external debt.”