Australia Economic Policy in the 1990’s
During the nineties the Australia has experienced a phase of intense economic growth linked to an extraordinary expansion of production both on the domestic market and, above all, on international markets. The increase in GDP, which places the Australia among the OECD countries with the most sustained economic growth, it largely originated from the rapid evolution of exports, in turn derived from the active Australian trade policy that has accentuated the integration processes of the country with the economic area Southeast Asia, Japan and the United States.
The economic framework of the Australia in the nineties, however, it appears in open contrast with the economic lines of the previous two decades, characterized by less economic dynamism, a strong erosion of competitiveness and a protectionist trade policy.
A further problem was the low rates of formation of domestic saving and the corresponding structural deficit on the current account of the balance of payments. The growth of consumer prices, which in the years 1973 – 80 had exceeded the average rate of 11 %, was one of the main factors of weakness in the Australian economy, and precisely the reduction of inflation had become the central objective of the government between 1976 and 1983 through the not very incisive use of fiscal instruments. The increase in inflation, in fact, did not arise from an excess of demand, but depended instead on the dynamics of wages, which were growing faster than the productivity of labor.
A substantial change in the guidelines of economic policy took place with the entry into the government of the Labor Party (1983). Supporters of an openly liberal orientation, albeit tempered by an active role of the state in managing social imbalances and conflicts, the Labor leaders led by Prime Minister R. Hawke have set up government action along two essential lines: the search for an agreement with trade unions and entrepreneurs to define an income policy aimed at stabilizing inflation and the start of a process of liberalization of the economy to promote productivity growth through greater openness to foreign competition.
To combat inflation, the government convened the first summit of the national economy in April 1983, involving the main Australian trade union confederation, the ACTU (Australian Council of Trade Unions), and the representatives of entrepreneurs in a policy design. industry aimed at gathering the highest degree of consensus among the social partners. The result of the summit was the signing of an agreement (in force until 1996), which launched the centralization of the determination of wage contracts.
As regards the liberalization policies, the government unilaterally decided in 1983 to gradually break down internal tariff barriers and bring them to an average level of 5 %. In addition to this initiative, other measures have been added that have affected the currency and foreign exchange markets. The government has in fact abandoned the mobile parity system, implemented in 1973 after the Bretton Woods crisis and consisting in the gradual adjustment of the exchange rate according to the government’s economic policy objectives, and adopted a system of flexible exchange rates. At the same time, a program for the liberalization of capital movements and the removal of controls on foreign currency transactions was launched, accompanied internally by the deregulation of the financial market and the opening of the banking system to the activity of foreign operators.
Overall, the concertation model launched by Hawke produced positive results in terms of controlling the macroeconomic aggregates. In fact, the containment of wages made it possible to bring inflation under control, which fell, on average in the 1980s, to around 8 %, compared to 12 % in the 1970s. Unemployment, higher than 10 % at the beginning of the 1980s, showed a certain regression with the start of new industrial relations and with the economic recovery, falling, starting from 1984, to below 8 %.
On the other hand, the strategy adopted by the government to restore balance to the public deficit was more problematic, which as a consequence of the economic recession of the early 1980s had settled on negative values that exceeded 3 % of GDP in the years 1983 – 86. Despite the opposition of employers and trade unions to government reform initiatives, the goal of reducing the public deficit was nevertheless achieved to a greater extent than expected thanks to the high tax revenues resulting from the economic recovery and the unexpected success of the campaign against the ‘evasion. The occurrence of these conditions has thus made it possible to reverse the negative balance of the public sector, which was reported in surplus between 1988 and 1990.
The policies of economic liberalization and the process of opening up the national economy have had major effects on the dynamics, structure and direction of trade flows with the rest of the world. Indeed, since the second half of the 1980s, the export sector has grown in real terms at a rate that is consistently higher than that of income. Consequently, the incidence of exports on the gross national product also increased, which rose from about 15 % in the first half of the 1980s to over 21 % in 1998.. While presenting an overall still relatively low degree of openness compared to that of other industrialized economies, within the OECD the Australia in just over a decade, it registered one of the fastest processes of opening up to foreign trade, with significant consequences on the product composition of exports.
A considerable part of the rapid development of exports resulted from the intensification of trade with Asia, especially with the countries of the Southeast, which were characterized, until the eve of the financial crisis of October 1997, by extremely high rates of income growth. In particular, the sales of industrial products with high added value have increased in ten years by 800 % in North Asia and by 300 % in South-East Asia, and the latter has established itself as the main outlet area. of Australian production destined for foreign countries, absorbing about 60 in the second half of the 1980s% of the country’s exports. At the same time, trade flows to the European Union have progressively reduced, falling, as a percentage of total exports, from 16 % in 1987 to 11 % in 1996. For Australia public policy, please check proexchangerates.com.
The increased commercial integration of the Australia in the Pacific area it was accompanied by a proliferation of agreements of an economic-institutional nature with the other countries of the South-East Asian area. The economic cooperation initiative, launched in 1989 by the Australia, resulted (1990) in the creation of the APEC (Asia Pacific Economic Cooperation), comprising 18 Pacific countries, including the United States and Japan. Thanks to its new location in the area, the Australia exported in 1997 almost 4 / 5 of the value of production in APEC countries.
However, the process of internationalization of the economy, the opening of the internal market and the growth of exports did not resolve the problem of the structural current account deficit, which persisted throughout the 1980s and 1990s.
Australia’s current account deficits depend to a large extent on large outflows of foreign payments for interest and dividends, which account for heavy capital imports into the country. A significant share of these deficits also originated from competition from products from Southeast Asian countries, which intensified as a result of tariff disarmament, as well as from strong fluctuations in the international markets of raw material prices, which represent the main item of exports..
After showing satisfactory growth during the 1980s, the Australian economy suffered a sharp slowdown in the early 1990s, followed in 1991 by the recession that characterized the economic situation of the other industrialized economies. Starting from 1992, the Australia has entered a new phase of expansion, one of the most solid and long-lasting in the OECD countries.