May 6, 2021

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Australian treasurer warns global recovery threatens financial stability

4 min read


Australia has warned that unprecedented global stimulus efforts during the coronavirus pandemic create financial stability risks that will only intensify when interest rates inevitably rise.

Canberra has also championed tough new foreign investment rules that have led to a Chinese investment collapse, arguing that the number of proposed transactions motivated by strategic rather than purely commercial gain, was increasing.

Josh Frydenberg, treasurer of Australia, said the Pacific nation was in a strong economic position, with its net debt to gross domestic product about half that of other advanced economies, even as it began to shrink. loosen fiscal stimulus.

“There is no doubt that high debt levels will create challenges for many countries. Although global interest rates are low, these debt levels may be repayable – but there will be a time when the parameters of monetary policy change, ”he told the Financial Times.

Frydenberg’s comments on risks posed by global recovery follow a similar warning delivered Last week by Peter Costello, close political ally and former Australian treasurer.

Australia will be among the first advanced economies to reduce the budget stimulus from Covid-19 with the shutdown of its A $ 90 billion (US $ 70 billion) JobKeeper wage subsidy program this month.

Canberra argued that the recovery is already underway, citing a fall in unemployment to 6.4% in January and 3.3% economic expansion during the three months leading up to September of last year.

Frydenberg, who counts Margaret Thatcher and Ronald Reagan among his role models, said the A $ 250 billion government stimulus was needed to stabilize the economy during the pandemic. But he said JobKeeper, which supported 3.6 million workers at its peak, was no longer needed as the recovery could be supported by tax cuts, which were announced last year.

When asked if he thought Thatcher and Reagan’s economic policies were still relevant, he replied: “[Reagan and Thatcher] they accomplished a lot when they were in power and they made a commitment to lower taxes. They have made a commitment to reduce regulation and that is certainly what I have committed to as well.

But unions and businesses that still suffer from border closures and restrictions, especially in the tourism and entertainment sectors, have warned that shutting down the program will hurt the economy.

“JobKeeper should be extended to companies that are still affected by the coronavirus. [Through] no fault on their part, they are suffering from this slowdown, ”said Sally McManus, secretary of the Australian Council of Trade Unions last week. “And we say this because it will save jobs.”

Josh Frydenberg, Treasurer of Australia, is a rising star in the country’s Conservative government and is slated for future Prime Minister © AP

Frydenberg, who was the architect of foreign investment rules aimed at countering China’s growing influence, said he made no apologies for placing “national interest” at the heart of China’s policies. Australian investment.

Chinese investment fell 61% last year to A $ 1 billion, from A $ 2.6 billion in 2019 and a 2016 high of A $ 16.5 billion, the data showed. Frydenberg was instrumental in blocking two potential deals: China Mengniu’s $ 600 million offer for Japanese-owned Lion Dairy, and China State Construction Engineering Corp’s $ 300 million offer for Probuild, a South African-owned construction company.

“We absolutely reserve the right to make decisions about foreign investments according to the national interest and the establishment of an explicit national security test allows us to do so,” he said.

“More and more we have seen foreign investment proposals motivated not by purely commercial gains but by more strategic ones. When these foreign investment proposals potentially compromise the national interest, we reserve the right to say no. “

Frydenberg said Australia was not alone in tightening its rules, noting that other countries shared Canberra’s views on national sovereignty and foreign investment.

“Obviously, we have had difficulties with China,” he said, when asked about Beijing’s imposition of trade sanctions on a range of Australian exports following Canberra’s call last year for an investigation into the origins of the Covid-19 in Wuhan.

Frydenberg insisted that Australian ministers were ready to sit down with their Chinese counterparts to discuss bilateral relations, but only on an “unconditional” basis.

“It’s a mutually beneficial business relationship – we supply most of their iron ore and that iron ore has helped support their economic growth,” he said.

Frydenberg is a rising star in Australia’s Conservative government and is slated for future Prime Minister.

Last week it gained worldwide attention after several days of negotiating with Facebook’s Mark Zuckerberg over the social media company’s decision to block news on its platforms in Australia in response to a law obliging him to pay news editors.

Friday, Facebook “refriended AustraliaAnd returned information to its Australian platform following amendments that could allow the company to avoid the harsher elements of the law.

“Trying to negotiate with these guys is a bit like playing chess against a chess master,” said Frydenberg, who joked that he spoke to Zuckerberg more than his own wife. last week.

“The reality is that these are massive companies with huge balance sheets and global reach. If it was easy, other countries would have made it [made Big Tech pay for news] long ago.”



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