11 March 1996 - 3 December 2007
LABOR'S LATEST ALLEGATIONS WRONG AGAIN
Mr McMullan has stated today that there is nothing inherently wrong with a
Government having a cross-currency swap program. This is not surprising as the
Labor Party created Australia's cross-currency swap program. Further the Labor
Party ran up the debt which was swapped to US dollars.
Mr McMullan has also said that Labor supports the Coalition Government's decision
to close the program.
But Mr McMullan has a lot of trouble deciding when the Government should have
closed Labor's program.
And why the Labor Party didn't say so at the time.
And what impact the sale of US $9 billion of Australian dollars would have
had on the exchange rate at the time of closure.
So, what is Labor's complaint? Labor's complaint is that the exchange rate
in 1997 is better than it is today, so with the benefit of hindsight, the Australian
Government should have dumped the A$ in 1997.
Labor thinks it would have been a good idea for the Government to heavily sell
its own currency during the Asian Financial Crisis? What signal would it have
sent to the financial markets about the Government's confidence in the economy?
And what price would it have got if it dumped Australian dollars worth US $9
billion? Whatever the price it would not have been the historical price of the
Mr McMullan also claims that the Reserve Bank of Australia had not been involved
in the cross-currency swap program prior to 2000. This is incorrect. The RBA
has acted on behalf of the Commonwealth in handling the foreign exchange legs
of the swaps since the program's inception in 1987-88. No Reserve Bank Governor
between 1987-88 and the ending of the program in 2000 took the view that the
Australian Government should dump the currency. And certainly not that it should
have been done in 1997. In fact quite the reverse.
The Labor Party claim that I misled the Australian public in February of this
year is completely false. On 22 February this year Treasury issued a press statement
advising there were realised savings averaging over $100 million per year since
1989. The AOFM's 2001-02 Annual Report confirms this by reporting that to 30
June 2002 the policy has resulted in realised gains of $777.4 million in present
value terms. (p.20)
The Labor Party has also made baseless allegations regarding the Government's disclosure of the outcomes of the cross-currency swaps. These allegations are completely false. The Government introduced accrual accounting to increase the transparency and accountability of Government. The impact of the cross-currency swaps policy is reflected in the Budget papers which are prepared in accordance with the standards required by the Australian Bureau of Statistics and the International Monetary Fund.
The Government also reports in accordance with Australian accounting standards,
including Australian Accounting Standard No 31 Financial Reporting by Governments
(AAS31). All unrealised losses have already been fully and transparently reported.
They are reflected on the balance sheet and above the line in the operating
Every annual report of the AOFM has disclosed its financial accounts on an
AAS31 basis. Every AOFM report has received an unqualified audit report from
Finally, we should not forget the origin of the policy.
The policy of entering into cross-currency swaps was adopted in 1988 under
the then Labor Government.
The policy was initiated by the Labor Party as a technique for managing Labor's
mounting debt. This debt peaked at $96 billion in 1996-97. The Coalition began
repaying Labor debt in 1997-98 reducing exposure and reducing interest rate
differentials. Lower interest rates in Australia have delivered enormous benefits
for Australia. Labor's net debt has now been reduced by $60 billion.
No swaps to increase US exposure have been entered into after February 1999. The policy of maintaining a 15 per cent exposure to foreign currency was suspended in December 2000. In September 2001, following a review of the benchmark, I agreed to a new policy of achieving zero foreign currency exposure. From September 2001 the stock has been run down in accordance with an agreed timetable between the AOFM, Treasury and the RBA.
11 November 2002
Contact: David Alexander
02 6277 7340