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Cashing in opportunities

THE weak Australian dollar offers an opportunity to greatly reduce Australia’s massive foreign debt and, incidentally, increase exports, particularly from WA.

The baffling, and sometimes alarming slide in the dollar is not the product of a worldwide conspiracy of currency dealers (Australia is a pretty small economy on the global scale), nor need it be the cause of a major economic downturn.

The Aussie dollar has been declining almost since it was floated in the 1980s.

It has fallen by nearly a third against the US dollar since then, and is also weaker (though not to the same degree) against other major currencies.

But setting aside impoverished Australian tourists, the weak dollar could greatly reduce Australia’s overseas deficit.

Economists at the HSBC Bank have suggest that if there is some moderating in domestic growth (say, to 3 per cent, not all that big a drop) and a vigorous growth in exports, our debt could be halved over the next five years.

The weak dollar gives Australian exporters an unpreced-ented opportunity – and indeed those selling into the Australia market, as imports become more expensive.

For example, some WA engineering and steel fabricating firms have faced serious problems because they are competing for work on new resource projects with cheap imports. The weak dollar gives them a chance to regain lost ground.

WA, with less than 10 per cent of Australia’s population, contributes a quarter of its exports, so in regional terms a weak Australian dollar provides some advantages.

Even a 1 per cent fall in its value against the US dollar (in which most commodity prices are quoted) adds tens of millions of dollars to the local receipts of mining companies.

It is doubtful if the WA gold mining industry would have survived if, say, the Australian dollar was worth US80¢ which it has been in the past.

At today’s exchange rates many gold miners are doing very well, albeit with the help of hedging and futures.

It is true that some costs will continue to rise sharply with a weak dollar, oil being the obvious example. Paradoxically, this is because the Federal Government has ruled, for many years, that Australian oil prices should be at world market levels and, while this has brought benefits in other parts of the economy, the gloom at the pumps is a factor we can’t ignore.

The HSBC economists point out that the weak Australian dollar can be explained by examining Australian economic performance in recent years – and for a layman, this includes the riddle that the economy has been among the best performing in the world, despite that weakness and high overseas debt.

The economists give the Reserve Bank credit for steering Australia through the 1997 Asian economic crisis, during which, contrary to most expectations, our economic performance improved.

They also note that the composition of our debt – with a rapidly declining component owed by Australian governments – ameliorated its impact.

But the need to reduce it, in the long term, and to address our weak dollar is not overlooked.

There is certainly a link between the two, and the need to demonstrate to overseas investors (and currency traders) that Australia represents a good buy.

We have all been puzzled by the fact that while Australia’s economic fundamentals have been excellent in recent years, the dollar has slid inexorably.

The unfashionable nature of commodity investments, related to the high tech glitter overs, particularly in the US, has been offered before as one explanation.

If it is any comfort to a motorist, as he watched the meter on the petrol pump fly rapidly into figures that suggest he will have to remortgage the house, we still pay less for our petrol than most.

British drivers pay more than double our petrol price (and like Australia, most of this is government taxes).

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