From Monday's AM
"Are you saying that you haven't considered or war-gamed the possibility of a lack of cash for Australian business institutions, have you not at least thought about that?"
Full transcript follows:
UHLMANN: Prime Minister Good Morning.
PM: Good Morning Chris.
UHLMANN: There's an international credit strike, what's wrong with canvassing the idea of how you might relieve some of that pressure in Australia?
PM: Well firstly the Reserve Bank throughout the course of the last 12 months has been monitoring liquidity requirements of the Australian domestic economy and acting appropriately, that's the first point.
The second is to recognise clearly the difference between Australia's domestic financial circumstances and those in the United States.
Let me just make two very clear points, first of all in the United States, the underlying problem goes back to subprime mortgages which represent some 15 per cent of the US mortgage market, in Australia that figure is less than one per cent.
Secondly, arrears on mortgage repayments in Australia, remain at about 0.55 per cent, in the United States it's something more than six times that.
The circumstances in the two markets are different and therefore we believe it's very important that we maintain a clear understanding in our public language about those differences. And I think it's therefore very important that all responsible public commentary on this reinforces those differences rather than tries to say that we have exactly the same sort of circumstances as the Americans.
UHLMANN: Well Prime Minister, you know that Australian institutions, not just banks, borrow extensively overseas to fund their operations, can the Australian financial system and its business system survive a long run credit strike, isn't that what this is about?
PM: On the question of the availability of liquidity and credit in global markets, that's what the Australian regulators have been monitoring closely in the 12 months plus that this crisis has been unfolding.
And the Reserve Bank has been acting appropriately in response to that, and of course, we will continue to take our advice from the regulators about the liquidity needs of the economy.
But I keep going back to this point, the United States yesterday, or over the weekend announced this extraordinary $700-billion bailout of bad debt in the United States, and for people now to be providing commentary in Australia that we should do the same, if I have read these comments correctly over the weekend from some, is frankly not responsible.
UHLMANN: Isn’t it responsible though Prime Minister to start considering options? Shouldn't you be thinking in fact as to whether or not our institutions can survive the fact that credit may be extremely scarce now business institutions run on that credit? Haven't you been thinking about that yourself?
PM: But the point I'm making to you Chris, is that, since the Government has been in this last nine months, our regular engagement with the Reserve Bank and others go to the daily, weekly, monthly question of the credit and liquidity requirements of the Australian Financial System and the Reserve Bank has been acting appropriately.
We will continue to maintain our advice from the financial regulators in Australia and act appropriately.
But what I'm saying is that there is a mountain of difference between the need in the United States for a $700-billion bailout of bad debt on the one hand, against the systems which prevail within Australia, which have quite different levels of exposure to subprime, different levels of arrears when it comes to the repayment of mortgages and a different state of the balance sheets of financial institutions.
We will remain vigilant on this as we have been over the nine months that we've been in office.
UHLMANN: There is a huge difference about whether or not we're exposed to those sorts of debts Prime Minister, but isn't the contagion that spreads out from the United States a loss of confidence in the financial system and the fact that the financial system might seize up if there's not enough cash in the system?
Are you saying that you haven't considered or war-gamed the possibility of a lack of cash for Australian business institutions, have you not at least thought about that?
PM: Chris, that's completely implicit in my answers to your previous questions.
UHLMANN: Well that's what Malcolm Turnbull's thinking about, albeit aloud.
PM: What I'm saying is that the circumstances between the two economies are vastly different, secondly on liquidity requirements, the Australian economy, as you would expect the Treasurer and myself have been working through those liquidity needs, with the Reserve Bank and others during the course of this year.
Not in the last week, not in the last two weeks, but all year, and calibrating our response accordingly and that's what we will continue to do.
There is however a vast difference in the circumstances and in terms of international response, one of the other measures which the regulator ASIC (Australian Securities and Investment Commission) announced on Friday, and took further over the course of the weekend, was in relation to the need to bring in appropriate arrangements on short selling for the Australian stock market.
We have done that, we have acted nationally, that's a responsible course of action, it's important to be measured and considered in our response to developments as they occur and that is what the Government is doing.
UHLMANN: Prime Minister do you have full confidence in the Foreign Minister Stephen Smith?
PM: I have absolute confidence in the Foreign Minister.
UHLMANN: Why can't he carry Australia's case to the United Nations this week and do whatever talking needs to be done on Australia's behalf in New York?
PM: When I go to New York for the next three days of this week, there will be some 100 plus heads of government in New York at the United Nations General Assembly, and there will be one topic of conversation and debate and discussion among heads of government and it is this, the most effective global response to the global financial crisis. That is a meeting at heads of government level.
The second point is this: I will also be engaging with the US financial regulators, including the chairman of the New York Federal Reserve, the chairman of the New York Federal Reserve is one of three critical players in the United States on future actions on the US domestic financial market.
These are important meetings, together with meetings with other representatives of the financial community.
Chris, you can either respond to the populist political attack being mounted by populist political opposition, not to go to a meeting of a hundred world leaders at a time of a global financial crisis, or you can act in the national interest and do that. I intend to act in the nation interest.
UHLMANN: Prime Minister, though aren't those two reasons you gave post-facto reasons for this trip, in fact the initial reason you we're going was to address the UN General Assembly and to lobby for Australia's position on the Security Council in 2012. Is that really necessary now?
PM: The absolute requirement in the midst of a global financial crisis is to deal with how the world responds to the range of proposals which have already been put forward by the International Monetary Fund, by the Financial Stability Forum and on top of that, by the G20.
The key thing is to muster political support to respond globally. The head of the IMF said recently, the solutions are out there in terms of response to global financial market instability, what is lacking is the political will to do that. Our challenge is to muster that will.
Of course there are other matters on the international agenda as well, including a global response to climate change, but when you have an opportunity, as the leaders of the world gather in New York for just three days to engage on what is the greatest financial crises that we have seen for a long, long time, and to muster the political will to respond coherently to it, it's important that in the national interest, Australia is there rather than simply hoping that someone else sorts it out on our behalf.
UHLMANN: Prime Minister Thank you.
PM: Thanks very much.