GFC AND SOVEREIGN RISK- MITIGATING MEASURESAND SOLUTIONS FROM DOWN UNDERProfessor the Hon Stephen MartinChief ExecutiveINT...
GFC
GFC- a re-cap Northern hemisphere problem? Global savings/borrowing imbalances US encouragement of home ownership, sub-...
Australia and the GFC Not nearly as bad as other developed economies Growth rate slowed Exports fell, commodity prices ...
Government response to GFC Hard, early, households Massive surplus of $21b available for injection into the economy Sup...
European Sovereign Debt Crisis
European sovereign debt crisis- causesand solutions globalization of finance easy credit conditions during the 2002-2008...
I’m gonna make her an offer she can’trefuse
Europe- A View From Down-Under         Source: The Australian – 17/1/12
Australia’s preparedness for the GFCand European sovereign debt crisis Commonwealth of Australia 1901- economic, politica...
Australia’s economic advantages Underlying economic strength- mining and investment  boom, record commodity prices and te...
Government spending and revenue        Per cent of GDP                                                           Per cent ...
Factors affecting Australia’s current andfuture economic performance IMF/Government forecasts for world growth and implic...
Country           Gross Debt to GDP                 (Central Government, %)China                     17.1Australia        ...
Lessons from Australia Currency union without fiscal union is an accident waiting  to happen Low, single-digit inflation...
THANK YOU
Professor the Honourable Stephen Martin - IFAC Sovereign Debt Seminar Presentation
Professor the Honourable Stephen Martin - IFAC Sovereign Debt Seminar Presentation
Professor the Honourable Stephen Martin - IFAC Sovereign Debt Seminar Presentation
Professor the Honourable Stephen Martin - IFAC Sovereign Debt Seminar Presentation
Professor the Honourable Stephen Martin - IFAC Sovereign Debt Seminar Presentation
Professor the Honourable Stephen Martin - IFAC Sovereign Debt Seminar Presentation
Professor the Honourable Stephen Martin - IFAC Sovereign Debt Seminar Presentation
Professor the Honourable Stephen Martin - IFAC Sovereign Debt Seminar Presentation
Professor the Honourable Stephen Martin - IFAC Sovereign Debt Seminar Presentation
Professor the Honourable Stephen Martin - IFAC Sovereign Debt Seminar Presentation
Professor the Honourable Stephen Martin - IFAC Sovereign Debt Seminar Presentation
Professor the Honourable Stephen Martin - IFAC Sovereign Debt Seminar Presentation
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Professor the Honourable Stephen Martin - IFAC Sovereign Debt Seminar Presentation

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Professor the Honourable Stephen Martin, presentation GFC and Sovereign Risk - Solutions from Down Under

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Professor the Honourable Stephen Martin - IFAC Sovereign Debt Seminar Presentation

  1. 1. GFC AND SOVEREIGN RISK- MITIGATING MEASURESAND SOLUTIONS FROM DOWN UNDERProfessor the Hon Stephen MartinChief ExecutiveINTERNATIONAL FEDERATION OF ACCOUNTANTSCONFERENCETHE SOVEREIGN DEBT CRISIS, A MATTER OFURGENCY―FROM LESSONS TO REFORMMarch 19-20, 2012Vienna, Austria
  2. 2. GFC
  3. 3. GFC- a re-cap Northern hemisphere problem? Global savings/borrowing imbalances US encouragement of home ownership, sub-prime crisis and credit crisis and US monetary policy Lack of regulatory oversight and corporate risk management Financial institutions collapse in US and Europe (Lehmann – the financial world stopped) World GDP falls, global trade collapses Business/Consumer confidence plummets, unemployment rises Massive fiscal/monetary stimuli Huge support for financial markets from central banks
  4. 4. Australia and the GFC Not nearly as bad as other developed economies Growth rate slowed Exports fell, commodity prices fell, terms of trade contracted, exchange rate fell Credit provision tightened Consumer and business confidence fell Unemployment rose slightly Share market fell No banks or financial institutions failed
  5. 5. Government response to GFC Hard, early, households Massive surplus of $21b available for injection into the economy Support for the finance sector through bank guarantees, funding housing mortgages through government securities, consumer protection RBA movement on interest rates Major economic stimulus through  social security system (pensions and family allowance) $8.8b  increasing first home buyers grants $1.5b  Education and training programs $187m  Nation Building and Jobs Plan (including Building the Education Revolution, energy efficiency, infrastructure, housing) $42b
  6. 6. European Sovereign Debt Crisis
  7. 7. European sovereign debt crisis- causesand solutions globalization of finance easy credit conditions during the 2002-2008 period that encouraged high-risk lending and borrowing practices international trade imbalances real-estate bubbles that have since burst slow growth economic conditions 2008 and after fiscal policy choices related to government revenues and expenses policy responses used by nations to bail-out troubled banking industries and private bondholders, assuming private debt burdens or socializing losses. Greek tragedy, potential contagion, Germany the boss, hopeful signs, more meetings, financial bailout, white knights?
  8. 8. I’m gonna make her an offer she can’trefuse
  9. 9. Europe- A View From Down-Under Source: The Australian – 17/1/12
  10. 10. Australia’s preparedness for the GFCand European sovereign debt crisis Commonwealth of Australia 1901- economic, political and monetary union Economic and political history since the early 1980’s Trade liberalisation Financial deregulation coupled with improved and coordinated prudential supervision Labour market deregulation Taxation reforms Macroeconomic policy- inflation targets, budget deficit and fiscal consolidation strategies Superannuation Health care and social security reforms
  11. 11. Australia’s economic advantages Underlying economic strength- mining and investment boom, record commodity prices and terms of trade Strong financial institutions- four pillars, AA rated, exceptional profit levels, Basel III alignment Sound financial regulation- APRA, previous financial system reviews, lessons from the past Performance of major trading partners, particularly China and India. Little exposure to Europe. Social-economic interconnectedness
  12. 12. Government spending and revenue Per cent of GDP Per cent of GDP 30 12 25 9 Spending Total receipts 20 6 15 3 10 0 Underlying cash balance (RHS) 5 -3 0 -6 2000-01 2002-03 2004-05 2006-07 2008-09 2010-11 2012-13 2014-15
  13. 13. Factors affecting Australia’s current andfuture economic performance IMF/Government forecasts for world growth and implications for Australia and its trading partners Economy defined by contained inflation (in 2-3% target range), low public debt (24% GDP), massive investment pipeline, unemployment levels half of Europe (5-5.25%), geographic location (right place, right time to benefit from the Asian Century) Cautious consumers and exchange rates affecting some industry sectors (retailing, manufacturing) Government commitment to budget surpluses Australian financial institutions exposure to Europe much less than 2007, strength and security of the financial system
  14. 14. Country Gross Debt to GDP (Central Government, %)China 17.1Australia 24.1New Zealand 35.8Sweden 37.3Switzerland 52.7Norway 54.3Spain 63.9Germany 80.1United Kingdom 83.0France 87.6Portugal 90.6United States 99.5Ireland 114.1Italy 120.3Greece 152.3Japan 229.1
  15. 15. Lessons from Australia Currency union without fiscal union is an accident waiting to happen Low, single-digit inflation a goal that must be pursued Fiscal consolidation is essential, along with tight prudential regulatory regimes that still allow for deregulatory outcomes Underlying economic fundamentals must be right Political will must permit governments to take hard, unpopular decisions and pursue appropriate policies
  16. 16. THANK YOU

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