Program 1.1: Department of the Treasury (continued)
Macroeconomic Group aims to contribute to a sound macroeconomic environment by monitoring and assessing economic conditions and prospects, both in Australia and overseas, and by providing advice on formulating and implementing effective macroeconomic policy, including monetary and fiscal policy. Macroeconomic Group uses global and regional forums, and bilateral relationships to advance Australia’s interests and improve the international economic environment.
The Australian economy has performed better than expected during the global financial crisis through a combination of domestic monetary and fiscal stimulatory responses, Australia’s robust institutional and regulatory systems, and the economic strength of the Asian region. Nevertheless, the lingering effects of the global recession are likely to be felt for some time and policy advice has been directed to continuing to manage the recovery. As the economy strengthens, the policy priorities will shift towards improving the productive capacity of the economy to overcome a re-emergence of capacity constraints, particularly through investment in infrastructure and skills development.
The G-20 is now the premier forum for international economic cooperation, with the objective of establishing stronger and more secure foundations for the global economy. The Treasury has been engaged in the G-20 Framework for Strong, Sustainable and Balanced Growth, which involves a collective consideration by G-20 members of the global policy challenges and a shared evaluation of whether national policy responses are collectively consistent with achieving stronger, more sustainable and balanced global growth. Through the G-20, the Treasury has been involved in a number of important reform initiatives including strengthening global standards for financial regulation and supervision, strengthening the legitimacy, credibility and effectiveness of the international financial institutions, particularly the International Monetary Fund (IMF) and World Bank, and improving access to financial services amongst the poor.
Reflecting the increasing importance of China and India to Australia’s economic performance, the Treasury has increased the resources devoted to monitoring these economies and deepening and extending contacts with relevant officials.
The Treasury’s work on both the Asia-Pacific Economic Cooperation (APEC) and the East Asia Summit (EAS) continues to support the objectives of the G-20 to address the key global economic policy challenges.
Feedback from Treasury portfolio ministers indicated these outputs effectively contributed to their needs in influencing and formulating policy aimed at achieving a sound macroeconomic environment.
Macroeconomic Group’s key deliverables are to advise on:
- domestic and international developments affecting the Australian economy and forecasts of the direction of the Australian and international economies;
- the setting of sound macroeconomic policies in the current environment;
- Australia’s involvement in the G-20 processes, reflecting the contribution the systemically important countries can make to coordinating international responses to global economic policy challenges;
- deeper economic engagement strategies with China, India and Indonesia, reflecting the importance of these countries for Australia’s economic and strategic interests;
- Australia’s participation in the APEC Finance Ministers’ process and the EAS process; and
- the role the Treasury plays in government initiatives to develop well functioning economic ministries in the southwest Pacific.
Macroeconomic Group’s key outcomes were:
- providing analysis of economic conditions including business and household developments, external trade and financial flows, and on inflation and labour market developments. A particular focus was on assessing the impact of the discretionary fiscal stimulus packages on economic activity and employment, and the impact of their phased withdrawal;
- underpinning the analysis and advice by extensive macroeconomic modelling and information from the Treasury Business Liaison Program;
- preparing macroeconomic forecasts, taking into account the effect of the large global economic and financial shocks, the effect of policy measures, and the heightened risks and uncertainties around the global outlook;
- medium and longer-term projections were prepared to inform the medium-term fiscal projections and the 2010 Intergenerational Report: Australia to 2050 Future Challenges (IGR2010);
- providing an ongoing assessment of the risks to the domestic and international outlook;
- publishing material, including economic forecasts and analysis in budget papers, Economic Roundup , working papers and speeches to inform the public better about economic developments and issues;
- working actively to shape the G-20 agenda and outcomes to advance Australia’s international economic interests;
- advancing Australia’s interests through engagement with international organisations such as the IMF and Organisation for Economic Cooperation and Development (OECD) and foreign governments, on macroeconomic policy discussions and structural reform challenges;
- continuing to assist the Government take an active role in international forums and institutions to manage the transition from crisis to recovery;
- broadening and deepening engagement with key Asian economies through policy dialogue, cooperation and capacity building; and
- continuing to provide deployees to assist countries experiencing economic challenges including Papua New Guinea (PNG), Solomon Islands and Nauru.
Analysis of performance
During 2009-10, the Treasury advised the Treasurer and other members of the Government on a range of macroeconomic issues including:
- the Treasury Business Liaison Program where officers discuss business and economic conditions with organisations in major centres then disseminate the findings in the Economic Roundup . The Treasury also held regular phone consultations with key sectoral contacts to gauge the current state of economic activity;
- macro prudential issues emanating from the global financial crisis. The Treasury provided specialist advice on linkages between the financial sector and the macro economy, particularly on the effect of financial factors on macroeconomic risk;
- advice on monetary policy to the Secretary as a member of the Reserve Bank of Australia (RBA) Board. The Treasury monitored economic, financial and policy developments to assess their implications for policy settings;
- information and analysis of the Australian economic and fiscal outlook to credit rating agencies;
- advice to the Treasurer on the evolution and drivers of the Australian economy and factors likely to influence mediumterm performance;
- advice to the Treasurer on policies to improve Australia’s economic growth potential, living standards and wellbeing; and
- informing the public better about economic developments and issues. The Treasury contributed to public awareness and debate through international forums, foreign government agencies, state government agencies, tertiary institutions and public meetings. The Treasury’s economic publications and selected presentations are at www.treasury.gov.au.
Economic forecasts inform policy settings and underpin the calculation of budget estimates of expenditure and revenue. For policy formulation purposes, macroeconomic forecasts provide an understanding of the broad developments within the economy and the balance of risks surrounding the economic outlook.
Forecasting activity foc
used on 2009-10, 2010-11 and 2011-12 with forecasts published in MYEFO and the 2010-11 Budget. Attention focused on the impact of the fiscal stimulus packages on the economy and the likely transition from public to private demand as government stimulus was withdrawn and the global economy recovered from the financial crisis.
The 2009-10 Budget forecasts were prepared against a backdrop of an uneven and patchy global recovery and still elevated levels of uncertainty and financial market volatility, with risks still predominately on the downside. As the year unfolded, however, it became clear that the Australia economy had performed remarkably well in the face of the most challenging global economic conditions since the Great Depression. Forecasts were revised upwards at MYEFO (released in November 2009) and again at the 2010-11 Budget (released in May 2010).
The Treasury discussed economic forecasts with the Joint Economic Forecasting Group, which comprises the Treasury (chair), the RBA, the Department of the Prime Minister and Cabinet, the Department of Finance and Deregulation, and the Australian Bureau of Statistics (ABS). These contributions, together with information gained from liaison with the private sector and other departments, helped improve the quality of forecasts. Forecasts from the Treasury’s macroeconomic model of the Australian economy contributed to the forecasting process, and sensitivity analysis using the model helped improve policy advice.
In 2009-10, the Treasury provided advice in response to and in support of economic modelling of climate change mitigation and energy efficiency policies by government, industry and other groups.
The Treasury worked closely with the Department of Climate Change and Energy Efficiency in producing Australia’s greenhouse gas emission projections, which are a key information input to Australia’s greenhouse policy agenda. The projections play a vital role in assessing the effectiveness of existing climate change mitigation measures, and the development of least cost options for further abatement.
2010-11 Budget papers
The Treasury contributes to public awareness and debate on economic policy issues through its economic analysis in the annual budget papers.
Published forecasts in MYEFO and the 2010-11 Budget were accompanied by an update on the economic outlook to help inform the public of key developments in the domestic and international economies and the likely effects on short-term economic growth.
Statement 2 of Budget Paper No. 1, Economic Outlook provided a comprehensive report on the domestic and international outlook. The report noted the solid prospects for the Australian economy, with strong growth in the Asian region expected to support a rising terms of trade and a rebound in business investment. Policy continued to be directed toward supporting an expansion in the economy’s productive capacity to ensure sustainable growth.
Statement 4 of Budget Paper No. 1, Benefiting from our mineral resources: opportunities, challenges and policy settings , outlined some of the economic and policy implications of continuing global demand for Australia’s mineral resources. It discussed some of the policy and institutional settings necessary to ensure that the mining boom is of enduring benefit to the Australian community.
The Treasury’s economic publications and speeches
Economic Roundup included research articles and speeches on productivity growth, participation and educational attainment, fiscal policy, lessons from the Great Depression, measuring progress, taxation, Australia’s current account deficit in a global imbalances context, the Australian financial system, China, as well as a regular summary of the key findings from Treasury’s Business Liaison Program.
Economic growth is underpinned by policies that support productivity, participation and population — the ‘3Ps’. The IGR2010 underlined the importance of productivity as a driver of longterm economic growth. The IGR2010 outlined the need to support strong, sustainable economic growth as the best means of responding to the economic and fiscal pressures of an ageing and growing population.
Past issues of the Economic Roundup , the IGR2010 and selected speeches are available on the Treasury website at www.treasury.gov.au.
The Treasury’s submission to the House of Representatives Standing Committee on Economics, Inquiry into raising the productivity growth rate in the Australian economy , sought to outline the public policy settings necessary for achieving productivity growth and included policies that support well functioning markets, remove distortions and enhance flexibilities, promote appropriate incentives and remove market failures in areas of infrastructure, innovation and human capital.
The Treasury appeared at the Senate Economics References Committee, Inquiry into the Government’s economic stimulus initiatives , and provided a briefing paper for the committee on the economic effects of the fiscal stimulus packages and a quantification of the various factors which supported economic activity in Australia during the global financial crisis.
The Treasury spoke to a range of organisations on issues including the economic outlook, the global financial crisis, global imbalances, longrun forces affecting the Australian economy in decades to come, housing supply and affordability, measures of social progress and wellbeing and contemporary challenges in fiscal policy. The speeches were to a range of organisations, including the Australian Economic Forum, the Australian Industry Group, the Australia-New Zealand Leadership Forum, the AustraliaChina Investment Forum, the American Chamber of Commerce, the Committee for Economic Development of Australia, Australian Business Economists, the Constitutional Law Forum and the Environment Business Forum.
The Treasury also distributed quarterly updates of its macroeconomic model of the Australian economy and associated database. The model has evolved to reflect structural changes in the economy. The Treasury is in the process of transferring this model to a new platform to improve the accessibility of the model.
Reviews of economic data
The Treasury liaised extensively with the ABS, both informally with regular discussions at all levels, and formally through ongoing representation on the Australian Statistics Advisory Council, the Economic Statistics User Group, the International Trade in Services User Group, the Labour Statistics Advisory Group and the Demography Statistics Advisory Group. The Treasury also provided a formal submission to the 16th Series Australian Consumer Price Index Review conducted by the ABS.
Coordinating international responses to global economic policy challenges
The Treasury played an active role in helping the G-20 develop and deliver on its ambitious agenda, through ministerial engagement and through the officials-level working and experts groups. The Treasury was co-chair of the working group on IMF quota and governance reform (with the South African Treasury), and the South African Treasury now co-chairs the IMF reform working group. The Treasury also co-chairs a subgroup of the working group on financial inclusion (with the Brazilian Finance Ministry). The Treasury actively participated in the working group on the Framework for Strong, Sustainable and Balanced Growth, the working group on global financial safety nets (with the RBA) and the G-20 Energy Experts Group (with the Department of Resources, Energy and Tourism).
The Treasury worked closely with other government departments, in particular the Department of the Prime Minister and Cabinet and the Department of Foreign Affairs and Trade, to develop a wholeofgovernment response to the issues being considered within the G-20 agenda.
The Treasury worked with the G
overnment to shape the G-20 agenda and outcomes for the two G-20 Leaders’ Summits held in 2009-10. The first was held in Pittsburgh on 24-25 September 2009. The second was held in Toronto on 26-27 June 2010. The Treasurer accompanied the Prime Minister to the Pittsburgh Summit. At the Toronto Summit, the Treasurer represented Australia in his capacity as Deputy Prime Minister. The Treasury supported the Treasurer by preparing briefings and working papers.
The Treasury also worked to shape the G-20 agenda and outcomes of the four G-20 Finance Ministers and Central Bank Governors meetings held in 2009-10. The first two meetings were held in London and St Andrews (4-5 September 2009 and 8-9 November 2009 respectively). Following the St Andrews meeting, chairmanship of the G-20 passed from the United Kingdom to the Republic of Korea. The third meeting was held backtoback with the spring meetings of the IMF and World Bank in Washington DC (23 April 2010). The fourth was held in Busan, Korea (4-5 June 2010). The Treasurer represented Australia at each of these meetings. The Treasury supported the Treasurer with the preparation of briefings and working papers.
The focus of the Pittsburgh Summit was on managing the transition from crisis to recovery. The most important outcome was agreement by G-20 members to undertake a process of mutual assessment with the support of the IMF and World Bank as part of the Framework for Strong, Sustainable and Balanced Growth. The aim of the mutual assessment process is to align national policy frameworks with the objectives of increasing longrun growth potential, reducing global imbalances and narrowing the global development gap.
The Pittsburgh Summit also delivered important outcomes on IMF and World Bank reform and strengthened international financial regulation.
- Leaders agreed to a shift of at least 5 per cent in IMF quotas to dynamic emerging market and developing countries from overrepresented to underrepresented countries by January 2011. They also agreed to a shift in World Bank shareholding of at least 3 per cent to developed and transition economies. Finally they agreed to governance reform at both institutions.
- Leaders agreed to establish strict deadlines for agreement on reforms to strengthen bank capital standards, reform financial sector compensation practices, improve overthecounter derivative markets, and address the problem of systemically important financial institutions that are ‘too big to fail’.
In recognition of its success in stabilising financial markets and averting the threat of a global depression, leaders designated the G-20 as the premier forum for international economic cooperation. Australia’s membership of the G-20 has increased its capacity to influence global economic decision making.
The focus of the Toronto Summit was on strengthening economic recovery through the continued implementation of the Framework for Strong, Sustainable and Balanced Growth. The Treasury actively contributed to this working group. The summit took place against the backdrop of concerns about fiscal sustainability, particularly in southern Europe, and its implications for global financial markets.
Prior to the Toronto Summit, economic policy frameworks of G-20 members had been analysed by the IMF and World Bank. The IMF produced a baseline scenario for the world economy as well as upside and downside scenarios based on different policy choices. The World Bank contributed analysis of the development implications. On the basis of this analysis, G-20 Finance Ministers and Central Bank Governors developed a basket of policy measures that different groups of G-20 members could adopt to create stronger, more sustainable and balanced growth.
Leaders endorsed three groups of measures at the Toronto Summit.
- The first related to ‘growth friendly’ fiscal consolidation. Advanced economies committed to halve their budget deficits by 2013 and stabilise public debt by 2016. Japan agreed to a different timeline in recognition of its circumstances.
- The second related to rebalancing global growth. This will involve advanced deficit economies taking action to boost domestic savings while emerging surplus economies boost consumption through measures such as improved social safety nets, increased infrastructure spending and more flexible exchange rate regimes.
- The third related to boosting growth potential. There was agreement to pursue structural reforms across the entire G-20 membership to increase and sustain growth prospects.
In addition to these measures, leaders welcomed delivery of the Pittsburgh commitment on World Bank shareholding reform; reaffirmed their commitment to IMF quota and governance reform; agreed to finalise new capital, leverage and liquidity standards; and agreed on measures to address systemically important financial institutions that are ‘too big to fail’. These last two commitments are scheduled to be agreed at the next Leaders’ Summit in Seoul. In relation to new capital standards, leaders agreed that banks should be required to hold capital that would enable them to withstand the type of stress experienced during the financial crisis.
During 2009-10, an official from the Treasury was seconded to the Korean G-20 Secretariat to assist with preparations for the Seoul Summit.
The Treasury have offices in Washington DC, London, Beijing, Jakarta and Tokyo that have played valuable roles promoting Australia’s G-20 priorities with their counterparts. They have assisted the Treasurer at G-20 meetings and helped strengthen G-20 bilateral relations including by facilitating highlevel meetings.
Financial Stability Board (FSB)
The Treasury and RBA represent Australia on the FSB’s Plenary. The FSB had its first full year of operation in 2009-10. Some of its main achievements included:
- monitoring the delivery of the G-20 agenda to strengthen financial regulation;
- working on development of new international standards in areas such as financial sector compensation (supplementing the principles released in April 2009), systemically important financial institutions that are ‘too big to fail’, and strengthening overthecounter derivatives markets; and
- launching of three initiatives to strengthen adherence to international standards: thematic reviews; country reviews; and a process to promote adherence to information exchange and cooperation standards in noncooperative jurisdictions.
The FSB Plenary met on three occasions: 15 September 2009, 9 January 2010 and 14 June 2010. The Treasury also represents Australia on the FSB’s Standing Committee on Standards Implementation (SCSI). This committee is responsible for promoting and improving adherence to international prudential, supervisory and regulatory standards (including thematic and country reviews). The SCSI held three meetings: 29-30 October 2009, 26 February 2010 and 15 June 2010. The Treasury represents Australia on the SCSI’s Experts Group on NonCooperative Jurisdictions. This body held its only facetoface meeting on 8 December 2009. In addition to these three bodies, the Treasury participates in the FSB Monitoring Implementation Network, which is responsible for monitoring progress on G-20 commitments relating to the reform of financial regulation.
In 2009-10, the Treasury contributed significantly to the FSB’s work on boosting adherence to international standards.
- The Treasury was represented on the six member team that carried out the FSB’s first thematic review. This examined implementation by FSB members of principles and standards on financial sector compensation.
- The Treasury chaired the FSB’s first peer review of a member’s national regulatory framework (Mexico).
- The Treasury is leading one of three small teams established by the F
SB SCSI to assist jurisdictions in improving adherence to information exchange and cooperation standards.
International Monetary Fund
The Treasury prepared briefings and working papers to support the IMF in its role of ensuring the stability of the international monetary system, including through the Executive Board, the G-20 Working Group on IMF Quota and Governance Reform, the G-20 Experts Group on Financial Safety Nets and attendance at the IMF spring and annual meetings.
At the IMF, Australia was represented by Mr Chris Legg as Alternate Executive Director and Mr Hi-Su Lee, of South Korea, as Executive Director. They were briefed by the Treasury and the RBA on matters coming before the Executive Board.
The recent global financial crisis saw an expansion in the lending activities of the IMF, with Special Drawing Rights (SDR) 51.8 billion in total fund credit outstanding at 30 June 2010, including active Stand–By Arrangements with 21 countries worth SDR38.9 billion. This also included an expansion of concessional lending to assist low income countries to deal with the crisis, reaching SDR3.1 billion as at 30 June 2010, compared to a precrisis level of SDR1.1 billion as at 1 July 2008.
The Treasury contributed to the significant progress made in delivering the G-20 leaders’ commitments to strengthen the IMF’s capacity to assist its members.
- The IMF is exceeding the G-20 leaders’ commitment to provide $US6 billion additional concessional and flexible finance for the poorest countries over the two to three years following the London G-20 Leaders’ Summit. As part of this international effort, Australia contributed an A$30 million grant to the interest subsidy account of the Poverty Reduction and Growth Trust in January 2010. The IMF also created a new architecture of concessional facilities that is better tailored to the needs of low income countries.
- To boost global liquidity, the IMF undertook, on 28 August 2009, a general allocation of SDR161.2 billion, equivalent to US$250 billion, and a special oneoff allocation on 9 September 2009 of SDR21.4 billion. Australia’s share of these allocations was approximately SDR2.612 billion.
- The IMF, together with the FSB, conducted the first Early Warning Exercise at the Annual Meetings in October 2009. The Early Warning Exercise findings will continue to be discussed with ministers and governors during the spring and annual meetings of the International Monetary and Financial Committee in order to identify and respond to tail risks in the global economic outlook.
- In June 2010, the IMF established a PostCatastrophe Debt Relief Trust Fund designed to assist very poor countries hit by catastrophic natural disasters. This fund will be used to relieve Haiti’s debts to the IMF.
- To improve the adequacy of the IMF’s financial resources in the face of any similar future crisis, the Executive Board revised the structure of the New Arrangements to Borrow in April 2010 to expand its size from SDR34 billion to SDR367 billion and make it more flexible. Australia adhered to the expanded and more flexible arrangements in June 2010 and, as part of the expansion, Australia’s existing line of credit will increase from SDR801 million to SDR4,370 million.
In response to the crisis, G-20 leaders committed to reform the mandates, scope and governance of the international financial institutions to reflect changes in the world economy.
The IMF commenced a fundamental re-examination of its mandate, with a report to the International Monetary and Financial Committee expected in October 2010. The Executive Board has discussed reforms to its lending instruments and its surveillance. Proposals to reform lending instruments include enhancing precautionary lending to reduce risks of financial contagion. The IMF has also considered a range of proposals aimed at strengthening its surveillance, focused on improving its monitoring of the spillover of risks across economies, and its financial sector surveillance capability.
IMF quota and governance reform negotiations proceeded, guided by the parameters agreed by G-20 leaders in Pittsburgh. Agreement on reforms is expected by November 2010. The IMF Executive Board held a number of discussions on realigning quota shares and broader governance reforms. In September 2009, Australia formally accepted the package of IMF quota and governance reforms adopted by the IMF Board of Governors in April 2008, on which current negotiations will build.
The Deputy Managing Director of the IMF, Mr Murilo Portugal, visited Australia from 13 March 2010. The visit centred on an address at the Australian Bureau of Agricultural and Resource Economics Outlook Conference, as well as meetings with the Treasury, the RBA and other departments and agencies.
The Treasury prepared briefings and working papers to support the World Bank’s leadership role in improving the living standards of the world’s poor including through the Executive Board and attendance at the World Bank spring and annual meetings. Australia also engaged with World Bank management including hosting a visit by Mr Jim Adams, Vice President, East Asia and Pacific.
At the World Bank, Australia is represented by Dr Jim Hagan. Dr Hagan was appointed World Bank Executive Director on 1 August 2007 for a term of four years. The Treasury, in conjunction with the Australian Agency for International Development (AusAID) and other relevant departments, briefed him on matters coming before the Executive Board.
Key developments at the World Bank during 2009-10 included significant lending in response to the global financial crisis, agreement to voice reforms and a general capital increase, and the establishment of a new trust fund to scale up agricultural assistance to low income countries. Australia supported these activities, particularly the focus on voice and participation reform.
Since the start of the global financial crisis, the multilateral development banks have provided US$235 billion in lending, more than half of which has come from the World Bank Group.
Following a first phase of reform to enhance the voice and participation of developing countries in 2008, the World Bank’s Development Committee agreed at the 2010 Spring Meetings to a second phase of reforms, including providing for a greater voice for developing and transition countries within the World Bank, a selective and a general capital increase, and selected internal reforms.
The package endorsed by governors will increase the voting power of developing and transition countries in the International Bank for Reconstruction and Development (IBRD) by 3.13 percentage points, bringing their voting power to 47.19 per cent, representing a total shift of 4.59 percentage points to developing and transition countries since 2008. Associated with this shift will be a selective capital increase of US$27.8 billion, with paidin capital of US$1.6 billion. Australia actively worked towards the achievement of these voice reforms.
Governors also endorsed a general capital increase for the IBRD of US$58.4 billion, of which 6 per cent or US$3.5 billion will be paidin. An increase in basic votes at the International Finance Corporation (IFC) and a selective capital increase of US$200 million, representing a shift of 6.07 per cent to developing and transition countries, was also endorsed. To leave room for developing countries to increase their shareholding at the IFC, Australia will not participate in the selective capital increase.
Australia will contribute a total of US$51.6 million in paidin capital over five years towards the general and selective capital increases at the IBRD, and increase its uncalled capital subscription by US$808.3 million, which will only be drawn down if the IBRD is unable to meet its fin
ancial obligations. Founded in 1944, the IBRD has never drawn on its uncalled capital subscriptions.
In response to G-20 calls to develop a multilateral trust fund to scaleup agricultural assistance to lowincome countries, the World Bank became the trustee of the US$800 million Global Agriculture and Food Security Program in April 2010. The program will provide predictable financing for low income countries to improve agricultural productivity, raise rural incomes and build sustainable agricultural systems.
Asian Development Bank (ADB)
The Treasury continued to support the ADB’s efforts to assist developing countries in the Asia-Pacific region as they recover from the effects of the global financial and economic crisis. The Treasury contributed to decision making through representation on the Board of Directors and attendance at the 2010 annual meeting in Tashkent, Uzbekistan. Australia is represented on the ADB Board of Directors by Mr Phil Bowen. Mr Bowen’s term has been extended until 2013.
In its country statement at the 2010 annual meeting, Australia supported the ADB’s US$9 billion in additional lending from 2008-2010, including US$3 billion through its countercyclical support facility. The Treasury encouraged the ADB to continue to work closely with the G-20 and with regional member governments to consider how longer term policy adjustments can be made to lift global growth.
On 8 January 2010, Australia became the first nonborrowing member to subscribe to the ADB’s 200 per cent general capital increase. As part of its subscription, Australia will contribute an additional US$197.6 million worth of paidin capital over 10 years, with the first payment on 1 July 2010. Australia also increased its uncalled capital subscription so that it totalled SDR5.8 billion, which will only be drawn down if the ADB cannot meet its financial obligations. The ADB has never drawn on its uncalled capital subscriptions.
European Bank for Reconstruction and Development (EBRD)
The Treasury continued to support the EBRD’s work in helping the transition to open, market economies in Europe and central Asia. The Treasury contributed to the decision making process at the EBRD through representation on the Board of Directors. Australia is represented on this board by Dr John Eyers, who was appointed on 16 November 2009.
Australia supported the EBRD’s general capital increase announced on 14 May 2010. As part of this Australia received €10.1 million in paid-in shares free of charge and will increase its uncalled capital subscription by €90.0 million. The EBRD has never drawn down on its uncalled capital subscription.
Organisation for Economic Cooperation and Development
The Treasury contributed to the OECD’s work on macroeconomic issues focusing particularly on the transition from recession to recovery.
In November 2009 and July 2010, the Treasury hosted an OECD delegation related to the 2010 Economic Survey of Australia — due to be formally released in late 2010. Other notable contributions from Australian officials were on taxation, corporate governance, foreign investment and intergovernmental relations.
In May 2010, the Treasury attended the OECD Ministerial Council Meeting in Paris — in support of the then Trade Minister, the Hon Simon Crean MP, who was a vicechair at the meeting. Ministers discussed the importance of fiscal consolidation, structural reforms, innovation and employment, sources of growth and trade and investment.
Working closely with the Department of Foreign Affairs and Trade and Australia’s OECD delegation, the Treasury continued to facilitate the OECD’s program of enhanced engagement with emerging economies, particularly with Indonesia.
Pacific Islands Forum Economic Ministers’ Meeting
The Pacific Islands Forum Economic Ministers’ Meeting provides an opportunity to discuss with Pacific island economic ministers the importance of improving economic performance to deliver stable and improved living standards. The Treasury supported the Assistant Treasurer’s attendance at the October 2009 meeting. Pacific ministers focused on the socioeconomic impacts of the global economic crisis and the importance of appropriate economic policy responses.
Asia-Pacific Economic Cooperation
APEC is an important forum in Australia’s engagement with the Asia-Pacific region. The Treasury strives to improve the effectiveness of the APEC Finance Ministers’ Process as a policy setting, outcomes driven and reform initiating forum.
The Treasury supported the Treasurer’s attendance at the 2009 APEC Finance Ministers’ Meeting in Singapore from 11-13 November 2009.
The APEC Finance Ministers’ Process is currently focused on supporting the G-20 agenda on strong, sustainable and balanced growth, with a particular emphasis on macroeconomic policy adjustments and structural reforms.
As a major contribution to supporting the objectives of the APEC Finance Ministers’ Process, the Treasury delivered a capacity building workshop in Jakarta on 27-28 May 2010, representing the first phase in the delivery of the APEC Infrastructure Pathfinder Initiative. This initiative is designed to support key partner economies within the region including Thailand, Indonesia, Vietnam, the Philippines and PNG to move toward best practice in the delivery of publicprivate infrastructure partnerships. The ultimate aim of this structural reform initiative is to foster greater commonality in publicprivate infrastructure markets within the APEC region. In moving towards best practice and greater commonality, this initiative seeks to help address in a practical and focused way the region’s significant infrastructure investment needs. With infrastructure provision a key driver of stronger global growth the initiative is also closely aligned with the wider G-20 growth agenda.
Within the APEC Economic Committee, the Treasury have led the Friends of the Chair Group on Regulatory Reform which included conducting a survey on regulatory progress across economies to better inform the future work agenda, and contributed to the formation of the new structural reform agenda to replace the Leaders’ Agenda to Implement Structural Reform.
The Treasury also provided support to a green growth initiative led by Korea. The Treasury hosted a workshop and commissioned the production of new research into market based green growth policies. This initiative is responsive to the aims of both the APEC Finance Ministers’ Process and the G-20 in supporting sustainable growth.
The Treasury has also continued to work closely with Japan, the 2010 host of APEC.
East Asia Summit
The EAS is the most recent addition to the regional architecture and the first regional forum to bring together all the major economies in East Asia, including Australia, New Zealand, India, Japan, China, and Korea. The Treasury have been working to strengthen regional financial cooperation through the EAS process for a number of years.
In May 2010, Vietnam, as the Association of Southeast Asian Nations and EAS Chair, convened an inaugural informal EAS Finance Ministers’ Meeting. The Treasury supported the Assistant Treasurer at this meeting. Key topics of discussion included the G-20 and regional cooperation and capacity building.
One of the Treasury’s major contributions to the EAS finance agenda is designing, developing and delivering targeted capacity building programs. In late 2009 and early 2010, the Treasury launched the inaugural pilot of the financial sector capacity building program, in partnership with Malaysia, that focused on strengthening the institutional development and function of securities market supervisory agencies in the less developed economies of Cambodia, Lao People’s Democratic Republic (PDR) and Vietnam. This initiative invol
ved six EAS economies including India.
Following strong interest from participants in the pilot program, the Treasury, in partnership with Malaysia, launched a second capacity building program in June 2010, that focused on structuring and restructuring financial markets. This program attracted involvement from 10 out of the 16 EAS economies, Australia, Malaysia, Cambodia, Lao PDR, Vietnam, India, Philippines, Indonesia, Thailand and China.
Overseas development assistance
The Treasury provided advice on general development and aid issues including Australia’s multilateral and bilateral aid programs, new expenditure initiatives and the framework for Australia’s aid budget. The Treasury provided advice on 2010-11 Budget initiatives (such as enhancing education, the development partnership with Indonesia and increased assistance to Africa) and the effectiveness of Australia’s overseas development assistance. The Treasury also participated in the Development Effectiveness Steering Committee, an interdepartmental committee convened to ensure effectiveness in Australia’s overseas development assistance.
International policy advice
Relations with Asia
The Treasury continued to broaden and deepen its engagement with key Asian economies. In September 2009, the Treasurer visited India, the first bilateral visit to India by an Australian Treasurer since 2002. He met with the Indian Finance Minister and the Deputy Head of the Planning Commission, and discussed issues concerning the G-20, global financial markets and regional cooperation. The Treasury supported the Treasurer on these visits.
In November 2009, the Treasury supported the Treasurer on his visit to Indonesia, where he met with the Indonesian Finance Minister and the then newly appointed VicePresident. The visit helped to entrench cooperation with Indonesia across a number of fronts including the G-20, climate change and regional financial arrangements. The Treasurer also issued a joint ministerial statement with the Indonesian Finance Minister.
In June 2010, the Treasurer went to the Shanghai World Expo 2010, where he delivered a speech on Australia’s role as a regional financial centre. The Treasurer met with financial sector representatives and investors to promote Australia as a place for business and investment. He also travelled to Beijing, where he held bilateral meetings with the Chairman of the National Development and Reform Commission, the Governor of the People’s Bank of China, and the Vice Premier, Mr Li Keqiang, to discuss G-20 related issues, financial services, foreign investment and the global economic outlook.
In January 2010, as part of the Memorandum of Understanding between the Treasury and China’s National Development and Reform Commission, two bilateral seminars were held at the Treasury. The memorandum, signed in October 2008, seeks to establish a bilateral seminar program between the two institutions. The seminar program provides an opportunity to strengthen the Treasury’s institutional links with its counterpart agency in China and foster a better understanding of the Chinese economy. The seminars were presented by the DirectorGeneral of the Fiscal and Financial Affairs Department, on the topics of ‘ China’s macroeconomic policy response to the global financial crises ’ and ‘ Emerging trends in China’s labour market ’.
The strong relationship between the Treasury and Indonesia’s Fiscal Policy Office within the Indonesian Ministry of Finance continued in 2009-10. The Treasury has two deployees there as part of the Government Partnerships Fund who work to strengthen Indonesian economic policy advising capabilities and to develop lasting institutional relationships. The partnership continued to strengthen over 2009-10, with a number of key activities and visits combined with continued ongoing close working relationships. These relationships have facilitated the enhanced cooperation between the Treasury and the Indonesia’s Fiscal Policy Office across a number of fronts including on G-20, APEC and EAS issues.
Over the past financial year, the Treasury hosted two Indonesian delegations. In November 2009, an Indonesian delegation led by the then head of Indonesia’s Fiscal Policy Office, met with the Treasury and a number of other government agencies to exchange views on the prospects for the Australian and Indonesian economies and discuss economic cooperation between Australian and Indonesia on a number of fronts. In March 2010, a visit by a combined Fiscal Policy Office/Indonesian Ministry of Finance Corporate Services delegation aimed to gain insight into the Treasury’s approach to a range of corporate management issues.
The Treasury also hosted a delegation from Vietnam led by Vietnam’s Vice Minister of Finance to discuss economic cooperation between Australia and Vietnam and key issues surrounding the budget, policy formulation and debt management processes.
The Treasury held its annual economic policy dialogue with the Japanese Ministry of Finance in Canberra during March 2010. The dialogue allowed for the shared discussion of economic conditions and collaborative work in international forums.
In May 2010, the Minister for Financial Services, Superannuation and Corporate Law attended meetings in Malaysia to promote Australia as a regional financial centre.
The Treasury reported on regional economic and policy developments in Beijing, Jakarta and Tokyo. This helped strengthen relations with the Treasury’s counterparts in their countries of accreditation and facilitated highlevel meetings.
Relations with Pacific economies
The Treasury advised ministers and agencies on economic and fiscal issues relating to the Pacific, particularly the Solomon Islands, PNG and Nauru, where deployed officials work to build sustainable and effective economic ministries.
The Treasury also provided assistance to PNG under the Joint Understanding between PNG and Australia on further cooperation on the PNG Liquefied Natural Gas (LNG) Project, to assist PNG consider the establishment of a transparent, well governed sovereign wealth fund. The Treasury also hosted four officials from the Pacific region (two from PNG, two from Solomon Islands) on officer exchange to the department.
Economic reconstruction issues
The Treasury worked in the Solomon Islands Ministry of Finance and Treasury as part of the Regional Assistance Mission to Solomon Islands. Through the establishment of the Core Economic Working Group, this engaged the Government, donors and other stakeholders to assist in economic reform and support the Solomon Islands economy. The Treasury also worked to increase the capacity and capability of the Ministry of Finance and Treasury, and provided quality advice to the Solomon Islands Government on economic and public financial management.
Papua New Guinea
The Treasury contributed to PNG’s continued macroeconomic stability through highquality advice and provided support to the PNG Treasury in considering the impact of a large liquefied natural gas project on the PNG economy, including how project revenue might be managed in the future. This also supported the PNG Treasury on a range of structural policy, forecasting, taxation, budget and investment issues.
The Treasury worked to strengthen financial management capacity, liaised with donors to administer Nauru’s debt position and provided advice on further economic reforms to assist Nauru’s economy. In consultation with the Government of Nauru, the Treasury’s assistance to Nauru during 2009-10 reduced from three to one official, as two positions became AusAID managed positions. The remaining position (Secretary of Finance) will be an AusAID managed position from mid-July 2010.