May 2nd 2020


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Articles from this issue:

COVER STORY Gearing up to ditch free-trade policy

EDITORIAL Post-covid19, create a national development bank

CANBERRA OBSERVED Keelty water report misses the point on water shortage

ENERGY Pandemic has exposed our overreliance of imports

CARDINAL PELL Locating the golden thread

CARDINAL PELL High Court practically shouts 'not guilty'

FAMILY Dismantling myths around family tax benefits

REFLECTION Covid19 and the Church past, present and future

OBITUARY R.I.P. Bruce Dawe: poet of the people

FOREIGN AFFAIRS Doctors of WHO let the covid19 dogs out

INDUSTRY POLICY The rise and fall of Australian manufacturing and covid19

ASIAN AFFAIRS Politics done by stealth in the UN: China and the WHO

HUMOUR Get them hug-dealers off the streets

MUSIC Farewell to an Aussie jazz legend: Don Burrows

LOCKDOWN TV CLASSIC Unique, unsurpassed: The Avengers

BOOK REVIEW ENTIRE GENERATIONS ALONE

BOOK REVIEW WARNING TO THE WEST

POETRY

LETTERS

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by Patrick J. Byrne

News Weekly, May 2, 2020

A government-backed development bank would provide an ideal instrument to help financially engineer an economic recovery after the unprecedented shutdown of non-essential activities during the covid19 pandemic.

The Federal Government is yet to prioritise a national development bank for Australia, despite contributing $US738 million towards China’s Asia Infrastructure Investment Bank and despite both major parties having proposed a Pacific development bank to assist Australia’s island neighbours.

A development bank can “significantly leverage public resources to help minimise economic decline, support recovery, and finance structural transformation” at this time when “large-scale counter-cyclical funding to help maintain economic activity” is needed, according to Stephany Griffith-Jones, Emeritus Fellow at the Institute of Development Studies at the University of Sussex, Régis Marodon, special adviser at the French Development Agency, and José Antonio Ocampo, former United Nations Under-Secretary-General for Economic and Social Affairs.

Writing on Project Syndicate in April, they say that globally there are 400 development banks with combined assets of more than $US11 trillion, equivalent to roughly 70 per cent of the assets of the entire U.S. banking sector. “Capitalised by governments, but co-funding their lending with the private sector, development banks commit $US2 trillion each year, representing 10 per cent of annual global investment.”

Development banks target their operations where commercial banks fail or are absent, with long term-loans for small businesses, promoting innovation, building infrastructure, providing housing for the poor, and they fund concrete projects or sectors with long-term finance,” the authors write.

Several leading development banks have announced major initiatives to help resolve the current crisis. Germany’s huge KfW with over €506 billion ($A865 billion) in assets and 6,700 employees, plans to increase lending by €100 billion ($A171 billion), which is more than the Morrison Government’s entire $134 billion wages subsidy scheme.

Indeed, the KfW provides an excellent model for a federal government-backed Australian development bank.

 

STRUCTURED TO AUSTRALIA’S NEEDS

Such a bank could be structured to meet Australia’s economic needs, with specialist departments to:

  • Build strategic industries, starting with pharmaceuticals and essential medical equipment, then other industries deemed essential to Australia’s future (the United States Bureau of Industry and Security has a dedicated Office of Strategic Industries and Economic Security).
  • Provide patient capital to build world-competitive export industries.
  • Finance both federal and state projects that not only modernise infrastructure and stimulate private enterprise but provide employment to many people until the private sector recovers.
  • Lend to small business, farmers and even for home mortgages, if needed.

Funding could come from any combination of:

  • Direct federal and/or state government seed injections.
  • Government-issued bonds, which could be granted a favourable tax concession on earnings.
  • Commercial borrowing at favourable rates, as the bank would have a AAA-rating as a government-backed bank, possibly providing a way for superannuation funds to invest indirectly in infrastructure and strategic industries.
  • The Commonwealth Government Future Fund.
  • Reserve Bank lending to the new bank.

A development bank provides many advantages to both the economy and government. It can finance strategic and export industries with long-term growth prospects that commercial banks might not fund, industries that have high economic multipliers into the domestic economy. It can provide patient capital, not available from commercial banks, to help underwrite the post-covid19 recovery.

It would also reduce the demand for deficit budgets from additional large stimulus packages. This would allow the Government to maintain a high credit rating, thus preserving the Government’s best possible borrowing capacity. By taking on government capital expenditure, it would help to separate government recurrent and capital expenditure.

After numerous global financial crises, like the Asian Financial Crisis (1997) and the Global Financial Crisis (2007-09), a development bank would provide the Federal Government with its own financial institution to provide transparency on the operations of the commercial banks, which is vital to managing the Australian financial system and to heading off future crises.

As the Federal Government has demonstrated with subsidies of hundreds of billions of dollars to help businesses and wages, gone are the days of leaving many financial operations solely to the commercial banks and financial markets.

A federal government-created and backed development bank, with a mandate separate from purely commercial banks, would be a valuable “visible hand” by which the Government could engineer an economic recovery from the covid19 crisis.

Patrick J. Byrne is national president of the National Civic Council.




























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