No. E-223A R.ESTR.ICTED '.' "';iF .'f).,.,. ,. "'y'" " ,~ , 67152 ort is restricted to use within the Bank. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT THE AUSTRALIAN ECONOMY lune 27 t 1952 Economic Department Prepared by: A. M. Kamarck ,... CONTENTS TABLE ,OF Basic Statistics Summary and COllc1usion$ 1 I. In troduction . • • . • . • 1 II. Economic.Polic~ Setting. 1 III. Inflation . • • 4 IV. Economic Development: Eenort Industries .• 7 Fool 8 l'i'heat 8 JvIeat 9 Dairy Products 9 Government Program 9 Metals. : .. 10 V. Economic Development: Other Basic Industries and Servi ce s . . . . 4' • " • • • • " • • • • .... . 11 Transport 11 Coal 12 Iron and Steel 13 Electric Po"rer 14 Housing 14- VI. International Trade and Financial Position 15 VII. Credit1,rorthiness • • . • . . • • • • • • • 16 A. Total Balance of Payments Prospects 16 B. Dollar Balance of Payments Prospects 18 Appendix Tables ivIap of Australia :BASIC STATISTICS ~: 2,970,000 square miles (almost size of U.S.) P2pulation, December )1, 1951 Cest.); 8.5 million ITa-tional Income, 1951/52 (est.): 3;,(A) 3.200 million ($7.2 billion, or $81,f0 per capita) Balance of Payments (years to June 30): I:: ( A) r':illion 1949/50 1950/51 1951/52 ! est.) Exports (f.o.b.) 594 975 660 Imports (f.o.b.) -539 -742 -1100 Trade Balance 55 233 -440 Het Invisibles -105 -142 -210 Current Account Balance -50 91 -650 Capital lnno\·" Errors & Omissions 236 103 35 Change in International Reserves 186 194 -615 International Reserves ________=ToJ21___________ _ _....00=J4 Ho.ldings 3;,A fvIi llion Equi valen t in I::A Million Eauivalent in - U. s. $ m. -U.S. S m. June 1946 215 688 (I.A1=3.20) 21 67 (;;'Al=3.20) June 1951 843 1888 (;'Al=2.24) 44 99 (;Al=2.24) Larch 1952 (est.) 420 941 (I.Al=2.24) 50 112 (;;'Al=2.24) External Funded Public Debt I:: Sterling Jebt u.s,$) Debt Total Debt Converted Hillion Million _to U.S. ~ Million June 1930 464 277 = 2532 (;stg.1 4.86) June 1950 359 217 1222 (;;'stg.1 = 2.80) June 1951- 345 310 1275 (;stg.1 = 2.80) Terms of Trade (1936/37-1938/39 = 100) : December· March 1246 / 47 1949/50 1250/5l 1251 1952 Export Price Index 209 399 690 1j.81 424 Import Price Index 234 309 375 425 n. a.. Terms of Trade 89 129 184 113 n.a.. (Basic Statistics Cont1d) Consolidate~Accoynts of Pub1tc Autporities (;bA. IUllion) 1938/39 1950/51 1951/52 (est -1 Current Expenditures 136 492 515 Gross Investment 61 297 360 Defense 13 96 165 Total Expenditures 210 885 1040 Current Revenues 183 790 1050 Net -27 -95 flO Gross, Fixed CaI21ta1 Investment 1938 /39 1950/51 1951/52 (est.) Total (~A million) 185 880 1070 Private (percentage) Public (percentage) Prices and '.,rages (Average .3 years ended June 19.39 =100) 1945/ 46 1949/50 June June Aug. Harch !2.iQ 1951 lli1 .lli£ 'i'lho1esa1e Prices 141 205 223 277 294 :3"6l.i: Retail Prices 128 167 17.3 207 219 237 ":lages 134 191 198 250 262 27-7 (Dec. Qo· ) Percentage of Australian 1.rorkers in main economic sectors 1921 12ll 1947 Primary 26 2.3 20 jiIanufacturing 21 19 27 Services -53 -58 53 100 100 100 AUSTRALIA POPULATION NET IMMIGRATION (MILLIONS OF PERSONS) (THOUSANDS OF PERSONS) 12 END OF PERIOD TEN-YEAR YEARLY ./ .- ~ AVERAGES 10 ./ ./ ~--------~ ~----~~--~150 ./ ..,."." " I 8 ~ ~-----I ~---I---~ 100 ~ I 6 4 ~ ~-----I I - - - # - - - - - - - - - - i 50 !--_ _..;z;.._-I M~------I 0 2 o 1910 '20 '30 '40 '46 '48 '50 ~~-~-~ ~~~~~~~50 1960'10- '20- '30- '40- '47 '49 '51 '53 (Target) '20 '30 '40 '50 WHOLESALE PRICES, MONEY SUPPLY, AND WAGE RATES: INDEXES (AVERAGE OF THREE YEARS ENDING JUNE, 1939= 100) 500 500 ~UPPLY I YEAR ENDING MONTHLY ........(MONE: 400 JUNE 30 . ..... ..... ....... 400 .'. ~ . ' ........ ............. ' 3001------~·----~WH OLESALE PRICES::\._ .....~,::.:r .. - 300 2001----~~----~ --,- - ..~ WAGE RATES (QUARTERLY) 200 1001---------1 100 OL---'----L---'-~~-----' I J o J I o J I o I J o o '47 '49 '51' '53 0 1950 1951 1952 1953 USE OF RESOURCES (BILLIONS OF AUSTRALIAN POUNDS) 5 .----~----.-----r-----.----.---~5 YEAR ENDIN G JUNE 30 GROSS RESOURCES IMPORTED (NET) DOMESTIC INVESTMENT 4 RESOURCES EXPORTED {N GOVERNMENT CURRENT ENDITURES 3 3 2 PERSONAL CONSUMPTION .. - . o o 1939 1948 1949 1950 1951 1952 1953 (Est.) 5/27/52 No. 653 I.B.R.D. - Economic Dept. AUSTRALIA GOLD AND FOREIGN EXCHANGE ASSETS • GOLD I I '47 '49 '51 '53 0 J o J o J o J 1950 1951 1952 1953 TOTAL DOLLAR DEBT (PAYMENTS EACH YEAR) (MILLIONS OF U.S. DOLLARS) 100r-.-.--r-'-.~~.-~-.~--~~.-~-'-.r-~.-~-.~--~ 100 8or------m-----------+----------~------------~--------~80 60~----~+---------~----------4-----------4---------~60 40 f-------1ff--+-+t- -----~--~M----~----------+------~40 f----£~====~~---~-P.--~---~~~~--_+------____120 ~~~~--~~~~--~~~~--~~~~~~~~~~~~---w0 1955 1960 1965 1970 1975 CONSOLIDATED PUBLIC AUTHORITIES REVENUES AND EXPENDITURES (MILLIONS OF AUSTRALIAN POUNDS) ~WOIHu~t~r-J-UN-E--30~---~I---~I----~I---~I---~Ir---~1,200 1,000 f------------------------------------Y0J~~.::.:f- 1,000 ...."'....~ 800 i I r.r-:: ?~f_ 800 600 EXPENDITU R-=-S, __________ _R_EV_E_N_U_ES "f,(S(~~_t:>OI(.:}----IVQt.gf- 60 0 ~ --"''"'.:.~: .:.:.:. ':':'.:' ....•:. 400 '--It')()f;~--t("XI~'----__f"'."xt~'\--{)O(I'·.:·:.i.:."-----__IX'"'Xl··.~·.i·:.·· ,- - .:..:. . .: . .:.::: ::::: '(.: 40 0 •• " .... ':.. ~ :::: :.:;:.''-- • .. ::::.t----rJIQI:'::; • 0-' .. -:o:::i . . .:.:.:. . f _ •.• :.:.~:.:. .: . , ":"/:. ..::: =;:: :.:.~:: . . :. ::.0 200 .' ··t----tx')(1~f.:: 200 r---1'-"v1' :::: I----t<.XJ····I---£>::>Tered, there \nlould be no dounts at all in predicting a continued gro',rth of Australian dollar '''001 exports. As it is, the forecast must be that it is reasonably probable that Australian \"001 Nill continue to be a good dollar earner. There should also be a favorable market for Australian metals and minerals in the U.S. Considerable investment has taken place in Australia in dollar-saving lines \,rhich should. result in eliminating the need for a fair percentage of dollar imports in the next fel.1 years. Increasing availaOiU ty of machinery and equipment from the U. K., ~Jestern Europe, and Japan Sh01Ud further reduce the need for dollar imports. 13) Australia's total dollar debt outstanding is $310 million, i.e. not much above the $277 million Australia O'·red in 1930. Total annual service payments no I.! run at around. $1.5 million or about 7% of present dollar export receipts. Before the "rar, her dollar d.ebt service ,.ras larger than her total dollar export receipts. Australia's annual gold production is over $30 mil- lion and her gold reserves have grown from $10 million before the ,.rar to over $110 million nO"ll]. - iv - 14) Australia has a rather difficult short-term dollar problem. Before 1956. she has arranged to repay a dra;"ing of $50 million from the IMF. Then. in 1955-57, she has to pay dollar debt outstanding of $114 million. Part of this. hm,rever. is held in the sterling area" If market conditions permit, the maturities ~,ri11. at least in part, be refinanced. If conditions prove unfavorable. Australia "rill have to get dollars from the sterling areEls dollar reserves, or use her ot'Tn gold reserves. 15) Australia has normally draNn dollars from the sterling area reserves to meet a dollar current account deficit ,.rith the exception of 1949/50 and 1950/51 vrhen she made a net contribution. She intends to con- tinue to be a net dra1.orer of dollars to make possible a more efficient use of her resources and a more rapid rate of development than "rQuld otheJ"l"ise be possible. If she 1.rere not able to ara'" on the sterling reserves for a number of years for this purpose, she could balance her dollar accounts v·i thout drastically bad effects on her econoll\1 and development. Her access to the sterling area dollar pool is thus an added element of strength in her position. 16) :,fhile there are r1s1-l';s involved for the Bank in further lending to Australia. they are not excessive. The AUstralians are a competent people t"i th an aMli ty to get, things done once they p.a,ve set their mind to it. They still hElve considerable resources to develop and have ~ho~rn their ability in the past to take full advantage of their opportunities. Their debt record is excellent. In brief, Australia can be considered dollar credit,.rortlw for an additional loan of $50 million. (All ~ signs used in this report mean Australian Pounds.) ('l'he Australian fiscal year is July 1 to June 30.) THE AUSTRALWr ECONOHI I. Introduction Since 1947, the main economic problem of Australia has been to secure a balanced economic expansion. "ri thout disruptive inflation and ",1 thout a cut in living standards. to meet the needs of a population gro"r1ng at triple the pre'~rar rate. In particular, expansion is needed in: (a) the output and export of the primary products ("Tool. ,'rheat. meat. dairy products, base metals) for the production of "'rhich Australia is particularly suited and l,rhich compose almost the \i\Thole of her exports: and (b) the basic services and industries (transport, electric power, housing, coal, and iron and steel). In August 1950, Australia secured a loan from the IERD primarily to enable her to import dollar equipment for the expansion of these ke,y sectors. II. Economic PoliSW Setting From 1930 through 1945, the Australian population grew on the average by less than 1% per annum. After the war, the rate of natural increase 'torent up and in 1947. Australia undertook a large immigration program to increase her population at a rate of around 3% per year. In 1949 and 1950, the popu- lation increased by 3.24% each year, and in 1951 by 2.68%. In the five years 1947-51, Australia. absorbed half a million immigrants. or a number almost equal to the natural increase during those years. Total population grew by a million in these five years to 8-1/2 million at the end of 1951, and it was hoped to reach 11 million in 1960. This objective of tripling the previous rate of increase of popula- tion has been central in postwar development in Australia. The program ~~as begun l ..,hile Australia still had the problem of overcoming the arrears caused by the depression and the war in agriculture, the Pasic services (transport, electric pot-Jer and housing), and in the key industries (coal and iron and steel). It ~s not surprising this attempt to greatly increase investment has contributed to a continuing inflation. While Australia is approximately the size of the unite~ states, she does not possess the agricultural resources of the Uhited States: instead of a fertile Nississippi-M1ssour1 valley, she has a dead arid center. The opportunities for easy development of Australia.ts "vast empty spaces" are ~thical. The era of easy land development closed in Australia in the 90 1 s. Since then, the frontier has been rather the agricultural scientific labora- tory and the field research and extension stations. A little over half the total area is desert or barren highlands. A part of thh ma;y carry a few livestock "rhich is periodically subject to 10sB by drought. Forty-two percent (800 million acres) of the total is semi-arid with enough rainfall for grazing., On this land, the problem is one of maintaining production rather than expanding it. (In 1891, Australia had 106 million sheep. This figure 1."a8 not achieved again until near the beginning of the depression of the thirties. The record number of sheep, 125 million, \\Tas reaohed in 1942. Drought in 1945 caused sheep numbers to drop - 2 - belo"r 100 million again in 1946 and 1947.) The remaining 7-l/2f/o (144 million acres) of Australia has a climate, soil and topography suitable for cropping and intensive livestock production. After allo,·ring for permanent pastures, fallow and temporary pastures in rotation. the maximum area ",hlch could be put under crop annually is estimated at from 36 million to 48 million acres. The highest acreage ever 90'ltrn ',la9 25 million acres in 1930/31. The total area u-~der crop in the postwar period has generally been under 20 million acres, i.e. about the same as in the state of Illinois. Over almost the lI'hole continent, the supply of l.rater is short: the average annual discharge of all the rivers of Australia is 60 million acre- feet (compared "'i th 72 million acre-feet for the :U Ie, 143 mi llion for the U.S. Columbia River. and 228 million for the Danube). Special prOVision has had to be made. ",here possible, for supplies of ,.rater for rural domestic uses and for stock as '\I'e11 as for irrigation: in South Australia state ~Tater lines supply 94% of the statels population of 700.000. Of Australia's total area of 1900 million acres, 1~1/2 ~illion are now under irrigation. Experts estimate that due to limitations of "'ater supply, storage possi bili ties t etc., the maximum area '\IThich could be irrigated is 5 million acres. (The U. S. has over 21 million acres irrigated.) \vhile there is still scope for expanding agricultural production by bringing new land into use, this opportunity is limited and requires large investment in land clearance and social capital. There is also consider- able possibility of increasing production through a more intensive and more scientific use of existing land. :But a satisfactory rate of gro1rere made available to the market as a result of the central bankls attempt up to April 1952 to hold government bond yields to 3~3/4%. Harsher restrictions on advances for other purposes began to press hard on a "ride ra.'lge of business. d) The rate of actual immigration dropped close to 100,000. (Net migration in 1949 ..ras 150,000; in 1950, 152,000; and in 19$1, 111,000 .. ) e) A brake l'las put on the expansion of the public investment programs. f) A substantial import surplus '.ras encouraged~ The Common~"ea1 th government encouraged the states and its own departments to expand their ordering abroad instead of in Australia. The disinf1ationary government poliCies '\,ITere reinforced by a drastic reversal in the international payments position - as against a current account surplus of h90 million (U.S.$ equivalent 200 million) in 1950/51. there is now expected a current account deficit of around h600 million (U.S.$ equivalent 1,340 million) in 1951/52. At the same time, net capital inf10111 for ne'lll investment has greatly decreased. The beneficial effects of the government poliCies and the shift in international p~ments position bega..", to become evident near the end of 1951: 1.rholesale prices remained at around the August 1951 level; the rate of increase of retail prices and '!,orages slol •r ed; the number of unfilled jobs fell significantly; there ~"asevidence of a shift of labor from the light industries into the key industries and public utili ties 'lo,hich have been understaffed; there have also been some indications of a rise in labor productivity. - 6 - There are important elements of uncertainty in the present picture, hOi'lever. The government had reclr..oned on an import surplus in 1951/52. but not for as large a one as happened. As a result, the government found itself facing the danger of an exhaustion of its international reserves. Under the circumstances, the government had no option but to impose stITeep- ing restrictions designed to reduce 1952/53 imports to the level of expected receipts. The government. therefore, cannot rely on an import surplus in 1952/53 to supnlement its anti-inflationary poliCY~ the supply of goods available for consumption and investment 1,rill be cut by *,600 million (U.S. $ eo.uivalent 1,)40 million) co~ared to 1951/52 (1.e. one-sixth of total gross national expenditure must be eliminated). In addition, the import restrictions pro- vide the opportunit~T for a revival of investment in the ne~'rly-protected industries. The Question 1.rhether inflation '!,.'ill continue depends in large part, therefore, on "Thether the government ensures that the monetary and finanCial conditions are such that people l,rtll not try to consume and invest more in 1952/53 than the supply of goods and services which will be available. The situation is more hopeful than it seems. First. the import surplus of b600 million (u.~.S equivalent 1.340 million) in 1951/52 partly reflects the inflationary demand of 1950/51. Second. part represents over- ordering by importers and unexpected acceleration of deliveries. As a result, un~ranted inventories have increased by several hundred million pounds to be carried over into 1952/53. Also, a considerable portion of the goods bought by consumers repre~ents a replenishing of their stocks "7hiOO ',rill not need to be repeated. On the other hand, the 1951/52 level of inve~tment cannot be sus- tained in 1952/53. Gross fixed capital investment in 1951/52 is estimated at bl.070 million (U.S.S equivalent 2,400 million). Or 28% of gross national expendi ture (Append1JC Tables! and III). This big investment ",fas made possi ble by the large import surplus. Unfortunately. no reliable figuref> are available as to how much of this surplus has gone :i.nto increased inven- tories and ho"', much used (e.g. if the "!hole *,600 million import surplus has been cons~~ed or used in investment, then there must be a cut of b600 mil- lion next year in investment and consumption compared to this year. If only bJOO million has been used and bJOO million is used in 1952/53. no change in investment or consumption is necessary). In general, the conclusion '.'ould be that the s1 tuation is manageable by proper government action. It is nece~sary to maintain and reinforce the present anti-inflationary policies in the 1952/53 budget and Loan Council program. Secondly, the central bank must maintain pressure on the banks so that the liquidity they acquire as the advances on import inventories are liquidated is not used to allo~T private investment again to expand at an excessive rate. The first test of the government I s future policy ','as the Loan Council meeting held on May 1-2. 1952 for the year 1952/53 :program. At this meeting, the CommonNealth attempted to secure agreement on a cut in the state loan programs from the *'225 million (U.S.$ eouivalent 500 million) of 1951/52 to - ?- ~180 million (U.S.$ equivalent 400 million) for 1952/53. The states unanimously outvo ted the Common1 J11eal th and agreed on a program of ~248 million (U. S.$ eq\1ivalent 560 million), i.e. the same as the current yeax allo't>ling for a 10% increase in costs. The Commonl,'ealth Government has agreed to provide ~125 million (U.S.$ equivalent 280 million) from Comrnon",ealth sources, and estimates that the capital market might pro- vide ;50 million (U.S.$ equivalent 110 million) in loan money. These b·To sources plus carry-over from 1951/52 "'ould provide a total of around ;180 million (U.S.$ equivalent 400 million). Since the states cannot raise loans themselves, the Common1 .r ealth as a practical matter probably ,·r11l be able to hold the total of the programs to around ;b180 million. IV. Econom~c Development: E;port Industries Australia has been and for the foreseeable future ,dll continue to be dependent on exports of primary products to finance its essentia.l im- ports, \Tool, 300. As a result, some farmers have shifted to I,Tool groT.ring. 5)Agricultural production in Australia largely depends on farmers gettln,,~enough superphosphate.. Output of this fertilizer has increased by 50;~ over the pre'l.o,a.r level of one million tons, but is still insufficient to meet the demand. In the last tl1ar. Before the ,.rar, half of total freight moved 'rras carried in coastal ships. This proportion has no,·, dropped belo~·r 30%. The lack of progress is due to - 12 - a whole complex of factors, including bad labor-manap,ement relations; need for port mechanization; unN illlngness of private companies to invest further due in part to the exi stence of a COl'!l..'l1onl.r eal th.... ot.Tned shipping line ~,rhich in t1!I'n in part ~'ras formed because of lack of enterprise on the part of the shippiIlg interests. Although some correcti'V'e action has been t.aken by the COl'!'!:tnon.1•T ealth and state governments, no definite solution is yet in sight. The burden has been throt>rn. on the railroads and the roads. The rail- roais no", carry 50% more tonnage than prel.rar but cannot cope 1.ri th all the demand. Before the '."ar. railroads carried less than ilalf of the tonnage carrted by coastal shipping: tod~ they carry more. As the railroads I,Tere originally built in each state to feed into its ports, they are of different gauges, and interstate traffic is hampered by the break in gauge at the sta~e lines. Maintenance and expan~lon of the railroads lag~ed during the depression and "'ar yea.rs, and the railroads have had difficulty in making up arrears an(: coping 1"i th increased demands. The rai lro a.ds are nm" expand- ing and \,,1 thin a fe l " years should cope "(4d th Mme of the increased demand on them, particula.rly if coastal shipping could begin to reassume its proper role by carrying the bulk of the inter!"tate freight traffic. The surplus traffic Nh1ch the railroads cannot ca:::-ry is nOl/'T being taken by trucks. Freight ca!'ried by road has grown enormously, at least double prewar. Trucks no'" carry more freight than e1 ther coastal shipping or railroad.s. The roads, however, l·rere not designed for this heavy traffic and some are deteriorating. Coal is a key commodity. It is practically the only Australian source of energy nOl.' availcc"l)le on the mainland. Although total output has increased by SO'%. the increase has been largely in t!1e inferior coals and the supply has been insufficient to meet demand. ~he shortage of coal has been a major hindrance throughout the ",hole nostl,'ar period. The underground black coal mines in Nl?,l,., South Hales before the ','ar supplied. the '1ulk of the coal consumed ancl pr!'wtically all the coking and gas coal. These mines produced 11,200,000 tons in 1938 and production is still at the same level. The fa11ure of these mines to increase production has hampered. the 1pThole economy: iron and st.eel Jllants have had to ','ork at 80% or under of capaCity in spite of the unsatisfied demand for iron and steel. It has made it necessary for other states to (lavelo}) their ONn coa.l fields and in ETe'" South ·'ales itself. open-cut coal mines heve had to be started by government authorities. Production from these other sources in 1951 totaled under 9 million tons (black coal equi 1ralent) as compared to 11-1/4 million in the underground mines. Expo:::-ts of coal have dl"indled and imports of higher cost foreign coal (SOO,OOO tons in 1950/51) and greater imports of fuel oil have become necessary_ Since the :~e',r South ';,Tales underground mines provi,ie the best coal and almost the l/rhole s',lpply of coking and gas coals, expansion of their output is necessary. The rea.sons for the failure to expand are complex and as much sociological as economic: bitter labor-mar~gement relations; labor resistance to greater product1vi ty; un",11lingness of colliery o"'ners to invest more capital and to mechanize - \.ri th the steel captive mines an honorable exception; and scarcity of labor. - 13 - The Co mmon,,,eal th Government has declared coal production top priori ty. The Commom,realth and life'.,! South ~vales set up a Joint Coal Board in 1947 to correct conditions in the industry. The Board has been responsible for the only important increase in coal production ,~rhich has taken place in New South ';Jales (from its open-cut mines). The Beard has also helped to mitigate labor bitterness by providing amenities. As a result, some progress has been made in removing labor obstruction to mechanization. The supply of labor is being increased by government investment in new housing and by recruiting immigr~~ts. :fhatever progress in mechanization has taken place in the coal fields, aside from the captive mines, has been due to the provision of machiner,y by the Coal Board. The Board has recentl,y adopted a ne~r price-profit policy - guaranteeing a generous minimum profi t to colliery owners ,.,i th provision for hig':-ter profits from increases in efficieney. It hopes that this ,.rill persuade mine-o,·,ners to me chaniz e • Victoria, the second most industrialized state, has been developing its bro'lPTn coal resources. Because of its Inc'lbll1ty to secure Fre,,' South \18.1es coal, its coa.l deficit has been filled by imports from abroad and recently from ~ueeneland. Victoria has unde~~ay a. large program of ex- pansion of bro'lPrn coal, designed to raise output from the 8 million tons (2.6 million tons black coal equivalent) current~ being produced to 20 million tons by 1957/58. The increase in output "'ill be used for electric generation, for making briQuettes for heating purposes, and for to'lPrn gas production. Iron and Steel Production in the iron a~d steel industry - regarded as one of the most efficient in the "forld - has been currently running about 2.5% above pretvar. The lmlle of the post"rar increase has occurred in the last tt·ro years. In these years, the industry has been operating at only 80% of its capacit,y of 2 million tons of ingot steel. although demand made necessary substantial imports - 900.000 tons in 1951 at double the Australian price. The belo 1,r-capaci ty ope"'ation has been due to shortage of coal and labor. The reasons for the first have been explored above and the reason for the latta!" is primarily the inflation. The indUstry has undel"'.oTay a program of expanded production in its own coal mines to make it indepen- dent of other coal. The government's anti-inflationary policy is expected to correct the second. There is, also, a program of balanced expansion to add 500,000 tons of steel capacity ~~d a new one-million ton hot-and-cold strip mill that Hill eliminate the need for arou...~d 130,000 tons of imports of tinplate - half of l.rhich comes from the 1Jni ted States. Completion of the irons.nd steel program l,ri thin a fe\-' years should go far tOT~rards correcting a funri.amental "'eakness in the present production pattern. .... 14 ..,. Electric PO~"er Electrio pm,rer is in the hands of individual $tate commisl'Iions. There is no inter-connection bet~·reen the state systems. In 1940, firm pOl,}'er capacity of 1, 085 ~f:! e7.c93ded maxi:l1um der:land by a 40~ margin for maintenance and operating contingencies. Due to the "'ar, additions to capaci ty ~'Tere small and by 1947. demand had caught up Nt th canaci ty. Since then, demand has continued to increase more rapidly tr~n capacity ::lIld pm,rer ex:oerts estimate that it exceeded surply by around 20% at the 1951 capacity of 1,610 ~1. The reserve for co~tingencies ~s disa~peared entirely, and demand is balanced against supnly only by a drastic curtail- ment of consumption in the more heavily industrialized states of ~Te"r South ~!ales and Victoria. . The principal reasons for the falling behind of capacity appear to be the halt in expansion during the l,rar, the long delay in sec\lring delivery from the British suppliers of :plant ordered after the Nar, the shift to eJ,.ectrici ty for home uses, and. the effect of inflation in bidcU.ng al1ray construction labor. The programs l.1l1de~,ray in all states are designed to catch up 1"i th 6.emand and. provide a normal re serve again Tori thin a period of 3 to 5 years. Investment in electrtci ty has more than doubled in the past b'o years and is ra~ning at a rate 9 times the 1947/48 level. Some del~ in achieving the programs is li:-cely I hOl.rever I due to cutbacks in the state loan programs. On the other hand, the general anU-dnflationary nrogram is likely also to S10T" dONn the increase in demand. Housinf! As in other fields, Australia entered the post1,.'ar period ",1th arrears in housing; in addition, the immigration program meant that man~r neT.' houses had to be buil t . ' The postNar record to date is not bad: investment in housing has tripled in the last 4 years, a~d is currently arouni 181of gross fixed capital investment. By September 1951, nearly 300,000 houses and flats had been built providing ne'" homes for about 1-1/4 million people, ",h;lle population inc:r-eased by only one million in this per:.od. ~e curre'!1t rate of building should continue to be sufficient to meet neN housing neecls and even to reduce the backlog. This rate, ho·,rever, has b~en based on !'1ubstan- t.ial imports of prefabricated houses s.nd building mate'daIs (:;;'50 million out of total building investment of :;;'235 million). As these imports are practically all marginal, a cut in net immigra- tion from the 130,000 level of 1'150/51 to 80,000 1'lould probably eliminate the need for these irnrorts. Since some improvement in domestic building s.upplies and building labor has taken placet a cut in net im..r:1igration to 100,000 might be sufficient to do so. - 15 - VI. International Trade and. Financial Position The Australian economy is substantial~ dependent on international trade: normal~. export and other earnings from abroad are aro~~d one- fifth of national income. Dt~ing one year, 1950/51, this proportion rose to as high as one-third (APpendix Table I). In the post~rar period. Australia's export trade has become even more dependent on one product. l:rool, than it was prewar. Before the war, ~.loo1 1"'as, on the average, 40% of total. exports. Since the war, the proportion has been more like one- half.(ll1950/5l. i t "'as ttY'o-thirdsJ Hool is also the main dollar earner: in the postwar period it has provided from 60% to 90% of total dollar in- come. Therefore, in spite of industrialization and the fact that agricul- ture p~oduces only around a quarter of the national product, Australia still "rides on the sheept s back.n From 1945/46 to 1949/50 the pattern ,.ras fairly consistent. The volume of exports rose by a little over 10% over pre"rar. Export prices rose more rapidly than import prices so that l.d th its export earnings, Australia could buy a larger volume of imports - in 1949/50, 50% more than preNar (Appendix Table IX). On top of this, there was an inflo,", of money Nhich could only in part be converted into goods - by "ray of a small current account defte! t .... and for the rest Nent into Australia's international reserves. From June 1946 to June 1950, these reserves in- creased by ~435 million (U.S.$ equivalent 970 million) (Appendix Table X). The year 1950/51 follOl,red this pattern in accentuated. form: "roo1 pr:i.ces jumped 120;'&. Import prices rose more slo",ly. In 1950/51, Australia 1·'as able to blW 70% more goods in volume than :ore1'iar t.rith a volume of ex- ports just barely above preNar, and still sho", a current account surplus of l,90 million (U.S.$ equivalent 200 million). '1/ith inflol,o' of capital, reserves increased further by ~190 million (U.S.$ equivalent h25 million) to an all-time high of ~843 million (U.S.$ equivalent 1,890 million) in June 1951. The current year, 1951/52. has shm.rn a dramatic reversal of 1950/51 and to some extent of the "Thole posttvar pattern. Wool :orices have dropped back to the 1949/50 level. reducing export receipts by ~300 million. I~ort prices have continued to climb. It is like~ the advantageous relationship of export to import prices t.rhich Australia has enjoyed post1,rar "rill almost entire~ disappear. The volume of exports m~r actually drop belo", pre1.'lar levels; while on the import side, Australia has been spending almost all of her postwar accumUlation of reserves. Imports an.d invisi bles are esti- mated to be nearly ~400 million higher th~~ 1950/51 and exports, ~300 million smaller. Instead of a current account surplus of ~90 million, there ,'rill be a defiei t of around ;,600 million (Appendix Table XI). 14ean",rhile, net capital infle,,' has slowed, and the fl01.oT of dollars specu- lating against a possible revaluation has reversed itself. The loss of international reserves is, therefore, likely to be of the order of ;,600 million, reducing them to-under ;'JM million on June 30, 1952. Because of the usual seasonal movement, these reserves may drop another ;blOD million in the fol101!11 th their diminishing production of "'001, provide a favorable outlook for Australian ~,'ool exports -tempered by the threat of synthetics as discussed above. In addition, there is the threat that if the returns in the U.S. and Canada from other nroducts should drop, the farmers might start raising sheep again. The remaining Australian dollar exports are also primar,y products of ,-"hich the most important are metals and minerals (Apnendix Table XIIr). The rapidity l'iith "'hich the United States is using up her limited ra"T mate- rials 'I.ori11 probably lead to her importing more of them. This should help Australian exports to the U.S. It is unlikely that this ",ill be true of Australian food exports, however. In the post'f,ar period, an increasing proportion of Australian exports have gone to the dollar area: 13% compared to 51f, pre'17 ar. The constant restriction of dollar imports into Australia has been an inducement for investment in dollar-saving lines, in part by dollar capital. Reduction or elimination of the need for certain dollar imports as a result is likely to occur even in the next few years: e.g. tobacco, tinplate. and motor vehicles. Hare machinery and eqm.pment from the U.K., Western Europe and Japan should further reduce the need for dollar imports. The total dollar debt outstanding, including the $100 million rBRD loan, comes to $.310 million, ",rhich in view of the change in the value of money. is less important than the $277 million Australia o',red in 1930. Total annual service payments on e:dsting dollar debt run at aro.und $15 million or about 7% of present dollar export receipts. In 1938/39 her dollar debt serv~ce was larger than her total receipts from exports to the united States. Australia1s annual gold production is over $30 million in value and from time to time she uses it to add to her gold reserves. These have gro"rn from $10 million before the ',rar to over $110 million no,,'. Australia has a short-term dollar problem. Before 1956, she has arranged to repay her drat,ring of $50 million from the I. M. F. Then, in 1955-57, she has to meet a pronounced. peak of dollar maturities, the total outstanding on June 30, 1951 amounting to $114 million (1955, $71 million; 1956, $19 million; 1957, $24 million) (Appendix Table XIV). Part of these are held in the sterling area, - the exact amounts unkno1lrn. If market conditions permit, these maturities 1,7111, at least in part, be refinanced. If market conditions prove unfavorable, Australia \'.T111 have to get dollars from the sterling e~rea reserves or use her o",n gold reserves. Australia has normally dratorealth Ban..'Ic. V . -:::lIU.r t er ended month nho"rn. B. VOL m1E CF TR ADE (Base: 1936-39 =100) lmImrll ~~ 1946/47 78 107 1947/48 109 99 194'2/l~9 127 112 1949/50 153 111 1950/51 173 103 .§~: U.N. Honthly Bulletin of Statistics. !l?PE;NDIL; Table Xi Monetary Gold m:&.12,reign Exchange Holdings 1,.1\. milljon ~lliLQf Go12 ~oreign Exchan~ Iotal June 1939 2 54 56 11 1946 21 195 215 " 1947 30 169 199 " 19/"P. 27 246 274 II 191. 9 27 425 452 " 1950 39 611 650 " 1951 44 799 843 ;'~arch 1952 (est. ) 90 370 420 Note: Detail does not necessar11y add to total because of rounding. APPENDIX Table it ~al Balance of ~Y@ents :bA Millions 1946/47 1947/43 1948/49 1949/50 1950/51 1951/52 -- ----- --- i.~~h..L Exports f.o. b. 265 397 522 594 975 660 Imports f.o.b. -208 -338 -!tll =538 -742 -1100 Trade Balance 57 59 107 56 233 -440 Net Invisib1es Balance on Current A/c =105 - 49 =-12 3 =..J3. 28 10 =2 - 50 =14J. 91 -- -210 -650 QaEital Items Private capj.tal movements 49 88 147 250 117 Extarnal public debt Other capital trans- ... 13 - 9 - 14 - 30 - 19 ( (35 actions =--2 - 7 --..... 17 ....- _-ll --2 _L Balance on Capital A/c 31 72 150 235 103 35 Hove'Uent in International R.eserves :;.J'( _ 7~ _178 ~~§ _193 ;;;61~ :~ote : Detail does not necessarily add to total because of rounding. APPEtIDIX Table X'] I Dollar Balance of P~ments (Millions of U.S. dollars) 1946/47 1947/ 48 1948/49 1949/50 195 0/5 1 195 1/5 2 Cest ~) Exports, f.o.b. !d 174 129 136 142 381 230 Imports. f.o.b. -189 -275 -181 -173 -176 -310 Trade Bala:nee -15 -146 ....45 -31 205 -80 Net Invidbles -76 -88 -73 -87 -90 -100 Current Account :Sa1anee -91 -234 -118 -118 115 -180 CaEital Items Capi tal lnflo"" !d/ 36 38 17 81 -41 -38 External Publie Debt - 1 - 2 -11 - :3 - 2 Total Capital Aeeount 35 38 15 70 -44 -tiO Net DOllar Position -56 -196 -103 -48 71 -220 Dollar Financing 1M]' or IBRD 20 9 60 Gold Sales to TJ. K. )0 32 30 21 10 Dollar Drawings or Contri- butions (-) to sterling dollar pool 54 164 73 2 -97 150 Australian Dollar Balances 2 2 - 2 .... 4 - 4 Total 56 196 103 48 -71 220 Note: Detail may not add to total because of rounding, !il Exports to U. S. and Canada, trade balance Nith other American account countries (1946/47 - 4; 1947/ 48 - 0; 1948/49 - 4; 1949/50 - 5; 1950/51 .... 9). EI Capital inf1o\·r plus errors and omissions, latter believed to be mainly capt tal fnflcl'T. APPE;IJDIX Table XIII ~ustraHan T!.~de wi t~_U .S. and C~ (In millions of U.S. dollars) 1947 /48 1943/49 1949/50 1950/51 1951/52 -- -- (eshL A. Ey.r.03.T§ Wool 94 79 104 321 177 Skins 13 10 9 10 10 IJline~als 11 18 6 13 11 Foodstuffs 3 13 11 18 17 Other ~ ..!2 _--2 13 .Jj Total 129 132 137 375 230 B. IHI;01!§. Equipment & Hachinery 35 30 38 35 60 Traetors & Parts 7 11 13 18 30 Motor Vehicles Z7 21 21 26 35 Aircraft, Scientific Instruments 7 11 6 4 13 Tinplate 10 8 7 12 13 Textiles, Yarns 66 8 5 6 10 P.O.L. 21 18 13 11 30 Drugs, Chemicals 7 4 :; 3 7 Tobacco 16 12 12 12 17 Tinber 10 11 9 10 44 Paper 23 6 7 2 13 Other Total 22- 264!}./ .21 173~/ -27 166~/ -12 174!}./ .-U 310 !/ Excludes outside packages. APP'ENDIX Table XIV External Funded Debt of Australia (In thousands) Debt Outstanding June 30, 1951 In Currency Expressed in of Payment U.S. Dollars DOLLAR DEET Dollar Bonds Commonl,oteal th Bonds Australia 5%, 1925 - 7/ 15/52-55 $ 71,031 71,031 Australia 3i%. 1946 - 8/1/56 $ 19,047 19,047 Australia 3-Mb, 1946 - 12/1/66 $ 23,8lJ.6 23,846 Australia 3~, 1947 - 6/1/57 $ 18,228 18.228 Australia 3-3/8%. 1947 - 2/1/62 $ 43,001 43.001 Australia 3~1, 1947 - 6/1/67 $ 18,205 18,205 Total Commom·realth Bonds $ 193.358 193.358 Municipal and Other Bonds Sydney County Council 3~~. 1947 - 1/1/57 $ 7.800 7,800 City of Brisbane 5%, 1927 - 3/1/57 $ 4,100 4,100 City of Brisbane S,/>, 1928 - 2/1/58 $ 4,400 4,400 Total Hunicipa1 and Other Bonds $ 16,300 16,300 Total Dollar Bonds $ 209.658 209,658 I.B.R.D. ~4%, 1950-1955-75 - Outstanding $ 9,058 9,058 - Undisbursed '" ;:p 90.942 90.942 Total I. B.R. D. $ 100,000 100,000 Total Dollar Debt $ 309,658 309,65~ ST:sRLHiG DEBT Common'pealth Debt *. South Australia )%. 1897 - 1900/1916 'Testern Australia 1909 - 1911/1935-55 ~ueensland ~, 1911 - 1950/70 ~ 3j, ~ 2.397 3,205 1,891 6,712 8,974 5,295 Australia 4%, 1933 - 7/1/55-70 ;b 11,546 32,329 Australia 3i%. 1934 - 7/1/64-74 ;b 13,373 37,444 Australia 3~, 1934 - 6/1/54-59 ;b 21,084 59.035 Australia 3fi. 1935 - 6/1/5 6-61 ;b 20,754 58,111 Australia 3p, 1936 - 4/15/55-58 ; 20,141 56,395 Australia 3!%, 1937 - 9/15/50-52 ; 11,790 33,012 Australia 3~t 1937 - 2/1/51-5 4 ; 10,796 30,229 Australia 3-3/4%. 1938 - 12/15/52~56 ;b 6,951 19,463 Australia 4%, 1939 - 1/1/61-64 ; 5,775 16,170 Australia 3~. 1)41 - 9/1/61-66 ;b 29,936 83,821 Table XIV (Continued) Debt Outstanding June ,0. lQ51 In Currency Expressed in of Payment U. S. Dollars .§fERLIHG DEBT Commont,real th Debt Australia 3%, 1945 - 12/1/58-60 b 14,055 39.354 Australia 3~ - 8/1/65-69 b 58,202 162,966 Australia 2-3/4%. 1946 - 7/1/67-71 ~ 15,950 44,660 Australia 2}%. 1947 - 4/15/70-75 ;, 18,441 51,635 Australia 3~, 1948 - 5/1/63-65 i, 12.871 36,039 Australia 3%, 1948 - 2/15/64-66 b 10,000 28,000 Australia 3%. 1948 - 7/ 1/ 65-67 t 14,900 41,720 Australia 3%, 1949 - 4/1/72-74 b 12,300 34,440 Australia 3~, 1949 - 7/1/75-77 t 14.146 39.602 Total Common1•r ealth Debt b330,504 925,413 Hunicipal and Other Debt City of Brisbane ~. 1950-60 ~ 41) City of Brisbane 5%. 1928 - 1950/60 b 959) 2,800 Launceston Corp. 5%, 1927-1952 t 100 280 Launceston Corp. 5%, 1928-1953 ;b 100 280 Melbourne & l,fetropoli tan Bd. of 'lorks 5%, 1929-1954 ;b 1,978 5,538 Melbourne & Netropolitan Ed. of 'forks 3-3/4¢. 1937-1960 2,027 Electricity Trust of South Australia 4i1, 1947-1958 ~ 767 2,148 Sydney County Council 4%. 1936-1956 t 2,000 5,600 City of $,ydney 5£%. 1927-1953 ~ 2,000 5,600 C:'i.ty of Sydney 5t~. 1928-1954 ;, 2,000 5,600 City of Sydney 4%, 1943 - 1961/63 ;b 812 2.274 i"ietropoli tan '·rater. Set,rerage & Drainage Board (Sydney) ~~, 1937 - 1957 ;b 2,000 5,600 State Electricity Commis8ion of Victoria 3i%, 1937-1954 2.372 Total rJ.unicipa1 and Other Debt 40,119 Total Sterling Debt ~344.832 965,532 Total Debt Notes: = Pound sterling figures "Tere converted at I.1 $2.80. Debt excludes the follo~"ing: (a) Debt to the U.S. Government as of June 30, 1951 Lend-lease silver (payable in silver) $ 8.372,000 Credit-agreement offsets to grants 60,000 Surplus property (payable in Australian pounds) 5.931,000 $14,363,000 (b) Purchases from the International j,fonetary Fund of $20,000,000. (c) Short-term Treasury Bills and Debentures, maturing in August and September 1951, amounting to I.24,088,000 as of June 30, 1951. (d) "'orld ~'rar I debt to the :British Government amounting to t,79,724.220. II~O 1200 1250 13()O 1350 1400 1450 1500 1550 10° 10° o J 100 ! 200 , 300 ; 400 ; 500 , MILES .". . 5 ,~::. , 5/ I I I~O 15° I :A I )fiI I , I I I I 11I'f I , NORTHERN I I I I (LEAD, ZINC, COPPER) \ 20° I I I , :MT..SA , 20 0 TERRITORY , I , I I -xii , I .~ r~o~ 1 OF ~p~ -1 ---- _ _ W EST ERN AUSTRALI A I I I I ALICE SPRINGS l - - - .... - - - - - - - - - - I -----_L- _____ , I I I I QUE E -;til -- I I I , I , ~t-\I 1~1 tl .....:....- 25 0 I I I SOU T H I , I I I I I 30° 300 (IRON a STEEL) 35° 35° ECONOMIC MAP OF AUSTRALIA 9 - - - RAILWAYS t BREAK IN GAUGE ANNUAL MEAN RAINFALL o ~ IN INCHES 1 t,::;:J SH EE P . 10 a UNDER 400 MEAN RAINFALL SEASON (ALui1!NUM) 40° 10-20 -"it CATTLE \\ 5 = 5 MONTHS 20-30 tA~CESTON ~ GRAIN 9 =9 MONTHS 30 a ABOVE MT. LYELL 0 (COPPER. ZINC" oHOBART