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Joe Hockey supports US in row over tapering of economic stimulus

Date

Peter Hartcher, James Massola

EXCLUSIVE

G20 meeting: Treasurer Joe Hockey wants a weaker dollar.

G20 meeting: Treasurer Joe Hockey wants a weaker dollar. Photo: Andrew Meares

Treasurer Joe Hockey will side with the United States over the most hotly contested issue before the Group of 20 ministers, saying Australia would benefit from a lower dollar if the US Federal Reserve trims its economic stimulus.

As the Treasurer prepares to host the ministers in Sydney this weekend, he predicted the US Federal Reserve policy would weaken Australia's rampant dollar, offering welcome relief to the economy.

''I think it's helpful to us, from my perspective, because it will strengthen the US dollar'' against the Australian dollar and other currencies, Mr Hockey said.

''It gives us a little bit of respite.''

The local dollar has been trading at about US90¢. This is about 15 per cent cheaper than its peak at the height of the mining boom but still 20 per cent higher than its average since it was allowed to trade freely in 1983.

The strong dollar has made Australian products more expensive in the world. As a result, manufacturing, tourism, higher education and other export industries have been hit hard.

Mr Hockey acknowledged that the US Federal Reserve policy - the so-called ''tapering'' - was unpopular with the governments of developing countries, which make up almost half the Group of 20.

''The US Fed has to do what's in the best interest of the US, and if the US does well it's good for the whole world and particularly good for Australia,'' he said. ''We're very mindful of what's happening in the rest of the world. I don't see any systemic problems in developing nations - each nation has its own issues, idiosyncratic issues - but I don't see any systemic issue that causes us to be concerned about tapering. It adds pressure to some economies.''

The US Federal Reserve has force-fed some $US3 trillion into the financial system over the past five years to boost American growth, and this has flowed into markets around the globe, boosting their markets and cheapening their currencies.

However, now that the flow is being reduced, many developing countries fear the outrush of capital will crash their markets and roil their economies. They want the US to consider their fates.

India's central bank governor, Raghuram Rajan, complained last month that ''international monetary co-operation has broken down'' and said that the rich countries ''can't at this point wash their hands off and say we'll do what we need to''.

The new chairwoman of the US Federal Reserve, Janet Yellen, and Mr Rajan will be among the finance ministers and central bank governors meeting in Sydney at the weekend.

Seeking to balance his pro-US policy with one favoured by the developing countries, Mr Hockey is lobbying against the US Congress position on reform of the International Monetary Fund.

''But at the same time, the US has an obligation to help with the reform of the IMF, which allows developing countries to have a greater say at the table. And we're going to prosecute that,'' he said.

Mr Hockey said Australia's focus at the meeting would be on the need for governments to foster global growth and investment, particularly in the private sector, and how governments needed to pull back from over-regulation in the wake of the global financial crisis.

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