The liquidity protection measures announced yesterday by the Australian Government appear to be sensible and measured responses to the international credit crisis, on their face far more sensible and directed at the present nub of the crisis than the measures adopted in the US. Whether they are enough, or will succeed in their short-term aims, however, depends primarily on international markets and the boost to world confidence that will be given by the coordinated responses of G8 and G20 finance ministers and central bankers.
Australia's banks are, by universal consent, in a far better position than most others in the industrialised world and, certainly, a lot less directly exposed to the US subprime crisis which has triggered the international market meltdown.
Likewise, Australia is not encountering anything like the liquidity crisis being experienced in some markets. But Australia is a player in world markets, which are if anything (because of our trade profile) more subject than most to massive international money movements. Faced with the present jitters, we must pay close attention to measures other economies have taken to protect their banks, their liquidity and their economies. Actions by other players such as Ireland's commitments to guarantee bank deposits spur reactions elsewhere, including beggar-my-neighbour rushes to match or better them. Australia will have to be fairly nimble, and may yet be forced to enact further measures if it is to stay with the pack indeed to remain a net importer of foreign currency.
This is not quite to suggest that the appropriate measure of yesterday's decisions is only the response of today's stock exchanges or the movements in our currency, important as these will be in assessing whether there has been any impact, local or international, on credit confidence. It seems doubtful that panicking sellers in the market meltdown of the past two weeks, culminating in the Black Friday market last week, were paying particular attention to the virtues (or vices) of the Australian economy: if they were, their verdicts were quite puzzling, whether in terms of the massive decline in the Australian dollar's value vis-a-vis the US dollar, or in the writing down of particular types of stocks and bonds. More likely, we resembled many other markets and economies dumped on indiscriminately in an avalanche and, as some of the panic subsides, investors both here and abroad will be more calmly assessing the situation.
It would, however, be idle to pretend that only ''facts'' matter in such assessments, given the importance of confidence, and the significance of subjective judgments about changes in economic growth, local, regional and international, and of judgments about how far nations, individually and collectively, will act to protect their economies. The sort of measures promoted by Britain focused rather more on the importance of putting money back into the system than on writing off or rescuing ''toxic debt'' are better adapted to getting markets operating again than the initial US measures. Australia's actions, so far, seem to fit with adaptation to local circumstance into the British mould.
Though Australia's measures fall well short of semi-nationalisation (imposed on Britain because of the extent of its crisis), they involve significant enough government intervention and support that the Australian Government, the Reserve Bank and our regulatory agencies are entitled to demand of banks the significant quid pro quo of some say in how the effective transfer of taxpayer money is spent. If the Government is sensible it will not seek to direct who will get loans, or on what terms: markets can still better determine that than bureaucrats. But it should be demanding a right to be heard at board level on bank policies (not least on remuneration) and on public interest considerations in bank strategies and tactics. It can demand its money be used to increase liquidity rather than be hoarded, or used for speculation outside our economy. And it should have a right to regard its money not as a mere loan, or as a species of equity, but as an investment by all taxpayers in protecting the national economy.
The Government's help is not there merely to protect the interests of bank shareholders. What that suggests is that the investment demands a national dividend, albeit down the track. That dividend might well involve something rather more than a fee, or a profit with interest, on the effective credit extended, but a new openness by the Australian financial system to transparent governance, financial regulation and the avoidance of dodgy financial instruments. Right now, perhaps, it is too early to specify just what the price should be, if only because it is far from clear how much Australia, and its banks, will have to draw down on the measures taken. But if governments, and their advisers and instrumentalities, are shy about insisting that there will be a price, and that it may be high, they will have significantly underestimated the political will of the taxpayer.