Australia's new Liberal-National coalition government and the IMF share a common belief. Along with four other APEC countries with current account deficits exceeding 3.25% of GDP, Australia can no longer avoid tightening her fiscal and monetary policies.
At US$21 billion, Australia's current account deficit is now running at 4.5% of GDP. And a huge budget deficit is on the horizon. The treasury has already revised its estimates for economic growth downwards, but this has meant that, free of asset sales, the budget in 1996-97 will run at a deficit of A$4.9 billion (US$3.8 billion).
The underlying cause of these shortfalls is Australia's large foreign debt - an encumbrance brought about by the country's hunger for development capital and its chronic history of current account deficits. Historically, Australia has had a big appetite for capital from the US and Europe, but today Japan rivals Europe as a source of capital for quality Australian issuers.
Since the deregulation of the Australian financial system in 1984, large corporations, governments and government business enterprises have had much easier access to world markets. Deregulation has led to an acceleration in the volume of issues by Australian entities and inevitably this widening of access to global capital markets has helped to foster a more robust and competitive domestic capital market.