Aussie Float Architects Urge Devaluing 30 Years After Peg

Photographer: Grant Turner/Bloomberg

The Australian dollar surged almost 50 percent against the greenback from 2009 to 2012,... Read More

The Australian dollar surged almost 50 percent against the greenback from 2009 to 2012, making exports less competitive and boosting the appeal of imports. Close

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The Australian dollar surged almost 50 percent against the greenback from 2009 to 2012, making exports less competitive and boosting the appeal of imports.

Architects of the float of Australias dollar, trading at a similar level to when exchange controls were lifted 30 years ago, say the currency must devalue and economic reform be renewed to avert a recession.

Peter Jonson, who advised the central bank chief of the time, and Ross Garnaut, who counseled then-Prime Minister Bob Hawke, say the resource investment boom has rendered Australia uncompetitive. General Motors Co. this week cited an elevated exchange rate in deciding to stop making iconic Holden cars in the nation, as did Qantas Airways Ltd. on Dec. 5, when it flagged a record first-half loss and 1,000 job cuts -- announcements that echoed the economys early 1980s malaise.

There are some quite strong parallels, said Jonson, a former head of the Reserve Bank of Australias research department who has observed the nations economy for more than 40 years. When you look at Qantas, look at the vehicle industry, look at manufacturing generally, look at education, look at tourism, its a tough time.

The Aussie is trading at about 90 U.S. cents, around the level in 1983 when Hawkes government removed exchange controls and embarked on an economic overhaul that freed up the finance industry, cut tax rates and slashed tariffs. Garnaut and Jonson now call for the government to moderate spending, lawmakers to scrap taxes they say deter investment and employers to keep wage gains at less than the pace of inflation.

The Aussies strength has made everything uncompetitive in Australia except pulling iron ore and coal out, said Garnaut. A big adjustment in the exchange rate has to be part of the improvement in competitiveness.

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Aussie Float Architects Urge Devaluing 30 Years After Peg