FINANCE FOR DEVELOPMENT

Abstract

Australia's development capital requirements cannot be solely financed from domestic savings but need to be supplemented by overseas capital. Thus there should be no impediments to the inflow of overseas funds and variable deposit ratio controls (currently suspended) should be abolished.

Overseas capital inflow is important for the balance of payments, as imports of capital goods are likely to rise during the developmental stage of large resource projects. Exports in subsequent years will provide the funds for amortization of borrowings.

However the Australian capital markets can still provide for adequate local participation and funding. In particular, Australian banks have a capacity to finance our share of large projects, but it will be argued that a less controlled banking system will improve its long term ability in this regard.

As a consequence the relationship between money supply management and interest rates will be discussed.

Overall the capital needs of structural change will be reviewed with the conclusion that Australia is already turning its attention to capital investment in areas of comparative advantage - resource development, particularly beneficiation of raw materials.