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The Aussie float a love story

The Age

Thursday February 17, 2011

David Loves

It is no surprise that Blanche D'Alpuget is pushing Bob Hawke's claim to be the man who floated the Australian dollar, writes David Love. A WOMAN'S defence of her lover makes for a good story wherever it turns up. One does not usually expect to find it in economics, but just recently in Australia we have seen the drama in that form.In the Australian case, the lovers are Blanche D'Alpuget and Bob Hawke lovers for some time and now a married couple. The place for the story is the recent book, Hawke the Prime Minister, by D'Alpuget. The drama centres around the question of who floated the Australian dollar, the beloved Hawke or his former Treasurer Paul Keating? Hawke and D'Alpuget are united by the bonds of love and thus together in their quest to rescue the prize for the dollar float, which they see as in danger of being wrenched from them. They will work tirelessly , year after year, to have it firmly established in the Australian consciousness that the crown for floating the Australian currency does belong to Hawke.D'Alpuget's most recent efforts are supported by the Museum of Australian Democracy which in 2009 sponsored an essay series entitled "Australian Prime Ministers: Triumph over Adversity", and awarded the prize to a year 12 Perth student who came up with "Bob Hawke and the Floating of the Australian Dollar". The bones of the essay run quite close to D'Alpuget's Chapter 2 and, briefly put, run like this:After the Labor government's financial reforms of 1983 the Australian dollar was left as an awkwardly fixed currency, and as more and more international capital poured into Australia expecting the fix to break it was, as the young author said, obvious to Hawke that a change was needed. By October 1983 Hawke decided it was time to act. One danger was Keating who, our student author tells us, was still finding his feet as treasurer. An even greater menace was John Stone, the secretary of the Treasury, who didn't want a bar of the float and "ferociously" worked on Keating to the extent that after a meeting on October 27 1983 the float did not go ahead. "Hawke knew that next time it would be him who would emerge triumphant," our student essayist said. And anyway too much money was still pouring in.On December 8, the matter reached a crisis. News reached Hawke and his colleagues that a wave of $800 million was heading Australia's way and this was the final straw. The student essayist continued: "It was now or never to float the dollar. Stone continued to oppose the plan, with talks continuing well into the night. . . At one a.m. in the morning Hawke sent a message to Paul Keating, 'We've just got to do it'. Hawke was tired of Stone's protests and was ready to bypass his opinion completely." The dollar floated.There is, however, another story. The Fraser government had received a report on financial policy from the Campbell Committee which, among other things, recommended a free float for the Australian dollar - a recommendation that it never implemented. Immediately upon becoming treasurer in the new Labor government, Keating appointed the Martin Committee to review the conclusions of the Campbell Committee. As 1983 progressed, the Martin Committee attracted more international attention and speculation increased that Martin would recommend and Labor would accept the floating of the Australian dollar. This speculation was accompanied by an ever-increasing flow of cash into Australian capital account, to the point of threatening stability. The year became a race between the Martin Committee's progress towards a recommendation on the dollar and international currency speculation. As Martin prepared to report, Keating grabbed the page endorsing the floating of the dollar as soon as he saw it and moved it swiftly towards law on the night of December 9, saying: "Speculators can now speculate against themselves and not against the Australian government."In the background there was more. More than 10 years before the float the group of young Australians constituting the private merchant bank Hill Samuel had devoted a large part of their time to becoming experts in financial assets trading, including trading in international currencies in London and New York. Keating knew that, should the $A float, there would be there waiting for it a highly professional international trading home and that this could be counted on as a factor for stability in a float.The $A traded in the Hill Samuel basket from the day it floated in 1983. It wasn't until 1985 that Hill Samuel officially became Macquarie Bank.None of this explains why there should have been for years such high level clamouring for the title of Floater of Australian Dollar. But I don't see any mystery here. Since the float the $A has grown to be fifth in status and trading rank in the world, surpassed only by the $US, the Euro, the yen and the pound sterling.This is an extraordinary historical development for Australia; I would say our greatest historical development. For while we remain in or near that grouping we can look upon ourselves as a nation never likely to be bothered by laws that allow a woman to be buried to the upper arms preparatory to being stoned to death for adultery, never likely to allow to go unpunished a man who shoots dead a political leader for questioning blasphemy laws, never likely to confine to jail without trial one who demands democracy. Nor, in such a position, are we ever likely to dodge responsibilities as a member of the United Nations.We are of a small elite in the world and this explains the competitive eagerness shown by Hawke and Keating to be recognised as the man who floated the dollar.But back to the female star. Reading chapter 2 of her book one cannot help but be struck by condescension to the point of a gliding put down in the way that D'Alpuget treats the young treasurer Keating. She has Professor Ross Garnaut, a close associate at that stage of her love, refer to a meeting concerning the dollar. She quotes Garnaut as saying that he [Paul] was still pretty dependent on Treasury in that first year, so he let Stone carry most of the argument. Still Garnaut, on another meeting: "So Peter Barron [a Hawke aide] was sent down to bring Paul back." On to Bill Hayden reportedly saying "Keating was terribly worried about it because Stone was against it. . ." On to Paul Kelly quoting a discussion in Hawke's office: "What do we do if Paul's not up to the job?" Then Kelly himself: "Paul was struggling."Then to D'Alpuget the author: "Keating had confessed to the prime minister that he was terrified during question time in case the opposition asked him for details he would be unable to give. Fortunately the opposition was in too much disarray to realise it could seriously embarrass the treasurer and the government and the dreaded questions were never asked. So Hawke set out, according to an insider, to strengthen Keating."Let us pause on that note while I go to some papers I had collected for my own book, Unfinished Business. These notes were about Keating among a coterie of former senior Treasury economists at the time of D'Alpuget's 1980s story. These young men greatly admired Keating. Thus Ted Evans who became secretary of the Treasury and later chairman of Westpac: "Paul Keating is innately intelligent . . . Over the years I watched him address varieties of people. I watched him address the Labor caucus. I saw him address business people, arts people. He was a different person each time. He would speak at the levels and about the things he judged to be right. He showed quite an extraordinary ability: I have never seen a politician become so effective and acquire such extraordinary learning."D'Alpuget goes on in the book to say something that Garnaut must now find embarrassing. She says Garnaut recalled (presumably to her) his joining Hawke's office as a relatively young PhD at which point Keating told him "if you and I play our cards right we'll run this show. . ".This at a time when at Treasury not only Ted Evans was glad to have Keating's intellectual companionship but people like David Morgan, who went on to become chief executive of Westpac and chairman of the Australian Bankers' Association, and Tony Cole, who after being secretary of the Treasury went on to join the international investment consulting group Mercer where he became a world wide partner and a member of the global board for investment consulting. These and others like them were glad to have the intellectual companionship of Keating.So who floated the Australian dollar? On the strength of my conversations with the aforementioned Ted Evans before he became chairman of Westpac, I am a Keating man. And I must add that as important as the mechanics of the float itself to the Australian dollar is the immediate post-float attention given to it by the forerunners of Macquarie Bank. Without that postnatal care it could have drowned. As it was it had the best care an infant currency could get.David Love is a former economics editor of The Australian Financial Review and founder of the economics consultancy Syntec. He is the author of Unfinished Business: Paul Keating's interrupted revolution, Scribe Publications, 2008

© 2011 The Age

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