Ballooning foreign debt ties Australia to imperialism

Vanguard August 2011 p. 6
Alex M.

Over the years a number of articles have appeared in this paper about Australia’s foreign indebtedness. Continuing this fine tradition, selected information from a 2009 Australian Parliamentary Library Research Paper detailing the data and trends associated with Australia’s foreign debt, give us some insights into Australia’s financial ‘state of play’.

For the period 1976 to 2008 in Australia, “the level of gross foreign debt increased from $8 billion, to $1,072 billion.” Such an increase represented a jump from 9% to 95% of gross domestic product (GDP) over that time frame. The report’s author, Tony Kryger, states that at 95% of GDP, the 2008 level of gross foreign debt was “its highest level ever.”

Gross foreign debt is defined as the total of non-equity (equities = shares) liabilities accrued by Australian residents from overseas sources. Included in gross foreign debt are such things as bonds, “loans, advances, deposits, debentures and overdrafts”. Foreign debt is distinct from capital inflow connected with foreign investment, as the former carries with it “the obligation to pay interest” as well as the principal.

Subtracting the lending of Australian based entities to overseas entities from the gross foreign debt gives the net foreign debt. Comparing the annual growth in gross and net foreign debt in the period 1976 to 2008, we see that gross foreign debt rose 16.7% on average each year, whilst net foreign debt rose 17.8% on average during the period in question. What this means is that Australian lending overseas has not risen as fast as Australian borrowing from overseas.

Who is doing the borrowing?
Since the late 1990s there has been a marked decline in total public sector borrowing as a percentage of gross foreign debt. From 1980, when public sector borrowing accounted for 44.3% of the foreign debt, the downward trend really kicked in when public sector borrowing dropped from 31.8% in 1997 to 25% in 1998. In 2008, the public sector accounted for just 8% of Australia’s total foreign debt.

By way of contrast, private sector debt (which has made up the lion’s share of gross foreign debt for decades), has ballooned out from 55.7% in 1980 to 92% in 2008.

Since 1992, financial corporations have been the major borrowers, such that, of the total Australian gross foreign debt of $1, 072 billion, 74% of that figure was attributable to financial corporations, with the share of non-financial corporations at 18.1%. Clear from the figures presented here is the absolute rise of Australia’s gross foreign debt and the pivotal role that finance capital has played in continuing this trend.

The cost to Australia is enormous. The interest that has to be paid on the overseas borrowings was $42.7 billion in 2007-08 (bearing in mind that the interest liability fluctuates according to the rise and fall of interest rates). This interest liability represented 3.8 % of GDP. So 3.8% of the value of all goods and services produced within Australia was required to meet the interest commitment on the gross foreign debt.

Moreover, most of the debt has been initiated by finance capital and therefore would not necessarily be earmarked for productive investment. A proportion of the borrowings would be used speculatively in such things as currency trading, share and bond trading, for instance.

Australia’s chief creditors
For much of the period 2001 to 2007, the chief creditors of Australia by country were: the United States and the UK, with Hong Kong, Singapore and Japan as lesser lights. The composition by country of Australia’s gross foreign debt in 2007 breaks down to 22.2% ($226 billion) held by US based entities; 23.4% ($239 billion) held by UK based entities, with 32.4% ($330 billion) held by ‘Unallocated’ which in this instance means international institutions and international capital markets which have not been allocated a country of origin.

Compare this with the situation in 2001. Then the leading creditor was the US, with 26% ($127 billion) out of a total of $498 billion gross foreign debt. The UK in 2001 held 17% of Australia’s gross foreign debt and Japan 7% ($86 billion and $32 billion respectively).

What such levels of debt do is put an incredible amount of political and economic power into the hands of overseas based financial corporations; ‘who pays the piper, calls the tune’. The increased levels of Australia’s gross foreign debt are in large part a consequence of neoliberal policies adopted by the mainstream political parties in this country.

The role of ideology
Neoliberalism, the ideology of late twentieth, early twenty-first century capitalism, has been disseminated as the ‘commonsense’ approach to the systemic problems of contemporary capitalism.

An integral part of the process of disseminating this ideology is that played by the mass corporate media. As we have seen with the unfolding of the ‘Hackgate’ scandal in the UK, the intimate connections between big business (which in this case includes media conglomerates such as Murdoch’s) and the State and the mainstream political parties not only promotes corruption, but also, amongst other things, acts to establish an ideological consensus.

What is needed to overcome Australia’s increasing level of indebtedness and the vicissitudes of neoliberalism is a more just and equitable society. One based on an independent, socialist Australia.