Guidelines Australia Should Adopt in Area of Foreign Economic Policy - Case Study Example

The Fallout from the GFC and, More Recently, the Euro Crisis, Are Reminders of the  Downside of Australia’s Embrace of Globalization. In the Light ofThese Developments, What Guidelines Should Australia Adopt in the Area of Foreign  Economic Policy? Table of Contents Introduction 3 Foreign and Economic Policy of Australia 3 Strategic and Policy Consistency 5 International Reactions 7 Existing Obligations 8 Economic Impact 9 Budgetary Implications 11 Public Support 12 Conclusion and Recommendations 13 13 References 14 Bibliography 17 Introduction This paper intends to evaluate the foreign economic policy adopted by the Australian policy makers with regards to the outcome from Global Financial Crisis (GFC) leading the economy to embrace the process of globalization in the country. Furthermore, it deals with the understanding of the strategic and policy consistencies which illustrate the role of Australian government in such circumstances. It will also provide an overview of the international reaction towards this issue. In addition, this paper deals with the existing obligations faced by the Australian economy to deal with issues such as the GFC. Moreover, this paper intends to assess the economic impact towards the Australian international trade related strategies along with its budgetary implications. Additionally, it measures the response of Australian community towards the governmental reactions in order to resolve the problem. Foreign and Economic Policy of Australia The recent GFC of 2007-2008, primarily began with the ‘credit crunch’ due to the failure of confidence by US investors in the value of ‘sub-prime mortgage’ which in turn led to liquidity crisis in the international market. Subsequently, the international stock markets became highly unstable as this global economic crisis was observed to harm the financial institutions globally due to the bank solvency, decline in credit availability and lowering investor confidence level. This in turn influenced the securities in the worldwide economy as the credit rate increased and international trade declined. The housing markets of many regions were also influenced due to this economic crisis. Furthermore, it raised the issues related to eviction, unemployment and foreclosure in various interrelated economies1. With due consideration to this, it has been observed that European economy was also affected that in turn persuaded the government to borrow money from the International Monetary Fund (IMF) and from the other neighbour countries in order to mitigate these negative effects of global economic crisis and thus led towards the rise of Euro crisis. It is in this context that with due effect to the recent Euro crisis, Australia also had to suffer. The effect of Euro crisis transmitted to the Australian economy fundamentally due to the reason that both the economies were strongly interrelated in terms of strong government finances and a resilient banking system2. For instance, Commonwealth Bank decided to terminate its plan for an enclosed bond issue due to market turmoil in relation to European crisis3. With regards to this, Australian government was further observed to embrace globalization process in its economic policies to increase the international trade flow within its national business environment. Strategic and Policy Consistency In its initial period Australian government had been very much focused on welfare aspects of national interest. With this concern, the Australian government intended to minimize its interventions in the marketplace4. In the similar context, G20 summit in London, to which Australia was one of the members, provided an opportunity for most of the countries in order to resolve the financial difficulties faced by these nations owing to the consequences of recent Euro crisis and GFC. This policy provided a comprehensive political commitment in order to avoid all new protectionist trade barriers. In addition, it assisted Australian economy to facilitate quite huge amount of capital with the help of IMF which in turn offered secure financial stability, high employment and sustainable growth as well as effective international trade flow within the country. Moreover, the policy of G20 endowed with the initial steps for Australia towards reform of its financial regulations in order to reduce the risk of future crises5. Additionally, the Australian government initiated ‘Fiscal Stimulus Package’ that concentrated on three significant aspects in order to respond to the economic crisis. Initially, it increased social transfer payments, especially for the low and middle-income groups. Subsequently, it generated investment in social infrastructures which included education sector, health care sector and housing sector. The third aspect of ‘Fiscal Stimulus Package’ dealt with new medium-term investment in economic infrastructure. This in turn intended to create its direct impact on retail sales, on consumer spending as well as on economic growth6. On the contrary, a few of the applied policies negatively affected the business environment of Australia. With due effect of globalization, the Australian economy had become much more depended on the FDI which in turn decreased the importance of the domestic market in the country. It is worth mentioning in this context that the policy measures and the strategic consistency of Australian economy have been, traditionally and even in the recent time, observed as highly influenced by the external trade affairs and fluctuations in the global economic factors. For instance, the foreign trade policies have been witnessed to shift in the aftermath of the recent economic turmoil in the international business environment raising noteworthy alterations in the foreign economic policies such as the Association of Southeast Asian Nations (ASEAN) policies. Being influenced by such alterations, the Australian Foreign Economic Policy also witnessed certain shifts which in turn depicts that the strategic and policy consistency of the economy is flexible to maintain pace with the alterations taking place in the external world7. International Reactions Following the Euro crisis, Australia intended to perform its international trade relationship mostly with the developing nations such as New Zealand, Thailand and Singapore; whereas, in its early practices the international trade relations of Australia was majorly concentrated on the markets of US, Japan, China and the UK. Presently, it has free trade agreements with New Zealand, US, Thailand as well as Singapore with the intention to reduce the currency risks which it had to face owing to its extensive trade relations with the European nations. Australia also signed a free trade agreement with Chile in order to distress the financial difficulties present in both the nations. With this concern, it becomes the fourth largest provider of foreign direct investment in Chile8. Furthermore, Australia also executes a fairly impressive trade relationship with China which is expected to grow substantially over the years owing to the increment in the dependency level of these economies. These two countries are engaged with each other in terms of economic, culture and political aspects. With the assistance of export, Australia mainly concentrates on investing its foreign reserves in the Chinese sectors of energy and mineral exploration as a contributor to the financial development, energy demands as well as infrastructure improvement to China. It is worth mentioning in this context that in the recent days, the Australian trade relationships, especially with the Asian developing nations are executed through the G20 agreement. Through this agreement initiative, the Australian economy not only performs its trade relationship with China, but also invests in the Indian, Japanese and Korean markets. However, the economy intends to share its trade relationships mainly with its traditional partners including the US and the UK9. Therefore, it becomes quite apparent that owing to the consequences of Euro Crisis, the Australian economy shifted its sole focus from its traditional partners in relation to international trade, towards the rapidly developing nations in the Asian continents; however, rendering significant consideration to its early trade relationships. Existing Obligations In the aftermath of the GFC and Euro Crisis during the recent decade, Australia decided to get included in the G20 agreement with other nations including the group of OECD economies. It is in this context that certain obligations have been imposed on the Australian international trade operations, especially with regards to the complexities or deficiencies arising due to corruption. To be precise, it has emerged as a vital aspect in the concern of G20 leaders that anti-corruption is highly essential in order to boost fair competition and attain sustainable economic development in the long-run performance. Every nation included in the G20 agreement needs to follow ‘The National Anti-Corruption Plan’. Certainly, with the inclusion of Australia in the G20 agreement, ‘The National Anti-Corruption Plan’ also intends to impose certain obligations on the economy briefing its actions which needs to be taken so as to mitigate the consequences of corruption practices within Australia10. Furthermore, in the post Euro crisis and GFC period, the trade agreements or treaties considered by various nations following the standards of World Trade Organisation (WTO) also tends to impose certain obligations on the trade relationships and policy measures of Australia. In order to reduce the currency fluctuations and also the inflationary rates in the global economy, it is quite likely that the WTO nations would agree to increase tariffs in the upcoming years. This certain obligation is most probable to impose certain trade barriers and thus hamper the world trade to a significant extent. Hence, the slackened trade flows owing to the rise in the tariffs will also affect the Australian trade operations in the international context influencing its obligations to reassess its foreign and defence policies to impose duty charges on the unjustly traded imports as well as exports11. Economic Impact The Australian economy was observed to perform better compared to any other western economies during GFC and Euro crisis. The implemented strategies that include G20 alliance, fiscal stimulus process, AFTA treaty, and newly developed as well as altered existing foreign and economic policies among others intend to provide a pathway to avoid distress in terms of financial crises or any other disruptions in relation to international trade operations. For instance, during this period Australia recorded a positive growth rate of 1.1 percent in the fiscal year 2008-2009, when most of the countries were experiencing negative growth rate12. With reference to the policy implications and alterations considered by Australia in minimising the consequences of Euro crisis as well as GFC in its recent performances and thus attain a sustainable growth rate through overall economic development, it can be stated that these fluctuations had a vital and inevitable impact over the entire economy. For instance, the increased tariff barriers through the alterations in the WTO agreement created a substantial impact over the economic trade relations, especially with the western developed nations and thereby influenced the Australian economy to shift its focus towards the Asian developing nations such as Japan, India, Korea and China in relation to its foreign policies13,14. Furthermore, due to the policy alterations in relation to the Australian defence strategies the economy was again observed to be influenced. It is in this context that in order to satisfy the obligations of G20 agreement post GFC and Euro crisis, the economy had to impose certain changes in its defence policies so as to control unlawful immigration along with export and import within the country. Imposition of duty charges also had a substantial impact over the economy15. The economic impact is observed to be quite strong in the case of Australia due to the reason that the foreign and defence policy measures of the country is witnessed to be highly fluctuating being influenced by the variations in the recent international trade operations16. Budgetary Implications The government of Australia implemented its budgetary planning in response to the recent GFC with an aim to distress the financial difficulties in its business environment17,18. Owing to the economic impact and policy considerations influenced by the Euro crisis and GFC, certain other budgetary implications were considered by the economy so as to retain and preserve its overall economic development process. In this regards, as Australia is conformed to be a member nation of the OECD group it has been estimated that in the current day context, the nation is likely to enhance its budgetary implications. This will be implemented with the intention to facilitate the hindered trade operations due to increased tariff barriers and duty charges in relation to the international trade operations. To be precise, an enhanced budget allocation can be witnessed with regards to the Australian foreign and defence policies in the recent years19. Public Support The foreign and economic policy considered by the Australian government, are strongly influenced by the communal forces which primarily include interest groups, parliamentary as well as bureaucracy members and officials’ public opinion among others who powerfully assist the demand of constituencies. It is in this context that complete support from the public can be regarded as highly essential to implement the policy measures efficiently and as per the planning so as to attain the determined objective. In case the public consent is meagre regarding any policy measure, it can lead to political unrest and thus hamper the business environmental sustainability to a large extent. With regard to the policy implications of Australia, it was observed that the Australian government received complete support of societal forces which in turn proved significantly beneficial in effectively implementing the planned strategies and policies with an aim to enhance the economic stability in its business environment20. Conclusion and Recommendations With due consideration to the above context it can be stated that Australia has gained benefits in its economy after the GFC and Euro crisis due to the implementation of effective strategies and policies in relation to its foreign trade relationships and agreements. However, it also created a few negative effects on its business environment that includes increased dependency on FDI, stricter regulations and obligations in relation to trade related treaties and agreements, and imposition of increased tariff and duty charges to reduce corruption. Therefore, in order to effectively deal with these difficulties Australian government should take the necessary steps to introduce tariffs cuts, deregulation in the national financial markets along with the reduction in international trade barriers. Conversely, the Australian government should increase its adaptability in order to diversify and develop its existence in the world economy21. References Battellino, R., 2009. Australia’s Foreign Trade and Investment Relationships”. “Reserve Bank of Australia”. http://www.rba.gov.au/speeches/2009/pdf/sp-dg-061109.pdf Bergsten, F., 2009. “Needed: A Global Response To The Global Economic And Financial Crisis”. “Fiscal Stimulus”. www.voxeu.org/index.php?q=node/3359 Brunnermeier, M. K., 2009. “Deciphering the Liquidity and Credit Crunch 2007–2008”. “Journal of Economic Perspectives”. Vol. 23(1): 77-100. CANSTAR International, 2009. “Global Financial Crisis - What Caused It And How The World Responded”. “Australias Response to the Global Financial Crisis - The First Stimulus Package”. http://www.canstar.com.au/global-financial-crisis/ CANSTAR International, 2011. “Australian Government Deposit Guarantee Guide”. “Deposit Guarantee Reduced to $250,000 11 September 2011”. http://www.canstar.com.au/government-deposit-guarantee/ Edwards, J., 2010. “Australia after the Global Financial Crisis”. “Australian Journal of International Affairs”. Vol. 64(3): 359-371. Fairfax Media, 2011. “Euro Crisis will Effect Australia: RBA”. “The Sydney Morning Herald”. http://news.smh.com.au/breaking-news-business/Euro-crisis-will-effect-australia-rba-20111214-1ou4z.html International Social Security Association, 2010. “Australia’s Successful Income-Led Response to the Crisis”. “Observatory”. http://www.issa.int/Observatory/In-Focus/In-Focus-Social-security-responding-to-the-financial-crisis/Snapshots/Australia-s-successful-income-led-response-to-the-crisis Nanto, D. K., 2009. “The Global Financial Crisis: Foreign and Trade Policy Effects”. “Congressional Research Service”. http://www.fas.org/sgp/crs/misc/R40496.pdf OECD. OECD Economic Outlook, Volume 2010, Issue 2. OECD Publishing, 2011. Okamoto, J., 2006. “Australia’s Foreign Economic Policy: a ‘State-Society Coalition’ Approach and a Historical Overview”. “Institute of Developing Economies”. http://ir.ide.go.jp/dspace/bitstream/2344/142/3/ARRIDE_Discussion_No.55_Okamoto.pdf Okamoto, Jiro. Australias foreign economic policy and ASEAN. Singapore: Institute of Southeast Asian, 2010. Shah, A., 2010. “Europe and the Financial Crisis”. “Global Financial Crisis”. http://www.globalissues.org/article/768/global-financial-crisis#Europeandthefinancialcrisis Taylor, A., No Date. “Developing the National Anti-Corruption Plan”. “Australian Government”. http://www.ag.gov.au/Crimepreventionandenforcement/Corruption/Documents/Speech%20-%20Alex%20Taylor%20-%20AGD%20Assistant%20Secretary.pdf Bibliography Department of Foreign Affairs and Trade, 2010. “Australian-China Free Trade Agreement Negotiations. “About the Australia-China Free Trade Agreement negotiations”. http://www.dfat.gov.au/fta/acfta/ House, S., 2011. “Australian Institute of International Affairs”. “Submission to the Australia in the Asian Century White Paper”. http://asiancentury.dpmc.gov.au/sites/default/files/public-submissions/aiia_0.pdf Nanto, Dick K. Global Financial Crisis: Analysis and Policy Implications. 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