Australian External Debt Essay

1219 words - 5 pages

Australian external debtIntroductionForeign debt is referred to also as external debt. Foreign debt is distinguished from other kinds of foreign investment capital inflow such as foreign ownership, because it carries with it the obligation to pay interest or to repay principal.There is no single factor that caused the dramatic deterioration in Australia's external position (McGillivray&Papadopoulos, 1995). The contributing factorsare both internal and external.When domestic interest rates are high relative to overseas interest rates,borrowing in overseas financial markets is attractive because of the lower interest rates, while lending to individuals overseas becomes less attractive.An increase in overseas borrowing leads to an increase in capital inflow while decrease in lending to the overseas sector reduces capital outflow.Australia remains a major net importer of foreign capital, as it has been for most of its history. Without such capital Australia's economic and employment growth would be lower. Yet few people seem to understand that the deficit which Australia has on current account (because importing more goods and services than it exports) is the other side of a surplus on capital account. Moreover, unlike the large investment borrowings from overseas ofthe 1980s, these capital imports are now apparently being used productively.According to Reserve Bank (1994) report, Australian current capital surplus of about 5% of GDP can be regarded as not dangerous by comparison with the same surplus in 1984-1985.As McTaggart et al (1999) says, a country that runs a current account deficit must borrow capital from overseas, to overcome that deficit, and a country that runs a current account surplus lends to the other countries. Over time, if a country continues to run current account deficits, it becomes debtor nation with stock debt owed to others. Therefore, Australia is debtor nation. The levelof Australia's external debt has risen from very low levels in the 1970s to relatively high levels in the 1990s. This also can explained by government policies and regulations that have allowed to accumulate such debt.But, the main issue is, is it a problem or not if country is in large external debt. Should Australian economists and politics be concerned about being a net borrower?McTaggart et al (1999) suggests, that the answer to this question is usually thought to depend on what is done with the borrowed money. If the money is borrowed to consume, then, the country may have a problem.In contrast, if the money is borrowed to invest and generate income which is high enough to service the credit, then country doesn't have any problem, instead it gains benefit from that credit to develop the economy.But however, the increasing level of international debt in Australia has caused concerns among officials and economists. McTaggart et al (1999) suggest that there are several factors which caused these concerns:Servicing the debt - the larger is the debt,...

Find Another Essay On Australian External Debt

Australia's Exchange Rates and the effects from global events

1161 words - 5 pages economic growth and investment for Australia.However the falling currency for Australia has got limited benefits as well. Depreciation of the Australian dollar may support higher levels of capital inflow into Australia because domestic assets become cheaper relative to their foreign counter-parts. From this process it can reduce the level of foreign debt and increase foreign investment in Australia.Another benefit in a long term perspective is the

Examination and Critical Discussion of BHP Billiton’s response to the Appreciation of the Australian Dollar in Recent Years

4459 words - 18 pages and lower prices of raw materials. In addition, BHP Billiton can seize the opportunity from the appreciation of AUD, importing some advanced machines and attracting external labor to enhance its business structure. 15 5.3 Debt management strategy 5.3.1 Recent foreign currency denominated debt strategy of BHP Adjustment of foreign currency denominated debt is also one way to respond the appreciation of Australian dollars (Yao 2013

ANZ capital structure

1142 words - 5 pages The Report of Capital Structure and Dividend Payouts Policies - ANZ 1 8 The Report of Capital Structure and Dividend Payouts Policies - ANZ The Report of Capital Structure and Dividend Payouts Policies - ANZ 7 IntroductionThe Australian and New Zealand Banking Group Limited (ANZ) is a regional bank that mainly operates in Australia and New Zealand. ANZ has strong domestic markets and intend to grow its presence in the Asia Pacific

General Overview of the Republic Debate

1051 words - 4 pages Our present constitution reflects Australia's status as a self-governing colony within the British Empire. The constitution links us to the British parliament as a British Governor General (appointed by the Queen to represent herself in Australia) is our head of state and he has specific executive and reserve powers.After the Imperial Conference of 1926, our autonomy in internal and external affairs has been acknowledged and the Governor General

Why the balance of payments and the current account deficit are so important

899 words - 4 pages Why Is the Balance of Payments and the CAD So ImportantThe balance of payments is a summary of all Australia's transactions with the rest of the world. The balance of payments may give an explanation for, as an example, why the value of the Australian dollar has appreciated. A current account deficit occurs when the current account does not balance but is negative. The reason Australia has a current account deficit is because of greater levels

Discuss the main features of Australia's recent Balance of Payment performance & the impacts of a high current account deficit on the Australian economy

1012 words - 4 pages Australian Dollar into other currencies thereby reducing our debt whereas if the AUD was weaker, we would need to convert more Australian Dollar into other currencies thus increasing our debt. As the value of the $AUD depends on the demand for our exports, y credit and speculators, an increase in CAD will decrease confidence and hence reduce Y credit (as investors decides to invest elsewhere) which will devaluate the $AUD. This worsen Australia's


2191 words - 9 pages external party  Require payment, cash, transfer of assets or performance of services to cancel the debt. 28 Definition of the elements: Equity  Definition of Equity:  "residual interest in the assets of the entity after deducting all its liabilities".  Key pts - depends on definitions of assets & liabilities  i.e. capital, drawings, retained profits  Creditors have legal precedence in debt repayment

Final Report Analysis

2009 words - 8 pages Career One Pty Limited, Coles Myes is the biggest the competitor with Woolworths in Australian (Career One Pty Limited, 2003). Another two typical retail companies J.C. penney Company Inc and Walmartstores are in American. We can make conclusion that what Woolworths achieved in 2002 was pretty good with the exception of the debt utilization ratios. The result of comparison indicates that Woolworths's performance was in positive position in 2002

About Australia

4049 words - 16 pages Rate 1.36 1.37 1.30 (US$=1.00) 9. Net Foreign Debt (year end) 119,291 118,300 123,200 10. Debt Service Ratio (%) 11.4 12.1 12.4 11. U.S. Economic/Military NA NA NA Assistance * Exchange rate fluctuations must be considered when analyzing data. ** Percent changes are calculated in Australian dollars. (e) Estimate (p) Projection 1. General Policy Framework Australia's gross domestic product (GDP) in 1994 was estimated to be US $317.6

Foreign Investment in Australia

2902 words - 12 pages benefited by pursuing foreign investment in Australia.However foreign investment does not come without a cost:§Loss of ownership and control of industry and resource§Increasing external debt results in high debt servicing which increases the income component of the current account§Portfolio foreign investment tends to be short term and speculative§Corporate restructuring as a result of foreign investment often results in large

The Efficacy of Deposit Insurance in the Australian Context

5068 words - 20 pages , the Future Fund (a government corporation used to fund superannuation liabilities for the public sector) utilises the private sector in its portfolio management, and the skills and knowledge available within the Fund would undoubtedly be useful in managing any deposit insurance corporation. Also, the involvement of Australian Office of Financial Management (as the specialist agency responsible for Australian Government debt) and its various state

Similar Essays

Commerce Foreign Debt Essay

1173 words - 5 pages Foreign debt (which is also referred to as external debt) is, by simple definition, an amount of money that one country owes another. It means the amount borrowed from non residents by residents of Australia. Australia has the second highest level of foreign debt in the world, with the US coming out on top. Australia’s big foreign creditors are the US, the UK and Japan.Foreign debt can be measured as a percentage of Gross Domestic Product

External Balance Defining The Problem, Policy Implemented To Deal With The Problem Of External Stability

1030 words - 4 pages appreciating rapidly, this generally indicates an external imbalance. Depreciation in the Australian dollar will generally worsen Australia's CAD problem in the short-term, as the prices of imports and costs of servicing foreign debt increase.Economists differ over the extent to which we should be concerned about Australia's current account deficit and foreign liabilities, with some arguing that since the government is not contributing to the current

The Cause And Impacts Of High Cad Year 12 Economics Essay

1654 words - 7 pages gap is a key structural cause for the persistent CAD. You need to link this to the Net Primary Income (NPI) account- i.e. servicing this debt (link to more money leaving due to high level of investment inflows) A CAD impacts negatively on the Australian economy because it increases Australia’s Net Foreign Liabilities (NFL) and this poses a threat to Australia’s external stability which refers to the ability of the nation to service its foreign

The Balance Of Bayments And Cad

835 words - 3 pages servicing both debt and equity borrowings (known as total external liabilities) in the Australian Economy. This means that the payment of interest, profits and dividends to foreign lenders and investors exceeds the receipt of income from Australian investment and lending overseas. In 2004-05, Australia had a net income deficit of -31216m representing 54.6% of the CADDue to Australia's ongoing Current Account deficit, this means that it must be financed