Nation's Best Minds Make Survival Plans

Sun Herald

Sunday October 12, 2008

By KERRY ANNE WALSH AND ANNE DAVIES

AUSTRALIA'S top economic and political minds will forge a package of domestic measures to stave off further economic panic before the stock markets open tomorrow.

The two-day meeting, urgently convened by the Prime Minister in Canberra yesterday morning, also helped prepare an Australian response for a bigger international meeting in Washington today (Australian time) of 20 top countries, including Australia.

Deputy PM Julia Gillard hinted yesterday that the challenging economic times may force the Government to dump key commitments.

Measures expected to inject confidence into the financial sector may include a broadening of the Financial Claims Scheme, following recent decisions by foreign governments about similar schemes.

Legislation for the scheme to guarantee bank deposits will be introduced into Parliament this week. The Government had flagged a cap on guaranteed deposits of $20,000, but the weekend meeting could lift that limit.

A spokesperson for Mr Rudd said the Government continued to examine the most appropriate response to a "possible global recession", including its nation building agenda.

In a telephone hook-up in the cabinet room, Mr Rudd, Families Minister Jenny Macklin and a host of senior government officials discussed options with deputy PM Julia Gillard and Finance Minister Lindsay Tanner, who were streamed by phone from Melbourne, and Treasurer Wayne Swan from Washington.

The heads of the departments of Prime Minister, Treasury and Finance attended in person, along with their top officials and Mr Rudd's senior advisors. The meeting disbanded after an exhaustive five hours, and will reconvene today.

Before the meeting, Mr Rudd talked with US President George Bush. They agreed the two countries should unite to press for "co-ordinated and prompt" global action.

Australia has been asked to be part of a global action plan to unfreeze credit markets and stop the sell-offs on panicked sharemarkets, as part of an all-out assault being co-ordinated by US Treasury Secretary Hank Paulson which includes the US Government buying shares in its banks.

And the Group of Seven nations yesterday announced plans to calm the global economy and restore confidence in the financial system by shoring up struggling banks.

After finance ministers and central bank chiefs from the US met in Washington, the G7 - the US, Germany, Japan, France, Britain, Italy and Canada - agreed "that the current situation calls for urgent and exceptional action".

It said they would work together to stabilise financial markets and restore the flow of credit to support global economic growth.

After meeting with International Monetary Fund policymakers in Washington, Mr Swan said it was "pretty clear" the financial crisis gripping the globe had gone "from Wall Street to Main Street".

Speaking at the Victorian ALP conference before the phone hook-up with the cabinet room, Deputy PM Julia Gillard emphasised the seriousness of the global problem by telling delegates the world had entered unchartered economic waters.

"We are facing unparalleled challenges that extend beyond borders and coasts," she said.

And she gave another strong hint that the Government may be forced to dump key commitments: "As the Prime Minister has said: these are worrying times. They will inevitably affect our priorities and impact on working families."

Mr Bush and Mr Rudd spoke about moves to stem the haemorrhaging on Wall Street and restore confidence in world credit markets. "As part of his ongoing discussions with world leaders on the global financial situation, President Bush spoke with Australian Prime Minister Kevin Rudd this morning," said White House spokesman Gordon Johndroe.

Mr Swan said the two leaders had discussed the need for prompt global action. "They also discussed ways that Australia and the US would co-operate as closely as they could."

The shape of the international stabilisation plan was hammered out on Friday at a meeting of the finance ministers from the G7 nations.

Mr Paulson said the major economies had vowed to work in consultation by using strategies including direct investment in banks to ensure their stability, providing deposit insurance for investors, buying up toxic assets, offering insurance and ensuring credit is available to mortgage holders

The nations promised to be mindful of how they used the tools to prevent runs on foreign banks.

© 2008 Sun Herald

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