Table of Contents
In October 2008, the All Ordinaries, Australia’s oldest share index, having reached an all-time high in late 2007, went into free fall. By March 2009, it had halved in value—a record low. As the other polities studied in this volume fell into recession, the Australian public watched on, increasingly feeling the effects of the downturn. The lack of government debt and the apparent resilience of Australia’s economy—tied as it was to the still-booming China—provided reasons for hope. As the crisis hit an increasing number of Australia’s trading partners, however, the pinch was increasingly felt. Together, this highlighted the challenges leaders faced when trying to convince the public not to lose confidence in the economy. When in June 2009 the Rudd Government was able to declare that ‘Australia is the only advanced economy as of today not in recession’, the policy of pre-emptively tackling the economic downturn appeared to be vindicated.
Throughout these tense months, maintaining business and public confidence was a key concern of Australian Prime Minister Kevin Rudd, Treasurer Wayne Swan, and Governor of the Reserve Bank of Australia (RBA) Glenn Stevens. They sought to articulate the crisis to key stakeholders and the broader Australian public, to contain the crisis, to create support for the unprecedented measures they were taking and potentially to use it to their advantage. This chapter examines their public leadership during this period.
The Rudd Government had been in power since December 2007. In this period, several high-profile events abroad served to raise alarm bells in Australia. Three months before Rudd assumed office, the United Kingdom had experienced the most severe run on a bank in more than a century, and three months into Rudd’s first term US investment bank Bear Stearns collapsed. The Australian economy was experiencing a continuing resource boom and, consequently, the RBA continued to raise rates to keep a lid on inflation (maintaining a 7.25 per cent interest rate until September 2008). Meanwhile, the US Federal funds rate was approaching zero and central banks around the world had begun to reduce their own rates. With increasingly dire economic news from abroad, Australians were watching the storm clouds gather. By September 2008, the crisis was well and truly on Australia’s doorstep.
Box 9.1 Australia’s financial crisis trajectory, March 2008 – March 2009
4 March 2008: Interest rates peak at 7.25 per cent, the RBA stating that there is a need to control inflation and slow growth.
20 March: Australian investment group Opes Prime collapses—the first victim in Australia of the global financial crisis.
10 April: The International Monetary Fund (IMF) predicts that Australia will not suffer from the same slump in growth rates that other nations will as a result of the global slowdown.
14 May: The ‘responsible’ and ‘inflation fighting’ 2008 federal budget is handed down in surplus. Beechwood, the largest home builder in New South Wales, collapses.
16 May: The All Ordinaries rises above 6000 points, driven by growth in mining stocks. Three days later, the Australian dollar hits a 24-year high of 95.71 US cents.
June: Australia is defying global trends, with gross domestic product (GDP) growing 0.4 per cent in the June quarter.
3 July: Borrowing for housing drops to its lowest rate since 1991.
10 July: The All Ordinaries drops below 5000 points on the back of investor concern about global recession.
25 July: The National Australia Bank (NAB) announces a write-down of almost $900 million worth of residential mortgage-backed securities. Within days, the ANZ Bank announces similar losses.
6 August: Consumer confidence levels and home-loan approvals are found to be in historic decline.
20 August: Opposition Leader, Malcolm Turnbull, claims that ‘talking the economy down’ by the government has had a deleterious effect on economic confidence.
2 September: The RBA cuts the cash rate back to 7 per cent.
15 September: The RBA injects $1.3 billion into the financial sector. Treasurer Swan warns that Australia will not be immune from the effects of the financial crisis.
16 September: Prime Minister Rudd states that the global financial crisis still has ‘a long way to run yet’ as the Australian dollar falls to 12-month lows and the share market falls to four-year lows.
18–21 September: Chaos on Wall Street starts another wave of dramatic tumbles at the Australian Stock Exchange (ASX). The Federal Government places a ban on the short-selling of stock.
26 September: In an address to the United Nations General Assembly, Rudd calls for a global response to the financial crisis
7 October: The RBA slashes interest rates to 6 per cent.
10 October (Black Friday): The All Ordinaries takes a 21-year record dive of 8.2 per cent to 3939, and $87 billion is wiped off the value of the ASX.
14 October: Rudd announces a $10.4 billion stimulus package to help Australia avoid going into recession.
24 October: Investment giant Babcock & Brown goes into trading insolvency.
November: Major companies Allco Finance, Freightlink and ABC Learning go bankrupt.
4 November: The RBA cuts rates to 5.25 per cent.
16 November: G20 Washington Summit announces the six-point economic plan. Rudd reiterates the need for international responses at the Asia-Pacific Economic Cooperation (APEC) meeting the next week.
21 November: The All Ordinaries sinks to a new low of 3235.
December: Australia’s GDP growth rate contracts in the December quarter, falling to –0.5 per cent.
2 December: The RBA cuts its interest rate to 4.25 per cent.
8 December: The ANZ job advertisement survey and NAB business confidence index fall to their lowest levels since the 1991 recession.
January 2009: Unemployment rises to 4.8 per cent; building approvals fall almost 13 per cent nationally.
21 January: BHP Billiton lays off 3300 workers.
1 February: Swan announces that a budget deficit is now ‘inevitable’.
3 February: The cash rate reaches a historic low of 3.25 per cent. The government announces the $42 billion National Building and Jobs Plan.
March: Unemployment hits a four-year high at 5.7 per cent; GDP recovers to 0.4 per cent.
13 March: The All Ordinaries hits its lowest point in nearly six years at 3052.
26 March: The RBA announces its belief that the economic stimulus package is working.