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Australia's heavy reliance on natural resources has brought riches to many, but risks worsening the country's structural economic flaws.
SYDNEY, Australia — For years, Australia has been sitting pretty while the fiscal albatross of toxic debt and sagging demand dragged down its allies in the developed world.
While the global financial crisis had people from New York to Nuremburg tightening their belts, surging demand from China for iron ore and coal was fueling the flash cars that clog Sydney’s throughways at rush hour — and boosting the Australian dollar to unimagined heights.
There is a growing fear among Australian analysts and politicians that the country could find itself trapped by a first world version of the “resource curse,” the paradox that explains why countries with great reserves of natural resources tend to be less stable and prosperous than those without.
Australia, despite its highly educated work force and world-class infrastructure, is increasingly becoming the world’s quarry, they warn.
“Mining is growing fast, but nothing lasts forever, no matter how welcome it is today.”~Kim Carr, Australian senator
A trio of top Australian bank chiefs even recently went so far as to caution that the strength of the super-powered mining sector was masking serious structural flaws in sectors as varied as tourism to retail to commercial property.
In short, it’s a nice place to visit to pick up your coal and steel, but not the kind of place you’d want to invest in.
A clearly frustrated Sen. Kim Carr, the innovation, industry, science and trade minister, sounded the alarm bells late last year in a what could prove to be a prescient posting on his website.
“Mining is 8 percent of GDP and 1.4 percent of employment. Manufacturing is 10.2 percent of GDP and 9.2 percent of employment. Mining is growing fast, but nothing lasts forever, no matter how welcome it is today. It would be bold and naive to think that the income we currently enjoy from the resources sector will continue unabated. Putting all our eggs into one basket simply doesn’t make sense,” he said.
“Can we really celebrate the concept of a two-speed economy — where some parts of the country are prosperous and other parts are left to wither on the vine? Do we genuinely believe that the workers and communities we sacrifice will be reborn without cost?”
Some accuse Australia's Labor-led government of just such economic naivete, and in the interests of short-term political gain, using as an example the decision taken last week by Treasurer Wayne Swan to block a much-hyped bid by the Singapore Stock Exchange to take over the Australian Securities Exchange (ASX). Opponents say the Labor-led coalition government is more interested in playing populist politics than encouraging its further integration into rapidly developing Asian markets.
Matt Robinson, senior economist at Moody's Analytics, blasted the deal, saying it risks discouraging foreign investors at a time of unprecedented consolidation in the world’s exchanges.
"Rejection on the grounds of loosely defined national interest generates a potentially toxic degree of sovereign uncertainty regarding future [mergers and acquisitions] activity involving Australian companies," he said in a written commentary.
"The decision has likely damaged Australia's reputation as a destination for foreign capital and will discourage foreign investors from considering future opportunities in Australia."