Australia's Current Account Deficit

Paper Summary:

This paper analyzes Australia's persistent current account deficit that it has had since the 1950s. It questions why this deficit persists and how the current account deficit impacts on Australian foreign debt. The paper then discusses what measures have been undertaken by Australian governments in the past to reduce the current account deficit.

From the Paper:

"As Australia embraces a globalised world, funds flow across our border, often as payment for goods and services traded. Other movements of capital occur when Australia lends money abroad, or is forced to service its debts. These transactions, from the public and private sectors, are collected and recorded in a register known as the current account. For the past 50 years Australia has experienced a persistent current account deficit, resulting from Australia being a net importer, and because of interest payments on foreign loans/ investment. Therefore, the current account has been of major concern for successive Australian Governments, who have attempted to adjust the balance, with little success in the long run. However, while burdened by large foreign debt, the Australian economy has proved resilient, recording some of the strongest growth for OECD nations in the past 30 years, and has avoided the woes of its major trading partners, such as the Asian financial crisis, Japanese stagnation and the technology share crash in the USA. This has led to the significance of the current account deficit being questioned, because it is apparent that an economy, such as Australia, can perform so well, while experiencing the third highest deficit in the world."

Sample of Sources Used:

• ABS, Australian System of National Accounts, 2005-06
• ABS, Balance of Payments and International Investment Position, Australia, Jun 2006
• Bannock and others, The Penguin Dictionary of Economics, Seventh Edition, 2003
• Lewis and others, Issues, Indicators and Ideas - A guide to the Australian economy, 2003
• Reserve Bank of Australia, Commodity Prices and the Terms of Trade, April 2005

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• Term Paper # 98114 : "The U.S. Current Accounts Deficit"
• Term Paper # 120976 : "Current Account Deficit"

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