Market liberalisation, monetary stabilisation and foreign debt : did Australia get it wrong in the 1980s?

This paper argues that the Australian government made three errors when implementing the liberalisation and stabilisation programmes of the 1980's. International capital movements were liberalised at too high an Australian inflation rate; this deepened the later monetary-induced recession. The monetary contraction itself was supposedly aimed at reducing growth in foreign debt: theory and evidence, however, suggest that counter-inflationary policies increase foreign debt if the contraction occurs under free international capital mobility. By liberising international capital flows in advance of the major tariff cuts of the 1980's, finally, the negative effects of protectionism and the burden of adjustment to freer trade made have been increased. the policy errors led to an unnecessarily severe recession which may threaten further trade reform.

A hard copy is available in UCD Library at GEN 330.08 IR/UNI