Australia's Current Account Deficit
These interest repayments add to the current account deficit, which then requires further overseas borrowing, increasing the level of interest repayments. This is known as the passive accumulation of debt.
In order to avoid an increase in interest repayments, Australia must earn more export income. Thus Australia must improve its international competitiveness to improve their economic position, this means moving away from its dependence on primary commodities. Primary products are known as simply transformed manufactures (STM's) ie the very basic production processes that add very little value to raw materials. Examples of these are Iron, steel and copper.
This movement will lean towards elaborately transformed manufactures (ETM's) ie more complicated production processes that add substantial value to raw materials. Some examples of these are cars, machinery and computers.
The attempts to increase the productivity of the Australian economy through structural change are called microeconomic reform. This will result in a more efficient allocation of resources within the industries of Australia.
There have been many initiatives that have been undertaken to improve Australia's economy these include:
„h There has been a great emphasis on improving the level of education and training within the workforce
„h Levels of protection to local industries have been reduced
„h The infrastructure of the economy has been improved
„h Substantial taxation reform has been undertaken
Structural adjustment is the changing pattern of production within an economy. These changes take place due to changes in demand, the introduction of new technology, and government policies. The role of government is vital as they can determine the changes in the concerned economy. They may do this through various methods such as tax, subsidies and tariffs.
Structural change is aimed at improving international competitiveness. In doing so, the Australian economy will be able to improve their terms of trade. International competitiveness is determined by:
„h The cost of labour and labour productivity
„h The cost of inputs
„h Inflation rate
„h Exchange rate
„h Quality of the product
„h Marketing skills
„h Credit facilities
„h Reliability of the suppliers
Therefore if all of these factors are taken into account and the appropriate action is taken, Australia will be able to obtain a surplus in the current account. Thus the opportunity will arise to pay the foreign debt and spend more on the infrastructure of the nation to better enhance the living standards.