Abbott fractures Liberal grey beards

bdfbd

From the AFR this morning:

One of the most senior figures of the Howard government and a leading ­figure of the Liberal Party’s conservative wing, Peter Reith, has accused Prime Minister Tony Abbott of orchestrating the veto of a $3.4 billion US bid for GrainCorp, which he described as the latest of several botched decisions… and raised concerns that the GrainCorp decision, which was supposed to have been made by Treasurer Joe Hockey, makes a bailout of Qantas Airways more likely.

“Hockey says it should be the subject of a national debate. Australia does not need a debate; we need a government that makes it clear it will not be wasting any more taxpayer money with sub­sidies for business and that its priority, as promised, is to return the budget to surplus ASAP,” he said.

…Former treasurer Peter Costello criticised the decision on Sunday. On Monday former Victorian Premier Jeff Kennett said it had condemned Australia to be a “tenth-order country” and “we are still back in the 18th century”.

“Governments have failed this country for 30 years,” he said. “We just keep taking every short-term option and it’s just another reflection of just how ­public institutions have totally failed the Australian public.”

Former Liberal prime minister Malcolm Fraser backed the decision, saying it was “just plain stupid” to sell control of the distribution network for agricultural produce to a foreign competitor. 

Mr Fraser compared the decision to the sale of Australian Meat Holdings to US group Con Agra when it held a large share of the Australian meat export market. He said just as Con Agra would have the best interest of US farmers at heart, GrainCorp would be similar.

Mr Kennett said it was one of a long line of short-sighted decisions by both parties that left the nation’s agriculture and food-processing sectors short of the capital and know-how they needed to keep up with global competition.

It takes a lot for the Liberal Party to fracture like this. For the most part conservative politics is more united than Labor because of its “master and apprentice’ culture that worships grey beards. It’s the same culture that makes the Liberal party so tetchy about broader criticism, especially from the ABC. It’s usually a political advantage and policy disadvantage. Not today.

Meanwhile, Graincorp fallout continues. From the WSJ:

After Prime Minister Tony Abbott’s election-night promise in September that Australia was again “open for business,” Mr. Hockey’s ruling that the ADM takeover of GrainCorp isn’t in Australia’s national interest will create inevitable uncertainty about the conservative government’s stance toward other big foreign investment deals in the queue. Some of which are at least as problematic, if not more so.

The most prominent ones still facing Mr. Hockey come from China…The Yancoal deal is particularly troublesome for Mr. Hockey. In 2009, FIRB demanded that Yanzhou list its Australian assets on the country’s share market within three years as a condition of approving the purchase of Felix Resources Ltd for A$3.3 billion. To fulfil that condition, Yanzhou struck a deal to acquire Gloucester Coal Ltd. in 2012 that enabled it to inject most of its Australian coal assets into the company and take on its listing. The combined entity trades as Yancoal Australia Ltd.

Allowing Yanzhou to renegotiate its commitments to the government could set a precedent for future deals, something Mr. Hockey may be keen to avoid.

While successive Australian governments have claimed Canberra approves the vast majority of overseas applications – a claim Mr. Hockey underlined Friday by saying he had approved 131 less significant deals before knocking back ADM — the previous Labor government imposed extra scrutiny on applications from state-backed investors like Yanzhou and State Grid, the world’s biggest utility by revenue.

…China, Australia’s biggest trade partner, has bristled at the additional scrutiny. Those worries were acknowledged by Mr. Abbott during a visit to China earlier this year in which he acknowledged that Chinese investment in Australia was “complicated by the prevalence of state-owned enterprises”.

People close to the State Grid deal wouldn’t comment on whether the veto of ADM’s bid for GrainCorp. had any implications for its power-asset purchase. Still, Mr. Abbott this month expressed a preference for offshore deals that promised to build Australian enterprises and jobs, rather than take over existing businesses like GrainCorp.

In short, it’s simply unclear whether these deals are in trouble or not. Sovereign risk anyone?

Houses and Holes

David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the fouding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal.

He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.

Comments

  1. So…the Sovereign Risk is caused by a reluctance on the part of this government to flog certain assets to foreign intersts. It isn’t caused by Foreign Debt that results from 53 years of Current Account Deficits caused by a combination of negative RAT interst rates, accompanying atrocious policy, and our own self-indulgence and sense of entitlement?

    The solution to avoid Sovereign Risk is to keep flogging off assets as quicklyt as possible. In addition to make the process quicker we should flog off mature assets the sale of which brings no clear benefit to outr nation?

    • Flawse, I completely agree with you that we have been screwing ourselves over for the last 53 years and that we should absolutely not be flogging off our nation to fund our lifestyles.

      Where I think that sovereign risk comes in is that the Graincorp decision was clearly political appeasement and not certainly not part of a coherent new strategy from Hockey. (Remember he bragged that he’d already approved 130 sell-offs).

      It’s the unpredictability of the decision-making process that creates the risk. Who knows what will be the next sale that attracts enough attention from the Nationals to force Hockey to reject the sale?

      • As you know, Flawse, I completely agree with you. But the sovereign risk is being amplified by a debutante Government with no compass for either addressing the underlying issue or recognising the reality of its failings. That is my point.

      • Who knows? Our political choices aren’t great and won’t be until we are really forced into hard choices. I can’t comment on the Graincorp sale really as I haven’t spoken to any farming friends of the ins and outs as far as they are concerned. On the face of it from the bit I’ve heard so far there was almost no gain and a lot of risk.
        However if we want to crash the dollar this is just the sort of decision that needs making. So just for the sake of the argument let’s say trhere is enough nouse around economic circles that such a course is necessary. You coul;dn’t anounce that you were going to limit Foreign Investment in this country without having the whole world downm on you. Even this little gambit has all teh MSM and the US State Dept on their case! (BTW the fact the US State Dept poked their damned nose in tells me it was a good decision!)
        Now I don’t know whether smashing the capital flows slowly is the sort of advice Hockey is getting but if that were the case I reckon it’s a damned good policy. Dangerous economically and electorally? Absolutely. However there is no other path open to us.
        The use of monetary policy to try toi achieve these goals is insane and been proven to not only not work but to cause furhter groth in non-productive activity.
        So how about we cheer the positive aspect to this (not political)as well as asking the long term economic questions about consequences? We should be consistently supporting anything that will stop the speculative capital generated by the Fed from destroying our nation.

        • It’s great to see the Country Socialist hypocrisy, with their subsidised fuel, vehicles and loans bemoaning international competition.

          It’s alright to call for the working class to take on Asian wages but some Stars & stripes mod taking over a agribusiness is beyond the pale.

          Pauline Hanson is all smiles.

  2. The decision not to sell graincorp is one of the best moves the current government has made. I struggle to see how it would be of any long term benefit to Australia to sell it to a foreign company, although I welcome any logical explanation as to why I might be wrong.

    Sadly though I doubt the idea came from the liberal party. Why the nationals continue to embarrass themselves by participating in the coalition baffles me.

    • Open markets are a principle. They were enacted following WWII for two reasons.

      First, they tend to increase welfare (to a point) as speicalisation is efficient.

      Second, they prevent countries that are short of one resource from invading another to get it.

      To this we can add the local imperative of keeping interests at bay in all of our interests.

      Did the Graincorp takeover have problems? Yes. It is a monopoly. But so what, it’s still one today.

      Is ADM a US national champion that will disadvantage Aussie farmers? No. Its checkered history more than suggests it will try to gouge everyone equally. If that’s your worry then it should be regulated now.

      Is it a food security issue? No, the assets are still here. You can always nationalise them in a pinch.

      I’d rather we weren’t selling the farm. Nothing would give greater pleasure than to see GC buy ADM. But if you tailor economic setting that destroy your competitiveness then crying to Mummy when others are better at stuff isn’t a solution.

      Not doing the deal means Aussie ag is again left in hands that have failed to deliver much promised bounty. Let fresh capital and management have go. Ownership is irrelevant.

      How did I do?

      • That is not bad, and thank you for your response. However, you also touch on one of my main concerns with all of this. In that with open markets it would be no problem if GrainCorp were brought out as if the new owner tried to screw the farmers over there would be other companies there to offer the farmers a better deal. With a monopoly it just looks like the farmers will be screwed over. Hopefully this will act as a warning to the farmers of what will eventually happen to them if they don’t get organised and for a cooperative take over distribution of their products themselves.

          • Unfortunately, I don’t think it warrants a gold star.

            When the alternatives are so clear and obvious, stating that we should resign ourselves to policy lunacy and transfer ownership to foreigners to give them a go is a bit limp.

            We have oodles of capital and with less reliance on funding our lifestyle by selling off silverware (natural non renewable assets, capital assets and public and private IOUs) we could be world leaders in producing agricultural goods and more importantly processing them!

      • “Open markets are a principle. They were enacted following WWII for two reasons…..”

        HnH surely that is the sort of economic mantra tripe we should be challenging. How can we advocate Open Economies and markets when the Fed is out ther eevery day destroying markets and productiver business. The RBA is now part of that policy…destroy productive business to encourage speculation and consumption.

        As pfh has sensibly commented so often we have to get control of the capital flows especially where those flows are generated by an unprincipled group of Banksters in teh form of JP Morgan HSBC Citi et al. Understandably they direct theior power to their own benefit. We need to be fighting them on all fronts.

        Mopre to the point the understanding and teaching of modern economics is so distorted by the notion that capital is free, there is no such thing as the external account, and that the world has unlimited resources we need to be really seriously questioning all these stupid assumptions that have been made.

      • HnH

        For crying out loud (said with teh best of intention)
        Aussie Ag has been penalised by an absurdly over-valued currency continuously for 50 odd years. This is accomapnied by negative RAT rates for those 50 odd years so that there is no sqaaving to provide capital in this country.
        How can Ag possibly have been successful under Governments openly hostile to every aspect of it and satarving it of capital?
        You are just reinforcing the stupid errant stereo type so favoured by the Bourgeois city class that couldn’t run a farm or an Ag business to save there danmned lives.

        The national attitude to Ag’s place in our world is refglected in the current move of the Graincorp CEO from Graincorp to the puveyors of ‘sweet poison’ at Coca-Cola who are wilfully destroying our nation for their own profit for twice the salary graincorp can pay. Yet the MSM thinks this is wonderful.
        For cryting out loud can’t we have some principles anbout anything?

      • HnH, part of the problem is that the agricultural market between Australia and the US is not an open market, and one little acquisition isn’t going to change this.

  3. “it was “just plain stupid” to sell control of the distribution network for agricultural produce to a foreign competitor. ” but at the same time federal government is stimulating states to sell (most likely to foreign governments) water and electricity suppliers that directly support over 85% of our GDP

    • Spec…spot on. My only qualification being that we really have to get across to the public what the real issues are and the sacrifices we all need to make to avoid this stup[idity.
      Nobody is doing that. The Liberals didn’t do it when in Opposition and are now reaping that political whirlwind. Labor are now preaching that they can just go in and do everything..Gonski…Disabilty pensions etc etc more for everyone, without any financial consequences.
      Somebody has to reallt try to get people thinking about our real practical hard choices.

      • Hi Flawse.
        I’ve seen you use the term “negative RAT interest rates”…. What does the acronym RAT stand for?

          • Yes athalone. I’ve used it a lot so these days i don’t write it out in full.
            It’s been my belief that when we are looking at behaviour in response to interest rates we need to look at the REAL cost( or benefit) which not only includes an inflation factor but a tax factor. My judgement is, that whether it is business or personal, we make decisions, finally, on what ends up in our pockets.

            I probably seriosly started considering RAT rates back in the days of high inflation. Interst rates paid on cash were say 6%. Inflation was like 12%. In addition we were taxing people roughly 40% in tax at the marginal rate. Effectively we were confiscating some 8.4% so negative RAT 8.4%.
            This has continued pretty continuously for nearly 50 years one way and another. Then we wonder why we don’t have savings and the capital to invest that flows from savings. It has just never paid to save in my lifetime.

            Every time we invest in this country we have to either borrow from foreigners or sell foreigners an asset to raise funds.

            I hope that explains my motivations.

  4. Seriously uncomfortable selling of this monopoly. Nationalise it, dplit it up, sell the parts – if we really must sell everything we have to keep us in jet skis and big tvs.