Download Essay Plan Balance of Payments

Essay Plan Balance of Payments
The Australian BOP is made up of the CA and the KAFA, and ultimately represents all transactions of
Australia with the rest of the world. Within these accounts, they can be divided into credits, money coming
into Australia as receipts, and debits, money leaving Australia as investment revenue. The BOP is an
international indication of Australia’s external economic performance and can be used to represent the
external issues and problems faced by Australia. It can be witnessed that Aus suffers from ongoing balance
problems due to a growing CAD.
Current Account,
Net Trade, export and import revenue
Net Current Transfers, goods provided for no return
Net Income, income from various investment
Net Services, exchange of services
Balance CA = (exports – imports) + net income + net current transfers + net services
KAFA, made up of two accounts, all transactions are reversible, money from borrowing, lending and
purchasing
Capital Account, 1. Property from immigration, 2. funds to build new infrastructure, 3. intellectual property
rights
Financial Account,
1.
direct investment, money to build new projects
2.
portfolio investment, trading of financial assets
3.
derivative investment, complex financial assets
4.
reserve investment, bonds from monetary
5.
other, unclassifiable
BOP = CA + KAKA + Net Errors Omissions
Explanation Paragraph
Supply of $S = Demand of $A
Explanation Paragraph
Australia has sustained growing CADs. Averaged 2.7% of GDP in 1980s, now it is 4.0% average. Moves in
cyclical patterns reached 6.2% in 1992, rises if Global growth is strong.
NFD, NFD to GDP has grown during period of Globalisation. 1980 6.3%, 1990 42.3% and 08/09 it was
52.9%, there is risk of Debt Trap
Debt Trap, Increase CAD, Increase NFD, Increase Serv. Cost, Increase NID
NFD leads to increase in NFL. NFL 725bill, 633bill NFD. Reluctance to invest in Australia and asking for
risk premium.
Reduction of investor confidence reduces demand for currency. Reduces short term growth
BOP restraint, restraint on Future Growth.
Government may feel threatened, Further Action encouraged. Tight Macro, Fast Micro. Further slowdown
and unemployment
Vulnerable to shifts in sentiment, sudden loss of confidence.
From these consequences noted it becomes apparent that Australia’s high CAD poses as a major risk to the
welfare of the economy. Whilst some believe that AUS CAD reflects financial market’s willingess to accept
external imbalances in a time of Globalisation, it is clear to see that a CAD is still a risk. This can be reflected
by the concerns raised by the 1997 Thailand crisis where a sudden loss of investor confidence crippled the
Thai economy. It is up the Australian government to recognise the imposing risks of a CAD on the economy
and address it as a problem.