AUSTRALIA'S trade deficit is set to top A$20 billion (about HK$117.84 billion) this year and some forecasters are predicting the current account deficit will reach a staggering $27.5 billion next financial year. That is more than double the red ink the nation chalked up when Paul Keating made his infamous Banana Republic comments in May 1985. The trade deficit at that point was $12 billion but the panic of what potentially lay ahead sent the Australian dollar to a record low and markets into a spin as then Treasurer Mr Keating said rising imports needed to be halted and exporters had to lift their game. Already the trade deficit for the first four months of the financial year is $8.96 billion - 45 per cent higher than the same time last year. Yesterday, the Australian Bureau of Statistics said the current account deficit for October was $1.646 billion - below market expectations of about $1.9 billion but still high enough to continue to make markets nervous. True, there have been major structural reforms in Australia in the eight years since the Banana Republic crisis, but many analysts, including a former adviser to Mr Keating, have warned about that sinking feeling of 'here we go again'. Simply put, Australia is drowning under a mass of imports and a ballooning interest bill on the nation's $160 billion foreign debt. Imports are rising because the economy is booming and at least half of the business investment, which is so critical for economic and jobs growth, is likely to come in the form of imports. On the other side of the ledger, exports are disastrous. Since January exports have risen by less than two per cent while imports have boomed by 13 per cent. The drought in rural Australia and low commodity prices can be blamed for only part of the slump. There is no use the Australian Government saying it did not see this coming. For the past seven months the current account deficit has topped $1.5 billion. In August, the seasonally adjusted deficit was $2.1 billion - the worst since January 1990 and the third worst on record. Australia's Opposition treasury spokesman Peter Costello warns that if the trade crisis is left to fester, then it may be jobs that are lost. 'The only forecast we're going to meet in Australia is the forecast of the OECD which says Australia will have the highest current account deficit in the industrialised world,' Mr Costello said yesterday. 'It was the current account deficit that led Mr Keating to create the recession which ended with one million out of work and wiped out hundreds of thousands of businesses. 'The jobs and businesses are gone, but the current account deficit is still there. 'As international interest rates rise, the cost of servicing the foreign debt will rise, causing a further deterioration. The problem is now feeding on itself and there is no end in sight.' Last May's budget predicted the current account deficit would be $18 billion this financial year but Reserve Bank of Australia governor Bernie Fraser has already said it would be higher. BIS Shrapnel director Frank Gelber tips the current account deficit will hit $24 billion because Australian companies have not invested properly during the recession and now are trying to catch up with accelerating imports. In fact, Mr Gelber said Australia had already sown the seeds for the next economic downturn in 1996-97. Bankers Trust chief economist Chris Caton thinks the full year deficit will be about $21.5 billion. Even Mr Keating's economic adviser around the time of the Banana Republic comments, Barry Hughes, has said the current account deficit will top $20 billion. Mr Hughes believes 'crunch time' has arrived with rising imports not matched by export income. In a report for merchant bank CS First Boston, Mr Hughes said Australia faced a worrying six to nine months to find out if commodity price rises would plug the growing gap between imports and exports. 'Hence the sinking feeling of here we go again,' his report said. The two major components to the balance of payments are the trade side which is basically imports and exports and the other is the interest bill. Until imports began surging in January, the trade side has been pretty much even with imports and exports relatively level. A far cry from the 1970s when exports were crushed by imports. Then there is the interest bill where rising world interest rates mean after a few years of falling debt repayments, the interest bill on what Australia owes the rest of the world is rising. Mr Keating has acknowledged there are two ways to lift the current account into the black - having a budget which is in surplus and boosting the country's critically low level of national savings. No wonder the government has faced a barrage of pressure to speed up its budget deficit reduction strategy. Mr Keating said at the start of this month that he was not worried about the current account deficit problem. Mr Keating in 1986 said the current account deficit was about six per cent of gross domestic product, interest rates were getting set to take off, Australia's terms of trade was in a shocking state and commodity prices were at their lowest since the Depression. Now, Mr Keating says it's a whole new ball game and he and his senior ministers do not tire of boasting that the Australian economy is in the best shape since the 1960s with low inflation and strong jobs and economic growth. According to Mr Keating, not only have commodity prices picked up but Australia's manufacturing and industrial base has been transformed and the country is now exporting elaborately transformed manufacturing goods. But interest rates are rising again and although Treasurer Ralph Willis assures everyone they will not hit 18 per cent again, a new book released in Australia puts some doubt on that. Author Laura Tingle, in her new book Chasing the Future , says Mr Keating lied about lifting rates in the late 1980s and the question being asked in Canberra now is why should Australians believe the government this time. Economic forecaster Access Economics says Australia's current account deficit will reach 5.75 per cent of GDP next year - pretty close to the six per cent level that so alarmed Mr Keating. 'I think the current account figure will get much more ugly from now on,' said Access Economics director Chris Richardson.
