Australian CEOs on US Economic Policy, Davos and the Coming

UNCLAS SECTION 01 OF 02 MELBOURNE 000019 SENSITIVE SIPDIS E.O. 12958: N/A TAGS: EIND ECON ETRD AS SUBJECT: Australian CEOs on US Economic Policy, Davos and the Coming Tsunami Ref: Summary -------------- ¶1. (SBU) During a CEO roundtable hosted by the Business Council of Australia on February 3, executives asked Consul General about potential changes to US trade, monetary and fiscal policy. An attendee who had just returned from Davos indicated that expectations are high for April's G20 meeting, and there is strong "momentum" for increased global cooperation. Executives were split on how best to see Australia through the slowdown, but all agreed that the worst is yet to come. End Summary. Changes to US Policy? -------------- ¶2. (SBU) During a February 3 roundtable meeting with CEOs such as Goldman Sachs/JB Were's Craig Drummond and BNP Paribas' Didier Mahout, business leaders asked whether there would be substantial changes to US trade, fiscal and monetary policy. CEOs expressed keen interest in learning more about US positions on trade, currency, international labor standards, rebuilding consumer confidence, US/China relations, the future of the UN, IMF and World Bank, climate change and the potential for increased bank regulation. Craig Drummond noted that rating agencies were also responsible for the financial crisis and asked whether we anticipated increased regulation of the "watchers" such as Moody's and Standard and Poor's. Davos -------------- ¶3. (SBU) Drummond, who had just returned from the World Economic Forum (WEF),described a downbeat atmosphere, but noted a strong degree of enthusiasm for international cooperation. There are high expectations for April's G20 meeting and leaders are looking forward to increased cooperation on fiscal policy since monetary options have been exhausted in several key economies. The Australian business contingent in Davos all agreed that the economic "tsunami" has not fully hit Australia and "smart" executives are busy preparing to confront it. ¶4. (SBU) According to Drummond, WEF leaders were unable to agree on how long the global slowdown would last or on how best to confront it. They did agree, however, that rebuilding confidence would be tied to increased regulation and limiting excessive compensation. While Chinese Premier Wen Jiabao said that he expects 8 percent GDP growth in 2009, Drummond noted that Chinese executives at the forum doubted the Premier's "optimistic" figures and indicated that there are already examples of growing social unrest in China. Finally, Drummond sympathized with Vladimir Putin's concern that funding the US deficit risks sucking liquidity out of developing economies. Australia: The Way Forward -------------- ¶5. (SBU) Responding to Consul General's query on how Australia can best confront the global slowdown, PaperlinX CEO Tom Park noted that economies must resist the temptation to raise trade barriers. Craig Drummond indicated that business leaders only want governments to first do no harm. He expects good collaboration between business and government in order to manage expectations and to properly evaluate all available options. Regarding Prime Minister Rudd's plea to executives to retain workers, Drummond and others agreed that businesses need sufficient flexibility to take necessary survival measures. ¶6. (SBU) Robert Milliner, Managing Partner of Mallesons, Stephen, Jaques law firm noted that the business community is looking for leadership on pricing the true cost of deleveraging in order to try to put an endpoint on the process of revaluing assets. John Denton, Managing Partner of Corrs, Chambers, Westgarth law firm argued that governments must not sacrifice long term stability and prosperity just to generate the impression that they are "doing something." According to Denton, the business community is concerned about potential government inhibitors such as the labor laws announced in Australia in November 2008 and the potential for new business regulations. He acknowledged, however, that there is a difference between leading in a growth, versus a no-growth environment. There is still a palpable level of shock and anxiety, Denton said, that is fed by "unhelpful" journalism. MELBOURNE 00000019 002 OF 002 Comment -------------- ¶7. (SBU) CEOs at the roundtable agreed that the worst is yet to come for the Australian economy. Executives are busy taking precautionary measures and say that maintaining flexibility will be the key to survival for many Australian businesses. While most appeared confident that their businesses would survive the downturn, there is still considerable uncertainty on just how deep and long the slowdown will be in Australia. THURSTON