Australia’s substantial external debt has raised questions about its underlying causes. The surge in foreign debt since the mid-1980s is largely linked to private sector activities. This rise is attributed to various factors, including financial deregulation and the effects of globalisation. An additional significant contributor to this debt escalation is the marked increase in mining production, often funded by foreign savings.
Financial deregulation in the 1980s and 1990s opened up avenues for increased borrowing, allowing private entities to access international capital markets more readily. This led to a surge in borrowing by Australian businesses to fund various ventures, particularly in the mining sector. The subsequent boom in mining production further exacerbated the foreign debt situation, as these projects required substantial investment often sourced from overseas.
Moreover, globalisation played a pivotal role in Australia’s mounting external debt. The interconnectedness of global markets meant that Australian firms, especially those in the resource sector, could tap into international funding. This access to foreign capital enabled rapid expansion but also contributed to the accumulation of debt, as profits and revenues were sometimes insufficient to cover the borrowings.
In conclusion, Australia’s high external debt is a complex issue stemming from a combination of financial deregulation, globalisation, and the boom in mining production. These factors have led to increased borrowing by private entities, often funded by foreign savings. While this debt has facilitated economic growth and development, it also poses challenges, particularly in managing repayments and interest.
(Response: Australia’s high external debt is a result of financial deregulation, globalisation, and a significant increase in mining production funded by foreign savings.)