Australia’s surging dollar a source of pride and fear
Can catching up to the U.S. be a bad thing?
Nick Hortle is afraid it might. The friendly Aussie runs sightseeing cruises around the scenic harbor of this sun-drenched city, but now that the value of the Australian dollar has surged to virtual parity with its U.S. counterpart, Hortle may be sailing into trouble.
With their buying power reduced, American tourists are likely to fetch up on these sandy shores in fewer numbers than before, while more and more of Hortle’s fellow Australians are taking their newly muscular currency and flexing it on vacation abroad.
“It’s a double whammy,” said Hortle, whose company has offered cruises around Sydney for 40 years.
Ironically, his worried outlook is the product of a national economy whose robust performance is inspiring envy around the world. Because of vast reserves of natural resources that other nations keep gobbling up — most notably China — the land Down Under has come out of the global financial crisis on top, the only developed economy to have avoided slipping into recession.
Strong growth has boosted the Australian dollar, which was worth less than 50 U.S. cents during a bad spell in 2001, to giddy new heights. Nearly two weeks ago, for the first time since it was floated on the currency market 27 years ago, the Aussie dollar actually became more valuable than the American greenback for a brief time before pulling back to within a whisker of dead even.
“It’s parity time!” one television network crowed on its evening newscast after the psychologically important barrier was breached.
But not everyone here is reaching for the noisemakers. Amid predictions that the Australian dollar will continue to rise in value, plenty of manufacturers, farmers, school administrators and tour operators in this country fear their own fortunes will drop.
Exports like Australia’s famous wines now cost more on foreign supermarket shelves. Australian universities, normally magnets for overseas students because of their quality and tuition in English, are in danger of losing their edge on colleges in less pricy countries.
Museums, restaurants, theme parks, airports and companies offering diving expeditions along the Great Barrier Reef or trips to the rugged outback are bracing themselves for shrinking numbers of foreign visitors.
While Australians are happy that their economy is in vigorous health overall, many are afraid that their country has become over-reliant on a single sector: mining.
Rich deposits of iron ore, coal and other minerals have traditionally been important engines of the economy here. But the current hunger for such commodities, especially in the developing world, is fueling the “biggest mining investment boom since the 1850s Gold Rush” in Australia, as national Treasurer Wayne Swan described it in a speech Oct. 11 before the New York Stock Exchange.
In the process, the raw-materials industry is stealing attention from other sectors and siphoning away skilled labor, bumping wages upward and prompting fears of a skills shortage in other parts of the economy.
“The question that will be asked at some point is, what are we getting from this mining boom and what will it cost us?” said Heather Ridout, head of the Australian Industry Group. “We have experience of Australia being just a quarry, and we don’t want to go back to that,”
Prime Minister Julia Gillard told her compatriots recently that Australia was at risk of turning into a “patchwork economy … where some of the country booms while other parts go backwards, where some regions cry out for skilled labor while in others, Australians live aimless lives without skills, work or hope.”
Her Labor Party-led government wants to impose higher taxes on iron and coal, a controversial proposal to “ensure that Australians get a fair share of the increase in the value of these resources,” treasurer Swan said in New York.
To help diversify the economy, the government is also planning to cut corporate taxes and invest in infrastructure. But such measures have yet to assuage the fears of workers in sectors expected to lose out as mining continues to dominate the economy and the Australian dollar goes on strengthening.
After suffering a prolonged drought, wheat farmers were looking forward to a strong harvest this season. Hopes that the high yields would help recoup some of their losses, however, are running aground on an exchange rate that has pushed up the cost of exports.
The tourism industry has been enjoying an increase in visitors from new markets in Asia, especially China, whose currency also remains strong relative to the American dollar. But that growth may not offset the potential drop in vacationers from countries such as Britain and the U.S., the second- and third-biggest sources, respectively, of foreign tourists in Australia. (Nearby New Zealand is No. 1.)
About 5.6 million international visitors came last year; Sydney, with its renowned opera house and beautiful skyline, remains the hub.
Rowan Barker, a spokesman for the nationwide Tourism & Transport Forum, said there were no signs yet of a dip in visitor numbers. Any effect would probably emerge in the months ahead, since holidaymakers arriving now probably planned their trips some time ago, before the Aussie dollar had appreciated to such a degree.
“They still want to come and pat a koala and see a kangaroo and all those things,” Barker said. But there is evidence that overseas visitors are spending less per day than they used to.
Businesses belonging to his organization have grumbled about the surging Australian dollar and called on the government to rein it in. Barker acknowledged that the government’s options are limited in a world of open markets.
“We’ve had people saying, ‘Do something about the dollar,’ but what?” he said, adding: “That’s the $64,000 question” — an amount that, for once, is worth about the same in either Australian or American money.
