Australian External Debt

Australian external debt

Introduction

Foreign debt is referred to also as external debt. Foreign debt is tell from otherwise kinds of foreign investment capital inflow such(prenominal) as foreign ownership, because it carries with it the obligation to pay interest or to repay principal.

There is no single factor that caused the dramatic debasement in Australias external position (McGillivray&Papadopoulos, 1995). The contributing factors

are some(prenominal) internal and external.

When domestic interest rates are mettlesome relative to overseas interest rates,borrowing in overseas fiscal markets is attractive because of the lower interest rates, while lending to individuals overseas becomes less attractive.

An growth in overseas borrowing leads to an increase in capital inflow while decrease in lending to the overseas sector reduces capital outflow.

Australia remains a major net importer of foreign capital, as it has been for most of its history. Without such capital Australias economic and employment growth would be lower. heretofore few people seem to understand that the deficit which Australia has on current account (because importing more goods and services than it exports) is the other side of a surplus on capital account. Moreover, distant the large investment borrowings from overseas of

the 1980s, these capital imports are straight apparently being used productively.

According to Reserve Bank (1994) report, Australian current capital surplus of about 5% of gross domestic product can be regarded as not dangerous by comparison with the same surplus in 1984-1985.

As McTaggart et al (1999) says, a country that runs a current account deficit must borrow capital from overseas, to overcome that deficit, and a country that runs a current account surplus lends to the other countries. Over time, if a country continues to run current account deficits, it becomes debtor community with stock debt owed to others. Therefore, Australia is debtor nation. The level

of Australias...

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