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Friday, June 19, 2009

Transparency for government borrowings-why didn't the Government think of that?

That's the only question for a government that keeps talking about the importance of transparency. Bernard Keane writing for
"Joe Hockey’s successful amendment to the Guarantee of State and Territory Borrowing Appropriation Bill 2009 yesterday to establish a Public Register of Government Borrowings is good policy, the fact that some investors have warned that it will reduce demand for government bonds proves it. Yesterday the Government accepted the amendment, which requires the Australian Office of Financial Management to provide a web-based register, updated quarterly, of who owns government bonds. Given the numbers in the Senate, it didn’t have much choice.

The proposal is flawed, sure -- much of the information will become out-of-date quickly as bonds are resold and company structures alter. But more disclosure, rather than less, never hurt anyone with honest intentions. Not that the Opposition has particularly honest intentions in this matter itself. The Register is part of their ongoing campaign on government debt. And there’s a distinctly Sinophobic element to it as well. Joe Hockey made a point of referring to the potential for the Chinese Government to use its ownership of Australian Government debt to seek to wield influence. Pressed on an example of such behaviour at his press conference yesterday, he could only repeat that the Chinese Government had expressed concern about its exposure to US debt, which he called “a significant moment”.

Nevertheless, if you ruled out everything done from impure motives round this place, there wouldn’t be a lot happening. The reaction from the bond market, as conveyed via the AFR today, was to suggest greater transparency would be a turn-off for investors and the Register would “add a couple of basis points for sure”.

Clearly the lessons of the financial crisis, if they were ever learned in the first place, have been quickly forgotten. Lack of transparency -- to governments and regulators, to customers, even to ratings agencies -- was a critical component in the construction of the house of cards that was CDOs and sub-prime mortgages. If investors think greater transparency is a problem for them, it begs the question of what they want to hide, or more to the point from whom they want to hide.

Remember this is AAA-rated debt, exposure to which is about the nearest thing you’ll get to a sure thing in global finance. We’re not talking about junk bonds with a Standard & Poor’s, generously-commissioned pseudo-triple A rating. We’re not talking about the sort of leveraging based on pre-GFC smoke and mirrors. And greater transparency is supposedly a key element of the new international financial framework. Hockey’s register is a good start, whatever his real agenda might be."

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