OECD SEES MAJOR ADJUSTMENT FOR AUSTRALIA

  Australia faces a major medium term
  adjustment to reduce debt and improve its economic performance,
  the Organisation for Economic Cooperation and Development said
  in its latest annual review of the Australian economy.
      It said Australia had a current external deficit of 5-3/4
  pct of gross domestic product, high and rapidly rising external
  debt equal to 30 pct of GDP, growing servicing costs and
  inflation above nine pct, far higher than that of other OECD
  countries.
      A major policy change in early 1985 helped lay the basis
  for sustained non-inflationary growth and external
  competitiveness had improved, but economic performance overall
  had sharply deteriorated since June 1985.
      A major shift of real resources to the external sector --
  about 4-1/2 pct of GDP by 1990-91 -- was required for the
  economy to expand in line with potential, for employment to
  grow, and for the debt/GDP ratio to stabilize, it said.
      Success depended on the setting of right policies including
  tighter fiscal policy, a reduction in the public sector
  borrowing requirement and on private sector behaviour.
      Looking ahead over the next 18 months, the OECD expected
  economic performance to improve, partly as a result of tighter
  fiscal and monetary policy, and a substantial improvement in
  trade volumes.
      It said positive GDP growth of three pct might be restored,
  the current external deficit could fall to some 4-1/2 pct of
  GDP by the first half of next year, while inflation was
  projected to decelerate to around five to 5-1/2 pct by
  mid-1988.
      Continued real wage moderation was essential to maintain
  the competitive edge created by the Australian dollar's
  depreciation, and to maintain if not boost profit shares in
  order to encourage business investment.
      The report urged Australia to broaden its export base by
  developing viable and competitive service and manufacturing
  industries, and not count on a recovery of commodity markets to
  correct its external imbalances.
      It added Australia should reduce protection levels in
  manufacturing, even though faster trade liberalisation would no
  doubt hurt the most protected sectors of industry.
  

