No instant answers for restructure: Henry

19 Sep 2012, 5:07 pm   -   Source: AAP

Former Treasury secretary Ken Henry says his Asian Century white paper won't have instant solutions to the structural changes Australia faces.

Former Treasury secretary Ken Henry says a coming white paper on the Asian Century will not offer "instant solutions" to the tough structural adjustments that face Australia.

Dr Henry, who has been commissioned to author the paper for the federal government, told a conference the next decade would undoubtedly bring enormous change.

"Much of this change we won't forecast accurately, we know that," Dr Henry told the Structural Change and the Rise of Asia Conference in Canberra on Wednesday.

"But all of this change will change the way we work, the way that we live, in this Asian Century."

Dr Henry said while there had been demands for the government to do something about the high Australian dollar, the currency had been an important shock absorber for the economy.

"It is probably worth remembering that as a general proposition, now is the time to be building on, not throwing out, the economic policy frameworks that have served Australia so well over the past several decades," he said.

Reserve Bank of Australia assistant governor for economics Christopher Kent told the conference a flexible exchange rate had been a key tool in the relatively smooth adjustment to a high terms of trade.

But he said there hadn't been a significant fall in the exchange rate, even though the terms of trade had come off and some commodity prices had fallen sharply recently, particularly for iron ore and coking coal.

Forecasting movements in the dollar was a bit of a "mug's game" and not one that he was about to get into to, he said.

"I think it is true to say that it appears the exchange rate is somewhat overvalued, but it is hard to be definitive and precise about that," Dr Kent said.

He said the latest Bureau of Resources and Energy Economics forecasts, while showing a sharp fall in commodity prices, importantly showed only a modest two per cent fall in resource and energy export earnings for 2012/13.

"There hasn't been a very big downward revision to volumes," Dr Kent said.

This fits in with the RBA's own expectations of a three-phased boom - with the terms of trade peaking in the September quarter of 2011, mining investment peaking in the next year or so, and the third phase being increased production and exports through expanded capacity.

Treasurer Wayne Swan told the conference too often the broader Australian economic story gets clouded by the latest Chinese data or daily commodity price movements.

He said he was often asked if Australia was too dependent on China and rising Asia economies.

"It's extremely difficult to make a case that we should be doing less trade with the fastest-growing, most dynamic region in the world," Mr Swan said.

"It's extremely difficult to make the case that we should tie our economic fortunes more closely with the anaemic growth and bleak prospects faced in most parts of the developed world."

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