The year of record interest rates - 1990

In 1990, the Labor government faced high interest rates and low popularity but PM Bob Hawke still managed to win the March 1990 federal election.

For many Australians, the strongest memory of the early 1990s is a number in the high teens.

That was the interest rate they were paying on their home loans, as the government repeatedly sought to apply the brakes to a surging economy.

The official Reserve Bank cash rate peaked at a punishing 17.5 per cent in January 1990. Putting that in perspective, the bank's official cash rate is now at a record low of two per cent, with the typical home loan rate now around five per cent.

Cabinet papers for 1990 and 1991, released by the National Archives of Australia, show this was a difficult time for the Labor government of Bob Hawke, elected in 1983, 1984 and again in 1987.

Across the globe, economies were in recession. That chaos appeared to be reaching Australia with the collapse of the Pyramid Building Society in Victoria in 1990 and the State Bank of SA in 1991.

Australia's situation was not helped by the brutal pilots' dispute which kicked off in August 1989, pitting the Australian Federation of Air Pilots, which sought a 30 per cent pay rise, against just about everyone else.

That included airlines and their well-heeled parent companies TNT and News Corp, the federal government, ACTU and Industrial Relations Commission. Pilots refused to work outside 9-5 and at one stage, some stranded passengers flew aboard RAAF C-130 transport aircraft.

The dispute was never resolved and eventually petered out, with about 80 per cent of pilots quitting. On some estimates, this highly damaging dispute cost the economy upwards of $1 billion, helping push Australia into the ensuing recession.

But that was still some way off and despite his problems, Hawke chose to go to the polls on March 24, 1990, buoyed by his "victory" over the pilots and signing of Accord Mark VI with the unions.

That wage-tax agreement seemed to indicate the government had a way through the economic turmoil.

As a further sign of better times ahead, the RBA eased official interest rates by half a percentage point in February, with a further half per cent cut in September.

Hawke perhaps saw his best chance in a weak opposition, then led by Andrew Peacock who had toppled John Howard in May 1989.

Hawke's treasurer, the famously acerbic Paul Keating, ridiculed Peacock, describing him as "all feathers and no meat".

Throughout the lacklustre campaign, then environment minister Graham Richardson actively courted the green vote.

In the end Labor maintained a comfortable majority but Peacock didn't do that badly, picking up 12 seats with a swing of more than six per cent against the government.

In the post-election ballot, Peacock stood aside and John Hewson became opposition leader.

Yet the government's economic challenges did not diminish. Unemployment rose and gross domestic product fell and, perhaps imprudently, Keating finally admitted the nation was in recession.

"The most important thing about that is that this is a recession that Australia had to have," he said in November 1990.

Keating's adviser Don Russell recalled that recession seemed to arrive with an "audible snap."

Far away, another national leader had his own financial problems

Broke from the long war with Iran, Iraq's Saddam Hussein saw an easy way out of his financial woes by invading oil-rich Kuwait, which he did on August 2, 1990.

Despite some objections within cabinet and in the community, Australia joined the US-led coalition pressing for Iraq to withdraw.

Australian dispatched a pair of warships and a supply ship to a multinational naval force. With a few brief gaps, Australia has continued to deploy warships to the Middle ever since.

However, Australia played a minuscule role in the actual military offensive, launched on February 24 and which ended four days later with complete victory.

Support for Hawke soared, but not with Keating, who had become deputy leader in April 1990.

In 1988 in the so-called Kirribilli agreement, he and Hawke decided that Keating would become leader at some point after the 1990 election. But Hawke reneged, apparently outraged at a speech by Keating belittling his leadership.

That didn't augur well for unified government - there's nothing the Canberra press gallery loves more than leadership tensions.

Archives consultant historian Professor Nick Brown said by the end of 1990 Keating's jockeying for succession was a subject of open avid speculation.

In May 1991 Keating backers revealed Hawke's retreat from the succession deal.

Keating mounted his first challenge in July 1991, losing 66-44. In his second challenge five months later, he won 56-51 and became Australia's 24th prime minister.

Source AAP

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