Mon, Nov 06, 2006 - Page 5 News List

Australian PM gives in on anti-drought policies

BIG DRY A special summit met yesterday to address the country's extreme water shortage, but it may have been motivated more by political concerns

AFP , SYDNEY

Australian Prime Minister John Howard called an emergency drought summit yesterday as climate change and rising interest rates threaten a 10-year economic boom -- and his grip on power.

Shaping up as the worst drought since white settlement more than 200 years ago, the "big dry" is likely to cut agricultural output by 20 percent and GDP by around 0.7 percent, government officials said.

"The prolonged drought is having a terrible impact on farming communities across Australia," Howard said, announcing that he had called the premiers of three of the worst-hit states to a summit tomorrow.

On the same day, the board of the central bank will meet to consider increasing interest rates for a third time in six months to a new six-year high of 6.25 percent as it fights inflationary pressures.

Lurking behind these visible threats to the country's rapid economic growth over the past decade is a prediction by Treasurer Peter Costello that one of the main engines of the boom -- commodities -- is running out of steam.

All of these issues are putting pressure on a government which faces an election before the end of next year.

Howard has won four elections since 1996, riding on an economic boom which has overridden voter concerns about issues such as troop deployments in Iraq, and any threat to the economic platform could hurt his chances next year.

With an electorate increasingly ready to blame the drought on global warming, Howard has abandoned his previously skeptical response to the idea that pollution is driving climate change and has announced a series of "clean energy" initiatives.

Howard's announcement of a drought summit came as statistics showed that the country's most significant river system, in the Murray-Darling Basin, was at historic lows after six years of drought.

About 30 rivers and hundreds of tributaries run across the basin, which provides for about 70 percent of Australia's irrigated farmlands.

Howard will meet the premiers of the states most affected -- New South Wales, Victoria and South Australia.

Opposition Labor Party leader Kim Beazley said Howard had been trailing every other political force in the country on water, and only discovered the issue about 12 months before each election.

"Back in 2003 he said that there would be 500 extra gigaliters flowing down the Murray -- not one drop extra flowed down the Murray," he said yesterday in response to the drought summit.

Treasurer Costello said last week it appeared that rural commodities had particularly affected the value of exports as figures showed the trade gap with the rest of the world increased to a A$646 million (US$499 million) deficit.

He also warned that the boom in commodities prices was coming to an end.

"The increase in commodity prices, the mining boom that was the story of the last couple of years, I don't think will be the story of the next couple of years," he said.

The boom, driven by China's insatiable demand for raw materials, added more than A$100 billion to revenue over the past four budgets, giving the government latitude to increase spending and hand out tax cuts.

A slackening in commodity prices and a cut in agricultural production suggest that the government will be more constrained in the next budget in May.

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