Rudd to Take ’Whatever Action Necessary’ on Markets

By Gemma Daley and Jacob Greber

Jan. 21 (Bloomberg) -- Australian Prime Minister Kevin Rudd will take “whatever action is necessary” to stabilize financial markets should foreign banks fail to roll over up to A$75 billion ($49 billion) in business loans.

“If foreign banks do not roll over their share of these loans, it will be difficult for Australia’s four major banks to fill the gap on their own,” Rudd said in a speech in the South Australian capital of Adelaide last night.

A shortfall in credit could push Australia’s economy into its first recession since 1991, worsening a surge in job cuts at companies including BHP Billiton Ltd. following a drop in demand from China and waning consumer spending. Governments in the U.S. and Europe are bolstering measures to underwrite bank lending after recapitalization efforts failed to restore credit flow.

“If that money doesn’t come through, there will be less investment, less growth and fewer jobs,” said Stephen Halmarick, co-head of economic and market analysis at Citigroup in Sydney. “The only liquidity in the market at the moment is coming from governments and ours may follow suit.”

Overseas banks accounted for more than half of the A$285 billion in syndicated loans that have been issued to Australian businesses since 2006, Rudd said, citing Merrill Lynch & Co. figures.

“Of those outstanding loans, A$75 billion is scheduled to fall due over the next two years,” Rudd said.

Adequate Supply

Treasurer Wayne Swan, speaking in Sydney today, wouldn’t speculate on the potential mechanisms the government could use to bolster business loans. There is currently “an adequate supply of credit flowing through the economy,” he said.

Australian banks, led by its four largest -- Commonwealth Bank of Australia, Australia & New Zealand Banking Group Ltd., Westpac Banking Corp., and National Australia Bank Ltd. -- have raised more than $30 billion since the beginning of December using bond sales guaranteed by Rudd’s government, which has AAA credit rating, data compiled by Bloomberg show.

Still, recent Reserve Bank of Australia figures show that lending growth to businesses rose 10.7 percent in November from a year earlier, the smallest increase in almost four years.

“The government stands ready to take whatever further action is necessary to stabilize financial markets and help reopen the private lines of government to business to get blood flowing through the arteries of the economy,” Rudd said.

Recession Risk

Since October, Rudd and Treasurer Wayne Swan have announced almost A$45 billion in aid for families, pensioners, bond markets, home buyers, and extra spending on schools and roads to ensure the economy doesn’t enter its first recession in 17 years. Reserve Bank of Australia Governor Glenn Stevens has embarked on the biggest round of interest-rate cuts in almost two decades.

The recent spending boost came after credit markets froze following the bankruptcy of Lehman Brothers Holdings Inc. on Sept. 15, prompting governments and central banks around the world to bail out financial institutions and try to revive growth.

Concern about credit markets has deepened after the U.K.’s second bank bailout in three months. The British government on Jan. 19 announced a 50 billion pound ($73 billion) plan to stabilize the financial industry, following a 50 billion pound bank recapitalization in October.

“The impact of this crisis will be huge,” Rudd said. “When markets fail, governments must act.”

Job Cuts

Australia’s economy expanded at its weakest pace in eight years in the third quarter. The unemployment rate rose to 4.5 percent in December, the highest in almost two years, as mining companies, airlines, and automakers fired full-time workers, adding to signs the economy faces its first recession since 1991.

BHP Billiton, the world’s largest mining company, said today it will cut 800 employees and 1,000 contractors at its A$2.2 billion Ravensthorpe mine and office workers in Western Australia and its Yabulu plant in Queensland.

Employment will decline in manufacturing, construction and services in 2009, according to a survey released today by the Australian Industry Group and Deloitte Touche Tohmatsu Australia. The survey questioned 480 chief executive officers of companies with a total revenue of A$31 billion that employ 84,000 people.

A separate report published by Westpac today showed Australian consumer confidence fell in January for the first time in three months.

To contact the reporters on this story: Gemma Daley in Canberra at gdaley@bloomberg.net; Jacob Greber in Sydney at jgreber@bloomberg.net.