... from 1970's From the late 1970's, Australia began to have real concern about the balance of payment deficit. As was one of the most developed countries in the world, it has a huge amount of foreign debts. To finance these debts the country had recourse to foreign borrowings, as a result of increasing its stock of net foreign liabilities (Cashin, 1996). During the late 1980s, Australia's current account balance deteriorated very sharply. The Government became alarmed at the deterioration and responded by implementing tight fiscal and monetary policies. The Government introduced four consecutive years of fiscal surplus beginning in 1987/88, and the interest rate on 90-day bank bills rose from 13.15 per cent in 1987/88 to 18.30 per cent in 1988/89. This policy mix succeeded in reducing the current account deficit to $15.4 billion (3.8 per cent of GDP) in 1992/93. But the cost of this was that the policy stance ...

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