news, federal-politics, philip lowe, reserve bank governor, interest rates, global financial crisis, john daley, infrastructure spending, tom lembong

Reserve Bank governor Philip Lowe has urged governments to boost investment in infrastructure, but said decisions should be made at arm's length from politicians. Mr Lowe suggested a model akin to the decision 30 years ago to remove the task of setting interest rates from politicians to the Reserve Bank. If infrastructure was also decided at arm's length people would have more confidence their money was spent wisely and be more likely to support projects, he said. "Governments here and right around the world should have their top drawers full of really good ideas that are shovel ready in case global growth slows," he said, speaking to leaders of business and government at the Crawford leadership forum at the Australian National University on Monday. "Increased spending on infrastructure and fiscal expansion in the current environment is going to be better than further monetary easing." Grattan Institute chief executive John Daley backed Mr Lowe's concern about governments making bad decisions on infrastructure, saying that of the 71 projects promised by the Coalition in the recent election, 33 were not even on Infrastructure Australia's priority list. Thirty-seven were on the list but had no business case, and just one was both on the list and had a business case. But he questioned whether there was capacity for a much faster increase in infrastructure spending, given the problems managing the already booming spend on road and rail. Nationally, spending on major road and rail projects had jumped from $6 billion to $15 billion in three years, and was projected to hit at least $24 billion 2022, with shortages in materials and expertise. "Is it realistic to expect governments are going to do even more than that?" he asked, to which Mr Lowe responded that what he was really warning against was a slowdown in infrastructure spending. The chairman of the Indonesia Investment Coordination Board, Tom Lembong, also backed the idea of a group of "eminent" people independent from politicians making decisions on infrastructure spending. He said governments were not regulating the right industries and "we're fighting and arguing over things that frankly don't matter". Instead of spending trillions on 20th century infrastructure, governments should look to the explosion about to happen in autonomous, electric drones and "believe it or not, flying cars and flying trucks", he said. Instead of widening roads, attention should turn to the "layers of aerial lanes going vertical" for aerial delivery vehicles. On roads, the focus should be on separate lanes for autonomous cargo vehicles, including "little R2D2 things". But he disagreed with the Reserve Bank governor on the state of the world economy. While Mr Lowe judged another global financial crisis "quite unlikely", Mr Lembong said one was overdue given the 11-year periods between previous collapses, and he expected an economic crisis to strike within three months or perhaps three years. "Are we facing the serious prospect of another global economic crisis? My answer would be definitively, unequivocally yes," he said. "Are our governments and central banks equipped to meet the challenges that we will face. My answer again would be absolutely, definitively and unequivocally no, we're not, we're not ready." Markets were driven by confidence, and "crises often happen at the height of economic success where suddenly confidence falls off a cliff". But he also had a more optimistic messages, saying he believed the economy was actually "doing pretty well" - with the official statistics missing much of the activity in the new online-based economy. Mr Lowe urged perspective, saying the global economy had slowed but was still reasonable, and the financial system was much stronger than it was a decade ago. The biggest risk was uncertainty generated by the dispute between the United States and China over trade and technology, and by Brexit - resulting in firms not being prepared to invest. "When enough people sit on their hands it's going to have a major impact on the global economy," he said. "... To me, that's the really big issue: Can the uncertainly around trade and technology be resolved." On the plus side, firms were happy to hire people, and people were consuming in a strong services sector. "It's a strange world," he said. "In the investor's view, the outlook's sufficiently weak that they expect central banks right around the world to cut interest rates. But they're not worried about corporate profits or credit risk. I don't really understand that fully." Mr Lowe questioned the effectiveness of more interest rate cuts, urging infrastructure spending and policies that reduced uncertainty and encouraged businesses to invest.

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