Kevin Rudd confirms $4bn rescue for construction industry * Font...

Kevin Rudd confirms $4bn rescue for construction industry

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Nicola Berkovic | January 24, 2009
Article from: The Australian

KEVIN Rudd will attempt to protect 50,000 construction jobs by creating a $4 billion partnership with the major banks to finance office buildings, shopping centres and other commercial property projects.

Taxpayers will provide $2 billion, with the remainder coming from the big four banks.

The fund, due to be up and running by March, will also be able to lend up to another $26billion for commercial property projects, if required, by government guaranteed debt.

Unveiling the scheme last night, the Prime Minister said up to a third of jobs in the commercial property sector, which employed 150,000 people, were at risk because of weak demand and the tight availability of credit. He said disruption in the sector could have a devastating impact on trade jobs and small businesses, which was why the Government was determined to act.

"The Government will not sit idly by and watch these jobs and small- and medium-size businesses be wiped out by fluctuations in global credit markets," he said.

The Australian revealed on Thursday the Government feared a credit shortfall resulting from the withdrawal of cash-strapped foreign banks from the Australian market.

About $75 billion of outstanding loans are due to be refinanced over the next two years.

Details of the scheme were released as it emerged the Government was considering a plan to pay wages and training costs for workers forced to take unpaid leave or to work part-time by companies struggling to survive the economic crisis.

Mr Rudd announced he would cancel his planned visit to the World Economic Forum next week, as well as planned trips to India and Papua New Guinea, to focus on the economy and formulate its next steps to support jobs in the wake of thousands of job losses in recent weeks, particularly in the mining and retailing sectors.

The Government's partnership with the banks, which yesterday led a massive fall on the Australian sharemarket, with National Australia Bank hitting almost a 12-year low, will operate for two years.

Mr Rudd said the scheme would be structured so as to minimise the risk to taxpayers.

It would only offer loans to companies on commercial terms, where there was a unanimous agreement between the Government and all four banks that the underlying property assets and income streams were sound.

The partnership would not lend money for new projects, but would refinance existing syndicated loans, if a member of the syndicate pulled out.

It will focus on completed and partly-completed shopping centres, office buildings and industrial property projects which have secured pre-commitments.

To prevent the banks from passing on underperforming assets to the Government, one of the banks would have to be a member of the syndicate prior to the partnership, and maintain at least its existing level of financing.

Moves by the Government to become a lender of last resort to the commercial property sector were slammed yesterday by Malcolm Turnbull, who said it would simply prop up bank profitability and do nothing to protect jobs.

"From what we've read about it, this has got nothing to do with jobs," the Opposition Leader told ABC radio.

"It is simply designed to do one thing, and that is to insulate the big banks from taking write-downs on their loans to the commercial property sector and prop up their already very high profitability."

He questioned whether the Reserve Bank of Australia had been involved in devising the scheme, after it emerged the Prime Minister did not directly consult with the RBA on its bank guarantee last year.

Mr Turnbull, who has consistently called for tax cuts, instead called for an "across the board" economic stimulus that would help all sectors of the economy, including small businesses and manufacturers.

Ahead of the scheme's announcement, AMP chief economist Shane Oliver said it would not be surprising if foreign banks did not renew loans to Australian companies, given the deep troubles they were facing.

In those circumstances, he said it "would make a lot of sense" for the federal Government to step in, especially because Australia had no public debt.

"The alternative, unfortunately, would be more job losses and corporate closures," Mr Oliver said.

"Given there's nothing inherently wrong with most of these companies, letting them fail because they can't roll over their loans would be the wrong thing to do and would end up in a far worse outcome."

CommSec chief economist Craig James said foreign banks had not yet exited the market on mass, and it would be short-sighted for them to "pull up stumps" from Australia only to have to come back in 12 months time.

But if companies were unable to roll over their debts they would be forced to "do things like hive off assets, cut staff and whatnot".

The Australian Bankers Association yesterday declined to comment, saying it had not been not been involved in any of the talks.