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SYDNEY: The Australian government will guarantee all deposits in domestic banks as the financial crisis enters a dangerous new phase and threatens growth, Prime Minister Kevin Rudd said Sunday.
"We are talking about all deposits, let's be clear about that," Rudd told reporters in Canberra.
"For Australian banks, building societies, credit unions and also for the foreign subsidiaries of banks operating in Australia taking deposits."
Rudd, who has held two days of crisis talks with top officials on the financial turmoil sparked by the credit crunch, said the government would also guarantee all wholesale term funding by Australian banks operating in international markets.
The centre-left Labor prime minister said the move had been prompted by decisions by foreign governments to offer assurances to their financial institutions, leaving banks Down Under at a disadvantage.
"As prime minister of Australia, I will not stand idly by while Australian banks are disadvantaged in international credit market places because of the actions taken by foreign governments," he said.
"I can announce today that anyone who lends money to our banks in the international marketplace has an absolute assurance that their money is safe."
Rudd said the government would inject a further 4 billion dollars (2.6 billion US) into residential-backed securities to support the domestic mortgage market. The government invested four billion dollars in the mortgage market in response to the global credit crunch in September.
The prime minister said the new measures were part of international steps to help "unclog the arteries of the global financial system" and were critical for the international and domestic economies.
"Australia is better positioned than practically every other country in the world to see its way through this crisis," he said.
"(But) this global financial crisis has entered a new and dangerous phase with real consequences for growth, for jobs and therefore for the future."
Rudd said while Australia's banking institutions were well-capitalised and profitable with high asset quality, the country's financial system was being hit by global events which could slow domestic economic activity.
In May, the government forecast growth of 2.75 per cent in the 12 months to July 2009.
Rudd said the credit tightening could have massive consequences for the Australian economy, adding that it was likely that unemployment would climb above next year's projected 4.75 per cent.
"Given the developments in global financial markets... as night follows day there is a roll-on impact in terms of the real economy and jobs, so unemployment is likely to be higher," he said.
"We are in the economic equivalent of a rolling national security crisis and the challenges are great."
He said while Australia was better placed than most countries to ride out the crisis, the three measures announced Sunday would reassure Australian depositors that their deposits were safe and that they could have full confidence in the Australian financial system.
"The measures that I've announced today are simply to make sure that the banks have proper access to global credit into the long term future and to make sure that our depositors have a guarantee from government, given the uncertainty which they are seeing on their television screens each night."
"I think it's the right thing to do."
- AFP/vm/ir
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