Australian Prime Minister Julia Gillard said: 'We can still be a country that makes things. But we have to do it in different ways." The statement is a bit cryptic but, by interpreting it, it means that one recognizes the devastating effect of high A$ on the country's competitiveness. Compared to the beginning of 2009, the Australian dollar gained 57% against the US dollar and 55% against the euro, thus destroying the price competitiveness of Made in Australia. We are talking about the manufacturing sector, already small in itself, because for the other industrial sector, the mining sector, things are booming, given the voracity of raw materials in Asia and the immense availability of these materials in the Australian continent.
Australia is going to suffer from an antipodean variety of the 'resource curse', the disease that economists have identified and which affects countries rich in raw materials: intense exploitation leads to allocating resources to extraction, capital inflows by investment in mining and export earnings push the exchange rate up and stifle the non-mining industry, which loses competitiveness.
