<P> The debate as to the causes or extent to which international factors and domestic government policy contributed to the severity of the 1990s recession in Australia continues . Speaking in 2006, former Reserve bank Governor Ian Macfarlane said: </P> <P> The emphasis on interest rates and deregulation at least reminds us that what we are dealing with is essentially a financial event . The recession of 1990 - 91was dominated by financial failure . In most cases, it was the fall in asset prices that meant that loans could not be repaid, thus transferring the distress to financial institutions . </P> <P> The Hawke Labor Government initially responded to the crisis by asking the Conciliation and Arbitration Commission to defer its national wage case . Treasurer Paul Keating was advised to tighten monetary policy, but, with forthcoming by - elections and a state election in New South Wales, the Government opted to delay the potentially unpopular move, which would raise interest rates . Commodity prices dropped and the Australian dollar sharply declined . The Reserve Bank conducted a $2 billion intervention to hold the dollar at 68c but it crashed to 51c . In December 1987, Keating said that the Australian economy would weather the storm because the Hawke Government had already balanced its Budget and brought down inflation . </P> <P> The Government postponed major policy adjustments, planning a mini-Budget for May . Hawke wrote to US President Reagan calling on the US to reduce its Budget deficit . The Business Council called for wage reductions, decreased government expenditure, a lower dollar and deregulation of the labour market . Seven months into the crisis, Hawke told the State Premiers that the "savings of Australia must be freed" to go into business investment for export expansion, and funding to the states was cut . A phase out of tariff protections was continued and company tax was cut by 10% to 39% . In the May mini-Budget, payment to the states was cut by $870 million and tax cuts deferred . The Government declared cost cutting was completed . </P>

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