The Loans Affair: The Phantom Menace

Was the Whitlam government justified in pursuing the 1974-1975 loan? Yes, justifications in the loan were nation building. A new, complex post Bretton Woods Agreement era had arisen. Australia was particularly susceptible to foreign control and influence of energy resources. The source of the loan been ‘Petro dollars’ in this era, was not unconventional. However the loan proved to be trigger or a ‘Phantom Menace’ prompting the ‘Loans scandal’. Internal politics and anxieties over shadowed the intent behind the loans. Furthermore the 4th estate was set out on the demise of the Whitlam government and the ‘Loans scandal’ proved to be a convenient reprehensible circumstance.

The justification for seeking a loan was for nation building in the form of ownership of Australia’s energy resources. See the completion of a natural gas pipeline grid, a petro-chemical plant and uranium mining and milling plants, and the upgrading of coal exporting harbours. Rex Connor the then Minister of Minerals and Energy was seeking “to buy back for Australia what is part of Australia’s birth right”.

This was because access to cheap and almost infinite energy had become a myth at the end of the Bretton Woods Agreement, leaving Australia susceptible to foreign influences. The United States Federal budget had grown considerably as a result of the Vietnam War. The Nixon administration had considerable anxieties of foreign holders exchanging US dollars for gold and draining reserves. The US dollar was floated in precaution to this, however with repercussions stemming in the end of the Bretton Woods Agreement in 1971-1972. Unfortunately oil under the Bretton Woods system was readily affordable and had become heavily relied upon for the Western World’s energy needs. It had been only been 8.5 per cent of Europe’s energy needs in 1950 but in 1970 it was up to 60 per cent. Even becoming proportionately cheaper to inflation, in 1955 been $1.93 per barrel and only rising to $2.18 in 1971. However when the Bretton Woods system ended oil prices started to rise as foreign currencies had lost their buying power been floated. Furthermore the situation worsened with the 1973 oil crisis, with OPEC (Organisation of Petroleum Exporting Countries) placing oil embargos and inflating the price of fuel for the West. By the end of the embargos in March 1974 the price of oil had risen from an average of $3 to nearly $12 US dollars a barrel.

As a result of the oil crisis it followed with the resources of the IMF (International Monetary Fund) being exhausted. As industrialised countries started to borrow large amounts to keep up their oil reserves. In 1974 the industrialised counties had a combined deficit of 23.2 billion US dollars in the IMF accounts, with a shift in average yearly borrowings from 497 million in 1971 to 3.298 billion in 1975. However in 1975 OPEC had a large surplus of 64.2 billion US dollars. Thus ‘Petrol dollars’ from OPEC become conventional for finance. The United States, Germany, Japan, France and the United Kingdom all accessed petrol dollars within the 1970s, the contemporary definition is known as ‘petrol dollar recycling’.

The ‘Loan scandal’ resulted in the break down of discipline, communication and the struggle for authority within the Whitlam government. According to Whitlam himself, the loans were only for “temporary purposes”, given the current international energy crisis, immediate protection of minerals and energy. The concept of “ temporary purposes” was of course to avoid the need for the Commonwealth to obtain the approval of the states through the Australian Loan Council, which included two state Liberal governments as members. In 1974 Connor obtained authority to solicit a loan in petrol dollars, of 4 billion US dollars through a Pakistani and London based commodities Tirath Khemlani. Concerns were express from within the Treasury to Treasurer Jim Cairns, that Khemlani was misleading Connor. The Treasury sought to discredit Khemlani by seeking information from Scotland Yard, however unintentionally proving him to be a legitimate source. Later in 1975 against Whitlam’s wishes, Connor’s authority was revoked, then reinstated and later revoked again by the authority of Treasury. It can be argued the Jim Cairns’ reasoning was disingenuous with a hidden agenda. His department’s authority potentially could have been reduced with the proposal of a new department that would manage the loan funds, separate of Treasury. Later the loans were abandoned in May of 1975, however as discussed later Connor continued independently to seek the loans without the authority to do so resulting in scandal.

The 4th estate particularly Rupert Murdock turning friend to foe, had become set on destruction of the Whitlam government. The year before the ‘Loans scandal’ Whitlam ordered his Australian media conglomerates to ‘kill Whitlam’. The 4th estate already had sort to denounce the government, as it lacked the discipline to confront current issues such as mass unemployment. Thus although the loan had its’ justifications, it proved to be a ‘Phantom Menace’.

Suggested further reading:

Strangio. P, ‘Keeper of the faith: A Biography of Jim Cairns’, Melbourne University Press, 2002.

Hocking. Jenny, ‘Gough Whitlam: his time’, Volume 2, The Miegunyah Press, 2012.

Secretary to the Attorney Generals Department, Sir Clarence Harders, “Loans Affair Investigations Enquiries to Scotland Yard regarding Tirath Khemlani”, The National Archives of Australia, Series no. M4081, Files and Documents, between the 23rd of May and 12th of June, 1975, Registered 13th of September, 2005.

Judt. T, ‘Postwar: A history of Europe since 1945’, William Heinemann Publishing, 2005.

International Monetary Fund, ‘Annual Report’, Executive Directors for the physical year ended April 30th, Washington DC, IMF Annual Report, 1974.

Richard Nixon: “Address to the Nation Outlining a New Economic Policy: “The Challenge of Peace”, August 15, 1971. Online by Gerhard Peters and John T. Woolley, The American Presidency Project, Accessed 20/10/2014, URL: http://www.presidency.ucsb.edu/ws/?pid=3115.

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