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UNCLAS SECTION 01 OF 02 MELBOURNE 000144 
 
SENSITIVE 
 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: EIND ECON ETRD AS
SUBJECT: Tasmania Weathers Global Financial Crisis - So Far 
 
MELBOURNE 00000144  001.2 OF 002 
 
REF: 
 
Summary 
------- 
 
¶1. (SBU) Tasmanians told Consul General during his first official 
visit on December 1-3 that Tasmania has weathered the global 
financial crisis so far, but there are already signs that the state 
may not escape unscathed.  Declining real estate sales have cut into 
state revenue and tighter credit has delayed the development of the 
controversial Gunns Ltd. pulp mill.  Tasmanian Premier David 
Bartlett has an ambitious plan to transform his state's economy, but 
some wonder whether he can meet these goals as the slowdown in the 
rest of the Australian economy trickles down to Tasmania.  End 
Summary. 
 
Tasmania Weathering the Storm - So Far 
-------------------------------------- 
 
¶2. (SBU) During a series of meetings in Hobart on December 1-3, 
political and business leaders told Consul General that the global 
financial crisis has not yet landed in Tasmania, but there are signs 
that the economy may soon slow.  According to Tasmania's Premier, 
David Bartlett (Labor), transactions in the state's real estate 
market have dropped off.  While average home prices have not yet 
declined, fewer real estate transactions mean fewer taxes, and the 
Premier noted that this has already begun to hurt state revenue. 
Bartlett believes that this may be a leading indicator of future 
economic challenges in the state. 
 
¶3. (SBU) Tight credit and sagging share prices have delayed the 
construction of Tasmania's environmentally controversial new pulp 
mill.  The market value of Gunns Ltd, which is seeking A$1 billion 
(US $634 million) of capital to fund the pulp mill, has declined in 
recent weeks to approximately A$580 million (US $368 million). 
According to Gary Bailey, the editor at Tasmania's daily Mercury, 
financial trouble at Macquarie bank, one of the mill's main 
financiers, has also frustrated attempts to fund the new mill. 
(Note: Tasmania is a particularly environment-conscious state. 
Tasmania's Green party, which holds four of the state's 25 lower 
house seats, has opposed the mill in its current form.  Both the 
Labor (14 seats) and Liberal (7 seats) parties have expressed 
support for the mill on the grounds that it will provide a 
significant economic boon for the state.  End note.) 
 
¶4. (SBU) Alan Campbell, General Manager for Tasmania's Department of 
Economic Development, indicated that the state has come a long way 
in the past decade.  Unemployment has declined to 3.7 percent from 
12 percent in the early 1990s.  Increased tax revenues over this 
decade also permitted the state to pay off its general debt. 
Campbell admitted, however, that there is often a delay between the 
impact of economic troubles on the "mainland" and the subsequent 
effects in Tasmania.  John Harris, Managing Director of Incat - a 
large scale catamaran and ferry builder, noted that business is 
still good, but he worries that tighter credit may prevent his 
customers from obtaining necessary financing.  Because Incat does 
business with a small pool of customers, one cancelled order may 
mean dozens of highly-skilled jobs lost, he said. 
 
Transforming the Tasmanian Economy 
---------------------------------- 
 
¶5. (SBU) Premier David Bartlett stated that his top priority for the 
state is to improve educational standards.  Better academic and 
vocational education, he said, would allow Tasmania to move from 
exporting raw resources such as timber and minerals, to producing 
more high value-added products such as walnuts, wine and other niche 
items.  He also believes that the state can leverage its natural 
beauty to attract more adventure-seeking tourists as New Zealand has 
recently done.  Tasmania, Bartlett said, can lead the way in 
Australia's attempt to develop a sustainable economy by continuing 
to carefully manage its extensive natural resources and by placing 
increasing emphasis on renewable energy.  Noting several times that 
14 percent of Australia's rain falls on 2 percent of its landmass in 
Tasmania, Bartlett described his long-term dream to develop the 
state into Australia's "food bowl."  Improving water and power 
delivery throughout Tasmania, he said, remain key obstacles to 
realizing this vision. 
 
Snapshot of Tasmania's Economy 
------------------------------ 
 
¶6. (U) Tasmania's economy is dominated by tourism, forestry, mining 
and agri-business.  Together these sectors employ over 28,500 of the 
state's 500,000 residents.  The state's mining sector, tiny compared 
to Western Australia's, exports unprocessed ore directly in charter 
vessels to buyers in China.  Manufacturing (sea vessels and 
surrounding industries) alone employs 23,000 people.  U.S. companies 
such as Caterpillar, Simplot (frozen vegetables), and Johnson and 
 
MELBOURNE 00000144  002.2 OF 002 
 
 
Johnson operate in the state.  Poppies are grown by local farmers 
and sold to Johnson and Johnson, GlaxoSmithKline, as well as a small 
Tasmanian company who process the poppies into morphine-based 
medicines. 
 
¶7. (U) The state faces significant challenges in retaining young 
workers.  "Island fever" leads many young workers to leave for 
Melbourne and Sydney.  While some return, the state is still 
struggling to keep its youth on the island or to entice them to 
return.  Many Tasmanians expressed excitement at crossing the 
500,000 threshold because it marked a reversal of decades of 
population decline.  The state still has, however, the oldest 
population in Australia.  The words "sustainability" and "green" run 
through every business discussion on the island.  40 percent of the 
state's landmass is classified as either a national park or a world 
heritage site.  Companies are regularly challenged and held 
accountable for being "part of solution, rather than being part of 
the problem." 
 
Comment 
------- 
 
¶8. (SBU) Tasmania's young Premier - Bartlett is only 40 years old - 
appeared energetic and only somewhat frustrated by his recent 
sacking of two state ministers suffering from depression and stress. 
 He has an ambitious vision for the state's economy, but some 
Tasmanians noted that he may be trying to accomplish too much 
without enough prioritization. 
 
¶9. (SBU) Comment continued: Talk of recession and fears of the 
global financial crisis are noticeably scarcer in Tasmania than in 
its northern neighbor, Victoria.  This is probably largely because 
the Victorian capital Melbourne is one of the centers of Australia's 
globally-linked financial services industry and automobile sector. 
However, Tasmania cannot expect to remain immune from the effects of 
a global economic downturn, which despite the recent sharp drop of 
the Australian dollar, will reduce demand for Tasmanian products 
sold both domestically and in overseas markets.  Although it is 
still too soon to tell just how profound an effect the global 
financial crisis will have in Tasmania, tight credit and sagging 
share prices are already beginning to make their impact felt.  End 
Comment. 
 
THURSTON