The following section present topics of contemporary interest.
The 1997 Asian financial crisis was an unexpected detour from Asia's otherwise rapid rise in economic prosperity. An immediate impact of the crisis was a fall in the number of Asians travelling abroad. Effects were felt in both Asia and Australia. This paper examines the causes of the crisis and assesses the impact on Australia's tourism industry. Strategies that could be adopted to mitigate further effects on Australia's inbound tourism industry are discussed.
Keywords: Asian Financial Crisis, Australian Tourism, Government Policy
Prior to the Asian financial crisis that began in July 1997, Australia's tourism industry was experiencing a rapid increase in Asian inbound tourism, based on growing Asian prosperity. Optimistic forecasts of double-digit annual inbound growth caused a resurgence of interest in tourism investment in Australia, mirroring high levels of investment in hotels and resorts in the late 1980s. By the end of 1997 the financial crisis, which began in Thailand, had spread to South Korea and Indonesia and the first evidence of the impact of the crisis on Australia's inbound tourism industry was beginning to emerge, as arrivals from most East Asian nations declined. This paper will examine reasons suggested for the emergence of the crisis as well as highlighting its short-term impact on Australian's tourism industry. Strategies to reduce the adverse effects of the crisis in the long-term are also considered. For the purpose of this paper, an expansive definition of the tourism industry is taken to include the private sector and those elements of the public sector that provide the range of goods and services necessary for the operation of the tourism industry.
The speed with which the crisis emerged and engulfed East Asia caught most commentators by surprise. As late as May 1997, Joseph E. Stiglitz (1998), Chief Economist of the World Bank, was describing East Asia's economic success as the engine of growth for much of the rest of the world. Given the severity of the crisis and its possible long term implications for tourism in the Asia Pacific region, it is surprising that few tourism academics have published detailed analyses of the crisis from a tourism perspective. Apart from a special edition of Current Issues in Tourism devoted to the crisis, analysis of the causes and the possible effects of the Asian financial crisis have been largely confined to the business press and academics active in economics, finance and business research. This paper will rely on the business press, conference proceedings (both published and unpublished), government reports, World Tourism Organisation reports (WTO 1998a, b), industry reports, web publications, the initial books on the crisis and references to the crisis in the tourism literature.
Published comments on the crisis have been prolific in the business press, in particular, and the wider popular press in general. Articles appearing in the popular press range from predictions of a speedy resolution of the problem to expressions of gloom and continuing problems. Comment in the business press has generally been more considered and analytical. In the academic press, Mules (1998) observed that Australia may have to reinvent its tourism industry to balance the traditional fare of sun, sea, sand and wildlife with new products that appeal to more diverse markets if it is to cope with the anticipated (at the time of writing) impacts of the Asian financial crisis. Prideaux (1998a) briefly discussed the impact of the financial crisis on inbound Korean tourism into Australia, noting that there was a need to maintain strong links with the Korean industry throughout the crisis period, while at the same time developing new tour options for the next wave of Korean tourists in the post-crisis period. Prideaux and Witt (1999) observed that the Asian financial crisis highlighted the need for additional research into tourism forecasting methods, such as contingency planning and scenario development. The same article also highlighted the need for the development of a greater understanding of the role that economic forces (including the relationship between tourism demand and the business cycle in respect to changing demand patterns of holiday travel) have on the operation and health of the tourism industry. Prideaux (1998b) assessed the impact of the crisis on bilateral tourism between Australia and Indonesia, noting the reduction in Indonesian arrivals in Australia was due to the crisis as well as associated civil disturbances. Kim and Prideaux (1999) observed that the crisis, resulted in a substantial reduction in Korean outbound tourism in 1998 typified by a 28.2 percent decline in Korean arrivals in Japan and a fall of 71.4 percent in Korean arrivals in Australia.
Muqbil (1998) examined the impact of the crisis on East Asian tourism in the period 1997 to 1998, assessing the role of government policy. Leiper and Hing (1998) assessed the impact of the crisis on the region, finding that the crisis was only one of a number of problems faced by the tourism industry in East Asia. Pine, Chan and Leung (1998) examined the impact of the crisis on the region's hospitality industry.
A number of books on the Asian financial crisis (Far Eastern Economic Review 1998a, Henderson 1998, Gough 1998, Godement 1999; Mallet 1999) have also been published, although their primary value will lie in presenting a short term `as it happens' commentary, rather than a more considered reflection of the inter-weaving of cause and affect from the long term perspective. It is in the closeness of the writing to the unfolding of events that the contents of these books may prove the most valuable. Denied the luxury of the wisdom of hindsight, these books are able to reflect the views and contemporary wisdom of commentators and analysts during the unfolding of the crisis. In this way, such publications are able to provide future commentators with a valuable reference point to the reasoning behind strategies implemented to reduce the impact of the crisis as it unfolded. An understanding of how decisions were made in the heat of crisis and in the absence of knowledge of the future impact of policy decisions is an important body of knowledge from which to extract ideas for strategies that may be of use in reducing the impact of future crises, whatever their nature. This is particularly relevant to many of the comments where predictions of further meltdowns and global spread of the crisis were made on what now appears to be flimsy evidence. Works written after the crisis have
abated will in all probability offer a different interpretation, as knowledge of the causes of the crisis and the success or otherwise of policies developed to combat the crisis emerge and are more fully debated. Unfortunately, books on the crisis published to date primarily cover financial and economic aspects and omit reference to the tourism industry.
Chronology of the Crisis
Although originally seen as an Asian phenomenon, events in the period July 1997 to October 1998 indicate that the Asian financial crisis was the first visible symptom of a much deeper problem in the structure and operation of the international financial system. By October 1998 it was evident that the financial crisis had developed over three stages. Stage 1 commenced with the devaluation of the Thai baht on 2 July 1997 and lasted until mid-1998. Stage 2 saw the spread of the crisis beyond Asia to include the Russian Federation and Brazil. The commencement of stage 3 coincided with the rescue of Long Term Capital Management (LTCM), a major hedge fund.
During the first stage of the crisis, Thailand, Korea and Indonesia suffered significant economic downturns and were forced to request International Monetary Fund (IMF) assistance for economic restructuring, particularly in the financial sector. During this stage of the crisis, other East Asian economies suffered economic downturns but not to the extent where IMF assistance was required.
Malaysia imposed foreign currency controls and Hong Kong continued to align the value of the Silk with the $US. The Philippines ceased requiring long standing IMF assistance during the period of the crisis. This stage of the crisis had the greatest impact on outbound tourism, particularly from Thailand, Korea and Indonesia.
In late August 1998, the contagion spread to Russia, forcing the Yelsin government to adopt a series of radical measures. These included a moratorium on all foreign and domestic debt and a resort to the inflationary tactic of paying off outstanding wages by printing money. By September 1998, the focus shifted to South America where Brazil came under attack from currency speculators and was forced to commence discussions with the IMF on a possible assistance package.
In the third stage, the crisis took on a new dimension that pointed to a more fundamental problem than the short-term causes of the Asian financial crisis appeared to suggest. The crisis at this point posed a threat to global financial markets and exposed problems related to the lack of regulation of the international financial system. During this stage, the crisis had the potential to widen from an Asian financial crisis into a global economic problem. On October 1st 1998, the US Federal Reserve Board governor, Alan Greenspan, announced that a consortium of banks had agreed to put together a $US4 billion bail-out of LTCM, one of the leading international hedge funds which was in danger of insolvency (Charlton 1998). The rescue of LTCM marked a shift in focus of the currency crisis from a phenomenon affecting national economies to a crisis in the international financial system. Commenting on the spread of the financial crisis beyond Asia, the governor of the Reserve Bank of Australia, speaking after the 1998 IMF's annual meeting in October, stated that since August 1998 it had become clear that the problem was not simply an Asian crisis, but `an emerging market crisis or a general world financial crisis' (Henderson 1998). In a similar vein, United States President Bill Clinton, addressing the annual meeting of the board of governors of the IMF and World Bank, stated that the global economic crisis was the worst in half a century and called for decisive action (Kendall 1998).
Following the unilateral withdrawal from the Gold Standard by the US Government in 1971 (under the gold standard, US dollars could be convened into gold at a fixed price), there has been a gradual development of an unregulated international financial system that operates without the type of prudential controls usually placed by national governments on the operations of banks. For example, capital to asset ratios do not exist for firms trading in the hedge or derivatives markets (Fraser 1998). In the new international order, national boundaries are a thing of the past, as huge flows of private capital are moved on a twenty-four hour a day basis in search of higher returns. For this reason, hedge funds and operators in the derivatives markets are accountable only to their investors. In the case of LTCM, shareholders funds were leveraged by a factor of fifty to support investments in the derivatives market that had a notional value of more than $US 1 trillion (Alexander 1998). Similar companies are estimated to have a total capital of up to $US300 billion (Fraser 1998).
The significance of the problems in the international financial system for the tourism industry becomes readily apparent when financial problems, such as those in Asia, leap the barrier between national economies and the global economy. When financial or economic crises affect national or even regional economies, as in the case in Asia, the tourism industry can shift the focus of marketing from affected countries to those that continue to perform strongly. Australia adopted such a tactic at the end of 1997, when marketing resources were redirected from Asia to North America and Europe. By the middle of 1998, the shift in emphasis on markets was rewarded, as inbound tourism from America and Europe rose to compensate for the downturn in Asian arrivals. However, if the Asian financial crisis is only a symptom of a much larger global problem, the difficulties posed for the global tourism industry move into a new order of magnitude.
Despite the initial severity of the crisis, it lasted for a relatively short period of time and by the second quarter of 1999, the affected economies were again recording positive growth, signalling an apparent end of the crisis.
Causes of the Crisis
There is a need to canvas the underlying causes of the crisis as a prerequisite for analysing the short-term impact on Australia. A consensus on the causes of the crisis and the relative importance of the various factors has yet to emerge. The debate on the causes of the crisis has generated considerable attention in the press, government, the private sector and some sectors of academia. The result of the on-going debate during the course of 1998 has seen a shift from searching for immediate or short-term reasons to attempts to identifying the longer-term causes of the crisis. Even the name used to describe the crisis has changed over time. For example, the term `Asian currency crisis' was used for the first few months, before changing to the `Asian financial crisis' by early 1998. By mid 1998, a number of commentators were referring to the phenomena as the `Asian economic crisis'. Only the lapse of time will produce a commonly used title for the crisis. This paper has adopted the term `Asian financial crisis' on the premise that the phenomena was essentially a financial crisis that was resolved when the most affected nations successfully implemented the reforms agreed to as part of their agreements with the IMF.
Causes for the crisis can be classified into short and long term categories, although the boundaries between short and long are often indistinct. It is also possible to identify an emerging debate on the role of the public sector verses the private sector as the prime candidate for the conditions that caused the crisis (Kitley 1998). Although a number of short-term causes have been suggested, the events that initiated the crisis occurred in Thailand. Unable to defend the value of the Thai baht following a sustained attack by hedge funds, the Thai government decoupled the baht from the US dollar and devalued on 2 July 1997. At the same time, Thailand requested an IMF assistance program to stabilize the economy and the financial sector. Other short-term causes of the crisis, identified by Prideaux and Witt (1999), include:
* the failure to decouple national currencies from the US dollar when the US dollar commenced to appreciate against the Yen and European currencies in 1996-97;
* reliance on short-term foreign borrowings for infrastructure development;
* speculative investment in the Asian property and share markets;
* difficulty in servicing overseas debt; and
* attacks on the value of Asian currencies, particularly the Thai baht, in early 1997.
The Tourism Council Australia (TCA 1997) nominated the region's banking sector as the core of the problem. National banking systems were poorly supervised, susceptible to political interference, made loans without adequate credit checks and often accepted overvalued property and shares as security. Poor prudential controls contributed to imprudent lending practices where loans were given to cronies and to sectors that had failed to perform well (Downer 1998). For example, Indonesian banks made loans to Suharto family members and associates based on patronage, rather than sound lending policy. In Korea, large Korean conglomerates (chaebols) were more interested in market share than profit and over-invested in the auto and electronics sectors, creating significant surplus capacity. In both nations, the level of nonperforming bank loans to the private sector grew rapidly, eventually causing a credit shortage.
Although ignoring a number of more fundamental causes, a WTO (1998b) report on Asia Pacific tourism provides a useful chronology of the events that occurred in the period 1995 to December 1998. The WTO (1998b) suggested that the crisis was the convergence of a number of interrelated factors, many of which exhibited short and long-term elements. From the WTO's perspective, the crisis occurred as the result of a series of events, commencing with the recognition as early as 1995 by the world's fund managers, that the high annual rates of economic growth in many Asian countries were not sustainable. The economies of many East Asian countries were dependent on the export of a narrow range of products, the prices of which were beginning to fall by 1995. The seventy-five percent decline in the price of Korean semiconductor chips was cited as the principle cause of the large rise in Korea's current account deficit in 1996. To maintain strong growth, infrastructure investment was undertaken and, despite high levels of domestic personal savings, overseas borrowings were needed. Management, accustomed to strong and sustained demand for their outputs, failed to recognise changing demand patterns and over-production resulted. As a consequence, profits fell, some companies failed and employment declined. Simultaneously, Japan experienced a deflationary restructuring process which resulted in the value of the yen falling, reducing Japans ability to `bail out' other nations in the region. Recognising that the East Asian `Miracle' was in danger of ending, world financial markets began to `sell' the region's currencies, commencing with the Thai baht in May 1997. Unable to defend the value of the baht against the attack on its value by hedge funds and other groups operating in the international financial market, and bowing to pressure to repay high overseas debts, Thailand devalued. At the same time, the Thai government asked for IMF assistance, receiving a rescue package of US$17.2 billion in August 1997. Attention of world financial markets then turned to Indonesia, which negotiated the first of four IMF rescue packages, totalling US$ 43 billion, in September 1997. In November 1997, South Korea followed when it negotiated a $US57 billion IMF assistance plan.
Prideaux and Witt (1999) identified a number of possible underlying causes not mentioned in the WTO (1998b) paper. These included:
* the fundamental belief in the inherent strength and even superiority of the `Asian Model' as a method of national economic organisation;
* high protection policies to safeguard national economies;
* weak financial sectors;
* reliance on overseas borrowings instead of foreign investment to finance public infrastructure construction and private sector expansion; and
* imprudent lending policies which encouraged the build up of short-term, often unhedged, debt rather than long-term bonds.
To these factors should be added the slowdown in Japanese economic activity and the build-up of bad loans following the collapse of the Japanese property market in 1991, and the growing and uncontrolled ability of international money markets to shift enormous amounts of capital from country to country and investment instrument to investment instrument on a twenty-four hour basis. Dr Mahathir Mohamad, the Prime Minister of Malaysia, blamed hedge fund managers such as George Soros, for the currency speculation that preceded the devaluation of the Thai baht (Far Eastern Economic Review 1998b). Weakness in Japan's financial sector has also been identified as a central factor in the emergence of the problem (Kelly 1998). Although the first act in the unfolding drama of the Asian financial crisis was the action of currency speculators withdrawing support for the Thai baht, the preconditions for the crisis were put in place in the years prior to 1997.
The weighting of individual factors in terms of their significance and interrelatedness has to await the judgment of history. At the time of writing, two years after the events that triggered the crisis, positive growth has returned to almost all Asian economies, signalling the conclusion of the crisis. Indonesia is the major exception and the nation is confronted with a number of significant problems. These include questions over the nation's political stability, international disquiet over its handling of the East Timor independence referendum in late August 1999, high unemployment, high inflation, a weak currency and the role of the Army in the post Suharto era.
The Possibility of a Second Financial Crisis
Debate has also emerged over a possible `second wave' of the crisis, stemming from the apparent inability of the Japanese government to revive the nation's economy, fears that China may eventually be forced to devalue as a result of deflation, rising unemployment and structural deficiencies in its banking sector. In addition, there is a possibility that the impact of the Year 2000 or Millennium bug (Y2K) (Prideaux 1999) may add a new dimension to the crisis as a result of Asian governments and firms having insufficient resources to correct computer software problems prior to 2000.
The ability of international bodies, such as the IMF, to launch major rescue efforts in the future has also been questioned following the IMF's $US22.6 billion international rescue to the Russian Federation agreed to on 13 July 1998, the reluctance of the United States Congress to ratify the substantial funds committed to the 1997 IMF rescue plans for Thailand, Indonesia and Korea, and assistance to Brazil in 1998.
Impact on Tourism
The economic dislocation caused by the Asian financial crisis was reflected in high unemployment and business bankruptcy, falling output, reduced demand for imports and closure of financial institutions in the countries most affected throughout Asia. Tourism was one of the first sectors to feel the impact of the economic disruption. Inbound and outbound travel from the countries most affected began to fall during the latter part of 1997. The impact on tourism during the years 1996 to 1998 is illustrated in Table 1. Forecasts of the impact of the crisis illustrate the possible long-term implications for tourism. The International Air Transport Association revised Passenger Traffic Growth Forecasts for 1996-2001 (see Table 2) indicate the possible long-term impact of the crisis on air traffic. The WTO (1998a) has also revised its three year forecast for Asia, estimating that in the period 1997-2000, about eleven to twelve million potential arrivals will be lost.
Table 1: Changes in Visitor Arrivals 1996 to 1998 (1)
Country Percent Change in Percent Change in Arrivals from 1996 Arrivals from to 1997 1997 to 1998 Australia 3.7 -3.7 China 10.1 4.3 China, Hong Kong (SAR) -11.1 -8.0 Indonesia (2) 2.9 -11.2 Japan 9.9 -2.7 South Korea 6.1 8.8 Malaysia -13.0 -10.6 New Zealand -2.1 -0.8 Philippines 8.4 -3.3 Singapore -1.3 -13.3 Thailand 0.7 5.8
Source: WTO 1999
(1) The WTO estimates are provisional and were based on figures received by 11 January 1999.
(2) Figures based on Statistics Indonesia (1999) arrival's data
Table 2: IATA's Revised Average Annual Passenger Traffic Growth Forecasts. 1996-2001 (Percent)
Previous Revised Forecast Forecast China 14.0 11.7 Taiwan 11.2 7.0 Japan 5.8 4.1 Korea ROK 8.1 3.1 Malaysia 8.0 4.8 Singapore 7.2 5.1 Thailand 7.3 4.0
Source: PATA 1998
Effect of the Crisis on Australian Tourism
During the period of the crisis, the Australian economy continued to maintain high economic growth. While growth in GDP averaged four percent per annum in the period 1997/98 to 1998/99, the 1999 Federal Budget forecast that growth would decline to three per cent per annum in 1999/2000 (Costello 1999). There is some danger however, that continued large balance of payments deficits caused partly by the crisis, may result in a future foreign exchange crisis. Reduction in demand for Australian exports to Asia caused an increase in the current account deficit and in 1998/99 the deficit grew to 5.5 percent of GDP (Costello 1999). The impact on the nation's tourism industry has been larger than the impact on other sectors of the national economy with 1998 arrivals falling 3.5 percent when compared to 1997. The export earnings of Australia's tourism industry also declined in 1998, when tourism exports of $A16.3 billion were 2.8 percent lower than 1997 exports.
In the first few months of the crisis, the impact on Australia's inbound tourism industry was relatively small. Australia's tourism industry, having become accustomed to high annual rates of inbound tourism growth, at first failed to look beyond the optimistic projections of growth produced by the Tourism Forecasting Council (TFC), state tourism departments and the Australian Tourist Commission (ATC). In 1995 for example, the TCF forecast that arrivals would grow from 2.996 million in 1995 to 7.58 million by 2003. Favourable projections of continuing growth in inbound tourism and the belief that the 2000 Olympic Games would provide a considerable long-term stimulus to tourism, resulted in the industry being ill prepared for the slump in arrivals. There was a sixty-six percent decline in inbound Korean tourism in December 1997 compared with December 1996 (ATC 1998). When the full impact of the crisis became apparent in early 1998, the tourism industry reduced its commitment to a number of Asian markets and, exploiting the fall in the Australian dollar, switched advertising resources to the North American and European markets. Similarly, Australia's international airlines QANTAS and Ansett International, cancelled all services to Korea and reduced flights to other Asian destinations, including Taiwan. Aircraft capacity was reallocated to more profitable routes servicing Europe and North America.
Two years after the crisis commenced, the impact on the tourism industry has become clearer with the greatest impact being felt in 1998. Compared with 1997, inbound tourism declined by 7.1 percent in 1998. In 1998, Australia was ranked thirty-three in the World's top forty tourism destinations and, within this group, recorded the fifth largest fall in tourism after Hungary (15.0%), Singapore (14.3%), China, Hong Kong SAR (7.7%), and the Netherlands (7.6%) (WTO 1999). Total Asian arrivals to Australia fell rapidly during 1998. However, by the second quarter of 1999, growth in arrivals began to increase as economic conditions improved throughout Asia. After the overall decline of 3.5 percent in arrivals during 1998, growth resumed in the first half of 1999. In the six month period to June 1999, arrivals from The Americas increased by 11.3 percent while arrivals from Asia increased by 11.2 per cent (ATC 1999).
The initial impact of the crisis can be seen from the 1998 decline in arrivals from the most affected countries. Compared with 1997, Korean arrivals declined by 71.4 percent while arrivals from Indonesia fell by 41.9 percent and arrivals from Thailand fell by 28.9 percent (TFC 1999). Arrivals from Hong Kong, Malaysia and Japan also declined. Offsetting this decline was an increase in arrivals from North America (11.7 percent), Europe (8.9 percent) and New Zealand (3.4 percent). During the same period, Australia's increased competitiveness, based on a fall in the value of the Australian dollar and re-allocation of promotional funds to The Americas and Europe, helped generate increased travel from those destinations.
The election of Pauline Hanson as a Federal Member of Parliament in 1996 and the establishment of the One Nation party was widely reported in the Asian press (AFP 1998, Spielmann 1998a, Spielmann 1998b, Sunday Nation 1998, Witcher 1998) because of the apparent anti-Asian views espoused by the party. To a small degree, the negative impact of the Hanson factor may have also contributed to the fall in inbound tourism from Asia. Letvin (1999) for example found that One Nation's anti-Asian views were responsible for a reduction in interest by Singaporeans in visiting Australia. The failure of Pauline Hanson to be reelected in the October 1998 Federal elections reduced the impact of the race debate that had developed during 1997 and 1998 but not before Australia's image had been damaged.
The crisis also created difficulties for the nation's domestic tourism industry. Falling prices in nearby Asian destinations encouraged substitution of domestic travel for outbound travel, increasing the competitive pressure on major tourism resorts, including Queensland's Gold Coast and Cairns, which also experienced a downturn in Asia tourism.
Responding to the changed conditions caused by the Asian financial crisis, the TFC (1998) developed new forecasts, using scenarios of possible developments in Asia. Three scenarios for the period 1999 to 2001 were developed: Scenario 1, based on a rapid return to growth; Scenario 2, based on a steady return to growth; and Scenario 3, based on a slow return to growth. The difference in projected growth between Scenario 1 and Scenario 3 was substantial. For example, in 1999 Scenario 1 predicted growth from Asia (excluding Japan) to be 6.4 percent compared with a fall of 22.4 percent in 1998, while Scenario 3 predicted growth of 1.6 per cent for Asia (excluding Japan) after a fall of 23.3 per cent in 1998. By 2001, the differences in growth from Asia (except Japan) were quite pronounced, with Scenario 1 projecting growth of 11.3 percent compared with a much smaller growth of 2.2 percent predicted by Scenario 3. In the first half of 1999, arrivals from the Asian region (excluding Japan) increased by 11.2 percent compared to the same period in the previous year (ATC 1999). The rapid recovery of Asian nations invalidated the Forecasting Council scenarios, indicating the difficulties in projecting tourism growth during periods of economic uncertainty.
The Government's Response
An interesting element of the Australian response has been the reaction of the Australian federal government. At first, the possible impact of the crisis was downplayed with the Federal Minister for Tourism commenting that the reduced value of the dollar would increase Australia's competitiveness in non-Asian markets such as The Americas and Europe. Accordingly, the government believed that there was no need for additional assistance to the tourism industry. Lags in the impact of the crisis on the domestic economy remain relatively hidden for most of 1998 but were beginning to become apparent in 1999 as export prices fell and the balance of payment account continued to deteriorate. The failure of the government to recognise, not only the seriousness of the crisis on the health of the nation's tourism industry but also its contribution to national economic wealth made by the tourism industry, became apparent when the Federal budget was delivered in May 1998. Although overall spending on promotion by the ATC was increased by $A50 million over four years, the Commonwealth government introduced a $A50 charge for visitors not using the Electronic Travel Authority system for visa issue. This additional charge will boost overall budget revenue by $A167 million over a three year period, although increased revenue will not be channelled back into the nation's tourism industry. Airport departure taxes were also increased. Taxation of this nature may add to government revenue in the short-term but in the long-term will reduce the nation's competitiveness and ultimately reduce government revenue if increased costs reduce Australia's competitiveness relative to other nations. In the 1999 Federal budget, the cost of visas issued under the Electronic Travel Authority were again raised as a revenue measure.
The apparent lack of concern by the federal government for the tourism industry has been previously demonstrated by the downgrading, in 1996, of the ministerial ranking of the Minister for Tourism, from Cabinet ranking to a junior minister within the larger Department of Industry Science and Resources. Another issue, which has the potential to impact on tourism in the post crisis period, is the introduction of a broad-based GST (Goods and Services Tax) of ten percent. Australians travelling overseas will not have to pay the GST on foreign tour packages but inbound tourists purchasing Australian holiday packages overseas will have to pay the GST, reducing Australia's current level of international competitiveness.
The private sector, as the primary provider of tourism goods and services, has a major role to play in developing strategies to deal with the Asian financial crisis, as well as developing a response to the changed conditions of the post-crisis tourism industry. However, as is often the case in periods of depressed business, the private sector and its employees have taken the brunt of the impact of the Asian financial crisis and have reduced capacity to meet the challenge imposed by the changed trading situation. Employment opportunities declined as companies scaled back operations or, in some instances, ceased trading. Australians also substituted overseas holidays to Asia for domestic destinations as a result of the favourable exchange rate against weak Asian currencies. However, adverse business conditions should not be used by the private sector as an excuse for a failure to adopt pro-active market and product development strategies, review cost structures and undertake product promotion. There is also opportunity for closer cooperation between the private sector and the public sector to undertake joint research and promotional activities. Considerable expertise is available from bodies such as the Bureau of Tourism Research (BTR), ATC, BTR, TFC, state bodies such as the Queensland Tourism (QT [formally the Queensland Tourist and Travel Corporation]) and federally funded research organisations such as Commonwealth Scientific and Industrial Research Organisation (CSIRO) and the Continuing Research Centre (CRC) for Sustainable Tourism.
The nature of the private sector, characterised by numerous firms ranging in size from one person operations to large multi-national firms and covering the entire gambit of industry groupings, is such that it is difficult to obtain the type of organisation and cohesion that primary producers, such as wool and grain growers, have been able to develop. For example, wool growers collect a levy from all growers which is used to fund research and promotion. Such models are unlikely to work in the tourism industry and it is therefore likely that existing bodies, such as the Inbound Tour Operators Association (ITOA), Tourism Council of Australia and Australian Federation of Travel Agents (AFTA), will have to continue to rely on the current model of voluntary membership. However, if government funds are to be spent effectively and in a manner to produce the greatest net return to the nation, there is a need for greater cooperation between the private and public sectors. One strategy to achieve this objective may be to establish a permanent advisory organisation, consisting of industry and government representatives backed by some form of legislative authority. Such a body could draw on existing resources such as the ATC, BTR and QT as well as ITOA, TCA and AFTA to develop strategies to counter situations such as the Asian financial crisis as well as look at the long-term of direction of inbound and domestic tourism in Australia.
Suggested Responses to Crisis Situations
The response of the Australian tourism industry to the crisis illustrates a number of strategies that can be successfully employed to mitigate the impact of economic crises, particularly where the impact is restricted to one nation or a specific region such as East Asia. Successful strategies employed by the Australian tourism industry included:
* reallocating promotional funding to markets not affected by the crisis;
* increasing funding to the ATC for additional promotion in Europe and North America; and
* developing new products.
The crisis has demonstrated that thought has to be given to broadening Australia's product mix to reduce over dependence on a narrow range of markets, as well as developing new products that will appeal to markets in Europe and North America. Consideration should also be given to developing images other than sand, surf and sun. Other selling points that may be emphasised are environmental tourism, culture, safety, lifestyle, festivals, adventure tourism and cuisine. A further aspect that should be considered is the question of yield rather than numbers. Mass tourism can increase pressure on sensitive environments, without necessarily yielding significant benefits, particularly if tourists travel on low-cost package tours. Increasing yield may increase employment and the value of tourism as an export industry without having to increase the overall number of arrivals.
Of particular importance is the role undertaken by government in the development of the nation's tourism industry. The diversity of the tourism industry is such that it is impractical to expect the tourism industry, through its own associations, to provide the funding required to develop new markets. It is in this area that government can exercise considerable leadership by investing additional resources into developing new markets and assisting the industry to develop new products and services. Unfortunately, the Australia government has failed to recognise the importance of tourism as an industry and has introduced a number of policies, particularly in the taxation area, that are quite determinantal to the future development of inbound tourism. Additionally, the failure to elevate the Federal Minister of Tourism to cabinet level makes it difficult for the tourism industry to be fully integrated into government policy.
Another area requiring attention is the development of a national tourism agenda to guide tourism development in the future. Australian tourism planning has been ad hoc, with control divided between three levels of government. In the past, there has been a lack of coordination between governments on matters relating to tourism. This has been compounded by a lack of an agreed national agenda for the long-term development of tourism. The problem is illustrated by the failure of the national tourism action plan, Tourism: A Ticket to the 21st Century (Office of National Tourism 1998) released by the federal government in 1998, to provide a clear framework for the implementation of policy goals. Surprisingly, the document did not contain a considered response to the impact of the adverse events resulting from the Asian financial crisis.
The Asian financial crisis is one example of the type of crisis that can be expected to impact on the tourism industry in the future. Looking to the past, it is possible to identify a range of crises that have had a detrimental impact on tourism. These include:
* wars including the 1990 Gulf War and the more recent series of conflicts in the Balkans;
* political instability, including Cambodia, Fiji, Indonesia and Sri Lanka;
* economic shocks, including the 1973 oil price increase;
* natural disasters, ranging from earthquakes, (Turkey 1999), to flooding, (China in 1998); and
* terrorism, typified by the attacks on tourists in Egypt during the 1990s.
In each case, inbound tourism in the affected countries declined. It is apparent that new crises will emerge in the future and each will need a response that reflects the circumstances. This raises the need for mechanisms to be in place in preparation for the unforseen. The type of mechanisms may include consultative committees drawn from government and industry, and emergency funding to assist the tourism industry develop new markets.
Recognition of the severity of the crisis and its possible implications for the continued health of Asian economies should alert Australia's tourism industry (and tourism industries in other countries) of the need to adopt new strategies to combat possible adverse impacts on inbound and domestic markets. A particular danger for the long-term health of Australia's tourism industry is the possibility that the global economy could slide into a recession, triggered by a major fall in the US stock market. There may be a collective failure to plan for the post-recession period of growth that has, in the past, always followed recessions. If a recession develops, there is a need to develop a comprehensive post-recession strategy based on marketing, training, investment by the private and public sectors and research into product development. If recession is adverted, there is a similar need to adopt a national approach to identify market changes and ensure that Australia's tourism industry remains competitive and able to rapidly respond to new market opportunities. Mechanisms to undertake a national approach do not yet exist. Unfortunately, the Australian Federal government continues to ignore the threat posed to the tourism industry to the extent of awarding the Tourism Portfolio to an inexperienced junior Minister who is not a member of the federal Cabinet and increasing taxes on inbound travellers via the GST in July 2000.
The impact of the Asian financial crisis will take some time to abate and will require considerable effort by Australia's tourism industry to adjust to new market conditions or changes to existing markets. The long-term impact on tourism is unclear but will be a factor that will have to be considered. At the time of writing, many issues remain unresolved and the impact: of events yet to occur can not be assessed. It is clear however, that the Australian government has not come to terms with the full impact of the crisis on the Australian tourism industry and further delay,; in developing comprehensive government response embodied in a specific policy will reduce the tourism industries' ability to respond to the crisis in the short and long term. The financial crisis has also exposed the need for Australia to develop new consultative mechanisms based on an industry-government partnership, designed to respond to rapid short-term changes as well as to guide the nation's tourism industry into the future.
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Bruce Prideaux is a lecturer in the Department of Hospitality Tourism and Property Management, The University of Queensland, Gatton College, Queensland 4345 Australia. Tel: + 61 7 5460 1387 Fax: + 61 7 5460 1171 Email: firstname.lastname@example.org
Bruce Prideaux The University of Queensland…