Australia's get-tough budget appears to be a boomerang

Prime Minister Bob Hawke's once immense popularity has taken a tumble lately as Australia finds itself beset by serious economic problems. Warnings of a protracted recession, low world commodity prices, and ongoing trade battles, along with no indication of an end to a level of inflation that exceeds that among the country's major trading partners -- all these factors contribute to a bleak overall picture.

New York-based Moody's Investor Services this month downgraded Australia's credit rating from AAA to AA1, citing economic difficulties and the level of external debt.

Labor unions, formerly receptive to Mr. Hawke's pleas for restraint, are less so now. There has been an increase in pay-related strikes widely seen as inevitable later this year. The unions are encouraged by a so-called ``socialist left'' faction in the ruling Labor Party.

This faction is angry that the Hawke government is poised to resume uranium sales to France and doesn't like the administration's continuing warmth toward the United States, either.

Labor Party critics of this truculent and militant grouping say it is self-destructive and may well speed Labor's electoral defeat. Certainly, recent opinion polls show the Hawke government losing support while support for the opposition coalition of liberal and national parties remains stable, with the small, centrist Australian Democrats increasing their popularity. Indeed, if an election were held now, Hawke's ability to cling to power would be in extreme doubt.

Analysts contend that an austere August budget, the work of Treasurer Paul Keating -- who contends that Australians need strong measures before economic well-being can return -- spurred a wave of dissatisfaction. Agricultural Australia's economy has been sorely hit by a slump in a range of commodity prices, particularly wheat and sugar. Mineral exports have suffered similarly, and the manufacturing sector is largely a noncompetitive overseas.

Further, the country is caught in the middle as a trade battle continues between two giant subsidized producer groups, the European Community and the US. Indeed, relations with the US became strained when subsidized American wheat was earmarked for the Soviet Union and subsidized American sugar was set for shipment to China.

Both these markets are perceived by producers here as traditionally theirs. Australians argued that loyal defense alliance support for the US was being overlooked by Washington. But the US position is that these are separate issues, although the US says it will pay greater heed to the damage that trade policies can inflict on allies such as Australia.

So severe is Australia's economic crisis that the nation is having to prune aid to neighbors such as Papua New Guinea, a developing nation heavily dependent on budgetary help from Canberra. Westpac Banking Corporation and the Melbourne Institute of Applied Economic and Social Research together are forecasting a protracted recession.

In the view of Westpac's chief economist, Bob Graham, however, ``there are indications that economic growth could be about to pick up again if expansion in the US could feed through to Australia and limit the severity of our recession.'' Mr. Graham notes: ``Australia is not only having to grapple with deterioration in its terms of trade but also with a mounting external debt problem.''

Treasurer Keating's assessment is that the economy will slow down, but not enough to enter a recession.

Meanwhile, research by Australia New Zealand Banking Group shows a decline in employment advertising nationally for four straight months. And the Australian Bureau of Statistics reveals that the unemployment level rose from 7.6 percent to 8.3 percent in July.

According to Bryan Noakes, director of the Confederation of Australian Industry's industrial council: ``What is clear is that the economy has been in deterioration for some time, that some of our major industries are unable to compete on domestic and international markets, and that the level of domestic and overseas confidence in our economic future is declining.''