International Herald Tribune
Philip Bowring: Howard's end?
HONG KONG Could the adage "Quit while you're ahead" come to haunt Australia's prime minister, John Howard?

After 10 years in the job, Howard announced last week that he would run for a fifth term in the next general elections, which are due in 2007 but could be called earlier. The news was no surprise, though it was another rebuff for his heir- apparent, Treasurer Peter Costello.

Polls show that Howard is riding even higher than his Liberal Party, and that the party is more likely to win under his leadership than Costello's. But could hubris catch up with Howard just as it has already overtaken Prime Minister Tony Blair of Britain, not quite a decade in office?

To be sure, Howard has proved more durable than Blair, which is surprising given that Australia's three-year electoral cycle makes any leader vulnerable to short-term political shifts. And no one, least of all Howard himself, believes he has either the dominant personality of a Thatcher or the oratorical and telegenic skills of a Blair.

Howard has succeeded, in fact, by largely avoiding the personal and political traps into which Thatcher and Blair fell. After a decade in office most governments accumulate sleaze on an electorally damaging scale. But apart from a close shave over a wheat deal with Saddam Hussein's Iraq, Howard's government has generated relatively little.

Howard has none of the domineering arrogance that alienated Thatcher's colleagues as well as the electorate. He is a plain, cricket-obsessed suburbanite who, unlike Blair, eschews association with pop stars and media ephemera and follows his own conservative instincts rather than polls. People know where he stands. The Labor opposition, meanwhile, has avoided making itself appear sufficiently different for fear of alienating the middle ground.

Even Australian involvement in Iraq, Afghanistan and the so-called war on terror has not proved a significant liability. Australia's close ties to U.S. foreign policy, however misguided, are comforting for the nervous electorate of a thinly populated, culturally Western nation in a populous Asian world.

Howard has courted China as a market but otherwise kept his distance from Asia. He has followed Bush without acquiring Blair's "poodle" epithet. He has even managed to get kudos for participation in the wars while mostly keeping his forces out of harm's way.

Howard could yet be undone by association with Bush's failures in war, just as an earlier conservative government was undermined by the Vietnam War. But if there is a real threat to Howard's continued electoral success, and his legacy as Australia's second-longest- serving prime minister, it is the economy.

For all Howard's political skills, the bedrock of the government's durability has been an economy that for a decade has outperformed most of the developed world, with high growth, falling unemployment and a fiscal surplus. That is an enviable combination, for which Howard and Costello claim credit. To an outsider, short-term threats may seem small. Australia's crucial commodity exports are booming - prices for iron ore, coal, gold and copper have doubled, the mining investment boom is in full swing and the Organization for Economic Cooperation and Development is forecasting that growth in gross domestic product in 2007 will exceed this year's forecast of 3 percent.

However, all is not plain sailing politically. The mineral boom has little direct impact on the urban southeast where most voters live and where a decade of economic success has been built on debt-fueled housing and consumption. Despite commodities, the Australian economy looks too much like that of the United States for comfort - but also with lower productivity growth.

With inflation at 4 percent, Australia's central bank has raised interest rates twice in four months. How long will it be before households feel squeezed, unemployment starts to rise again and urban, working-class Australians start to focus not on prosperity but on the aspects of Howard's rule that they most dislike, such as workplace reforms that have reduced workers' bargaining power?

Rising interest rates may help keep the Australian dollar strong, but they are a reminder that much of that huge increase in household debt has been financed not by Australians' own savings but by foreigners. Net foreign debt just surpassed 500 billion Australian dollars, or $380 billion, and despite the minerals boom the current account deficit is around 5 percent of GDP, almost as bad as America's. Interest and dividend payments to foreigners - who now own much of the mining industry - are now almost 4 percent of GDP.

The debt has been accumulated despite a fortuitous and unprecedented 35 percent improvement in Australia's terms of trade since 1995. In the wake of the Asian financial crisis, prices of manufactured imports fell and then prices of commodities rose. But all that could easily go into reverse. Meanwhile, debt service can only get larger as global interest rates rise

The Lucky Country's luck could run out soon, perhaps even sooner than Howard has calculated.