The Loans Affair 35 years on: lessons in history

As the Government clings to clumsy populism to avoid defeat that seemed unlikely six months ago, it’s worth remembering a pivotal anniversary of another Labor downfall after just three years in office.

Thirty-five years ago today the Overseas Loans Affair was debated in federal Australian parliament. The debate was one of two times outside witnesses were called to the bar of the Senate. The first was at the height of the great depression in 1931 when Sir Robert Gibson, Chairman of the Commonwealth Bank Board, was called in to help the Senate “secure the utmost information possible to guide them wisely in dealing with the difficulties with which Australia is confronted.”

In 1975 many senior public servants were summoned to the bar to say what they knew about the overseas loans negotiations. A year earlier a hard-up Labor Government attempted to raise $4 billion via unorthodox means. Labor wanted to kickstart a sluggish post-Oil Crisis economy with resource, energy and infrastructure initiatives such as electrifying railways, building natural gas pipelines and enriching uranium for nuclear power.

Prime Minister Gough Whitlam authorised Minister for Minerals and Energy Rex Connor to bypass normal Treasury channels and seek access to Gulf petrodollars floating in enormous numbers in OPEC coffers. No organised market existed for directly investing the growing pool of money.

The Australian Government had no connections in the Gulf but Adelaide builder Gerasimos “Gerry” Keridis had indirect access in the finance industry. In 1974 a friend told Keridis about someone who had $200 million waiting to invest in something. Keridis traced the request to jeweler and opal dealer Tibor Shelley. Keridis rang his friend Clyde Cameron, Whitlam’s minister for labour, to ask if he knew of anyone wanting investment. Cameron began to work the phones.

The next day Keridis was invited to Canberra to meet Connor who was already plotting to get $4 billion. Keridis was told to check the bona fides of the $200m loan story. He assumed Connor would be doing the same. Keridis traced the money to Hong Kong where the trail ran cold. Shelley gave him the name of another finance broker who gave him the name Tirath Khemlani.

The Pakistani-born Khemlani had credibility through his London employers Dalamal and Sons. Scotland Yard told the Australian Government Dalamal was a respectable commodities firm. Khemlani heard about Australian interest in Gulf money through a Hong Kong connection of Shelley’s. Though he had little experience in high finance he wanted to broker the deal.

He flew to Australia and met Connor and Keridis. Connor talked about the east-to-west coast railway, a national power grid and the North-West shelf’s energy stocks and said he needed $200 million. Khemlani said that was chickenfeed and he urged Connor to go for two to four billion. Connor and Keridis saw Khemlani as the messenger and expected Dalamal and Sons to broker the deal.

Khemlani flew back to London but reported regularly back to Keridis who briefed Connor. Keridis explored other avenues, hoping for a $7 million commission on a $4 billion deal.

On 13 December 1974 the Government’s inner council authorised Connor to raise a 20-year loan “for temporary purposes”. This sleight of hand avoided the oversight of Australian Loans Council which coordinates federal and state government borrowing. The Loans Council was governed by a “gentleman’s agreement” to impose borrowing limits but was often breached.

This meant Liberal State Governments were out of the loop and so were Labor’s own MPs. The deal insisted the Government pay no commissions so Keridis was out of pocket. But Khemlani was getting nowhere. Each time the broker rang in, there was a new reason why he had yet to engage the moneymen. A week after the secret deal was signed, officials convinced Treasurer Jim Cairns Khemlani was a dud and Cairns got Connor to terminate the arrangement.

Khemlani was not inclined to take no for an answer. Though no longer employed by the Australian Government, he kept looking for the money. Connor told the Inquiry he dropped Khemlani on 20 May 1975 but Khemlani said they were still talking later than that. Keridis remained supportive until Khemlani made blackmail threats. Khemlani arrived in Australia in October 1975, a month before the Dismissal, with a bag of secret documents to sell to the highest bidder.

By then most of the political damage had been done. In May, the Government got cold feet about petrodollars and went to an American investment house, whose name was never revealed. The Americans insisted they be the sole authorisers and Whitlam revoked the loan authorisation.

Information started to leak and by July an outraged opposition demanded a full explanation. On 9 July, Whitlam tabled the documents in parliament confident they had done nothing wrong and determined to show they were a government with vision. His gamble came unstuck. The media ignored the reasons why the money was needed and came down hard on its secrecy and haplessness. The “Loans Affair” became a term loaded with negativity and ignominy, despite the fact no money changed hands.

The affair made the Government look like amateurs. Whitlam sacked Cairns and Labor suffered a shock loss in a Tasmanian by-election. The 15 percent swing gave Opposition leader Malcolm Fraser the confidence to use his upper house majority (thanks to Joh Bjelke-Petersen’s night of the long prawns) to block Budget supply. The rest was history.

It is well to remember that history 35 years later. New Prime Minister Julia Gillard’s catastrophic blunder over East Timor in an effort to look tough followed by a stupid pretence it never happened, could yet end Labor up in Loans Affair-like election trouble again.


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