Australia is not part of Asia. Nor is it, as is sometimes suggested, an extension of or an appendage to the Asian continent. In making so unqualified an assertion, one is not seeking to take refuge in the traditional acceptance of continental nomenclature nor in the existence of the narrow straits that separate the East Indies from Australia. The implication is that from almost every conceivable point of view the lands on either side of the Arafura Sea are fundamentally different in character.

The sustained capital inflow, which had been an important feature of the Australian economy in the 1950s and 1960s, rose to new heights in 1971 and 1972, when the traditional flows of equity investment and long-term loans were supplemented and temporarily eclipsed by large-scale borrowing by both foreign and locally-owned companies operating in Australia. This dramatic change in the nature of the capital inflow cast serious doubts on the wisdom of the macro-economic policies then being pursued by the Australian Government and revived earlier discussions about its ability to implement appropriate policies in the face of volatile capital flows between Australia and the rest of the world.