OECD SEES MAJOR ADJUSTMENT FOR AUSTRALIA Australia faces a major medium term adjustment to reduce debt and improve its economic performance, the Organisation for Economic Cooperation and Development said in its latest annual review of the Australian economy. It said Australia had a current external deficit of 5-3/4 pct of gross domestic product, high and rapidly rising external debt equal to 30 pct of GDP, growing servicing costs and inflation above nine pct, far higher than that of other OECD countries. A major policy change in early 1985 helped lay the basis for sustained non-inflationary growth and external competitiveness had improved, but economic performance overall had sharply deteriorated since June 1985. A major shift of real resources to the external sector -- about 4-1/2 pct of GDP by 1990-91 -- was required for the economy to expand in line with potential, for employment to grow, and for the debt/GDP ratio to stabilize, it said. Success depended on the setting of right policies including tighter fiscal policy, a reduction in the public sector borrowing requirement and on private sector behaviour. Looking ahead over the next 18 months, the OECD expected economic performance to improve, partly as a result of tighter fiscal and monetary policy, and a substantial improvement in trade volumes. It said positive GDP growth of three pct might be restored, the current external deficit could fall to some 4-1/2 pct of GDP by the first half of next year, while inflation was projected to decelerate to around five to 5-1/2 pct by mid-1988. Continued real wage moderation was essential to maintain the competitive edge created by the Australian dollar's depreciation, and to maintain if not boost profit shares in order to encourage business investment. The report urged Australia to broaden its export base by developing viable and competitive service and manufacturing industries, and not count on a recovery of commodity markets to correct its external imbalances. It added Australia should reduce protection levels in manufacturing, even though faster trade liberalisation would no doubt hurt the most protected sectors of industry.