Jim Cairns - The Loans Affair

The Loans Affair

In an attempt to raise funds for large capital works projects, e.g. boring for gas on the north-west shelf between Australia and Papua New Guinea and constructing a pipeline for transporting the gas down to Eastern Australia, senior ministers Rex Connor and Lionel Murphy, along with Prime Minister Gough Whitlam made arrangements to borrow approximately US$4,000 million petrodollars from the Middle East through an intermediary, a Pakistani banker called Tirath Khemlani (the so-called "Loans Affair"). Cairns first became aware of what was to become known as the Loans Affair three days after being appointed Treasurer, on the 13th of December 1974, when he entered at the end of a meeting of the Labor Party federal executive at the Lodge, Whitlam explained the situation and requested that Cairns co-sign approval for the loan. Cairns did so, noting to Whitlam that the state premiers should be informed of the loan (this did not occur). Subsequently, Sir Frederick Wheeler, Secretary of the Treasury (the head of Cairns' department) and other members of staff communicated to Cairns that Khemlani was of questionable character. In his capacity as Acting Prime Minister during Gough Whitlam's overseas trip covering late 1974 to early 1975, Cairns arranged a meeting at the Reserve Bank in Canberra attended by various senior officials, including Lionel Murphy and Rex Connor. After some debate, the outcome of this meeting was that Connor's authority to borrow the loan in question was cancelled. Whitlam returned from overseas on 19 January 1975 and on 27 January 1975, Connor's authority to borrow the loan was reinstated without consultation with Cairns as Treasurer, who found out after the fact. A short time later, when Cairns was about to visit the United States in an official capacity, his staff informed him that if the issue of the Khemlani loan were not dealt with, it would most likely overshadow his visit. This, plus Cairns' pre-existing reservations about the loan, prompted him to discuss the issue once again with Whitlam, who then agreed that Connor's dealings with Khemlani should come to an end. Whitlam requested that Cairns be the one to deliver the news to Connor and Cairns did so. Rex Connor was later dismissed by Whitlam for continuing his unauthorised business communications with Khemlani. Whitlam moved Cairns from Treasury to the Environment ministry.

Cairns' political undoing began by way of an incident that is often conflated with the Connor/Khemlani dealings, but was essentially separate. In 1974, Cairns was introduced by Robert Menzies to George Harris, a Melbourne businessman and president of the Carlton Football Club. Harris had offered to secure loan funds for the Australian government, and in March 1975 Cairns signed a letter agreeing to a 2.5% commission. Many blamed the disorganised state of Cairns’ office for what ultimately turned out to be a misleading statement to Parliament in June that he had not authorised any such commission. Cairns claimed that he had signed the letter in question unknowingly while signing a batch of fifty or so letters and that it was not uncommon practice for politicians to sign letters that they had little or no memory of signing. Ironically, politicians from across the aisle—Malcolm Fraser and a number of his ministers—spoke out in defence of Cairns on this subject, agreeing that they too signed letters of which they had little or no memory. But the fact remained that Cairns had signed the letter, and as a result Whitlam had him dismissed from the ministry on 2 July 1975. Cairns has since stated that he felt there were ulterior motives at play on the part of Gough Whitlam; namely that Whitlam wished to be rid of Cairns because Cairns did not agree with a policy of economic rationalism and that Whitlam felt that Cairns was a threat to his leadership.