THE WORLD FROM...Sydney

AUSTRALIA'S two warships are on their way back to their home ports. Their return is helping to shift the Hawke government's attention from the Middle East to concerns closer to home. For Prime Minister Bob Hawke, now in his fourth term, the most difficult postwar challenge is economic. Like most other industrial nations, Australia is in a recession. The normal monetary fix of lower interest rates is beginning to reawaken the interest-sensitive parts of the economy. But Australia's economic problems go beyond a cyclical downturn. The Hawke government hopes to bring reforms that make his nation competitive with the rest of the world. These include deregulating the airline industry, selling off some government assets, lowering transportation costs, removing protective tariffs from industry, and forcing unions to enter the 1990s.

The process is rapidly becoming a political rugby match. Take the issue of transportation. It is cheaper to ship an automobile from Melbourne to Japan to Auckland then to send it directly across the Tasman Sea. A joint industry-labor task force has been working on ways to reduce costs, but the process has been proceeding at a koala-bear pace.

The opposition Liberal Party senses this issue is a political Achilles' heel. Thus, after the prime minister said he would reduce protective tariff barriers two weeks ago, opposition leader John Hewson attacked the slow pace of macroeconomic reform. At a press conference, Mr. Hewson suggested that as a last resort he would send in the troops to load ships if the waterfront unions did not agree to reforms at a faster pace.

This certainly got everyone's attention. Unions complained that with the reforms already agreed to, thousands were expected to lose their jobs in the future. Business replied that the Australian waterfront was nowhere near as competitive as the docks of Singapore, where ships are unloaded in hours, not days.

The issue of competitiveness goes past the shoreline. In late March, a government report recommended the government telephone company, Telecom, consider asking outside contractors to do a portion of its work. Headlines the next day screamed about 8,000 Telecom workers who would lose their jobs.

The government faces the same dilemma in the airline industry. The Hawke government announced last year it was selling both government-owned carriers, Qantas and Australian Airlines, the domestic line. Since then, however, the Gulf war and the recession have cooled outside interest in either airline. As a result, the government will have to do the dirty work of firing as many as 3,000 workers at Qantas to stem projected losses. The airline unions want the government to sack Qantas management. As Mr. Haw ke knows, this would make it even more difficult to sell the airline, since it would give a potential buyer the impression the unions run the country.

Solving these problems is not a moot issue. Over the past 12 months, this resource-rich country had a balance of payments deficit of A$18 billion (US$23 billion). Most of this outflow is to pay the interest on its debt, since the country does not save enough. In effect, the country is borrowing money to maintain its high standard of living. As any economist will admit, the bills must be paid sometime.

For Hawke, it will be a challenge to remain in office. Making changes in the middle of a recession is not easy. Hawke's Labor Party is so far down in the polls that it would lose an election if one were called tomorrow. However, elections are still a few years away - enough time to make the changes if there is enough political will.