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House: House of Representatives

Portfolio: Treasury

Commencement: Royal Assent

Purpose

To authorise the Treasurer to enter into an agreement or agreements with the Asian Development Bank (ADB) for the provision of additional capital to ADB and to make and issue promissory notes to cover obligations relating to additional callable shares.

Background

The ADB has 53 member countries of which 37 are regional members. Members include Australia, Japan, the United States, Canada, Germany, the People's Republic of China and Asian and Pacific countries. Of the members, 33 were classified as developing countries in 1993.

ADB provides loans, policy advice, equity finance and technical support to developing members in the Asia\Pacific region. ADB approved a total of $5.304 billion in new loans and investment in 1993, with the largest recipients being the People's Republic of China, Pakistan, Bangladesh and Indonesia. Most loans are to finance projects, 78% in 1993, and are directed to public owned or guaranteed projects. ADB lending without a government guarantee totalled $US241 million in 1993.

The ADB provides two main types of loans, those from ordinary capital resources (OCR loans) and those from the Asian Development Fund (ADF loans). OCR loans are financed from paid in capital, retained earnings and, principally, from borrowings on world capital markets. The ADB can use its position and resources to secure borrowings at a lower interest rate than that available to most member states. OCR loans are made available to members at a rate that reflects the borrowing costs to ADB, plus an additional administrative component. In 1993, 38 new OCR loans were approved with a value of $US3.98 billion, and total outstanding OCR loans at 31 December 1993 were $US12.25 billion.

ADF loans are provided at concessional interest rates, currently 1% to cover administrative costs, are for up to 40 years and are made available to the poorest members of ADB. However, India and the People's Republic of China are not eligible to receive ADF loans even though they fall within the poorest per capita income members. This exclusion is based on US opposition to ADF loans being made available to these countries on the grounds that the size of their financing needs would leave too few funds for other recipients and that they have access to other international concessional financing, such as World Bank loans. 1 Funds to finance ADF loans are donated by members, with the main contributors being Japan, the US, Canada, Germany and Australia. Australia has committed $1.12 billion to the ADF, of which $372.2 million has been paid up. Total commitments to the ADF are $US12.8 billion and in 1993 40 new ADF loans were approved with a value of $US1.3 billion. Total commitments from ADF at 31 December 1993 were $US9.4 billion.

Unlike some other forms of aid, ADB loans are not tied, i.e. recipients are not required to spend the aid in the country that provided it. Members of the ADB are able to bid for work generated through ADB loans and during 1989-93 Australia's procurement from ADB exceeded contributions by approximately $170 million. Major procurements from Australia by ADB cover goods, related services and civil works and consultancy services. Efforts to increase Australia's procurement are assisted by AUSTRADE which has a full-time commissioner based in Manila, ADB's base, to promote Australian involvement in ADB's projects. AUSTRADE also provides information in Australia on the tenders available from ADB.

During 1993, ADB considered its Fourth Capital Increase to enable an expansion of ADB's operations. ADB identified a number of areas where additional assistance should be provided, including:

. additional efforts to address poverty through social sector expenditure on items such as health, education and nutrition;

. population and family planning programs;

. the integration of environmental matters into ADB's considerations;

. financial sector and capital market reforms; and

. loans to members who have not previously been active borrowers (e.g. Cambodia and Viet Nam).

Following negotiations between the members, it was agreed that members would be able to double their commitment to ADB, so that if all members adopted this increase the capital of ADB would double to $US48.4 billion. Paid-up capital would comprise 2% of this amount with the remainder being on call. Australia will be entitled to subscribe to an additional 2 047 paid-up shares, valued at $US24.69 million, and an additional 100 323 callable shares, valued at $US1 210.25 million. To date, ADB has not made a call on callable shares. The Explanatory Memorandum states that it is Australia's intention to meet its contributions in six equal instalments commencing in 1995.

This Bill will authorise the Treasurer to enter into agreements to implement Australia's obligations under the Fourth Capital Increase.

Main Provisions

Clause 4 will authorise the Treasurer to enter into an agreement or agreements with ADB for the purchase of 2 047 paid-up shares and 100 323 callable shares at a per share price of $US12 063.50.

Clause 5 will authorise the Treasurer to make and issue promissory notes to ADB. Such notes are to be non-negotiable and non-interest bearing and will be payable at their par value on demand (such notes will be used to satisfy Australia's obligations relating to callable shares).

Clause 6 will appropriate the necessary funds for the implementation of any agreement entered into under clause 4.

References

1. Australia and the Asian Development Bank, 1993 Annual Report by the Treasurer to the Parliament, p. 8.

C. Field (Ph. 06 2772439)

Bills Digest Service 6 September 1994

Parliamentary Research Service

This Digest does not have any official legal status. Other sources should be consulted to determine the subsequent official status of the Bill.

Commonwealth of Australia 1994.

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Published by the Department of the Parliamentary Library, 1994.