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Thursday, 29 May 1997
Page: 4379

Mrs MOYLAN (Minister for Family Services)(9.31 a.m.) —I move:

That the bill be now read a second time.

Mr Speaker, the bill amends the International Monetary Agreements Act 1947 to allow Australia to adhere to the International Monetary Fund's new arrangements to borrow and to simplify the framework for conducting and recording Australia's other financial transactions with the IMF.

The new arrangements to borrow, NAB, were developed following the financial crisis in Mexico in late 1994. The Mexican crisis prompted concerns about the adequacy of the IMF's resources in the event of possible future crises affecting the international monetary system, in view of the growing size and integration of international financial markets. The NAB will double the IMF's capacity to borrow to forestall or cope with an impairment of the international monetary system or to deal with an exceptional situation that poses a threat to the stability of that system.

Honourable members will be aware that Australia played a key role in the development of the NAB—a role with which we can be justly proud. The establishment of the NAB as the IMF's principal borrowing facility will be a milestone for the institution and the international monetary system. Importantly, it will enhance the IMF's ability to safeguard the international monetary system.

The NAB is open to all IMF members that have the capacity, and are willing, to support the international monetary system and partici pants will have equal rights and responsibilities. These two features will do much to ensure that the NAB will be a central element in the management of the international financial system into the next century. The wider participation of member countries in the NAB appropriately reflects the changing structure of the world economy.

Under the NAB, the IMF will be able to borrow up to SDR34 billion, or about $A61 billion, from the NAB participants. Australia's share of these credit arrangements is SDR810 million, or about $A1.5 billion. In the event of a call, Australia would lend directly to the IMF and would receive a claim against the fund. The bill provides that any loan to the IMF will be paid out of the consolidated revenue fund.

Under the NAB, there is scope for Australia to opt out of calls if the government determines that we will not be able to meet them because of our present and prospective balance of payments and reserve position. We may also, on the basis of a balance of payments need, require early repayment of part or all of any loan we have made to the IMF.

Mr Speaker, Australia undertakes a number of regular financial transactions with the IMF. These include the receipt of interest on special drawing right holdings, interest payments on the use of special drawing rights, quota payments and remuneration received for the use of Australian dollars by the IMF. The bill introduces a simplified framework for the conduct and recording of these transactions. Under the existing arrangements, some of Australia's financial transactions with the IMF are conducted by the transfer of special drawing rights between the Commonwealth and the Reserve Bank and corresponding changes in the bank's retransfer liability to the Commonwealth. Under the new framework, the Commonwealth would purchase and sell all the SDRs required to undertake these transactions with the fund. This will provide for a more transparent and cost efficient framework for such transactions.

It is desirable that these changes be introduced at the same time as Australia takes up its membership of the new arrangements to borrow to ensure that all of these transactions are conducted in a consistent framework.

The amendments proposed in the bill will have no impact on the Commonwealth budget. The changes proposed to the conduct of Australia's financial transactions with the fund affect transactions which are, by accepted international standards, classified as financing transactions. Any loan by the Commonwealth to the IMF under the NAB would also be classified as a financing transaction because loans to the IMF represent monetary assets.

The participants in the NAB have agreed that they will meet once a year, in addition to any meetings needed for activation, renewal or amendment of the NAB. The objective of these meetings is to review and discuss macroeconomic and financial market developments, especially those that could have an impact on the stability of the international financial system and lead to a possible need for the fund to seek supplementary resources. This is potentially an important new forum for consideration of these issues. The chairmanship of the NAB will rotate between participants and Australia is expected to provide the first chairman. I present the explanatory memorandum to the bill and I commend the bill to the House.

Debate (on motion by Mr Crean) adjourned.