The bill amends the International Monetary Agreements Act 1947 to allow Australia to accept the changes to the terms and conditions of the New Arrangements to Borrow of the International Monetary Fund (IMF) adopted by the IMF Executive Board on 12 April 2010.

The New Arrangements to Borrow is a voluntary set of credit arrangements between the IMF and a number of its members. Australia, through the then Treasurer, played a role in the development of the New Arrangements to Borrow and we have been a participant in the New Arrangements to Borrow since its inception in 1998.

The purpose of the New Arrangements to Borrow is to act as backstop to the normal quota-based resources of the IMF, by providing the IMF with recourse to borrow from its members when supplementary resources are needed to forestall or cope with an impairment of the international monetary system, or to deal with a crisis that threatens the stability of the system.

The turbulence in the global economy and financial markets in recent years has seen the IMF provide substantial support at short notice to countries with balance of payments needs. In doing so, it has drawn heavily on its available resources and, additionally, has relied on ad hoc and temporary loans from a small number of its members.

On 2 April 2009, G20 Leaders in London committed to an expanded and more flexible New Arrangements to Borrow, as part of their global plan for recovery and reform. This provided a significant boost in confidence. It is important that Australia does its part in delivering on this commitment.

Under the expanded New Arrangements to Borrow, the IMF will be able to borrow up to approximately SDR 367 billion, significantly increased from the existing SDR 34 billion. Australia’s share of these expanded credit arrangements will be around SDR4.4 billion, worth around A$7.5 billion, up from our existing SDR 801 million line of credit, worth about A$1.4 billion, that was established in 1998.

In the event that the IMF calls on the New Arrangements to Borrow, a drawing under Australia’s credit line would be through a loan to the IMF, to be repaid to Australia in full, with interest, within five years; as it was on the only previous occasion on which the New Arrangements to Borrow was activated to support Brazil over a decade ago.

In addition to expanding its size, this Bill will reflect the agreed amendments to make the New Arrangements to Borrow more flexible and a more effective crisis management tool. Among these changes, the predictability of the IMF’s access to the credit arrangements during crisis periods will be increased. Strong governance structures will be retained, requiring the agreement of a large majority of participants before the New Arrangements to Borrow can be activated.

The IMF played an important role during the global financial crisis in restoring more normal conditions in financial markets, but the global economic recovery is not yet assured. Australia’s prosperity will rely on a return to strong and stable growth in the world economy. Rapid implementation of the New Arrangements to Borrow would be a strong statement of our commitment to that recovery and would improve confidence within financial markets.