Note: Where available, the PDF/Word icon below is provided to view the complete and fully formatted document
 Download Current HansardDownload Current Hansard   

Previous Fragment    Next Fragment
Thursday, 15 September 1983
Page: 913


Mr BALDWIN(4.21) —The International Development Association (Special Contribution) Bill and the International Monetary Fund (Quota Increase) Bill effect an increase in Australia's quota in the International Monetary Fund and authorise a special contribution by Australia to the International Development Association, an affiliate of the World Bank devoted to providing development credits for the poorest countries. Both the IMF and the World Bank were established in the immediate post-war period, with the IMF designed to provide temporary financing for countries experiencing balance of payments difficulties and to promote orderly exchange arrangements and international monetary co- operation generally. The World Bank was established in 1945 as a new type of international investment institution to make or guarantee loans for reconstruction and development projects both from its own capital provided by member governments and through the mobilisation of private capital. Both these institutions have played a vastly significant role in the world economy since their inception, and this role has been highly controversial at times, particularly in the case of the IMF. In terms of influencing the policies of its members, the IMF is fulfilling a role which is most clearly provided for in its statutes and is the most formalised of the two. Hence I will focus on the IMF for the remainder of this speech.

The IMF's policies have evolved considerably since it was first set up, and to some extent its priorities are different from those intended at Bretton Woods, at least by Britain and some other countries. Moreover, the IMF was not set up with the developing countries in mind and it was not foreseen that it would become so deeply involved in the policies of non-industrialised countries, expecially those in Latin America. The Fund's resources are provided through its members' subscriptions, based on quotas initially negotiated at Bretton Woods. The International Monetary Fund (Quota Increase) Bill allows Australia to increase its quota, pursuant to a decision made by the Fund in March this year, to increase the aggregate quota level by 47.5 per cent. As pointed out in the second reading speech of the Minister for Housing and Construction and Minister Assisting the Treasurer (Mr Hurford), individual member countries' quota increases vary around this aggregate figure, depending on a formula which provides a measure of each country's relative economic position. Based on this, Australia's increase is 36.6 per cent-significantly below the average.

This most recent review of quotas was undertaken in the light of widespread concerns about the state of the international financial system, particularly the vast burden of debt incurred by countries of the Third World and East European Bloc. No accurate figure of the totality of this debt is available, though some have put it at around $650 billion. Some countries, Mexico and Brazil, each with debt in the order of $90 billion, being the most obvious examples, have faced grave difficulties in servicing this debt. In general, the problem has been the conjuction of high interest rates and deterioration in the terms of trade of developing countries, this deterioration itself a result of reduced demand for commodities caused by the recession in the industrialised world.

The general quota increase has encountered a major snag in that approval of the United States share of the increase-some $8.4 billion-has become bogged down in Congress. Some ultra-conservatives there have opposed the increase on the ground that the IMF loans amount to a 'giveaway to Marxist and Third World countries'. It is interesting to read the accounts of the debate that took place in the United States Congress and the quite extraordinary language that was used to describe some of the recipients of IMF loans. The United States House of Representatives carried an amendment that requires the United States of America to oppose IMF loans to communist countries, which is obviously an untenable position to adopt. These delays have caused a serious financial squeeze for the IMF. The trust of pressures, emanating mainly from the United States, is for the IMF to play an even more blatantly interventionist and political role than it already does. Numerous instances of this can be pointed to in recent years, including the policy changes forced on the British Labour Government in the mid- 1970s. An IMF bail-out is given only subject to the recipient country agreeing to changes in its domestic and exchange rate policies designed to force it to ' live within its means'.

What this means in practice is almost always a severe tightening of expenditure through contractionary fiscal and monetary policy measures such as the imposition of ceilings on net government borrowings and/or net domestic assets of the Central Bank, or an upward adjustment of nominal interest rates in those cases where rates are fixed by the Government. Approval also involves an understanding with the Fund on exchange rate policy and exchange rate arrangements. The understanding usually involves a substantial devaluation of the currency. Devaluation thus becomes part of a restrictive policy package which aims at improving the balance of payments of the country and its foreign exchange reserve position. In recent times, a number of countries have had to accept the IMF's bitter medicine. Portugal has been told, among other things, to reduce its Budget deficit from 11 to 6 per cent of gross domestic product, as the price of receiving $US300m from the IMF in the form of a loan. Yugoslavia has had to embark on an austerity program which, since last November, has produced a 10 per cent fall in living standards.

But the most spectacular recent example is that of Brazil. Acquiescence to the IMF program by the Brazilian Government has produced an upsurge of social unrest , including strikes, demonstrations and riots. Events in the month of April in that country have caused a reassessment by observers of the potential for social revolt by that country's poor. A key element in the IMF program for Brazil is a substantial cut in real wages. This is to be brought about by the breaking of the index link between wages and price movements-a serious measure indeed in a country where inflation is currently running at 150 per cent. This is in a country in which the share of wages in the total value of production in manufacturing industry has declined from 17 per cent to 12 per cent over the past 30 years, and in which 49 per cent of all families live below the poverty line.

The price to be exacted from Brazil is indicated by a paper produced by the Institute for International Economics in Washington, which calculates that if Brazil really did meet the IMF targets, its national output would collapse by 15 per cent, with employment following suit. This is superimposed on a situation where 1.5 million jobs have been lost in the past three years. The total work force is the same now as in 1973-meaning, in effect, that some 10 million people have been added to the jobless lists, if we take account of population growth.

In saying all this, it is obviously not my intention to oppose the legislation. I do not adopt a position which would be the mirror image of that of the ultra conservatives in the United States. There can be no doubt as to the necessity for and the desirability of some organisation with the capacity to sort out the balance of payments problems of countries that run into difficulties for one reason or another. But I maintain that we need to be aware of the effects of conditions being imposed on countries, particularly Third World countries, that are the recipients of IMF loans, and to be aware of political pressures, particularly in the United States, to make this position worse. We ought to bring to bear such influence as we have in this organisation to end the imposition of draconian conditions on individual countries. I commend these Bills to the House.