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Thursday, 28 October 2010
Page: 1987


Mr SHORTEN (Assistant Treasurer and Minister for Financial Services and Superannuation) (9:04 AM) —I move:

That this bill be now read a second time.

This bill has two purposes: one, to amend the International Monetary Agreements Act 1947 to authorise the subscription by Australia to additional shares in the capital stock of the International Bank for Reconstruction and Development (IBRD); and, two, to amend the International Finance Corporation (IFC) Act 1955 to incorporate a proposed amendment to the articles of agreement of the IFC and to amend the Multilateral Investment Guarantee Agency (MIGA) Act 1997 to incorporate four amendments to the MIGA convention which have recently been adopted by the MIGA Council of Governors.

The first purpose of the bill is to obtain parliamentary approval for Australia to subscribe to additional shares in the capital stock at the IBRD as part of the general and selective capital increases recently agreed, at a cost of around US$51.6 million.

The International Monetary Agreements (IMA) Act 1947 established Australia’s membership of the International Monetary Fund (IMF) and the World Bank. The bill proposes to amend the IMA Act 1947 to authorise the subscription by Australia to 7,128 additional shares in the capital stock at the IBRD, at a price of US$120,635 a share.

The World Bank, which was established in 1944, is the key multilateral development finance institution focused on fighting poverty throughout the world. As the original institution of the World Bank Group, the IBRD aims to reduce poverty in middle-income and creditworthy poorer countries by promoting sustainable development through loans, guarantees, risk management products, and analytical and advisory services.

Made up of 187 member countries, the IBRD (or the ‘bank’s’) capital consists of two components: paid-in and uncalled. This general capital increase involves actual payment by members of the paid-in component, and a potential liability for the uncalled component. The bank’s loans have been financed largely by funds borrowed from international financial markets. Since its inception, the bank has never made a call on its uncalled capital. The bank’s prudent financial policies make it unlikely that such a call will be made in the future.

The international financial institutions have been a central part of the global response to the financial crisis, with the multilateral development banks (MDBs) mobilising US$235 billion in financing. The G20 commitment to increasing MDB resourcing has helped ensure that the institutions have sufficient resources to address the impacts of the global financial crisis and the recovery, through US$350 billion in capital increases.

As part of this push to support the MDBs’ role in addressing development, in April 2010 the World Bank’s Development Committee agreed at the spring meetings to an increase of US$86.2 billion in capital for the IBRD, including US$5.1 billion in paid-in capital. The increase will enable the IBRD to provide the lending levels necessary to assist developing countries in their post-crisis recovery whilst maintaining appropriate prudential standards.

The proposed capital increase includes a selective capital increase of US$27.8 billion, with paid-in capital of US$1.6 billion, to implement the World Bank’s voice reform package, which increases the voting power of developing and transition countries. The long-term effectiveness and legitimacy of the World Bank Group will be strengthened by these reforms that move towards appropriate voice for all members—including the poorest.

The voice reforms begin the transition to a shareholding structure that is more reflective of economic weight in the world economy and each country’s contribution to achieving the World Bank’s development mission, breaking the historical reliance on IMF quotas.

Under the general capital increase, Australia is entitled to subscribe to an additional 6,661 shares. Reflecting our historical contributions to the concessional arm of the bank (the International Development Association), Australia is also entitled to purchase up to 467 additional shares as part of the selective capital increase. Taking the general and selective capital increases together, Australia’s total subscription amounts to 7,128 shares at a price of US$120,635 each. Only six per cent of the value of these shares is required to be paid-in. As a result, the annual cost of the subscription will draw on a very small part of Australia’s aid program over the five-year payment period.

The paid-in portion of these shares was included in the 2010-11 budget as a capital measure of US$51.6 million—based on budget exchange rates, that was A$55.9 million—to be paid-in over five years, commencing in 2011-12. The measure had no direct impact on the underlying cash or fiscal balances.

The budget measure also stated that Australia would increase its uncalled capital subscription by US$808.3 million, which could only be drawn down in the unlikely event that the IBRD is unable to meet its financial obligations. The increase in the uncalled component of Australia’s subscription appeared in the Statement of Risks as a contingent liability.

Timely passage of the legislation is necessary for Australia to meet the G20 Pittsburgh Summit and Toronto Summit commitments of ensuring that international financial institutions have appropriate capital for their resourcing needs, ensuring developing countries increase their voting power and modernising the World Bank. It is important that Australia demonstrates its commitment to the G20 agenda by ensuring prompt implementation of these reforms.

In supporting the IBRD’s capital increase, Australia recognises the significant contribution the bank has made to developing countries, both in its long history of supporting poverty reduction and in its response to the global financial crisis through new and innovative approaches to helping its clients.

The World Bank Group has embarked upon fundamental governance reform and developed a post-crisis directions strategy to sharpen its focus where it can add the most value, emphasising, among other things, targeting the poor and vulnerable. In the drive to become more efficient, effective and accountable, the World Bank has committed to a long-term governance reform agenda, which includes steps already taken to decentralise decision making and focus on results.

I believe the economic and political significance of the World Bank’s important developmental role thoroughly justifies Australia’s continued support of the bank by taking up its full additional subscription of the bank’s capital increases.

Further details of the bill are contained in the explanatory memorandum.

The second purpose of this bill is to amend the IFC Act to allow Australia to incorporate a proposed amendment to the articles of agreement of the IFC and to amend the MIGA Act to adopt four amendments to the MIGA convention. The articles of agreement of the IFC and the MIGA convention form schedules to the IFC Act 1955 and the MIGA Act 1997 respectively.

The proposed amendment to the articles of agreement of the IFC aims to improve the voice and participation of developing and transition economies in the World Bank by increasing their basic votes, implementing the G20 commitment. This will increase the effectiveness and legitimacy of the World Bank as the leading global development institution and enhance the influence that developing and transition countries have over governance, policies and decision making at the World Bank. The proposed voice reform also allows shareholders to achieve voting power adjustments in both the IBRD and the IFC, taking into account different levels of shareholder interest in and support for the different institutions.

The four amendments to the MIGA convention recently adopted by MIGA’s Council of Governors will modernise MIGA’s mandate and expand the agency’s scope, allowing a greater range of projects to be eligible for MIGA coverage. The amendments will permit the agency to: provide coverage for stand-alone debt; broaden the process for investor registration; broaden the scope for coverage for existing assets; and eliminate the requirement of a joint application by the investor and the host country to authorise coverage for specific additional non-commercial risks.

The Treasurer, as Governor for Australia of the World Bank, voted in favour of each of these proposed amendments. Australia has significant interest in seeing these reforms implemented as they will enhance the effectiveness and legitimacy of both institutions.

The agreement and convention constitute international treaties for Australia and, as such, any amendments to the treaties will require tabling in parliament and consideration by the Joint Standing Committee on Treaties. A national interest assessment will be tabled in parliament as soon as possible outlining these proposed amendments.

I commend this bill to the House.

Debate (on motion by Mr Laming) adjourned.