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Wednesday, 3 December 1986
Page: 3227

Senator WATSON(10.37) —The Liberal-National Party coalition supports the International Financial Institutions (Share Increase) Bill, the purpose of which is to grant approval for Australia to take up an increase in its capital subscription in the International Bank for Reconstruction and Development and the International Finance Corporation. Both of the international financial institutions are associated with the International Monetary Fund which was established at the end of the Second World War to promote international monetary co- operation. As a member of the IMF, Australia is entitled to a certain quota of shares related to our international importance in economic and trade terms. The IMF conducts a general review of its quotas at intervals of no more than five years.

In recent years reviews have resulted in substantial overall increases in fund quotas in response to a number of difficulties in the world economy. The World Bank group of which the International Bank for Reconstruction and Development is a part is perhaps the most influential intermediary organisation between developed and undeveloped countries. Following the devastation caused by World War II it was found necessary to establish an international investment institution to make and guarantee loans for productive reconstruction and development projects from both its own capital provided by member governments and through the mobilisation of private capital. The International Bank for Reconstruction and Development has two financial affiliates: The International Finance Corporation, the subject of debate today, which works specifically with the private sector in developing countries, and the International Development Association which has been the subject of legislation in previous years and in which we have increased our capital. The latter organisation became operational in 1960. The loan credits are provided only to the poorer developing countries on easier terms than the conventional International Bank for Reconstruction and Development loans.

As I mentioned earlier, the legislation before us will approve an increase in Australia's capital subscription to the IBRD and the International Finance Corporation. It will also enable the Treasurer to make all the necessary arrangements on behalf of Australia to purchase, in one case, 815 additional shares in the capital stock of the International Bank for Reconstruction and Development, and 14,560 additional shares in the capital stock of the International Finance Corporation. It also empowers the Treasurer to determine the terms and conditions under which these shares will be bought and, where appropriate, to issue securities in payment. The Bill also appropriates the funds necessary to make payments under these arrangements.

Both the Government and the Opposition concur that it is appropriate for Australia to register its support for the bank and its activities by taking up its full entitlement. Since its inception the aim of the World Bank group, of which the International Bank for Reconstruction and Development is a part, has not fundamentally changed, but of course its emphasis has. Its goal is to assist in the mobilisation of resources of the affluent and the afflicted nations to combat global poverty and to achieve sustained development. This is achieved by encouraging freer world trade, by adjusting the burden of Third World debt, and by shielding the development processes from volatile aid flows and financial markets. The bank and its associated institutions therefore played a major role in channelling the flows of capital, principally from the rich industrialised countries of Europe, North America and Japan, towards investment that promotes growth and development in the poor and mainly agricultural countries of Africa, Latin America and Asia, and providing a shield against volatility of global financial markets and aid fluctuations. Therefore we must consider the maintenance of a balance of investment and adjustment lending in each country. But more importantly, the bank must maintain flexibility both in the design and in the management of its activities, in that its structures must provide the best match between resources and the bank's requirements.

Since the Second World War a great deal of construction and world-wide development has been directly attributable to international finance. Let us very briefly go back in history. During the 1950s the World Bank concerned itself in the reconstruction of the war-damaged European economies. During the 1960s international money was then redirected to infrastructure projects in the developing countries, principally in Asia. The 1970s saw a re-awakening within the Western world to the plight of those countries which were living in terrible poverty. Millions of dollars were diverted to alleviating poverty directly. Unfortunately, the availability of ready money encouraged many of the developing countries to borrow money which they could never be in a position to repay. So international debt has grown into such huge proportions that we can see major problems emerging in the near future, with countries whose economies are being slowly destroyed by a combination of huge debt repayments and a fall in commodity prices.

At the beginning of November this year senior officials from 25 Latin American countries met in Lima to forge a common means of limiting repayment of the region's massive foreign debt which, in United States of America terms, amounted to $370 billion. But significantly, after only two days, they agreed to refuse to repay the debt under the present conditions. Instead they recommended that their debt repayments be indexed to their export earnings or other economic variables. The group has called on creditor nations to increase lending to the region on much easier terms. Australia, of course, is suffering under its own external debt problem, so we have some appreciation of the plight of countries such as Mexico and, to some extent, Chile, Peru and others. The industrialised nations need to tread very carefully with Third World debt problems and must recognise that inability and, at worst, refusal to pay for borrowings could result in major damage to the world economy. The bank also influences adjustments to Third World debt so that borrowings can once again become a stimulus to progress.

Agriculture is of vital concern in the poorest countries, so it is vital that all facets of agricultural development, from research to production, be encouraged. Agricultural development is seen as central and critical in this vital battle against poverty. Additional factors such as population control, environmental protection and the role of women in society are important in the growth of a country and should be given prominence. For this reason the Liberal-National Party coalition sees absolutely no reason for the Australian Democrats' proposed amendment to the motion for the second reading of this Bill. That amendment principally is concerned with environmental factors. Environmental issues are central to the matters that are evaluated before these loans are made. Much wider than the Democrats' concern about environmental matters are other issues such as population control and the role of women in the economy. These are important because high population growth rates, for example, place significant strains on a poor country's resources and therefore must be controlled in relation to development. There is a need to ensure that women are fully integrated in, and contribute to and benefit from, development programs. Women do two-thirds of the world's work. They are responsible for gener- ating the bulk of the food of underdeveloped nations, yet in return they get a negligible percentage of total income and are amongst the poorest of the world's underprivileged, particularly in countries such as those in Africa.

The World Bank aims to provide leadership, not only for sustained development but also for concerns such as these. I think it is the Democrats' lack of appreciation of all these factors that are taken into account which has led them to bring forward this amendment, which we believe is unnecessary and is grandstanding directed to one particular aspect. If they are to move an amendment of this nature why not make it wider to cover all these concerns, which incidentally the World Bank considers before it makes these loans?

Export growth, the World Bank group believes, is crucial to debtor nations as it is the primary means by which these nations can earn foreign exchange to service their debt. As a result, it is vitally important that the Inter- national Monetary Fund ensures that the developed and the developing countries alike do not retreat too much into protectionism and delusions of self-reliance. The continuing economic growth in industrial countries, the greater surpluses which have been created by countries such as Japan and West Germany and the preservation of an open trading system, we believe, are important to some improvement. The major problem in the international debt scene today is the overproduction of commodities in Europe and the United States, which has led to a dramatic drop in commodity prices. This has resulted in the external debt crisis which is facing many developing nations. Of course, it is having an impact in Australia.

The International Monetary Fund and its associated institutions have a major responsibility to ease the debt crisis by devising ways and means to help these debtor nations to service and manage their debts. The satisfactory resolution of debt problems will require close co- operation between all parties concerned. Australia's participation is significant in this area. The borrowing countries have to make fundamental contributions by persevering with programs of economic adjustment which strengthen their external position. This is particularly pertinent to Australia at present.

The slackening of world trade growth in 1985-86 has caused current account imbalances in many developing countries to worsen. The stagnation in the oil price markets and the declining prices for other primary commodity exports have led to sharp deteriorations in many of these countries' terms of trade and especially have forced many Latin American debtors to apply austerity policies. This has resulted in a reduction in their current account deficits, but the consequences for economic growth have been serious. Most of these countries have suffered from substantially reduced real living standards in the 1980s, and I believe this is unfortunate. While Brazil and Argentina are now showing signs of a breakthrough, through currency reform and deregulation, other Latin American country debtors are facing serious difficulties and unfortunately have little room to manoeuvre. With debt servicing costs likely to exceed export earnings in 1986, the debt position in these countries can only worsen. Asian nations, of course, are also feeling the pinch.

Close to home we find that Malaysia, a country that has been doing quite well, has already been forced to cut back on its industry development program because of the increasing debt servicing problems. Indonesia has been particularly affected by the fall in oil prices because oil and gas provide 70 per cent of its export revenue. Thailand and the Philippines depend primarily on commodity exports, and others have been hard hit by poor markets and falling prices. Singapore too is in its second year of economic recession and is facing serious structural problems. The World Bank group, one of the two instrumentalities at which we are looking today, operates on the premise that only growth will provide the income which can ensure debt ser- vicing and debt repayment. It is an institution which works for the common good of mankind. It embodies the philosophy that we are a community for a moral purpose, that the privileged the underprivileged work together for the betterment of society. On behalf of the Opposition I support these Bills.