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Thursday, 17 August 1972
Page: 185


The PRESIDENT - Is there any objection'. There being no objection, leave is granted.

The document read as follows:

The purpose of this Bill is to obtain Parliamentary approval for Australia to take up an increase in its capital subscription to the Asian Development Bank. Australia is a foundation member of the Asian Development Bank which was established in December 1966. Membership of the Bank now totals 37 countries, 23 of which, including Australia and Papua New Guinea, are from the Asian region. The Banks main objectives are to promote investment in the region of public and private capital for development purposes. The Bank carries out its objectives by the provision of loans and technical assistance to member countries for development projects.

Participation in the Bank is an integral and important part of Australia's overall aid effort. As honourable senators will know, our aid record is a good one. We have for some years been among the foremost donors when aid is expressed as a percentage of gross national product. As far as the 'target' of 1 per cent of GNP for the net flow of resources to developing countries is concerned, we exceeded it in 1970 and have exceeded it again in 1971. The decision to participate in the capital increase of the Bank is an expression of the Government's intention to maintain the volume and quality of our assistance.

Under its charter, the Bank is empowered to conduct both 'special operations' and 'ordinary operations'. In the case of special operations' the Bank lends on concessional terms and can finance such loans mainly from resources contributed to special funds by its member countries. The terms of the loans financed from these funds have so far involved interest rates ranging from1½ per cent to 3 per cent per annum with periods of repayment extending from 16 to 40 years including grace periods of from 4 to 10 years. In the case of 'ordinary operations' the Bank lends on somewhat harder terms and has to finance such loans either by drawing on paid-in capital subscriptions or by using funds borrowed for this purpose on the capital markets of the world. The Bank's lending rate is at present 7½ per cent per annum with repayments spread over 10 to 25 years including grace periods ranging from 2 to 5 years.

The authorised capital of the Bank is $ US 1, 1 00m and the subscribed capital, from which the Bank derives the funds for its 'ordinary operations', to date amounts to about $USl,005m. Australia's present subscription of $US85m is exceeded only by those of the United States, Japan and India as is shown in the following statement of subscriptions which I ask leave of the Senate to have incorporated in Hansard.

 

Only half of the capital already subscribed is required to be paid in, the balance remains on call as security for any borrowings by the Bank in international capital markets. The Bank greatly increased its borrowing activities during 1971 by issuing bonds amounting in aggregate to about $US121.7m in Austria, Belgium, Japan, Switzerland, the United States and in 12 regional member countries. This brought the total since the commencement of borrowing operations by the Bank in 1969 to SUS1 59.8m.

At the 1971 annual meeting of the board of governors of the Bank a resolution was adopted asking the board of directors to undertake a study of the resources position of the Bank and, in particular, of the need to increase the capital stock of the Bank. At that time governors were aware that since its establishment the Bank had expanded its lending operations rapidly. The rate of increase in the Bank's operations meant that existing available funds, including all possible borrowings, would have been fully committed before the end of 1973. To enable the Bank to continue to play a meaningful role in the economic development of countries in our region, it was necessary therefore for consideration to be given to an expansion in its capital resources.

The directors completed their study in October 1971 and submitted a report to the board of governors on the need for ordinary capital resources to cover the Bank's operations until the end of 1975. Australia voted in favour of a resolution adopted by the board of governors authorising the Bank to accept from its member countries the increased subscriptions proposed in the directors' report. Members, including Australia, are entitled, but not obligated, to subscribe to this authorised increase.

The approved proposal provides that the authorised and the subscribed capital stock of the Bank be increased by 150 per cent. In money terms, this involves increases of $US1,650m and SUS 1.508m respectively. Only 20 per cent of the latter amount will, however, be paid in: the balance is to remain at call and be used by the Bank as security for its future borrowing operations. As to the paid-in portion, 40 per cent is payable in gold or convertible currency and 60 per cent in the currency of the member country concerned. This local currency portion can initially be paid in the form of promissory notes, rather than cash, if so desired. The following statement, which I ask the leave of the Senate to have incorporated into Hansard, sets out the increases in subscription authorised for members, split up into paid-in and callable portions. In accordance with the Articles of Agreement of the Bank all these amounts are expressed in terms of the United States dollar of the weight and fineness in effect on 31st January 1966.

 

 

In formulating the proposal, directors of the Bank took into account a reasonable estimate of the needs of the regional developing member countries of the Bank and of their capacity to absorb loans financed out of the Bank's ordinary capital resources up to the end of 1.975.

The decisions on how much of the increases in capital should be paid in and how much of that portion should be payable in gold or convertible currency were based on assessments of the minimum amounts necessary to safeguard the Bank's overall financial position. Clearly, however, with 80 per cent of the proposed capital increase to remain on call, the Bank will be expected to finance a considerable portion of its lending in future from borrowings on the international capital markets.

Under the terms of the Governors' resolution, the increase will become effective only when member countries have subscribed a minimum of 100,000 of the total number of 150,807 new snares involved. 1 might point out to honourable senators that each share is valued at $US 10,000 The tentative deadline set is 30th September 1972. although this may be extended up to 28th February 1973. There are 3 members which apparently do not intend to take up the increases to which they are entitled, but most member countries are proceeding to take up the increase.I believe that Australia should do likewise.

As set out in the statement, the proposal involves a total increase of $US 127.5m in Australia's existing capital subscription. Of this amount, however,$US102m will take the form of callable capital and only $US25.5m will actually be paid in over a period of 3 years commencing in 1972-73. Of this latter amount, $US 10.2m will be payable in convertible currency and $US 15.3m in local currency in the form of promissory notes.I might add in this respect that under the articles of agreement of the Bank, Australia is entitled to restrict - and to date has so restricted - the use of the local currency portion of its capital subscription to the purchase of Australian goods and services.

Since its inception in 1966, the Asian Development Bank has made considerable progress in establishing itself as an effective instrument in promoting economic development in the Asian region. As at 31st December 1971. the bank had approved 87 loans in 16 developing member countries aggregating $US639.4m. Fifty-nine of these loans, totalling $US532.2m were financed from its ordinary capital resources and 28 loans, totalling $US107.2m, from its special funds resources. Included in the latter figures is a loan of $US4.5m which the Bank recently approved for Papua New Guinea. In addition, the Bank has committed a further $US12.1m in technical assistance for various national and regional projects. All this financial and technical assistance has been provided to developing countries of strategic and political importance to Australia.

As honourable senators are aware, Australia has been a strong and active supporter of the Bank in the past. In addition to our large initial capital subscription of $US85m, we agreed to contribute $US10m to the special funds of the Bank in December 1970. I believe it to be in Australia's interests to continue this policy of support for the Asian Development Bank by taking up, in full, the increase in our capital subscription to which we are entitled. I commend the Bill to honourable senators.

Debate (on motion by Senator Willesee) adjourned.







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