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International Development Association (Further Payment) Bill 1990



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House: House of Representatives

Portfolio: Foreign Affairs and Trade

Purpose

To provide for Australia's contribution to the International Development Association (IDA) for the period 1990-91 to 1992-93.

Background

The IDA forms part of the World Bank and was established in 1960. The purposes of IDA are contained in the Articles of Agreement that led to the establishment of the body. They include the provision of funds to meet important development requirements on terms that are more flexible and bear less heavily on balance of payments than conventional loans 1. To achieve this aim, the IDA lends on concessional or minimal interest rates. As the IDA cannot borrow at the rates at which it lends, it's finances are provided through donations by the world's wealthier countries, principally the developed countries.

On 19 December 1989, agreement was reached on a $15.5 billion replenishment of IDA funds. Thirty-one IDA members, including Australia, are contributing to IDA-9. In their report detailing the provisions of the agreement, representatives of donor governments recommended to their governments the commitment of funds to the IDA and asked that the IDA's executive directors examine ways in which IDA could develop procedures for regular review of adjustment operations, review the policy framework for each IDA borrower annually, and strengthen collaboration between the World Bank and the International Monetary Fund.

The report identified three program areas for higher priority during the ninth replenishment period - poverty reduction, support for sound macroeconomic and sectoral policies, and the environment. Representatives of donor governments stressed that the IDA lending program should retain a focus on the poorest sections of recipient countries populations 2.

Under the terms of IDA-9, the existing general criteria governing the allocation of IDA funds was endorsed. These are - need (i.e. relative poverty, country size, and lack of creditworthiness) and ability to make effective use of resources (i.e. performance). IDA's definition of `performance' contains three elements: sound economic management, efforts to achieve growth that fosters equity and a reduction of poverty, and efforts toward sustainable long-term development.

In endorsing the IDA's focus on the poorest countries, the representatives of donor governments also supported the maintenance of IDA specific eligibility criteria (i.e. IDA lends its funds only to countries with per capita GNPs below $US580 or per capita incomes below $US940). In addition to maintaining IDA's focus on the poorest countries, IDA's practice of setting a limit of 30% of total IDA funds to the two largest IDA borrowers, India and China, was also endorsed 3.

The principal recipient of IDA development aid in 1989-90 was India, which received $US822.4 million. This was followed by China which received $US590 million and Bangladesh which received $US540.1 million 4.

The Government has committed $A382.5 million as Australia's contribution to IDA-9. This represents a contribution of 1.99% of total donor contributions (New Zealand's contribution represents 0.5% and Canada's 4.75% of total donor contributions). Australia's contribution represents a slight increase over Australia's share of IDA's previous replenishment (1.98%). However, in the Explanatory Memorandum to Bill, it is stated that Australia's contribution to IDA-9 has fallen in real terms compared with that of IDA-8. The stated reason given for this fall was the appreciation of the Australian dollar.

Main Provisions

Australia is to contribute $382.5 million to the IDA (clause 4). The Explanatory Memorandum to this Bill estimates that the rate that the promissory notes will be cashed will be:

Fiscal Year <BREAK> </BREAK> $A

1990-91 <BREAK> </BREAK> 11.9 million

1991-92 <BREAK> </BREAK> 35.3 million

1992-93 <BREAK> </BREAK> 57.1 million

1993-94 <BREAK> </BREAK> 63.8 million

Next 4 to 6 years <BREAK> </BREAK> 214.4 million

These are estimates, subject to exchange rate fluctuations and the actual rate of disbursement.

Clause 5 will allow IDA contributions to be in the form of promissory notes, while clause 6 appropriates the necessary funds from the Consolidated Revenue Fund.

References

1. International Development Association, IDA in Retrospective, p. 4.

2. The World Bank, Annual Report 1990, p. 39.

3. Ibid., p. 41.

4. Ibid., pp. 170 and 171.

Bills Digest Service 8 November 1990

Parliamentary Research Service

For further information, if required, contact the Foreign Affairs Group on 06 2772440.

This Digest does not have any official legal status. Other sources should be consulted to determine the subsequent official status of the Bill.

Commonwealth of Australia 1990

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Published by the Department of the Parliamentary Library, 1990.