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Organisation for Economic Co-operation and Development (Financial Support Fund) Repeal Bill 1994
This Digest does not have any official legal status. Other sources should be consulted to determine the subsequent official status of the Bill.
House: House of Representatives
Commencement: Royal Assent
To provide for the repeal of the Organisation for Economic Co- operation and Development (Financial Support Fund) Act 1976.
The Organisation for Economic Co- operation and Development (OECD) was established in 1961. The OECD was the successor to the Organisation for European Economic Co- operation (OEEC) which grouped European countries to administer aid under the Marshall Plan. This latter organisation, created in 1948, formed the basis for economic co- operation within Europe. Although its membership was restricted to European nations, Canada, Japan and the United States were granted associated membership. By the end of the 1950's, however, it was considered that the aims of the OEEC had been successfully fulfilled with the economic recovery of Western Europe.
The OECD now encompasses the following 25 nations, which, unless otherwise noted, joined in 1961:
Australia (1971), Austria, Belgium, Canada, Denmark, Finland (1969), France, Germany, Greece, Iceland, Ireland, Italy, Japan (1964), Luxembourg, Mexico (1994), Netherlands, New Zealand (1973), Norway, Portugal, Spain, Sweden, Switzerland, Turkey, United Kingdom, and the United States.
The establishment of the OECD recognised that the world economy does not operate in isolation, one country from another. Hence, the OECD provides a forum for the review of the economic and trade policies of member countries to ensure that the common good is being achieved. The OECD also provides a forum for research to be undertaken in specialised fields.
OECD member countries constitute most of the "higher income" (or "developed" or "industrial") countries. Hence, the OECD has been called "the rich [person]'s club." The common situation and interests of these countries make them a natural grouping and provide the OECD with its niche among international organisations. The International Monetary Fund (IMF) deals with similar issues, but it also includes the developing and transition economies and so has a less specialised focus. The European Union also overlaps some of these functions, but has a narrower geographical basis.
The OECD differs from other international organisation such as the World Trade Organisation in that any decisions which are taken are not binding on its members, except on those who vote for them. To undertake the above activities, the OECD's work can be grouped into three main functional areas:
. data and information collection;
. forecasting; and
. policy discussion, coordination and harmonisation.
The OECD collects statistical and analytical information from a variety of sources, including member countries, presents data on a standardised basis to facilitate international comparison and releases comparative reports. These include statistics on national accounts, trade, economic indicators, financial transactions and investment figures.
The OECD has established a creditable reputation for forecasting the main economic variables for each of the member countries. These short term forecasts (12- 18 months) are released twice a year. In specialised fields, the OECD also makes predictions about individual industries.
The Organisation for Economic Co- operation and Development (Financial Support Fund) Act 1976 (the Principal Act) gave effect in Australian law to the Agreement Establishing a Financial Support Fund of the Organisation for Economic Co- operation and Development (the Agreement). The Agreement, a copy of which is attached to this Digest, was signed by OECD members, including Australia, in Paris on 9 April 1975. The passage through the Australian Parliament in 1976 of the Organisation for Economic Co- operation and Development (Financial Support Fund) Bill 1976 received bipartisan support.
The Financial Support Fund (the Fund) has its origins in the period following the intervention by the Organisation of Petroleum Exporting Countries in the world oil market in 1973- 74. It was believed at the time that that intervention would have a serious consequence for non- OPEC countries. In the words of the Hon. P. Lynch, Treasurer at the time of the passage of the Organisation for Economic Co- operation and Development (Financial Support Fund) Bill 1976:
It transferred real income from these countries [non- OPEC countries] to oil producers. In the process, inflation was aggravated, recession deepened and balance of payments positions of non- OPEC countries deteriorated. The initial balance of payments effects were particularly striking. The OECD countries, which recorded a collective surplus on the current account of their balance of payments of US$2.5 billion in 1973, experienced in 1974 a current account deficit of US$33.25 billion. The current account surplus of OPEC rose by more than US$60 billion between these years.
The objectives of the Fund are to serve
(a) to encourage and assist members to:
(i) avoid unilateral measures which would restrict international trade or other current account transactions, or which would artificially stimulate visible and current invisible exports; and
(ii) follow appropriate domestic and international economic policies, including adequate balance- of- payments policies and co- operative policies to promote increased production and conservation of energy;
(b) to serve for a limited period, in view of current economic conditions, to supplement, in exceptional cases, other sources of credit to which members encountering serious economic difficulties have had recourse; and
(c) to ensure that the risks on loans by the Fund to members are shared equitably among all members, in proportion to their quotas and subject to the limits of their quotas, however the loans are financed.
It can be seen from the above objectives that the Fund was designed to provide OECD members with a facility to temporarily finance balance of payments deficits.
The Fund was expected to raise funds for relending to member countries when needed by calling on them either to make a cash contribution or, at the member's option, to provide a guarantee on the basis of which the Fund will be able to borrow the requisite amounts in international and domestic markets. 3 Members would have had quotas which are the basis for determining voting rights, 4 maximum liability on guarantees and liability to the Fund to supply it with financing. 5 The Agreement establishing the Fund was to enter into force when ratified either by members countries having 90% of total quotas, or by at least fifteen member countries having 60% of total quotas. 6
Member countries were to be eligible for loans, with a maximum repayment period of seven years, if they are:
. encountering serious external financial difficulties;
. have made the fullest appropriate use of its reserves and has made best efforts to obtain capital, on reasonable terms, from other sources; and
. have made the fullest appropriate use of other multilateral facilities. 7
Loans may be granted for a period of two years after the Agreement enters into force and decisions to grant loans require a two- thirds majority of the governing committee, on which all member countries are represented. 8
As at 4 July 1977 (the most recent data available from the Department of Foreign Affairs and Trade) eighteen signatories had ratified the Agreement, including Germany, Japan, Canada, New Zealand and the United Kingdom. As at 4 July 1977 four signatories had not ratified the Agreement: Australia, Finland, France and the United States.
The Fund has never been brought into effect. Reasons given by the Government in the Explanatory Memorandum for this being so is the failure of France and the United States to ratify the Agreement and that there is no longer a political or economic need for the Fund.
Another perspective on why the Fund proposal failed is that the oil price rises of 1973- 74 were one of the largest and most rapid income shifts in world economic history, and the Fund proposal is an illustration of the considerable concern as to how the international financial system would cope with this unprecedented situation. As it turned out, the problems were dealt with by the international capital markets and the International Monetary Fund (IMF), without the OECD's Fund.
. The international capital markets provided a channel to "recycle" the income from the oil importers to the exporters and back to oil importers, through sale of gold, financial assets and property to the OPEC countries. (The international capital markets had just gone through major changes, such as taking the $US off the gold standard, floating exchange rates among the major currencies, and reduced controls on capital flows among the major countries. These factors are likely to have improved the ability of the financial system to respond to the new situation.)
. Loans were made by the IMF. The provision of international balance of payments support is a function of the IMF. The IMF has an advantage over the OECD in dealing with such matters, as its members include the oil- exporting countries, and it could therefore mobilise oil exporting countries' surpluses, instead of just shifting funds among the industrial countries. The IMF provided loans in the mid 1970s and early 1980s to a number of oil importing countries. These included ten of the OECD countries, (among them Australia), as well as a large number of developing countries. The duplication of functions with the IMF and apparent "empire building" by the OECD may have been factors in the failure to implement the Fund proposal.
It is notable that the second round of oil price rises in the late 1970s and early 1980s did not lead to a reactivation of the proposal.
The Organisation for Economic Co- operation and Development (Financial Support Fund) Act 1976 is repealed by clause 3.
The OECD has been criticised over the years because of its apparent focus on America and Europe. The rise of the Asian economies in the 1980's and a move away from America as the centre of economic power means that countries are using other forums to exchange information about world economies (e.g. APEC). There are large and important blocs of the world (e.g. Asia, Eastern Europe) which are cut out of the OECD process notwithstanding their significant influence on the world stage.
Among other concerns sometimes expressed about the OECD are:
. high costs, poor management and overstaffing;
. overpaid expatriates living a "champagne lifestyle" in Paris, out of touch with their own countries;
. empire- building (The Fund proposal seems to be an example.);
. Eurocentrism arising from its origin and location;
. loss of its significance as a forum for economic issues in the industrial countries, by including Mexico (in 1994) but not the newly industrialised economies of East Asia, such as South Korea and Singapore.
On the other hand, the OECD does provide a mechanism for countries at similar stages of development to share experience and knowledge and it produces high quality work in economic and statistical issues. In particular, without the OECD structure, Australia would be even more marginalised as discussions would take place in European and North American forums.
1. House of Representatives, Parliamentary Debates (Hansard), 6 May 1976, p. 2018.
2. Agreement Establishing A Financial Support Fund of the Organization For Economic Co- operation and Development (hereinafter cited as the Agreement), Article 1, section 2.
3. Ibid., Article VII, section 1.
4. Ibid., Article XVI, section 5.
5. Ibid., Article 1, section 2(c) and Article XIII, section 5.
6. Ibid., Article XXIII, section 2.
7. Ibid., Article V, sections 2 and 3.
8. Ibid., Article VI, section 1
Ian Ireland (06 2772438)
Bills Digest Service 12 December 1994
Parliamentary Research Service
Commonwealth of Australia 1994
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Published by the Department of the Parliamentary Library, 1994.