Save Search

Note: Where available, the PDF/Word icon below is provided to view the complete and fully formatted document
International Monetary Agreements Amendment Bill (No. 1) 2010

Bill home page  


Download WordDownload Word


Download PDFDownload PDF

2008-2009-2010

 

THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA

 

 

 

HOUSE OF REPRESENTATIVES

 

 

 

INTERNATIONAL MONETARY AGREEMENTS AMENDMENT BILL (No. 1) 2010

 

 

 

 

EXPLANATORY MEMORANDUM

 

 

 

 

(Circulated by the authority of the

Treasurer, the Hon Wayne Swan MP)

 



T able of contents

General outline................................................................................................. 1

Notes on individual clauses........................................................................... 3

 

 



International Monetary Agreements Amendment Bill 20 10

The purpose of this Bill is to amend the International Monetary Agreements (IMA) Act 1947 to allow the Commonwealth of Australia to make loans to the International Monetary Fund (IMF) in the event of calls under the amended New Arrangements to Borrow (NAB). 

The NAB is a voluntary set of credit arrangements between the IMF and a number of its members.  It allows the IMF to borrow when supplementary resources are needed to forestall or cope with an impairment of the international monetary system.  Australia has been a participant of the NAB since it came into effect in 1998.

The turbulence in the global economy and financial markets in recent years has seen the IMF provide substantial support at short notice to countries with balance of payments needs.  This IMF support was financed, in part, by ad hoc and temporary loans from a small number of its members.

To improve the adequacy of the IMF’s financial resources in the face of any similar future crisis, the NAB will be amended to expand its size and make it more flexible.  The t otal size of credit arrangements under the NAB will increase and, as part of this expansion, the IMF’s existing line of credit from Australia under the NAB will increase. 

The NAB will also become more flexible in a number of ways to make it an effective crisis management tool.  Among these changes, the predictability of the IMF’s access to the credit arrangements during crisis periods will be increased.  Strong governance structures will be retained, requiring the agreement of a large majority of participants before the NAB can be activated.  The IMF’s staff has prepared a paper that explains the changes to the NAB that were adopted by the IMF Executive Board on 12 April 2010. [1]

Any loan to the IMF under the NAB will be paid out of the Consolidated Revenue Fund once the Treasurer is satisfied that an amount should be paid out to enable Australia to carry out its obligations under the NAB decision, as was previously the case.

Date of effect : The Bill will apply from the later of: (1) the date it receives the Royal Assent; or (2) the day the amendments to the NAB adopted by the IMF Executive Board on 12 April 2010 become effective.

The amendments to the NAB will become effective when existing participants representing 85 percent of total credit arrangements have concurred to the amendments adopted by the IMF Executive Board, including each participant whose credit arrangement is changed.

Proposal announced :  G20 Leaders, in their Global Plan for Recovery and Reform of 2 April 2009, agreed to an expanded and more flexible NAB with credit arrangements increased by up to US$500 billion.

In line with these commitments, the Treasurer, in his press release of 12 May 2009, announced that Australia will join with other countries to ensure that the IMF has resources available to maintain stability and support recovery in the global economy and that Australia's contribution will be by way of an increase to US$7 billion of the IMF’s existing credit line from Australia under the NAB.

On 12 April 2010, the IMF Executive Board adopted a decision to modify the NAB to expand its size and increase its flexibility.

Financial impact :  The Bill will have no direct impact on either the underlying cash balance or the fiscal balance.

The amendments to the NAB will increase the IMF’s existing credit line from Australia denominated in Special Drawing Rights (SDR) to SDR4,370.41 million (valued at US$7 billion on 24 November 2009, the date on which countries’ contributions were agreed) from SDR801.29 million.

The value of this expanded credit line in Australian dollars will vary over time depending upon prevailing exchange rates.  At 28 May 2010 its value was around A$7.5 billion.

In the event of the IMF drawing on this credit line, the loan would be repaid to Australia in full, with interest, within five years.

Any loans to the IMF would represent monetary assets and the associated transactions would be classified as financing transactions.

Regulation : No compliance costs are expected to result from entry into force of this Bill.



International Monetary Agreements Amendment Bill 2010

Clause 1 — Short title

1.1                   This clause provides the short title by which the Act may be cited.

Clause 2 — Commencement

1.2                   This clause provides that the proposed amendments will apply from the later of: (1) the day the Bill receives the Royal Assent; or (2) the day the amendments to the New Arrangements to Borrow adopted by the IMF Executive Board on 12 April 2010 become effective.

1.3                   The amendments to the New Arrangements to Borrow will become effective when existing participants representing 85 per cent of total credit arrangements have concurred to the amendments adopted by the IMF Executive Board, including each participant whose credit arrangement is changed.  The existing New Arrangements to Borrow will remain in force until that date.

1.4                   This clause provides that amendments to the International Monetary Agreements Act 1947 will not apply prior to the amendments to the New Arrangements to Borrow becoming effective.  This ensures that the Commonwealth of Australia will continue to be able to meet any obligations arising under the existing New Arrangements to Borrow during that period.

Clause 3 — Schedule(s)

1.5                   This clause provides for amendments to the International Monetary Agreements Act 1947 as specified in the Schedule.

S chedule 1 — Amendmen ts

Item 1 — Subsection 3(1) ( definition of New Arrangements to Borrow)

1.6                   This item modifies the current definition of the New Arrangements to Borrow in the International Monetary Agreements Act 1947 to reflect the amendments adopted by the IMF Executive Board on 12 April 2010, including its terms and conditions and the size of the IMF’s line of credit from Australia.

Item 2 — Subsection 6(1) (b)

1.7                   This item omits text made inoperative by the provision in Clause 2 that the proposed amendments to the International Monetary Agreements Act 1947 will not apply until the amendments to the New Arrangements to Borrow adopted by the IMF Executive Board on 12 April 2010 become effective .

Item 3 — Subsection 8B(1)

1.8                   This item omits text made inoperative by the provision in Clause 2 that the proposed amendments to the International Monetary Agreements Act 1947 will not apply until the amendments to the New Arrangements to Borrow adopted by the IMF Executive Board on 12 April 2010 become effective .

Item 4 — Subsection 8B(1)

1.9                   This item omits ‘that decision’ and substitutes ‘the New Arrangements to Borrow’ to resolve any ambiguity about the meaning of ‘that decision’ that may have resulted from Item 3.

Item 5 —Schedule 4 to the Act

1.10               This item repeals the current Schedule 4 to the International Monetary Agreements Act 1947 , which reproduces the terms and conditions of the New Arrangements to Borrow as adopted by the IMF Executive Board on 27 January 1997.  It substitutes a new schedule, which reproduces the terms and conditions of the amended New Arrangements to Borrow as adopted by the IMF Executive Board on 12 April 2010. 

1.11               Note that the sizes of the current credit arrangements that appear in the table within Item 5 differ from those that appear in the table within the current Schedule 4 to the International Monetary Agreements Act 1947 because the latter are outdated.  On 12 November 2002, the IMF Executive Board approved Chile’s participation in the New Arrangements to Borrow.  The total amount of resources available under the New Arrangements to Borrow remained unchanged following Chile's participation, with a credit arrangement of SDR340 million, but other participants reduced the amount of their credit arrangements.




[1]    International Monetary Fund, Proposed Decision to Modify the New Arrangements to Borrow , Washington D.C., 25 March 2010, .