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International Financial Institutions Legislation Amendment Bill 2010

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2010

 

THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA

 

 

 

HOUSE OF REPRESENTATIVES

 

 

 

INTERNATIONAL Financial Institutions legislation amendment BILL 2010

 

 

 

 

EXPLANATORY MEMORANDUM

 

 

 

 

(Circulated by the authority of the Assistant Treasurer and Minister for Financial Services and Superannuation, the Hon Bill Shorten MP)

 



T able of contents

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

 

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International Financial Institutions Legislation Amendment Bill 20 10

The purpose of this Bill is to amend the International Monetary Agreements Act 1947 to authorise the subscription by Australia to additional shares in the capital stock at the International Bank for Reconstruction and Development (IBRD).  The purpose of the Bill is also to amend the International Finance Corporation (IFC) Act 1955 to allow Australia to adopt a proposed amendment to the Articles of Agreement of the International Finance Corporation (IFC) and to amend the Multilateral Investment Guarantee Agency (MIGA) Act 1997 to adopt four amendments to the MIGA Convention which have been recently adopted by the MIGA Council of Governors.

The proposed Bill will allow the subscription by Australia for additional shares in the capital stock of the IBRD.  Australia’s subscription to the capital increase will enable the IBRD to provide the lending levels necessary to assist developing countries in their post-crisis recovery whilst maintaining appropriate prudential standards.

The proposed amendment to the Articles of Agreement of the IFC aims to improve the voice and participation of developing and transition economies in the World Bank by increasing their basic votes, implementing the G20 commitment.  This will increase the effectiveness and legitimacy of the World Bank as the leading global development institution and enhance the influence that developing and transition countries have over governance, policies and decision making in the World Bank.  The proposed voice reform also allows shareholders to achieve voting power adjustments in both the IBRD and the IFC, taking into account different levels of shareholder interest in and support for the different institutions.

The four amendments to the MIGA Convention recently adopted by MIGA’s Council of Governors will modernise MIGA’s mandate and expand the Agency’s scope, allowing a greater range of projects to be eligible for MIGA coverage.  The amendments will permit the Agency to: provide coverage for stand-alone debt; broaden the process for investor registration; broaden the scope for coverage for existing assets; and eliminate the requirement of a joint application by the investor and the host country to authorise coverage for specific additional non-commercial risks.  The amendments do not alter the Agency’s core mandate but are aimed at reducing transaction costs and enabling MIGA to insure political risk for projects based on actuarial qualities rather than excluding projects with particular financing structures. 

The Treasurer, as Australia’s Governor of the International Monetary Fund (IMF) and World Bank, is required to vote on any proposed changes to the Articles of Agreement of either institution.  The Treasurer voted to support each of these amendments.

Australia’s current obligations to the IFC and MIGA are outlined in the IFC Act 1955 and MIGA Act 1997 .  The Articles of Agreement of the IFC and the MIGA Convention form schedules to the relevant Acts and it is important to amend the relevant Acts to update these schedules for these amendments. 

Any amendment to either institution constitutes a variation in Australia’s treaty obligations and, as such, any amendments to the treaties will require tabling in Parliament and consideration by the Joint Standing Committee on Treaties.

Timely passage of the legislation is necessary for Australia to meet the G20 Pittsburgh and Toronto Summit commitments of ensuring that international financial institutions have appropriate capital for their resourcing needs, ensuring developing countries increase their voting power and modernising the World Bank.  It is important that Australia demonstrates its commitment to the G20 agenda by ensuring prompt implementation of these reforms.

Date of effect : The amendments in this Bill will apply from the date it receives Royal Assent, or in the case of the amendments to the IFC Act 1955 , the later of the date of Royal Assent or the day the amendments of the IFC Articles of Agreement come into force for Australia, or in the case of the amendments to the MIGA Act 1997 , the later of the date of Royal Assent or the day the amendment of the MIGA Convention comes into force for Australia.

Proposal announced On 25 April 2010, the World Bank’s Development Committee agreed at the 2010 International Monetary Fund and World Bank Spring Meetings to a number of reforms to increase the voting power of developing and transition countries, including a selective and a general capital increase for the IBRD, and an increase in basic votes and a selective capital increase at the IFC.  By 31 March 2011, the Board of Governors of the World Bank will vote on resolutions to implement these reforms. 

The Treasurer, as Australia’s Governor of the World Bank, has voted to support these proposed resolutions. 

The proposed IBRD Resolutions require acceptance by three-fourths of the IBRD Governors exercising not less than two-thirds of total voting power before they can enter into force for all members, including Australia.

The proposed IFC amendments require acceptance by three-fifths of the IFC’s Governors exercising 85 per cent of total voting power before they can enter into force for all members, including Australia.

The Treasurer, as Australia’s Governor of the World Bank, recently voted in favour of proposed amendments to the MIGA Convention.

The proposed MIGA amendments require that not less than 60 per cent of the total membership and 80 per cent or more of the total voting power of MIGA have accepted the amendments before they can enter into force for all members, including Australia. 

Amendments to either IFC’s Articles of Agreement or MIGA’s Convention enter into force for all members, whether or not they have accepted the amendments, following the formal certification by the World Bank that the amendments have been accepted.  As members of these institutions, our obligations are set out in the Articles of Agreement of the IFC and the MIGA Convention.  Domestic implementation of the Articles or Convention should be consistent with these agreements. 

Financial impact: The IBRD Articles of Agreement provide that each share in the Bank has a par value of US$100,000 in terms of the weight and fineness in effect on July 1, 1944.  The resolution ‘Enhancing Voice and Participation of the Developing and Transition Countries and 2010 General Capital Increase’ provides that, in accordance with Executive Director’s decision of October 14, 1986, this would be valued in terms of the 1974 SDR, that is, on the basis of US$1.20635 per 1944 gold dollar (US$120,635 per share).  This Bill provides that Australia will purchase 6 per cent of an additional 7,128 shares at the price of US$120,635 per share, representing a total cost of US$51.6 million.  This amount is payable over a five year period.  The remaining 94 per cent of additional shares, valued at around US$808.3 million, will remain uncalled, unless the Bank is unable to meet its financial obligations.  Founded in 1944, the IBRD has never drawn on its uncalled capital subscriptions. 

Australia’s contribution towards the selective and general capital increases at the IBRD appeared as a capital measure in the 2010-11 Budget and does not impact the underlying cash or fiscal balance.  The increase in Australia’s uncalled capital subscription appeared in the Statement of Risks as a contingent liability.

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



Notes on individual clauses

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 commence on the day after this Act receives the Royal Assent or the day the amendments to the IFC Articles of Agreement and/or the MIGA Convention come into force — if they do — whichever is the later.

Clause 3 — Schedule(s)

1.3                   This clause makes it clear that each Act specified in a Schedule to this Act is amended or repealed as set out in the applicable items in the Schedule concerned, and any other item in a Schedule to this Act has effect according to its terms. 

S chedule 1 — Extra shares in International Bank for Reconstruction and Development

Item 1

1.4                   This item inserts a new sentence into the International Monetary Agreements Act 1947, allowing appropriation for Australia to buy a specified additional number of extra shares in the IBRD. 

S chedule 2 — Changes to international agreements

Item 1

1.5                   This item repeals the definition of the IFC Agreement and substitutes it with the Articles of Agreement of the IFC set out in the First Schedule to this Act, as amended in accordance with the resolution in the Second and Third Schedules to this Act and the resolutions the preamble to which and Part (A) of which are set out in Schedule 4 to this Act.

Item 2

1.6                   This item inserts the resolution recommended by the IFC Board of Directors on 20 July 2010 as Schedule 4 to the IFC Act 1955 .

Item 3

1.7                   This item adds to the definition of Convention, that it is amended by the resolution of the Council of Governors of the Agency, a copy of which is set out in Schedule 2.

Item 4 

1.8                   This item inserts the Resolution adopted by the Council of Governors on 30 July 2010 as Schedule 2 of the MIGA Act 1997 .