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International Monetary Agreements Amendment (Loans) Bill 2012

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2010-2011-2012

THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA

 

 

 

HOUSE OF REPRESENTATIVES

 

 

 

international Monetary agreements amendment (Loans) bill 2012

 

 

 

 

EXPLANATORY MEMORANDUM

 

 

 

 

(Circulated by the authority of the

Deputy Prime Minister and Treasurer, the Hon Wayne Swan MP)

 



T able of contents

Glossary.............................................................................................................. 1

General outline and financial impact............................................................ 3

Chapter 1 Schedule 1 Amendments........................................................ 5

Chapter 2 Statement of Compatibility with Human Rights....................... 9

Index................................................................................................................. 11



 

The following abbreviations and acronyms are used throughout this explanatory memorandum.

Abbreviation

Definition

IMA Act

International Monetary Agreements Act 1947

IMF

International Monetary Fund

NAB

New Arrangements to Borrow

NAB Decision

IMF Executive Board Decision No. 11428-(97/6), as amended

SDR

Special Drawing Rights

 



Outline

The Bill amends the International Monetary Agreements Act 1947 (IMA Act) to allow for the reduction of Australia’s current credit arrangement under the International Monetary Fund’s (IMF) New Arrangements to Borrow (NAB); and makes other minor technical changes to the NAB .

Date of effect: Schedule 1, Part 1 of the Bill, enabling the NAB renewal and other technical amendments, will apply from the later of the date the Bill receives Royal Assent, or 17 November 2012.

Schedule 1, Part 2 of the Bill, regarding the reduction of NAB credit arrangements and associated technical amendments, will apply from the later of: immediately after the commencement of the provisions covered by Schedule 1, Part 1; or the start of the day that the changes in NAB credit arrangements covered by this provision become effective for Australia.

The reduction in Australia’s NAB credit line will take effect when Australia pays for its IMF quota increase, which will be required within 30 days of the necessary consent thresholds for the 2010 IMF quota reforms being met.

Proposal announced :  In December 2010, IMF Governors adopted a resolution doubling IMF quotas from Special Drawing Rights (SDR) 238.4 billion to SDR 476.8 billion.  (Resolution 66-2, since amended by Resolution 67-1).  The resolution included a corresponding ‘rollback’ of the NAB, preserving relative NAB shares.  This followed from an agreement on a package of IMF quota and governance reforms announced by G20 Finance Ministers in October 2010. 

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 decrease the IMF’s existing credit line from Australia denominated in SDRs to SDR 2,220.45 million from SDR 4,370.41 million.  The value of this reduced credit line in Australian dollars will vary over time depending upon prevailing exchange rates.  At 20 July 2012 its value was around A$3.2 billion.

In the event of the IMF drawing on this credit line, the loan would be repaid to Australia in full, with interest.  Any loans to the IMF would represent monetary assets and the associated transactions would be classified as financing transactions.

Human rights implications :  This Bill does not raise any human rights issues.  See Statement of Compatibility with Human Rights — Chapter 2.

Compliance cost impact Nil.



 

Chapter 1

Schedule 1 Amendments

Context of the Amendments

1.1                   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.

Summary of new law

1.2                   These amendments to the IMA Act reflect two amendments to the decision of the IMF Executive Board establishing the NAB (‘the NAB Decision’). 

1.3                   The effect of the first amendment to the NAB Decision will be to reduce NAB credit arrangements in line with the commitment made as part of the 2010 IMF quota and governance reforms.  It will also give NAB participants the right to request early repayment of any outstanding NAB claims arising from calls under their credit arrangements that — following the rollback of participant’s credit arrangements — would exceed their new (reduced) credit arrangements. 

1.4                   The other amendment to the NAB Decision renews the NAB for a further five years commencing 17 November 2012, and introduces measures to protect the IMF from potential liquidity risk during the rollback in NAB credit arrangements.

Comparison of key features of new law and current law

New law

Current law

The line of credit which the IMF can draw from Australia under the NAB will be reduced from SDR 4,370.41 million to SDR 2,220.45 million when Australia pays for its quota increase under the Fourteenth General Review of Quotas. 

The IMF can draw on a credit line from Australia under the NAB of SDR 4,370.41 million.

The maximum maturity of the IMF’s drawings under the NAB is increased to 10 years.

The maximum maturity of the IMF’s drawings under the NAB is five years.

The NAB is renewed for a period of five years, commencing 17 November 2012.

The NAB will expire on 16 November, 2012.

Detailed explanation of new law

1.5                   The current definition of the NAB in the IMA Act will be modified to reflect the amendments adopted by the IMF Executive Board on 16 November 2011, including its terms and conditions and its renewal for a further five years.  [Schedule 1, Part 1, item 2, subsection 3(1) (definition of New Arrangements to Borrow)]

1.6                   A redundant subsection number in subsection 3(1) will be omitted, and the note to the heading of Schedule 4 of the IMA Act amended accordingly.  [Schedule 1, Part 1 item 1, subsection 3(1), and item 4, Schedule 4 of the IMA Act (note to Schedule heading)]

1.7                   The heading of Schedule 4 of the IMA Act will be amended to refer to the New Arrangements to Borrow.  [Schedule 1, Part 1, item 3, Schedule 4 of the IMA Act (Heading)]

1.8                   Schedule 4 of the IMA Act will be amended to extend the maximum maturity of NAB claims from five to ten years, to protect the IMF from maturity mismatches arising from current IMF lending arrangements with a maturity period of longer than five years.  [Schedule 1, Part 1, item 5, Schedule 4 of the IMA Act (paragraph 11(a) of New Arrangements to Borrow)]

1.9                   Annex II of Schedule 4 of the IMA Act will be amended to extend the maturity of Notes issued by the IMF under the NAB such that Notes must have the maturity of the loan claim under which they are issued, and that the maximum maturity of Notes will be ten years.  [Schedule 1, Part 1, item 6, Schedule 4 of the IMA Act (paragraph 4(a) of Annex II to  New Arrangements to Borrow), and item 7, Schedule 4 of IMA Act (paragraph 4(a) of Annex II to  New Arrangements to Borrow)]

1.10               The definition of the NAB in the IMA Act will be modified to reflect the amendments adopted by the IMF Executive Board on 21 December 2011, including its terms and conditions and the size of the IMF’s line of credit from Australia.  [ Schedule 1, Part 2, item 8, section 3 (paragraph (b) of the definition of New Arrangements to Borrow), and item 9, section 3 (after paragraph (b) of the definition of New Arrangements to Borrow)]

1.11               Paragraph 11(b) of Schedule 4 of the IMA Act will be amended to enable the IMF to avoid the over-drawing of IMF members’ credit commitments due to the quota increase and rollback of NAB credit lines.  [ Schedule 1, Part 2, item 10, Schedule 4 of the IMA Act (at the end of paragraph 11(b) of New Arrangements to Borrow)]

1.12               The current table within Schedule 4 of the IMA Act, which outlines the size of current credit commitments, will be repealed and substituted with a new table, which outlines both the size of current credit commitments and the size of reduced credit commitments that will apply from when individual members have confirmed payment of their quota increases under the Fourteenth General Review of Quotas.  [ Schedule 1, Part 2, item 11, Schedule 4 of the IMA Act (Annex I to New Arrangements to Borrow)]

Application

1.13               Sections 1 to 3 and anything else not covered in the table in item 2 will commence on the day this Act receives the Royal Assent.  [subclause 2(1), item 1 in the table)]

1.14               The amendments in Schedule 1, Part 1 will apply from the later of 17 November 2012 or the day after the Bill receives Royal Assent.  [subclause 2(1), item 2 in the table)]

1.15               The amendments of Schedule 1 Part 2 will apply on the later of: immediately after the commencement of the provisions covered by Schedule 1, Part 1 of the Bill; or the start of the day the changes in credit arrangements covered by Schedule 1 Part 2 become effective for Australia.  These provisions will not commence at all if the later of these conditions does not occur.  [subclause 2(1), item 3 in the table)]

1.16               The reduction in Australia’s NAB credit line will become effective for Australia when Australia’s quota increase under the 2010 IMF quota increase is paid for.  Payment will be required by Australia within 30 days of the required threshold of consents reached by IMF members. 

1.17               The Bill notes in relation to table item 3 that: ‘ The Minister must announce by notice in the Gazette the day the changes in credit arrangements become effective for Australia.  The notice is not a legislative instrument. ’ This statement is included to assist readers, as the instrument is not a legislative instrument within the meaning of section 5 of the Legislative Instruments Act 2003 [subclause 2(1), item 3 in the table)]  

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Prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011

International Monetary Agreements Amendment (Loans) Bill 2012

2.1                   This Bill is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011 .

Overview

2.2                   The general purpose of the Bill is to allow for the decrease in Australia’s current credit arrangements under the International Monetary Fund’s (IMF) New Arrangements to Borrow (NAB) once Australia’s agreed IMF quota increase has come into effect and been paid for.  It also allows for the renewal of the NAB for a further five years commencing 17 November 2012, and other minor technical changes to the NAB arrangements.

Human rights implications

2.3                   This Bill does not engage any of the applicable rights or freedoms.

Conclusion

2.4                   This Bill is compatible with human rights as it does not raise any human rights issues.





Schedule 1:  Amendments

Bill reference

Paragraph number

Part 1 item 1, subsection 3(1), and item 4, Schedule 4 of the IMA Act (note to Schedule heading)

1.6

Part 1, item 2, subsection 3(1) (definition of New Arrangements to Borrow)

1.5

Part 1, item 3, Schedule 4 of the IMA Act (Heading)

1.7

Part 1, item 5, Schedule 4 of the IMA Act (paragraph 11(a) of New Arrangements to Borrow)

1.8

Part 1, item 6, Schedule 4 of the IMA Act (paragraph 4(a) of Annex II to  New Arrangements to Borrow), and item 7, Schedule 4 of IMA Act (paragraph 4(a) of Annex II to  New Arrangements to Borrow)

1.9

Part 2, item 8, section 3 (paragraph (b) of the definition of New Arrangements to Borrow), and item 9, section 3 (after paragraph (b) of the definition of New Arrangements to Borrow)

1.10

Part 2, item 10, Schedule 4 of the IMA Act (at the end of paragraph 11(b) of New Arrangements to Borrow)

1.11

Part 2, item 11, Schedule 4 of the IMA Act (Annex I to New Arrangements to Borrow)

1.12



 

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