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International Monetary Agreements Amendment Bill 2017

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2016-2017

 

THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA

 

 

 

HOUSE OF REPRESENTATIVES

 

 

 

International monetary agreements amendment bill 2017

 

 

 

 

EXPLANATORY MEMORANDUM

 

 

 

(Circulated by authority of the

Treasurer, the Hon Scott Morrison MP)





Table of contents

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

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

Chapter 1               Bilateral loan agreement with the IMF.............................. 5

Index................................................................................................................... 9

 

 



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

Abbreviation

Definition

2012 loan agreement

Loan Agreement between Australia and the International Monetary Fund signed at Tokyo on 13 October 2012.

2016 loan agreement

Loan Agreement between Australia and the International Monetary Fund signed at Canberra on 19 December 2016 and at Washington D.C. on 4 January 2017

IMA Act

International Monetary Agreements Act 1947

IMF

International Monetary Fund

SDR

Special Drawing Rights



Bilateral loan agreement with the IMF

The Bill amends the International Monetary Agreements Act 1947 (IMA Act) to provide standing appropriation and authority to borrow for payments to meet drawings made by the International Monetary Fund (IMF) under a new bilateral loan agreement.

The agreement was signed at Canberra on 19 December 2016 and at Washington D.C. on 4 January 2017. The term of the agreement ends on 31 December 2019 and is extendable by the IMF for one further year with Australia’s consent.

Date of effect Schedule 1 to the Bill implementing the agreement will apply from the date that the agreement enters into force.

Proposal announced These amendments have not been previously announced.

Financial impact The Bill would have an indirect impact on the underlying cash balance if the agreement is activated and funds are provided. This impact would arise where the Australian Government’s lending to the IMF increases Australia’s own borrowing requirement and where the interest payable on any money borrowed by Australia to meet an IMF drawdown exceeds the interest paid by the IMF in regard to that drawdown.

The maximum amount of Australia’s lending commitment to the IMF is Special Drawing Rights (SDR) 4.61 billion (around $A8.39 billion) under the agreement.

The SDR is an international reserve asset created by the IMF and is defined by a basket of currencies (the US dollar, euro, Chinese renminbi, Japanese yen and British pound sterling). The IMF can allocate SDRs to its member countries in proportion to their IMF quotas. Countries holding SDRs can exchange them for any of the currencies in the basket. The value of the SDR is determined daily by the IMF and the Australia dollar to SDR exchange rate is available on the Reserve Bank of Australia’s website.

The IMF can only seek to activate the agreement when additional funds are required to support its lending to member countries.

The bilateral agreement will be included in the budget papers as quantifiable contingent liabilities.

Human rights implications :  This Bill does not raise any human rights issue. See Statement of Compatibility with Human Rights — Chapter 1, paragraphs 1.20 to 1.23.

Compliance cost impact Nil.

 



Chapter 1          

Bilateral loan agreement with the IMF

Outline of chapter

1.1                   Schedule 1 to this Bill amends the IMA Act to give force of law in Australia to the Loan Agreement between Australia and the IMF signed at Canberra on 19 December 2016 and at Washington D.C. on 4 January 2017 (the 2016 loan agreement).

Context of amendments

1.2                   A bilateral Loan Agreement between Australia and the IMF signed at Tokyo on 13 October 2012 (the 2012 loan agreement) by the Deputy Prime Minister and Treasurer and the Managing Director of the IMF was for Australia to provide a contingent bilateral loan to the IMF as part of a broad global effort to increase the resources available to the IMF for crisis prevention and resolution.

1.3                   The 2012 loan agreement expires on 17 July 2017, so the 2016 l oan agreement is to continue Australia’s commitment to increasing the IMF’s available resources for those purposes.

1.4                   The amendments establish a standing appropriation and authority to borrow for payments to meet drawings made by the IMF under the 2016 loan agreement.

Summary of new law

1.5                   The amendments establish a standing appropriation for payments to the IMF to meet drawings under the 2016 loan agreement. The appropriation covers the agreement and any subsequent amended agreement where the maximum value that may be lent or the term of the agreement is not amended.

1.6                   Further legislative amendments will be required if any subsequent amended agreement affects the maximum value that may be lent under the agreement or the duration of the agreement.

Comparison of key features of new law and current law

New law

Current law

The Consolidated Revenue Fund is appropriated for payments made for drawings by the IMF under the 2016 loan agreement.

The Consolidated Revenue Fund is appropriated for payments made for drawings by the IMF under the 2012 loan agreement.

Amendments to the 2016 loan agreement must be notified by legislative instrument, except for amendments to the maximum amount that may be borrowed under the agreement or the term of the agreement.

Amendments to the 2012 loan agreement must be notified by legislative instrument, except for amendments to the maximum amount that may be borrowed under the agreement or the term of the agreement.

Detailed explanation of new law

1.7                   Schedule 1 to this Bill establishes a standing appropriation and authority to borrow for payments to meet drawings made by the IMF under the 2016 loan agreement.

1.8                   The 2016 loan agreement provides that the IMF may make drawings up to the equivalent of SDR 4.61 billion (around A$8.39 billion). The IMF may only make drawings under the 2016 loan agreement if its existing quota and the New Arrangements to Borrow resources are insufficient to support its lending to its member countries.

1.9                   The Treasurer must be satisfied that a payment is required to meet Australia’s obligations under the 2016 loan agreement before directing the payment to be made. Once the Treasurer gives the direction, the amounts are appropriated from the Consolidated Revenue Fund. [Schedule 1, items 2 and 5, section 3 definition of ‘IMF loan agreement 2016’ and subsection 8CAA(1)]

1.10               If the 2016 loan agreement is amended, the Treasurer can continue to use the standing appropriation for payments under the amended agreement as long as the amendment does not affect the maximum amount that Australia may lend to the IMF or the term of the 2016 loan agreement. However, in order to do this, the Treasurer must give notice of the amendment to the 2016 loan agreement by tabling a legislative instrument. [Schedule 1, item 7, subsection 8CAA(3)]

1.11               Any such legislative instrument made will be repealed the day after the 2016 loan agreement expires. [Schedule 1, item 10, subsection 8CAA(5)]

1.12               The agreement will expire on 31 December 2019, unless Australia consents to the decision of the IMF Executive Board to extend the agreement for one further year. [Schedule 1, item 9, note 2 to subsection 8CAA(3)]

Consequential amendments

1.13               The definition of IMF loan agreement 2016 is inserted by the amendments to enable the establishment of the standing appropriation to fund payments to be made under the 2016 loan agreement. [Schedule 1, item 2, section 3 definition of ‘IMF loan agreement 2016’]

1.14               A range of consequential amendments are made to the relevant provisions that support the standing appropriation, including providing the Treasurer with the authority to borrow to meet Australia’s obligations under the 2016 loan agreement. [Schedule 1, items 1, 3, 4, 6 and 8, section 3 definition of ‘IMF loan agreement 2012’, paragraph 6(1)(c) and section 8CAA]

Application and transitional provisions

1.15               The amendments apply to appropriation for a payment to the IMF to meet drawings under the 2016 loan agreement once the agreement enters into force.

1.16               The 2016 loan agreement enters into force on the date that the IMF acknowledges the receipt of a written communication from Australia notifying the IMF that this Bill has received Royal Assent.

1.17               Upon the 2016 loan agreement entering into force, the 2012 loan agreement will be terminated.

1.18               However, the IMF is able to draw funds from Australia after the expiry or termination of the 2012 loan agreement to meet funding commitments that were made during the term of that agreement (such as when a funding commitment by the IMF is payable in instalments over a number of years).

1.19               The standing appropriation will continue to allow for those payments to be made. [Schedule 1, item 11]

Statement of Compatibility with Human Rights

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

International Monetary Agreements Amendment Bill 2017

1.20               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

1.21               The Bill is to bring into force a bilateral loan agreement between Australia and the IMF, and provide borrowing and appropriation authority for any drawings under the agreement.

Human rights implications

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

Conclusion

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



 

Schedule 1:  International Monetary Agreements Amendment Bill 2017

Bill reference

Paragraph number

Items 1, 3, 4, 6 and 8, section 3 definition of ‘IMF loan agreement 2012’, paragraph 6(1)(c) and section 8CAA

1.14

Item 2, section 3 definition of ‘IMF loan agreement 2016’

1.13

Items 2 and 5, section 3 definition of ‘IMF loan agreement 2016’ and subsection 8CAA(1)

1.9

Item 7, subsection 8CAA(3)

1.10

Item 9, note 2 to subsection 8CAA(3)

1.12

Item 10, subsection 8CAA(5)

1.11

Item 11

1.19