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International Monetary Agreements Amendment (New Arrangements to Borrow) Bill 2017

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2016-2017

 

THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA

 

 

 

HOUSE OF REPRESENTATIVES

 

 

 

International monetary agreements amendment (New arrangements to borrow) 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               New Arrangements to Borrow............................................ 5

 

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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

SDR

Special Drawing Rights



New Arrangements to Borrow

The Bill amends the International Monetary Agreements Act 1947 (IMA Act) to provide a standing appropriation and authority to borrow for payments to meet drawings made by the International Monetary Fund (IMF) under the decision to renew the New Arrangements to Borrow (NAB).

The decision to renew the NAB is effective from 17 November 2017 to 16 November 2022.

Date of effect Schedule 1 to the Bill implementing the NAB renewal will commence on the later of 17 November 2017 and the day after this Bill receives Royal Assent.

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 arises 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 differs from the interest paid by the IMF in regard to that drawdown.

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

The maximum amount of Australia’s lending commitment to the IMF is Special Drawing Rights (SDR) 2.22 billion (around A$4.05 billion) under the NAB.

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 Australian dollar to SDR exchange rate is available on the Reserve Bank of Australia’s website.

The NAB will be included in the Australian Government’s Budget papers as a quantifiable contingent liability.

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

Compliance cost impact Nil.

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Chapter 1          

New Arrangements to Borrow

Outline of chapter

1.1                   Schedule 1 to this Bill amends the IMA Act to allow Australia to continue its obligations under the NAB for a further five years.

Context of amendments

1.2                   The NAB is a multilateral borrowing agreement between the IMF and a number of its members that allows the IMF to borrow from those members, when supplementary resources are required to address an impairment of the international monetary system. Australia is a founding member of the NAB and has participated since it formally commenced in 1998.

1.3                   The IMF Executive Board decision made in November 2012 to renew the NAB for a five-year period will expire on 16 November 2017.

1.4                   On 4 November 2016, the IMF Executive Board decided to renew the NAB for a period of a further five years, commencing on 17 November 2017.

1.5                   The amendments ensure that the current standing appropriation and authority to borrow continue to apply for payments to the IMF in order for Australia to meet its obligations under the renewed NAB.

Summary of new law

1.6                   The amendments allow the standing appropriation and authority to borrow to continue to apply for payments to the IMF under the renewed NAB. The IMF Executive Board’s decision to renew the NAB becomes effective on 17 November 2017.

Comparison of key features of new law and current law

New law

Current law

The NAB is renewed for a period of five years, commencing 17 November 2017.

The NAB will expire on 16 November 2017.

The Consolidated Revenue Fund is appropriated for payments made for drawings by the IMF under the NAB, as amended by the 4 November 2016 decision to renew.

The Consolidated Revenue Fund is appropriated for payments made for drawings by the IMF under the NAB.

The Treasurer may borrow amounts required to be paid by Australia to meet its obligations under the NAB, as amended by the 4 November 2016 decision to renew.

The Treasurer may borrow amounts required to be paid by Australia to meet its obligations under the NAB.

Detailed explanation of new law

1.7                   Schedule 1 to this Bill allows the standing appropriation and authority to borrow to continue to apply for payments to the IMF under the renewed NAB. The IMF Executive Board’s decision to renew the NAB becomes effective on 17 November 2017.

1.8                   The NAB provides that the IMF may make drawings up to the equivalent of SDR 2.22 billion (around A$4.05 billion) for lending commitments made under the NAB.

1.9                   The IMF may only make such lending commitments when the NAB is activated. This requires agreement, from the participant countries that make up 85 per cent of the total credit committed under the NAB and the IMF Executive Board, that the quota resources available to the IMF for lending are not sufficient for its lending needs.

1.10               The Treasurer must be satisfied that a payment is required to meet Australia’s obligations under the NAB before directing the payment to be made. Once the Treasurer gives the direction, the amounts are appropriated from the Consolidated Revenue Fund (see section 8B of the IMA Act).

1.11               The Treasurer may also borrow amounts that are required to be paid by Australia to meet its obligations under the NAB (see section 6 of the IMA Act).

1.12               The definition of New Arrangements to Borrow is amended to include the IMF Executive Board’s decision on 4 November 2016 to renew the NAB for a further five-year period. [Schedule 1, items 1 and 2, section 3 definition of ‘New Arrangements to Borrow’]

1.13               This enables the standing appropriation and authority to borrow to continue to apply in order to meet Australia’s obligations under the NAB between 17 November 2017 and 16 November 2022.

1.14               The IMF Executive Board’s decision and the resulting text of the NAB are expected to be included in the Australian Treaties Library once they have been tabled in Parliament.

1.15               Until then, the proposed decision, with a consolidated text of the NAB that illustrates the modifications to the current text of the NAB, can be accessed through the IMF’s Press Release No. 16/502 published on its website (https://www.imf.org).

1.16               Minor technical changes were subsequently made to the consolidated illustrative text of the NAB, which do not affect the operation of the NAB. The Secretariat of the NAB within the IMF notified the participants of the NAB of those changes, which will be reflected in the NAB to be tabled in Parliament.

Consequential amendments

1.17               Schedule 4 to the IMA Act currently reproduces the text of the NAB.

1.18               As the text of the NAB as renewed is expected to be included in the Australian Treaties Library, Schedule 4 of the IMA Act will no longer be necessary and is repealed. [Schedule 1, items 3 and 4, section 3 definition of ‘New Arrangements to Borrow’ and Schedule 4]

Application and transitional provisions

1.19               From the later of 17 November 2017 and the day after this Bill receives Royal Assent, the standing appropriation and authority to borrow for payments to the IMF will be available to meet drawings under the renewed NAB .



Statement of Compatibility with Human Rights

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

International Monetary Agreements Amendment (New Arrangements to Borrow) 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 provide a standing appropriation and authority to borrow for payments to the IMF to meet drawings under the renewed NAB from the later of 17 November 2017 and the day after this Bill receives Royal Assent.

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.

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