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Thursday, 15 September 1983
Page: 917

Mr ROBERT BROWN(4.45) —At present we are considering three Bills in this cognate debate. I would not like it to be thought that because I will concentrate most of my remarks on the International Monetary Fund (Quota Increase) Bill in any way I seek to diminish the importance of the other two Bills, namely, the International Development Association (Special Contribution) Bill and the Asian Development Bank (Additional Subscription) Bill. Each of those Bills is concerned with extremely important international agencies, two of which are concerned with providing assistance to developing countries. The Bill on which I will concentrate most of my attention, the International Monetary Fund (Quota Increase) Bill, is concerned with an agency which has been charged with the responsibility of assisting to ensure national and international stability within and between countries, particularly in relation to their trading relationships, their exchange rates and their balance of payments. I congratulate my colleague the honourable member for Sydney (Mr Baldwin) for the perceptive analysis he provided in his contribution to this debate and for his explanation of the way in which the responsibilities of the International Monetary Fund, as a result of events overtaking the IMF and, of course, other world developments, have changed since the IMF was first established.

The passage of this Bill will provide Australia's consent to an increase in its quota to the IMF and for the payment of that increased quota. This represents our response to and an endorsement of the decision by the Fund's Board of Governors in March this year to increase the quota. That decision in March was necessitated by the fact that the funds available to the IMF had been very seriously depleted, particularly over the last 12 months and, more generally, over the last two years, as a result of extremely heavy demands that had been made on the IMF because of the extremely difficult international debt servicing position in which so many middle income countries had found themselves. This quota increase which the Fund's Board of Governors decided upon in March will not be effective until member countries which hold at least 70 per cent of the total quotas have indicated their consent. There is considerable and continuing concern at present, concern which has not yet been allayed, as to whether member countries which represent a significant percentage of the quota will, in fact, make a commitment to increase their share in time for that increase to become effective. Their consent must be provided by 30 November this year.

Each country's subscription to the IMF is related to its economic and trading situation. As the Minister for Housing and Construction and Minister Assisting the Treasurer (Mr Hurford) said in his second reading speech, the proposed 47.5 per cent increase in the aggregate level of Fund quotas has been reapportioned. It has been reapportioned because 60 per cent of the increase will be distributed among members in proportion to their relative economic positions in the world. The remaining 40 per cent of the increased quota will be distributed among them in proportion to their existing quota shares. The result is that Australia's quota will be increased not by the 47.5 per cent average increase for the Fund as a whole but by 36.6 per cent. Australia's former quota share somewhat overstated our relative economic position in the world, so we qualify for a smaller quota increase than the average. This increase, which will be consented to as a result of the passage of this legislation in both this House and the Senate, will increase Australia's quota from SDR1,185m to SDR1,619.2m.

The fact that the quota for Australia is to be increased of course will also increase Australia's capacity to draw on the Fund. Fortunately, as a relatively industrialised and developed country it has not been necessary on very many occasions in the past for Australia to draw on the Fund. The last occasion on which we drew on the Fund was on 2 July 1976, during the term of the previous Government. We withdrew $309m-its SDR equivalent is 332.5m-from the compensatory financing facility of the IMF. We had not previously borrowed from the Fund since 1961. The $309m which we borrowed on the last occasion represented the maximum that we were able to draw on the Fund, 50 per cent of the total quota. The reason that we drew on the Fund at that time was our balance of payments problem that year. Essentially two factors contributed to this problem-firstly, the recession, and, secondly, what was accepted then as being a significantly over-valued currency. As a result of that situation, over the whole of the year Australia's overall balance of payments deficit was $492m. Drawing from the IMF meant that our official reserve assets that year, instead of declining by $492m, declined by only $109m.

At the end of June 1977 the market value of our official reserve assets was $2, 638m compared with $2,576m in June 1976. When one puts together those figures one sees that an anomaly results. That is largely due to the fact that there was an adjustment in the value of our reserve assets due to the devaluation which followed that year. During that year there was a need for devaluation but the Government of the time resisted it until November 1976, when the dollar was devalued by 17.5 per cent. Probably we all well recall the very serious in- fighting which took place on that occasion-it took place on so many other occasions when questions of the value of the Australian currency had to be determined-between the National Party of Australia and the Liberal Party. That Government's whole approach to the value of the dollar was based more on political considerations-including that in-fighting to which I referred-than on sound economic judgment. This was not surprising. The former Government, right to the end of its final term, was prepared to sacrifice the stability of the Australian financial and economic system in favour of its miserable political objectives. That borrowing from the IMF caused considerable embarrassment to Australia at the time. It should not have been necessary in the first place. It caused us embarrassment in the international, financial and trading worlds. Apart from New Zealand, no developed country had ever held out its hand for one of those low interest rate loans. However, our subscription and quota do legally allow us to draw on the Fund. As I have said, the most recent occasion we did that was in 1976.

The importance of the IMF should not be understated, although I endorse the reservations which were expressed by my colleague the honourable member for Sydney in connection with it. Those reservations are extremely well placed. There is considerable cause for us to entertain those reservations. In the time that is available to me I will give some justification for the point that I have made. The IMF is an important international agency. It is the only agency charged with the specific responsibilities which it fulfils. Although there are serious questions about the adequacy of the IMF, in terms of the specific functions it fulfils and the way in which it fulfils them, it is the only agency charged with them. For that reason it is important that Australia recognises its obligations under the provisions of the IMF. Of course, the passage of this Bill will be an indication of our acceptance of those responsibilities.

I do not think there would be much argument about the fact that the International Monetary Fund (Quota Increase) Bill is the most important of the three Bills that we are considering at present. Probably even more important than this formal provision which we are making to agree to the increase in the quota which was made by the Board of Governors in March this year are the factors which lie behind that necessary step which was taken by the Board of Governors. This adjustment represents the eighth general review of quotas and was encouraged particularly by the world wide concern about the stability of the international financial system.

The Fund's financial resources have been seriously depleted, especially over the past two years, by the very high level of drawings which so many of the member countries have been making because of their serious debt problems. The world financial system has been in crisis-some people would say in deep crisis- for some time. The current outstanding debts by some of the largest international debtors are as follows: Brazil, $90 billion; Mexico, $80 billion; and Argentina, $40 billion. Other countries which have very large debts at present include Poland. Poland is not a member of the IMF but some other socialist bloc countries are. Poland has a debt of about $26 billion and Venezuela also has a very large debt. The World Bank estimates that the total outstanding debt for developing countries at present is $700 billion. From an historic perspective that is an international debt of enormous dimensions and of enormous significance. Those amounts are owed to banks, to governments and to international agencies.

There was some speculation about the middle of this year as to whether Australia was among this big league of debtors. At least one newspaper report at the time claimed that Australia's overseas debt was about $33 billion. That would place us almost in the same league as Argentina and considerably above Poland. That $33 billion, it was stated, consisted of $27 billion for enterprises, including government businesses, and another $6 billion for the Federal Government's overseas debt. Unfortunately that report did not take into account our overseas official reserve assets which totalled about $10 billion. If one takes that $10 billion away from the $33 billion it still leaves a very significant figure of $23 billion, but that is nowhere near as high as some commentators were claiming at that time.

The most recent report of the IMF identified a number of very critical problems for the world economy. Among others were the problems of inflation, increased protectionism and the one to which I have referred, the indebtedness of developing countries and their problems in servicing that debt. Of course, interest rates are also of critical importance in connection with the capacity of developing countries to meet their debt servicing charges every year. For example, it has been estimated that every one per cent drop in United States interest rates will reduce the total debt servicing costs for developing countries by nearly $4,000m every year. From the point of view of those countries it is extremely important that accelerating high interest rates on a world wide scale be brought under control so that some of the pressure can be taken off them in their attempt to service their debts.

A number of steps have been taken by international agencies to reschedule and restructure the debt for many middle income borrowers. The poorest countries are not in this league because most of the assistance available to them has been through official aid programs of various kinds. These moves have been necessary to avoid major default. It has been speculated that major default could bring about a collapse of the international financial system, and that is not an overstatement. We are not out of the woods yet. There are still very serious concerns not only about the adequacy of international agencies of this kind to handle the situation but also about the way in which major countries, in particular the United States at present, are responding to these very real needs and issues.

As recently as last August one of the concerns in Brazil-I have already mentioned the size of its debt, and one can imagine the problem of debt servicing-was whether the Bank of Brazil would provide enough credit to permit private companies to pay their wage bills. It did so but only by allowing another bout of inflation with a further blowout in the money supply. Inflation then was already 125 per cent. My colleague the honourable member for Sydney said that it has more recently been assessed at a rate of 150 per cent. Brazil has sought IMF approval his year to allow it to have an inflation rate of 160 per cent. That puts the matter into perspective when we are talking of the sort of inflation rate we have been experiencing here in Australia.

Most of these debt commitments, unfortunately, were entered into on the assumption and in the belief that a buoyant world economy and buoyant world trade would be maintained and that international oil prices would remain at a high level. All of those expectations were dashed. The extremely high debts which these developing countries had entered into left them with the continuing and serious problem of servicing them. Venezuela, for example, had to seek a rescheduling of over $US16 billion for obligations that fall due in the next 18 months. Argentina, the third largest world debtor after Brazil and Mexico, received approval for a third $300m instalment of a standby credit from the IMF as recently as August. In all, the IMF now has debt adjustment programs operating for 43 countries. In the last year commercial banks have renegotiated repayment terms on $90,000m worth of debt owed by 15 countries. That is 20 times higher than the maximum amount of any restructuring debt program undertaken in any previous year. The IMF has also completed $15.6 billion worth of loan agreements with 35 countries.

There has been, as I indicated earlier, some legitimate and justified doubt about whether the United States Congress would approve the $8.4 billion increase in its quota. By the end of August only 31 of the Fund's 146 member countries had ratified the quota increase. They included only one industrialised country, and that was Britain. These countries also comprised only 15 per cent of the voting power of the Fund. I indicated that it has to be 70 per cent by 30 November, otherwise this attempt to increase the quota will fail.

The problem in the United States is that the two Houses-the Senate and the House of Representatives-have passed different Bills approving the increase in the United States quota, and the differences, of course, will have to be ironed out in the normal parliamentary processes undertaken in the United States Congress. The Senate approved the increase on 8 June after defeating attempts by conservative Republicans to restrict the Fund's activities. The House of Representatives narrowly approved the increase on 3 August but only after a number of amendments were adopted. The House of Representatives adopted it by a vote of 217 to 211. That is how close it was. The United States provides roughly 20 per cent of the total funds available to the Fund.

The honourable member for Sydney referred to the nature of the negotiations which went on during the consideration of those matters before the United States Congress. The operation of the IMF illustrates two contrasting realities of the nature of international agencies of this and similar kinds. First, there is a genuine desire to establish structures and procedures which are designed to maintain stability in the world economy, to establish sound and constructive relationships between member countries of the world community and to apply collective efforts and resources towards the solution of international and intranational problems. Secondly, there is the selfish pursuit of national and sectional interests, the intrigue of political deals, the manipulation and prostitution of economic structures for the pursuit of political objectives, and unfortunately the experience of the United States Congress in relation to this question expresses both of those conflicting positions.

Madam DEPUTY SPEAKER (Mrs Darling) —Order! The honourable member's time has expired.

Question resolved in the affirmative.

Bill read a second time.

Message from the Governor-General recommending appropriation announced.