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Tuesday, 26 November 1974
Page: 2739


The PRESIDENT -Is leave granted? There being no dissent, leave is granted. (The document read as follows)-

The purpose of this Bill is to obtain Parliamentary approval for a contribution by Australia of up to $60,8 10,8 1 1 to the fourth replenishment of the resources of the International Development Association, or IDA as it is commonly called. As most honourable senators will be aware, IDA is affiliated with the World Bank. It was set up in 1960 because many less developed countries were not able, or could not afford, to borrow overseas on commercial terms. Indeed, a number of these countries did not even have access to international capital markets because they could not establish a satisfactory credit rating. Moreover, most of them were already burdened with high external debt repayments and had little or no capacity to service additional overseas loans at normal rates of interest with normal terms of repayment. IDA was established with the express purpose of providing loans on concessional terms to such countries.

IDA loans, or development credits as they are called, bear no interest and are repayable over 50 years with a 10-year period of grace. A small service charge of¾ of one per cent per annum is levied to cover administrative expenses. I emphasise that, notwithstanding these soft terms, the projects which IDA finances are subject to the same rigorous standards of analysis and appraisal with respect to their economic and social worth and their technical feasibility as the World Bank applies in its own lending operations. In fact, the 2 institutions have a common staff and are served by the same executive board. IDA now has more than 100 member countries which are divided into 2 broad categories. The more economically advanced countries are known as Part I members and the developing countries as Part II members.

When IDA was established in 1960, Part I member countries, including Australia, agreed to subscribe approximately US$7 50m over a 5-year period towards its initial capital stock. Australia's share of this total was 2.7 per cent. Since then, Australia has participated in 3 separate exercises to replenish the resources of IDA involving total contributions and additional subscriptions amounting to US$750m, US$ 1,200m and US$2,400m, respectively, payable over successive 3-year periods. Our share of the first replenishment remained at 2.7 per cent but it was reduced to 2 per cent in the subsequent replenishment exercises. All of these resourceswhich have been supplemented by interest earned on investments as well as by the additional voluntary contributions which one or two Part I member countries have made to IDA from time to time and the annual transfers which IDA has received from the World Bank out of the latter's profits in each year since 1963-64- were almost fully committed by 30 June 1 974, making it necessary for IDA to seek additional authority to enter into new commitments after that date. After lengthy negotiations, agreement was eventually reached during the annual meetings of the International Monetary Fund and the World Bank group held at Nairobi in September 1973 to the effect that, subject to parliamentary approval in the various countries concerned, an additional US$4,500m would be made available to IDA over a period of 3 or 4 years commencing on 1 July 1974.

I ask leave to have incorporated in Hansard a table which sets out the prospective contributions to be made to IDA by individual member countries and Switzerland, which has not yet joined IDA, under the Nairobi Agreement.


The PRESIDENT -Is leave granted? There being no objection, leave is granted. (The document read as follows)-

 


Senator WRIEDT - Honourable senators will observe from this table that Australia 's share of the fourth replenishment will be maintained at 2 per cent, involving us in further payments to IDA totalling the equivalent of US$90m calculated on the basis of the official New York noon rate of exchange between the 2 currencies on 27 September 1973 when the Nairobi Agreement was finally concluded. This amounts to $A60,810,811. Unlike the position under the previous replenishment exercises, there is no maintenance of value' provision in the Nairobi Agreement. Thus, our obligations under the fourth replenishment are fixed in terms of Australian dollars and are not subject to adjustment due to fluctuations in exchange rates since then.

In deciding that Australia should participate in the fourth replenishment, the Government had a number of considerations in mind. First and foremost, IDA- like the World Bank- is an efficient institution which is capable of undertaking large scale projects and tackling complex development problems in a technically proficient way, country by country. It is by far the largest agency in the world today lending on concessional terms. To date, IDA has extended development credits totalling more than US$6,900m to 66 member countries. In 1973-74 alone, 69 new loans totalling about US$ 1,095m were approved. Needless to say, the developing countries as a whole attach great importance to a generous and early replenishment of IDA's resources.

We are also mindful that IDA has been, and will continue to be, of particular benefit to developing countries in our own part of the world. For example, about two-thirds of all IDA lending so far has gone to developing countries in the Asian region, the main recipients being India, Indonesia, Pakistan and Bangladesh. In addition, IDA has lent a total of US$25.2m to Papua New Guinea to date. Further credits to that country are expected to be approved in future. During the discussions on the level of the fourth replenishment, it was decided that essentially the same voting power arrangements which were made under the third replenishment should continue to apply.

By way of background, I might explain that voting rights are based on 'subscriptions' to IDA. I emphasise this word 'subscriptions'. By general consensus it had been decided that the additional resources put at IDA's disposal under the first and second replenishments should not affect existing voting rights. For this reason the commitments then entered into took the form of contributions' and no"t additional subscriptions. In response to pressures from certain Part 1 member countries which felt that they were being disadvantaged by this arrangement- for example, those which had increased their percentage shares, or had made supplementary voluntary contributions to IDA, since it was first established- it was decided to redress this situation. This was done by permitting countries to make additional subscriptions- which carry voting rights- to IDA as well as contributions under the third replenishment, the relative proportions between the two varying in each instance so as to produce the overall adjustments in voting rights desired. Essentially, the same arrangements will apply under the fourth replenishment.

Since Australia proposes to maintain its former percentage share under the fourth replenishment our relative voting strength will remain virtually unchanged. Complex calculations undertaken by the staff of IDA indicate that, of the total amount which Australia is expected to make available to IDA over the next few years, the equivalent of US$590,525- that is $A399,003 calculated on the same basis as before- should take the form of an additional subscription with voting rights. The balance will represent an additional contribution. This distinction is provided for in clause 4 of the Bill. I should also point out that the agreement governing the fourth replenishment will not become effective and the obligation to contribute new resources to IDA will not become binding on any member country unless and until members, including at least 12 developed country members, whose contributions aggregate not less than US$3,500m, give IDA formal notification that they will make the contributions authorised for each of them. Because the contribution authorised for the United States of America is US$1,500m or one-third of the total sought, this means, in effect, that the fourth replenishment will only become effective, and other countries will only be required to contribute to IDA, as and when the United States formally notifies IDA that it has taken all the necessary legislative steps to enable it to participate on the basis of the agreement reached at Nairobi last year.

Despite an early set-back, legislation authorising the United States to contribute a further US$ 1,500m to IDA under the fourth replenishment was eventually passed by Congress on 3 1 July 1974. However, further legislation is necessary to actually appropriate the funds required for this purpose. At this juncture it is not clear just when this will be enacted by Congress although it seems unlikely to be much before the middle of 1975, if then. In the meantime, the United States has not been able to give the formal notification required. It was originally planned that the fourth replenishment should become effective on or before 30 June 1974. In view of the delay which has already occurred, and remains in prospect, the IDA management has recently asked member countries which have already ratified the Nairobi Agreement whether they would be prepared to make voluntary contributions to IDA, in anticipation of the conditions of effectiveness for that Agreement being fulfilled, in order to enable IDA to continue its lending operations in the interim. A number of donor countries have already agreed to do this. In accordance with past practice, the present Bill has been drafted in a way which would enable Australia to make an advance contribution to IDA also, if the Government so decides.

I should also like to mention briefly to the Senate that our contributions to IDA are initially paid in the form of non-negotiable, noninterestbearing promissory notes which are cashed as and when the funds are required by IDA. Actual cash payments reflect the pattern of disbursements by IDA and these usually lag well behind the commitments entered into when projects are approved. By using the promissory note technique, Australia's participation in the fourth replenishment is not likely, of itself, to have any budgetary implications in 1974-75. This Bill provides us with an opportunity to demonstrate once again our bipartisan support for IDA as an effective and efficient international development finance institution, and our willingness to help the less-developed countries to improve their standards of living in future by providing them with much needed external assistance on highly concessional terms through IDA. I need not emphasise the importance which successive Australian governments have attached to this broad objective. I therefore commend the Bill to honourable senators.

Debate (on motion by Senator Durack) adjourned.







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