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Tuesday, 4 May 1971


Senator COTTON (New South Wales) (Minister for Civil Aviation) - I move:

That the Bill be now read a second time.

The purpose of this Bill is to obtain parliamentary approval for payment to the International Development Association of a sum not exceeding the equivalent of $US48m in connection with the third replenishment of the resources of that institution. As most honourable senators will be aware, the International Development Association, or IDA as it is commonly called, is an affiliate of the International Bank for Reconstruction and Development, which is often referred to these days as the World Bank. IDA was set up in 1960 because many less developed countries were not able, or could not afford, to borrow overseas on commercial terms. Many of these poorer countries did not have access to international capital markets because they could not establish a satisfactory credit rating. Moreover, most of them were already feeling the burden of external debt repayments and had little or no capacity to service additional overseas loans at normal rates of interest and on normal terms of repayment. IDA was established for 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 of i of 1 per cent per annum is levied to cover administrative expenses. I would emphasise that, notwithstanding these soft terms, the projects which IDA finances are subject to the same rigorous analysis and appraisal with respect to both their economic worth and their technical feasibility as the World Bank itself applies in its own lending operations. In fact, the 2 institutions have a common staff and a common executive board. IDA now has more than 100 member countries which are divided into 2 broad groups. The more economically advanced countries are known as Part I members and the less developed countries as Part II members.

In 1960, Part I member countries, including Australia, agreed to subscribe roughly $US150m a year for 5 years to the initial capital stock of IDA. Australia's share of this total was 2.7 per cent, involving us in annual contributions of a little over $US4m. In 1963, Part I member countries agreed to replenish IDA's resources over the 3 years 1965-66 to 1967-68 at the rate of roughly $US250m a year. Australia's share of this total was again 2.7 per cent, involving us in annual contributions equivalent to $US6.6m, or about two-thirds more than the rate of our subscription to IDA's initial capital stock. A second replenishment of IDA's resources, involving contributions of $US400m a year, was agreed for the 3 years 1968-69 to 1970-71, although it came into effect only in July 1969 due to a delay by the United States Congress in ratifying the relevant Agreement and passing the necessary legislation to authorise that country's participation. Australia reduced its percentage share of this second replenishment to 2 per cent, involving us in contributions of $US8m a year.

All of these resources - which have been supplemented by interest earned on investments, some additional voluntary contributions by a few Part I countries and transfers amounting to $US485m which the World Bank' has made to IDA out of its annual profits since 1963-64 - are expected to be. fully committed by the end of June this year for lending to less-developed countries. The need for a third replenishment, of IDA's resources is therefore urgent if IDA is to be able to continue its lending activities. After lengthy negotiations, Part I member countries reached agreement in June 1970 that, subject to parliamentary approval in their respective countries, IDA's resources should be replenished at the rate of $US800m a year over the 3 years commencing 1971-72. This represents a 100 per cent increase on the rate of contribution under the second replenishment exercise. Some special additional contributions will in fact raise the level of replenishment over this period to about $US813m a year.

Agreement to replenish IDA's resources at this rate was reached only after some modification to the percentage contributions of certain Part I countries. France and South Africa reduced their percentage shares, while Finland, Japan, The Netherlands, Norway and Sweden increased theirs. Switzerland, which is not a member of IDA, but which participated in the second replenishment exercise, has agreed to contribute to the third replenishment on the basis of an increased percentage share. In addition, 3 Part II member countries, namely, Ireland, Spain and Yugoslavia, will be participating for the first time in a general replenishment exercise.

With the concurrence of honourable senators I incorporate in Hansard a table entitled 'Contributions to IDA by Part 1 members', which compares the prospective contributions to IDA by Part I member countries and Switzerland over the next 3 years with the contributions they have already made.

 

Honourable senators will observe from the table that, in this third replenishment, Australia's share will be maintained at 2 per cent. This will mean a doubling of our present rate of contribution to $US16m a year over the next 3 years. In deciding that Australia's share of this replenishment should be maintained at 2 per cent, the Government had a number of considerations in mind. First and foremost IDA, like the World Bank, is an efficient institution. We know from practical experience that it can tackle complex development problems in a technically proficient way, country by country. It is by far the largest agency lending on concessional terms in the world today. In its first 10 years, for example, IDA extended 221 credits totalling nearly$US2.8 billion to 55 countries. In 1969-70 alone, 56 new credits totalling more than $US605m were approved. The Government is conscious of the fact that there is now something of a swing back in world opinion in favour of multilateral aid, particularly through the international development finance institutions like IDA.

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 the developing countries in our own part of the world. In the past, about three-quarters of all IDA lending has gone to countries in the Asian region. Last financial year, India alone received nearly $US230m from IDA, while Indonesia and Pakistan each received about $US80m.

Finally, there is the prospect that Papua New Guinea will benefit from this replenishment of IDA's resources. To date, Papua New Guinea has received credits and loans totalling more than $US22m from IDA and the World Bank. Another loan of $US23m is expected to be approved shortly. Further proposals to borrow from these 2 institutions on the Territory's behalf are under consideration at the present time.

During the discussions on the level of the third replenishment, agreement was also reached on a proposal to adjust the relative voting rights of individual Part 1 countries so as to reflect more accurately the total amounts which each such country had, or will have, contributed to IDA since its inception. By way of background, I might explain that voting rights are based on subscriptions to IDA. I would emphasise this word 'subscriptions'. By general consensus at the times, it had previously been decided that the additional resources put at IDA's disposal under the first and second replenishment exercises should not affect voting rights and for this reason the commitments then entered into took the form of contributions and not additional subscriptions. In response to pressures from certain countries which felt they were disadvantaged by this arrangement - that is, those which had increased their percentage shares or made supplementary voluntary contributions to IDA since it was first established - it has now been decided to redress this situation. This will be done by permitting Part I countries to make additional subscriptions, which will carry voting rights, to IDA as well as contributions under the third replenishment exercise, the relative proportions between the 2 varying in each instance so as to produce the overall voting adjustments desired.

As a consequence of the fact that Australia reduced its percentage share under the second replenishment exercise to 2 per cent, and now proposes to maintain that figure, our relative voting strength is to be reduced slightly. Complex calculations undertaken by the staff of the Association indicated that, of the total amount of $US48m which Australia is expected to make available to IDA over the next 3 years, SUS583.440 should take the form of an additional subscription with voting rights. The balance will take the form of an additional contribution as in the case of the 2 previous replenishment exercises. This distinction is provided for in the Bill.

The agreement governing the third replenishment exercise is subject to the explicit condition that it must be ratified by at least 12 Part I member countries whose prospective subscriptions and contributions aggregate not less than SUS1.9 billion. Because of the size of the pledge to be made by the United States, this means that the agreement cannot enter into effect unless and until it is ratified by that country. It is hoped that all of the formalities to this end will be completed by 30th June 1971 so that IDA will have appropriate authority to enter into new lending commitments from the start of the next financial year.

I should also like to explain to the Senate that our annual contributions to IDA are paid in the form of promissory notes which are cashed as and when 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. For example, . cumulative cash payments to IDA by Australia as at the end of the current' financial year are expected to amount to about $A36m, compared with total pledges of more than $A57m by Australia since IDA's inception in 1960. I have a detailed break-up of these figures before me and, as they may be of some interest to honourable senators, with the concurrence of honourable senators I incorporate them in Hansard.

 

The significance of this point is that while Australia will be called upon to pay the first instalment of$US16m on its contribution to the third replenishment exercise in November next, the impact upon the Budget for 1971-72 of actual payments to IDA will be very much less than that.

This Bill provides us with an opportunity to demonstrate once again our support for IDA as an effective and efficient development finance institution, and our willingness to help, through IDA, the less developed countries to achieve faster rates of economic growth and thereby improve their standards of living in future. I need not emphasise the importance to be attached to this broad objective. I commend the Bill to honourable senators.

Debate (on motion by Senator Wriedt) adjourned.







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