Bills Digest no. 148 2008–09
International Monetary Agreements Amendment (Financial
Assistance) Bill 2009
This Digest was prepared for debate. It reflects the legislation as
introduced and does not canvass subsequent amendments. This Digest
does not have any official legal status. Other sources should be
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introduced: 28 May
House: House of
relevant links to the Bill, Explanatory Memorandum and second
reading speech can be accessed via BillsNet, which is at http://www.aph.gov.au/bills/.
When Bills have been passed they can be found at ComLaw, which is
To amend the International
Monetary Agreements Act 1947 (IMA Act) to establish a
framework for Australia to provide financial assistance to a
country in support of World Bank Group or Asian Development Bank
The International Bank for Reconstruction and Development (IBRD)
and the International Development Association (IDA) comprise the
World Bank. The IBRD was originally conceived predominantly to fund
post-war reconstruction and development in Europe. The IBRD of
today specifically deals with middle income countries and
creditworthy poorer countries to promote sustainable job creation
and growth and to reduce poverty. The IDA was created in the 1960s,
after a group of IBRD member countries, led by the United States of
America, decided to form a specific multilateral agency that could
offer more favourable terms than the IBRD to the world s poorest
countries, so they could access capital to foster growth. The
founders of the IDA recognised the need for developed countries to
assist the world s poorest countries in the 1950s, but they were
mindful of the need for the IDA to have the discipline of a bank.
It was for this reason that the IDA was created under the umbrella
of the World Bank. These two organisations also provide funding and
technical expertise to improve governance in their respective
spheres of influence.
The International Finance Corporation (IFC), the Multilateral
Investment Guarantee Agency (MIGA) and the International Centre for
Settlement of Investment Disputes (ICSID) are associate
organisations of the World Bank, and together with the IBRD and
IDA, they form what is known as the World Bank Group.
The IFC was established in 1956 with a primary goal of fostering
private sector involvement and investment in poor countries.
Previously international corporations and commercial financial
institutions lacked the interest and the sources of capital to
invest in Africa, Asia, Latin America and the Middle East. The IFC
provides debt and equity funding as well as technical expertise in
assessing projects for companies looking to invest in poor
countries. The IFC also shares commercial risk, so as to provide
incentives for private sector companies to become involved in
The MIGA (established in 1988) aims to encourage foreign direct
investment in the world s poorest countries by providing political
risk insurance for foreign investments in order to induce both
private investors and insurers into transactions they would not
otherwise become involved in. It also provides technical assistance
to improve investment environments and promote investment
opportunities and dispute mediation services to remove potential
obstacles to future investment in poor countries.
The ICSID is an international organisation established under the
Convention on the Settlement of Investment Disputes between
States and Nationals of Other States. This convention entered
into force in 1966. The ICSID has as its primary purpose the
provision of facilities for conciliation and arbitration of
international investment disputes. Recourse to these facilities is
always subject to consent by the relevant parties.
The Asian Development Bank (ADB), which is headquartered in
Manila, Philippines was established in 1966 to provide assistance
to Asian countries, which were at that time, predominantly based on
agriculture. Its initial efforts were directed towards rural
development and providing technical assistance aimed at increasing
food production. Throughout the 1970s, the focus of the ADB shifted
into education, health, infrastructure and industry. Concessional
lending and co-financing also began. In the 1980s, the ADB focussed
on improving private sector participation in development projects.
Since then, the ADB has expanded into areas such as regional
cooperation, poverty reduction and enhancing the effectiveness of
This Bill refers to all of these organisations and establishes a
standing appropriation to enable to Australian Government to make
loans and currency swaps in support of World Bank and ADB programs. The rationale
for including the IFC, the MIGA and the ICSID in this Bill is
somewhat unclear, as the primary functions of the IFC and the MIGA
essentially relate to facilitating private sector investments in
poorer countries. Similarly for the ICSID, its primary role is the
voluntary settlement of disputes between nations or between a
nation and foreign nationals. As stated earlier, these three
organisations are not part of the World Bank proper, but do form
part of the World Bank Group.
The existing framework in the IMA Act that establishes a
standing appropriation enabling the Australian Government to
provide funds in support of International Monetary Fund (IMF)
programs, which this Bill seeks to emulate, is tailored toward
cooperation between governments for the benefit of countries in
financial distress. Thus, establishing a similar framework for
activities in support of World Bank or ADB programs is sensible,
although the relevance to the associate World Bank Group
organisations is questionable.
The Prime Minister, Kevin Rudd MP announced
at a Joint Press Conference with Indonesian President Susilo
Bambang Yudhoyono at the Bali Democracy Forum on 10 December 2008
that Australia would provide a US$1 billion standby loan facility
to the Indonesian Governmentas part of a broader facility of more
than US$5billion from a range of other countries and multilateral
organisations including the European Union, Japan, the World Bank
and the ADB.
At the time of writing, the Bill has not been referred to any
committee for inquiry.
The Shadow Treasurer, Joe Hockey MP outlined the Coalition s
position on this Bill in his second reading speech on 4 June 2009.
He said that the coalition supports the Bill because we undertook
similar activities in the past when we were in government .
However, while acknowledging that Australia has the capacity to
provide emergency assistance and support to our Asian neighbours
(on the basis of our net debt, compared with that of other
nations), he queried the sense of Australia borrowing money to fund
our day-to-day activities while at the same time lending money
offshore whether it be $1 billion through this initiative to
Indonesia or $10 billion to the IMF potentially going to eastern
This Bill seeks to establish a standing appropriation for funds
from the Consolidated Revenue Fund for any loans or currency swap
arrangements to which it applies. The extent of financial
assistance will depend on what requests are made to and agreed upon
by the Australian Government. As noted above, the Australian
Government has already committed to a standby loan facility to the
Government of Indonesia which could possibly result in a loan of up
to US$1billion over the 2009 and 2010 calendar years.
As noted in the Explanatory Memorandum to this Bill, if the
standby loan facility is used by the Indonesian Government there
will be no impact on the underlying cash balance for the loan
itself, however, interest payments received on the loan will affect
the underlying cash balance. In terms of the fiscal balance, there would be an
upfront reduction and an improvement annually over the life of the
loan as it was repaid. This impact on the fiscal balance arises due
to the concessional nature of the loan. Thus, to the extent that
loans made under this Bill are concessional, there will be an
impact on the fiscal balance. If the non-repayment of the loan were
to occur, the underlying cash balance and the fiscal balance could
both be impacted, depending upon the circumstances in which the
This Bill is being put forth because of a specific commitment
made by the Prime Minister on 10 December 2008 to provide a standby
loan facility to Indonesia. However, the Bill establishes a
standing appropriation that would allow the Treasurer to commit to
making loans to countries that have received pledges of financial
assistance from any of the five World Bank Group organisations, the
ADB or other governments. This would be subject to the requirement
in section 8D of the IMA Act for the public release and tabling in
each House of Parliament of a national interest statement,
outlining the nature and detail of such an agreement and explaining
why the agreement is in Australia s national interest (with
particular regard to foreign policy, trade and economic interests).
The overall framework embodied in this Bill closely replicates that
built into the IMA Act in support of International Monetary Fund
programs in 1998.
It is unclear why the Government has chosen to include the three
associate organisations (IFC, MIGA and ICSID) that are part of the
World Bank Group, but are not part of the World Bank. It is the two
World Bank organisations (the IBRD and the IDA) that facilitate
international financial cooperation between governments of
developed and less-developed countries, whereas the associate
organisations are geared towards increasing private sector
involvement in development and poverty reduction activities (IFC
and MIGA) as well as voluntary settlement of international disputes
(ICSID). Thus the relevance of these organisations to the
intentions of Government in putting forth this Bill is not
Schedule 1 to the Bill contains 5 items.
Item 1 amends the title of the IMA Act to
include Australia s support of the World Bank organisations and the
ADB and their programs as one of the purposes of the Act.
Item 2 inserts a definition of the Asian
Development Bank into subsection 3(1) of the IMA Act, while
item 3 inserts definitions of the five World Bank
organisations (the IBRD, the IDA, the IFC, the MIGA and the ICSID)
in the same provision.
Item 4 inserts proposed section
8CA after section 8C. Proposed subsection
8CA(1) sets out the requirements for Australia s
involvement in providing assistance to another country.
Specifically, it provides that the Minister may enter into an
agreement for Australia to lend money or participate in a currency
swap arrangement with another country if he or she is satisfied
that at least one other government or organisation has provided, or
intends to provide, financial assistance to the recipient country
in response to the same or a similar program of the relevant World
Bank organisation or the ADB: proposed paragraph 8CA(1)(b).
Proposed subsection 8CA(2) eliminates the
possibility of any doubling up of assistance due to the involvement
of a second or subsequent World Bank organisation in support of an
existing World Bank organisation program. Proposed
subsection 8CA(3) provides for Australia to be able to
require early repayment in the event of suspension or premature
termination of the relevant program of assistance. Proposed
subsection 8CA(4) provides for a standing appropriation
from the Consolidated Revenue Fund. Proposed subsection
8CA(5) absolves transactions in relation to any assistance
provided by the Commonwealth from any Commonwealth, State or
Territory taxation liability.
Item 5 inserts a reference to proposed section
8CA in subsection 8D(1).
This Bill has been introduced in a specific context, namely to
provide immediate assistance to the Indonesian Government as
outlined by the Prime Minister on 10 December 2008 and also in a
more general context by establishing a standing appropriation to
provide future assistance to countries that are in receipt of, or
have been pledged, assistance from one of the World Bank Group
organisations, the ADB or another country, as part of a World Bank
or ADB program. As previously mentioned, the inclusion of World
Bank associate organisations in the Bill, such as the IFC, the MIGA
and the ICSID are curious as these organisations, whilst having
development‑related activities as part of their core
functions, are more geared towards facilitating private sector
involvement in development activities and international dispute
Members, Senators and Parliamentary staff can obtain further
information from the Parliamentary Library on (02) 6277
12 June 2009
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