Bills Digest no. 104 2012–13
PDF version [583KB]
WARNING: 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 consulted to determine the subsequent official status of the Bill.
30 April 2013
Purpose of the Bill
Statement of Compatibility with Human Rights
Key issues and provisions
Date introduced: 14 March 2013
House: House of Representatives
Commencement: On the day after Royal Assent
Links: The links to the Bill, its Explanatory Memorandum and second reading speech can be found on the Bill's home page, or through http://www.aph.gov.au/Parliamentary_Business/Bills_Legislation. When Bills have been passed and have received Royal Assent, they become Acts, which can be found at the ComLaw website at http://www.comlaw.gov.au/.
The purpose of the International Monetary Agreements Amendment Bill 2013 (the Bill) is to amend 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 a bilateral loan agreement entered into by Australia and the IMF on 13 October 2012 and
- correct a technical issue with the existing Act by providing greater flexibility in how Australia can make payments to the IMF in order to meet its quota obligations.
The IMF, conceived at the Bretton Woods conference in July 1944, is a multilateral organisation whose primary role is to ensure the stability of the international monetary system. As set out in Article 1 of its Articles of Agreement, the IMF’s mandate is to promote international monetary cooperation; facilitate the expansion and balanced growth of international trade; promote exchange rate stability; assist in the establishment of a multilateral system of payments and the elimination of foreign exchange restrictions; ensure confidence by making the general resources of the Fund temporarily available to members; and lessen the duration and severity of balance of payments imbalances of members.
The creation of the IMF reflected the view that global cooperation is needed to ensure economic stability, just as the establishment of the United Nations was founded on the belief that global collective action is needed for political stability. At the time, the lack of an institutional framework for overseeing the international monetary system was seen as having contributed to the instability of the 1920s and 1930s and the types of self-defeating policies this had encouraged such as competitive devaluations and protectionist trade policies.
Since its creation, the membership of the IMF has grown from 29 countries in December 1945 to 188 countries today. Australia joined the IMF in August 1947.
The IMF supports its members by providing:
- policy advice to governments and central banks based on analysis of economic trends and cross‑country experiences
- research, statistics, forecasts, and analysis based on tracking global, regional, and individual economies and markets
- loans to help countries overcome economic difficulties
- concessional loans to help fight poverty in developing countries and
- technical assistance and training to help countries improve the management of their economies.
Since the international debt crisis in 1982, the IMF has played a more active role in trying to coordinate the resolution of financial crises. This has included being at the forefront of efforts to coordinate temporary official financing, reform policies in the affected countries and attempts to restore confidence and commitment on the part of creditors and investors. For example, in response to the global financial crisis and subsequent Euro area sovereign debt crisis the IMF has been working closely with European institutions, such as the European Commission and European Central Bank to ensure financial stability and help adversely affected countries grow their economies and create much needed jobs.
However, it is important to acknowledge that the IMF is a controversial organisation, which at times has attracted strong criticism. That said, the validity of the criticism levelled at the IMF is itself keenly contested.  Most recently, the IMF has been criticised for not doing enough to prevent the global financial crisis and for advocating austerity measures in Europe, which its own research now seems to suggest underestimated the size of the contractionary effect of such measures in the current environment.
For its part, the IMF has begun to put in place a number of significant reforms, including to:
- increase the scope and flexibility of the Fund’s financing instruments to make them better suited to countries’ individual needs and
- reform governance arrangements to give dynamic emerging and developing economies more say in decision making, while preserving the voice of low-income members.
IMF lending is financed through country quotas supplemented by borrowing arrangements. On joining the IMF, a country is required to pay a quota subscription, with the size of its quota determined by a formula that takes into account factors such as the country’s relative size in the world economy, openness to the global economy and vulnerability to balance of payments shocks. Quotas are reviewed at least once every five years. The IMF also has two longstanding multilateral borrowing arrangements – the New Arrangements to Borrow (NAB) and the General Arrangements to Borrow (GAB) – which can be activated if the IMF believes its quota resources might fall short of the needs of its member countries.
The onset of the global financial crisis in 2008 quickly led to an upswing in demand for IMF lending that was large by historical standards. In the early days of the crisis the IMF completed a review of the adequacy of and options for supplementing Fund resources. The review argued that further demand for Fund lending would put a severe strain on the IMF’s liquidity and called for a substantial increase in financial resources in order to ensure the IMF had the capacity to fulfil its mandate.
The G-20 leaders agreed to substantially boost the IMF’s lending capacity when they met in London in April 2009. This was primarily achieved by tripling the size of the NAB from US$250 million to US$750 million. As part of this international response, Australia increased the line of credit it had made available under the NAB since 1998 to US$7 billion. The expanded NAB became effective in March 2011.
In December 2010, the IMF’s Board of Governors approved a package of reforms of the Fund’s quotas. The reforms included doubling quotas from around SDR [Special Drawing Rights] 238.5 billion to approximately SDR 477 billion (or about US$715 billion). Further, it was agreed there should be a corresponding roll back of the NAB, resulting in a shift in the composition of the Fund’s lending resources from the NAB to quotas, while not reducing the IMF’s lending capacity. These reforms are still being progressed.
During the IMF’s Spring Meetings in April 2012, in response to an IMF request for additional resources, members committed to further substantially increase the IMF’s lending capacity through bilateral loans or note purchase agreements. This is a significant commitment on the part of the international community to ensuring there is an effective global safety net available in relation to the international monetary system. The G-20 reaffirmed this commitment when they met in Los Cabos in June 2012. At that time, IMF members’ commitments under this new initiative exceeded US$450 billion. These resources are in addition to the quota increase under the 2010 reforms and will be available for the whole IMF membership and not earmarked for any particular region.
A broad cross section of countries have made commitments of additional resources under this new initiative including Euro area members, Japan, the Republic of Korea, Saudi Arabia, Norway, Switzerland, Poland, China, Russia, Brazil, India, Indonesia, Malaysia and Thailand.
The commitment of additional financial resources through bilateral loans or note purchase agreements effectively provides the IMF with a ‘second line of defence’ in the event that a substantial amount of the resources available under the quota and NAB are used.
At the IMF’s Spring Meeting in 2012 Australia committed US$7 billion as part of the international effort to augment the IMF’s lending capacity. This commitment was formalised on 13 October 2012 when Australian and the IMF entered into a bilateral loan agreement. This is the first such arrangement between Australia and the IMF. The resources made available to the IMF under this agreement are in addition to Australia’s commitment through the quota system and NAB.
The key points to note in relation to the loan agreement include:
- the loan agreement provides for Australia to lend to the IMF up to the equivalent of SDR 4.61 billion (around A$6.8 billion)
- this is a temporary agreement with a term of two years. However, the agreement may be extended for an additional year by the IMF notifying Australia of an extension and by a further one year with Australia’s consent
- the financial resources made available to the IMF under this agreement will not be drawn upon unless it is clear the IMF’s lending commitments will exceed available quota and NAB resources
- Treasury has stated that the likelihood of this additional funding being drawn upon is not very high
- any drawings by the IMF would be repayable in full and with interest. The drawings would be backed by the IMF’s full balance sheet and the Fund has always repaid its members in full and with interest and
- the terms of the agreement allow Australia to terminate the agreement in the event Australia’s balance of payments and reserve position does not justify further drawings. Australia can also obtain early repayment of all or a portion of the drawings outstanding under the agreement if there was a need for early repayment in light of Australia’s balance of payments and reserve position.
The Reserve Bank of Australia recently published an article providing a detailed analysis of Australia’s financial relationship with the IMF.
A summary of Australia’s current financial position with the IMF is available from the IMF’s website.
At its meeting of 14 March 2013, the Senate Selection of Bills Committee resolved not to refer this Bill for inquiry and report.
Similarly, the House of Representatives Selection Committee has not referred this Bill for inquiry and report.
Although the Bill has not been referred to a committee, the Joint Standing Committee on Treaties (JSCOT) has considered and reported on the loan agreement between Australia and the IMF. JSCOT supports the loan agreement and has recommended that binding treaty action be taken.
In considering the case for Australia to enter into the loan agreement with the IMF, JSCOT noted that as a small open economy, Australia benefits from an effective IMF that has the resources needed to fulfil its mandate. Moreover, given the global financial crisis and ongoing crisis in the Euro area, the committee considers it is important that the IMF is adequately resourced.
The Committee acknowledges the risks currently facing the global economy. The sovereign debt issues in the Euro zone and in the United States are well known. The economies of China and other major emerging economies have slowed, and the geopolitical tensions in the Middle East are all contributing to uncertainty in the global economy.
Providing more resources to one of the key institutions capable of responding effectively should the global economy deteriorate further is both logical and practical. In that context, the Committee supports the agreement and recommends that binding treaty action be taken.
In reaching this view the Committee took into account the IMF’s past failings and the reforms the IMF is currently pursuing in relation to its structure, programs and activities. In a supplementary submission, Treasury provided the Committee with a concise summary of the reforms the IMF currently has in train and their expected timeframe. In its report, the Committee has asked Treasury to monitor the effectiveness and implementation of these reforms and provide it with regular feedback.
Any drawing by the IMF on the funds made available under the loan agreement would have no direct impact on either the Australian Government’s underlying cash balance or fiscal balance. However, loans to the IMF under this arrangement would add to the borrowing requirement. As the report by JSCOT explains:
The loans would have no direct impact on the Australian Government’s underlying cash balance or fiscal balance because, under the accounting standards used by the Australian Government, the Australian Accounting Standard 31: Financial Reporting by Government issued by the Australian Accounting Standards Board, loans are classified as assets. In other words, if the IMF draws on the funds, the funds remain on the assets side of the balance sheet as a loan and consequently will have no effect on net debt.
Until any drawings by the IMF have been repaid, they will have an impact on Australia’s borrowing requirements as those funds will not be available to the Australian Government to meet its financial obligations. If a loan drawn by the IMF under this Agreement results in a deficit of funds available to the Australian Government, the shortfall will have to be borrowed.
JSCOT’s report notes that if a loan drawn by the IMF under this agreement resulted in the Australian Government needing to borrow; it is possible the amount of interest paid by the government on any Australian Government Securities sold as a result could exceed the amount of interest paid by the IMF on their borrowings from Australia. This would depend on how the two interest rates compare at the time.
A special appropriation is a provision within an Act that provides authority to spend money for particular purposes. This Bill establishes a standing appropriation within the IMA Act for the purpose of meeting drawings made under a bilateral loan agreement between Australia and the IMF entered into on 13 October 2012.
As required under Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011 (Cth), the Government has assessed the Bill’s compatibility with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of that Act. The Government considers that the Bill is compatible.
The Parliamentary Joint Committee on Human Rights has reported that this Bill does not give rise to issues of incompatibility with human rights.
As noted above, this Bill amends the IMA Act to provide a standing appropriation and authority to borrow for payments to meet drawings made by the IMF under a bilateral loan agreement entered into by Australia and the IMF on 13 October 2012. The Bill also corrects a technical issue with the existing Act by providing greater flexibility in how Australia can make payments to meet its quota obligations, including using a foreign currency or if acceptable to the IMF, Australian currency.
Under the loan agreement the IMF can borrow up to the equivalent of SDR 4.61 billion (around A$6.8 billion). However, there is no information provided in either the Explanatory Memorandum or JSCOT’s report as to why this is considered the appropriate amount for Australia to make available to the IMF under this arrangement.
Item 1 inserts a definition of ‘IMF loan agreement 2012’ into section 3 of the IMA Act to mean the loan agreement entered into by Australia and the IMF in Tokyo on 13 October 2012 or as amended and notified by the Treasurer by legislative instrument and subject to the provisions of the proposed section 8CAA.
Item 7 inserts proposed section 8CAA which creates the standing appropriation within the IMA Act for purpose of meeting Australia’s obligations under the IMF loan agreement 2012.
- proposed subsection 8CAA(1) requires that the Treasurer must be satisfied an amount should be paid out of the Consolidated Revenue Fund to meet Australia’s obligations under the IMF loan agreement 2012 before directing the payment to be made. The Explanatory Memorandum states this is identical to the existing process for making payments to the IMF under the NAB
- proposed subsection 8CAA(3) specifies that the appropriation remains in place if the Treasurer amends the loan agreement, except where this amendment is in relation to either, or both of, the maximum amount of the loan to the IMF or to the term of the agreement. Subject to this restriction, the Treasurer can amend the loan agreement by tabling a legislative instrument to give notice of this intention. This approach avoids the need for legislative change for relatively minor amendments to the loan agreement but preserves parliamentary scrutiny of these amendments through the tabling of a legislative instrument which is disallowable
- proposed subsection 8CAA(4) specifies when a legislative instrument notifying an amendment to the loan agreement comes into force. Amendments to the loan agreement will only come into effect when Australia’s parliamentary processes are completed (including the period of time within which Parliament may disallow the legislative instrument) and
- proposed subsection 8CAA(5) specifies that any legislative instrument made notifying of an amendment will be repealed the day after the loan agreement expires.
Item 3 amends existing subsection 6(1) to clarify that the Treasurer has the authority to borrow if necessary to meet Australia’s obligations under the IMF loan agreement 2012. This is consistent with the existing provision that authorises the Treasurer to borrow in relation to Australia’s membership of the IMF and to meet obligations under the NAB.
Under the IMA Act the Consolidated Revenue Fund can be appropriated to make payments to the IMF for changes in Australia’s quota made by way of SDRs (section 5A of the IMA Act) and/or securities (section 7 of the IMA Act). This prevents the Commonwealth from making payments to the IMF for changes in Australia’s quota using a foreign currency or, if acceptable to the IMF, Australian currency.
Items 5 and 6 amend the IMA Act to remove this limitation by inserting proposed paragraph 8(a), which references section 3 of the IMF’s Articles of Agreement. This change provides flexibility in the way the Commonwealth can pay for a change in Australia’s quota.
Item 2 corrects the reference to the Commonwealth Inscribed Stock Act 1911 in subsection 6(1).
Item 4 repeals subsection 6(3) because the National Debt Sinking Fund Act 1923 was repealed in 1994.
Members, Senators and Parliamentary staff can obtain further information from the Parliamentary Library on (02) 6277 2500.
. The international monetary system is the system of exchange rates and international payments that enables countries (and their citizens) to transact with one another.
. J Stiglitz, Globalization and its discontents, Allen Lane, The Penguin Press, London, 2002, p. 12.
. Boughton, The IMF and the force of history: ten events and ten ideas that have shaped the institution, op. cit., p. 12.
. J Stiglitz, Globalization and its discontents, op. cit.
J Stiglitz, ‘Capital market liberalization, globalization, and the IMF’, Oxford Review of Economic Policy, vol. 20, no. 1, 2004; Y Akyuz, Reforming the IMF: back to the drawing board, G-24 discussion paper series, no. 38, United Nations, November 2005, viewed 16 April 2013, http://www.un.org/esa/ffd/events/2010GAWGFC/6/UNCTADG24.pdf and R Frenkel, Current problems with the IMF and challenges ahead – a Latin American perspective, FES briefing paper, no. 16, FES Berlin, December 2007, viewed 16 April 2013, http://library.fes.de/pdf-files/iez/global/05126.pdf
. K Rogoff, An open letter, IMF website, 2 July 2002, viewed 17 April 2013, http://www.imf.org/external/np/vc/2002/070202.htm; R Rato, ‘A new role for the IMF in the aftermath of the crisis’, European View, vol. 10, 2011, pp. 87–94 and R Wilczynski, ‘Global financial governance: a perspective from the International Monetary Fund’, Contemporary Economics, vol. 5, issue 1, 2011, pp. 4–16.
. IMF, ‘What we do’, op. cit.
. The SDR is an international reserve asset, created by the IMF in 1969 to supplement its member countries' official reserves. Its value is based on a basket of four key international currencies (the euro, Japanese yen, pound sterling, and US dollar), and SDRs can be exchanged for freely usable currencies.
. IMF, Annual report 2012, op. cit., p. 51.
. IMF, Annual report 2012, op. cit., p. 52.
. International Monetary Fund, Statement by IMF managing director Christine Lagarde on pledges by Australia, Korea, Singapore and the United Kingdom to increase IMF resources by US$41 billion, media release, no. 12/146,
20 April 2012, viewed 15 April 2013, http://www.imf.org/external/np/sec/pr/2012/pr12146.htm
. J Rahman (Manager, International Monetary System Unit, International Finance and Development Division, Macroeconomic Group, Department of the Treasury), Committee Hansard, Joint Standing Committee on Treaties, 26 November 2013, p. 12, viewed 15 April 2013,
. E Poole, ‘Australia’s financial relationship with the International Monetary Fund’, op. cit.
. Joint Standing Committee on Treaties, Report 132: treaties tabled on 18 September and 30 October 2012, op. cit.
. Joint Standing Committee on Treaties, Report 132: treaties tabled on 18 September and 30 October 2012, op. cit., p. 28.
. Joint Standing Committee on Treaties, Report 132: treaties tabled on 18 September and 30 October 2012, op. cit., p. 28.
. Explanatory Memorandum, International Monetary Agreements Amendment Bill 2013, op. cit., pp. 3–4.
. Joint Standing Committee on Treaties, Report 132: treaties tabled on 18 September and 30 October 2012, op. cit., p. 24.
. Joint Standing Committee on Treaties, Report 132: treaties tabled on 18 September and 30 October 2012, op. cit., pp. 24–25.
. Standing appropriations are a sub-category of special appropriations consisting of ongoing special
appropriations – the amount appropriated will depend on circumstances specified in the legislation.
. The Statement of Compatibility with Human Rights can be found at page 9 of the Explanatory Memorandum to the Bill, op. cit.
. Explanatory Memorandum, International Monetary Agreements Amendment Bill 2013, op. cit., pp. 3–4.
For copyright reasons some linked items are only available to members of Parliament.
© Commonwealth of Australia
With the exception of the Commonwealth Coat of Arms, and to the extent that copyright subsists in a third party, this publication, its logo and front page design are licensed under a Creative Commons Attribution-NonCommercial-NoDerivs 3.0 Australia licence.
In essence, you are free to copy and communicate this work in its current form for all non-commercial purposes, as long as you attribute the work to the author and abide by the other licence terms. The work cannot be adapted or modified in any way. Content from this publication should be attributed in the following way: Author(s), Title of publication, Series Name and No, Publisher, Date.
To the extent that copyright subsists in third party quotes it remains with the original owner and permission may be required to reuse the material.
Inquiries regarding the licence and any use of the publication are welcome to firstname.lastname@example.org.
Disclaimer: Bills Digests are prepared to support the work of the Australian Parliament. They are produced under time and resource constraints and aim to be available in time for debate in the Chambers. The views expressed in Bills Digests do not reflect an official position of the Australian Parliamentary Library, nor do they constitute professional legal opinion. Bills Digests reflect the relevant legislation as introduced and do not canvass subsequent amendments or developments. Other sources should be consulted to determine the official status of the Bill.
Feedback is welcome and may be provided to: email@example.com. Any concerns or complaints should be directed to the Parliamentary Librarian. Parliamentary Library staff are available to discuss the contents of publications with Senators and Members and their staff. To access this service, clients may contact the author or the Library‘s Central Entry Point for referral.