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2008-2009-2010
THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA
HOUSE OF REPRESENTATIVES
INTERNATIONAL MONETARY AGREEMENTS AMENDMENT BILL (No. 1) 2010
EXPLANATORY MEMORANDUM
(Circulated by the authority of the
Treasurer, the Hon Wayne Swan MP)
Table of contents
General outline 1
Notes on individual clauses 3
General outline
International Monetary Agreements Amendment Bill 2010
The purpose of this Bill is to amend the International Monetary
Agreements (IMA) Act 1947 to allow the Commonwealth of Australia to
make loans to the International Monetary Fund (IMF) in the event of
calls under the amended New Arrangements to Borrow (NAB).
The NAB is a voluntary set of credit arrangements between the IMF
and a number of its members. It allows the IMF to borrow when
supplementary resources are needed to forestall or cope with an
impairment of the international monetary system. Australia has
been a participant of the NAB since it came into effect in 1998.
The turbulence in the global economy and financial markets in
recent years has seen the IMF provide substantial support at short
notice to countries with balance of payments needs. This IMF
support was financed, in part, by ad hoc and temporary loans from a
small number of its members.
To improve the adequacy of the IMF's financial resources in the
face of any similar future crisis, the NAB will be amended to
expand its size and make it more flexible. The total size of
credit arrangements under the NAB will increase and, as part of
this expansion, the IMF's existing line of credit from Australia
under the NAB will increase.
The NAB will also become more flexible in a number of ways to make
it an effective crisis management tool. Among these changes, the
predictability of the IMF's access to the credit arrangements
during crisis periods will be increased. Strong governance
structures will be retained, requiring the agreement of a large
majority of participants before the NAB can be activated. The
IMF's staff has prepared a paper that explains the changes to the
NAB that were adopted by the IMF Executive Board on 12 April
2010.[1]
Any loan to the IMF under the NAB will be paid out of the
Consolidated Revenue Fund once the Treasurer is satisfied that an
amount should be paid out to enable Australia to carry out its
obligations under the NAB decision, as was previously the case.
Date of effect: The Bill will apply from the later of: (1) the date
it receives the Royal Assent; or (2) the day the amendments to the
NAB adopted by the IMF Executive Board on 12 April 2010 become
effective.
The amendments to the NAB will become effective when existing
participants representing 85 percent of total credit arrangements
have concurred to the amendments adopted by the IMF Executive
Board, including each participant whose credit arrangement is
changed.
Proposal announced: G20 Leaders, in their Global Plan for Recovery
and Reform of 2 April 2009, agreed to an expanded and more flexible
NAB with credit arrangements increased by up to US$500 billion.
In line with these commitments, the Treasurer, in his press release
of 12 May 2009, announced that Australia will join with other
countries to ensure that the IMF has resources available to
maintain stability and support recovery in the global economy and
that Australia's contribution will be by way of an increase to US$7
billion of the IMF's existing credit line from Australia under the
NAB.
On 12 April 2010, the IMF Executive Board adopted a decision to
modify the NAB to expand its size and increase its flexibility.
Financial impact: The Bill will have no direct impact on either
the underlying cash balance or the fiscal balance.
The amendments to the NAB will increase the IMF's existing credit
line from Australia denominated in Special Drawing Rights (SDR) to
SDR4,370.41 million (valued at US$7 billion on 24 November 2009,
the date on which countries' contributions were agreed) from
SDR801.29 million.
The value of this expanded credit line in Australian dollars will
vary over time depending upon prevailing exchange rates. At 28 May
2010 its value was around A$7.5 billion.
In the event of the IMF drawing on this credit line, the loan would
be repaid to Australia in full, with interest, within five years.
Any loans to the IMF would represent monetary assets and the
associated transactions would be classified as financing
transactions.
Regulation: No compliance costs are expected to result from entry
into force of this Bill.
Notes on individual clauses
International Monetary Agreements Amendment Bill 2010
Clause 1 - Short title
1. This clause provides the short title by which the Act may be cited.
Clause 2 - Commencement
2. This clause provides that the proposed amendments will apply from
the later of: (1) the day the Bill receives the Royal Assent; or
(2) the day the amendments to the New Arrangements to Borrow
adopted by the IMF Executive Board on 12 April 2010 become
effective.
3. The amendments to the New Arrangements to Borrow will become
effective when existing participants representing 85 per cent of
total credit arrangements have concurred to the amendments adopted
by the IMF Executive Board, including each participant whose credit
arrangement is changed. The existing New Arrangements to Borrow
will remain in force until that date.
4. This clause provides that amendments to the International Monetary
Agreements Act 1947 will not apply prior to the amendments to the
New Arrangements to Borrow becoming effective. This ensures that
the Commonwealth of Australia will continue to be able to meet any
obligations arising under the existing New Arrangements to Borrow
during that period.
Clause 3 - Schedule(s)
5. This clause provides for amendments to the International Monetary
Agreements Act 1947 as specified in the Schedule.
Schedule 1 - Amendments
Item 1 - Subsection 3(1) (definition of New Arrangements to Borrow)
6. This item modifies the current definition of the New Arrangements
to Borrow in the International Monetary Agreements Act 1947 to
reflect the amendments adopted by the IMF Executive Board on 12
April 2010, including its terms and conditions and the size of the
IMF's line of credit from Australia.
Item 2 - Subsection 6(1)(b)
7. This item omits text made inoperative by the provision in Clause 2
that the proposed amendments to the International Monetary
Agreements Act 1947 will not apply until the amendments to the New
Arrangements to Borrow adopted by the IMF Executive Board on
12 April 2010 become effective.
Item 3 - Subsection 8B(1)
8. This item omits text made inoperative by the provision in Clause 2
that the proposed amendments to the International Monetary
Agreements Act 1947 will not apply until the amendments to the New
Arrangements to Borrow adopted by the IMF Executive Board on
12 April 2010 become effective.
Item 4 - Subsection 8B(1)
9. This item omits 'that decision' and substitutes 'the New
Arrangements to Borrow' to resolve any ambiguity about the meaning
of 'that decision' that may have resulted from Item 3.
Item 5 -Schedule 4 to the Act
10. This item repeals the current Schedule 4 to the International
Monetary Agreements Act 1947, which reproduces the terms and
conditions of the New Arrangements to Borrow as adopted by the IMF
Executive Board on 27 January 1997. It substitutes a new schedule,
which reproduces the terms and conditions of the amended New
Arrangements to Borrow as adopted by the IMF Executive Board on
12 April 2010.
11. Note that the sizes of the current credit arrangements that appear
in the table within Item 5 differ from those that appear in the
table within the current Schedule 4 to the International Monetary
Agreements Act 1947 because the latter are outdated. On 12
November 2002, the IMF Executive Board approved Chile's
participation in the New Arrangements to Borrow. The total amount
of resources available under the New Arrangements to Borrow
remained unchanged following Chile's participation, with a credit
arrangement of SDR340 million, but other participants reduced the
amount of their credit arrangements.
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[1] International Monetary Fund, Proposed Decision to Modify the New
Arrangements to Borrow, Washington D.C., 25 March 2010, .