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2010
THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA
HOUSE OF REPRESENTATIVES
INTERNATIONAL FINANCIAL INSTITUTIONS LEGISLATION AMENDMENT
BILL 2010
EXPLANATORY MEMORANDUM
(Circulated by the authority of the Assistant Treasurer and Minister for Financial
Services and Superannuation, the Hon Bill Shorten MP)
Table of contents
General outline ........................................................................................ 1
General outline
International Financial Institutions Legislation Amendment
Bill 2010
The purpose of this Bill is to amend the International Monetary
Agreements Act 1947 to authorise the subscription by Australia to
additional shares in the capital stock at the International Bank for
Reconstruction and Development (IBRD). The purpose of the Bill is also
to amend the International Finance Corporation (IFC) Act 1955 to allow
Australia to adopt a proposed amendment to the Articles of Agreement of
the International Finance Corporation (IFC) and to amend the Multilateral
Investment Guarantee Agency (MIGA) Act 1997 to adopt four
amendments to the MIGA Convention which have been recently adopted
by the MIGA Council of Governors.
The proposed Bill will allow the subscription by Australia for additional
shares in the capital stock of the IBRD. Australia's subscription to the
capital increase will enable the IBRD to provide the lending levels
necessary to assist developing countries in their post-crisis recovery whilst
maintaining appropriate prudential standards.
The proposed amendment to the Articles of Agreement of the IFC aims to
improve the voice and participation of developing and transition
economies in the World Bank by increasing their basic votes,
implementing the G20 commitment. This will increase the effectiveness
and legitimacy of the World Bank as the leading global development
institution and enhance the influence that developing and transition
countries have over governance, policies and decision making in the
World Bank. The proposed voice reform also allows shareholders to
achieve voting power adjustments in both the IBRD and the IFC, taking
into account different levels of shareholder interest in and support for the
different institutions.
The four amendments to the MIGA Convention recently adopted by
MIGA's Council of Governors will modernise MIGA's mandate and
expand the Agency's scope, allowing a greater range of projects to be
eligible for MIGA coverage. The amendments will permit the Agency to:
provide coverage for stand-alone debt; broaden the process for investor
registration; broaden the scope for coverage for existing assets; and
eliminate the requirement of a joint application by the investor and the
host country to authorise coverage for specific additional non-commercial
risks. The amendments do not alter the Agency's core mandate but are
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International Monetary Agreements Legislation Amendment Bill 2010
aimed at reducing transaction costs and enabling MIGA to insure political
risk for projects based on actuarial qualities rather than excluding projects
with particular financing structures.
The Treasurer, as Australia's Governor of the International Monetary
Fund (IMF) and World Bank, is required to vote on any proposed changes
to the Articles of Agreement of either institution. The Treasurer voted to
support each of these amendments.
Australia's current obligations to the IFC and MIGA are outlined in the
IFC Act 1955 and MIGA Act 1997. The Articles of Agreement of the IFC
and the MIGA Convention form schedules to the relevant Acts and it is
important to amend the relevant Acts to update these schedules for these
amendments.
Any amendment to either institution constitutes a variation in Australia's
treaty obligations and, as such, any amendments to the treaties will require
tabling in Parliament and consideration by the Joint Standing Committee
on Treaties.
Timely passage of the legislation is necessary for Australia to meet the
G20 Pittsburgh and Toronto Summit commitments of ensuring that
international financial institutions have appropriate capital for their
resourcing needs, ensuring developing countries increase their voting
power and modernising the World Bank. It is important that Australia
demonstrates its commitment to the G20 agenda by ensuring prompt
implementation of these reforms.
Date of effect: The amendments in this Bill will apply from the date it
receives Royal Assent, or in the case of the amendments to the
IFC Act 1955, the later of the date of Royal Assent or the day the
amendments of the IFC Articles of Agreement come into force for
Australia, or in the case of the amendments to the MIGA Act 1997, the
later of the date of Royal Assent or the day the amendment of the MIGA
Convention comes into force for Australia.
Proposal announced: On 25 April 2010, the World Bank's Development
Committee agreed at the 2010 International Monetary Fund and
World Bank Spring Meetings to a number of reforms to increase the
voting power of developing and transition countries, including a selective
and a general capital increase for the IBRD, and an increase in basic votes
and a selective capital increase at the IFC. By 31 March 2011, the Board
of Governors of the World Bank will vote on resolutions to implement
these reforms.
The Treasurer, as Australia's Governor of the World Bank, has voted to
support these proposed resolutions.
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General outline and financial impact
The proposed IBRD Resolutions require acceptance by three-fourths of
the IBRD Governors exercising not less than two-thirds of total voting
power before they can enter into force for all members, including
Australia.
The proposed IFC amendments require acceptance by three-fifths of the
IFC's Governors exercising 85 per cent of total voting power before they
can enter into force for all members, including Australia.
The Treasurer, as Australia's Governor of the World Bank, recently voted
in favour of proposed amendments to the MIGA Convention.
The proposed MIGA amendments require that not less than 60 per cent of
the total membership and 80 per cent or more of the total voting power of
MIGA have accepted the amendments before they can enter into force for
all members, including Australia.
Amendments to either IFC's Articles of Agreement or MIGA's
Convention enter into force for all members, whether or not they have
accepted the amendments, following the formal certification by the
World Bank that the amendments have been accepted. As members of
these institutions, our obligations are set out in the Articles of Agreement
of the IFC and the MIGA Convention. Domestic implementation of the
Articles or Convention should be consistent with these agreements.
Financial impact: The IBRD Articles of Agreement provide that each
share in the Bank has a par value of US$100,000 in terms of the weight
and fineness in effect on July 1, 1944. The resolution `Enhancing Voice
and Participation of the Developing and Transition Countries and 2010
General Capital Increase' provides that, in accordance with Executive
Director's decision of October 14, 1986, this would be valued in terms of
the 1974 SDR, that is, on the basis of US$1.20635 per 1944 gold dollar
(US$120,635 per share). This Bill provides that Australia will purchase
6 per cent of an additional 7,128 shares at the price of US$120,635 per
share, representing a total cost of US$51.6 million. This amount is
payable over a five year period. The remaining 94 per cent of additional
shares, valued at around US$808.3 million, will remain uncalled, unless
the Bank is unable to meet its financial obligations. Founded in 1944, the
IBRD has never drawn on its uncalled capital subscriptions.
Australia's contribution towards the selective and general capital increases
at the IBRD appeared as a capital measure in the 2010-11 Budget and
does not impact the underlying cash or fiscal balance. The increase in
Australia's uncalled capital subscription appeared in the Statement of
Risks as a contingent liability.
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International Monetary Agreements Legislation Amendment Bill 2010
Regulation: No compliance costs are expected to result from entry into
force of this Bill.
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General outline and financial impact
Notes on individual clauses
Clause 1 -- Short title
1.1 This clause provides the short title by which the Act may be
cited.
Clause 2 -- Commencement
1.2 This clause provides that the proposed amendments will
commence on the day after this Act receives the Royal Assent or the day
the amendments to the IFC Articles of Agreement and/or the MIGA
Convention come into force -- if they do -- whichever is the later.
Clause 3 -- Schedule(s)
1.3 This clause makes it clear that each Act specified in a Schedule
to this Act is amended or repealed as set out in the applicable items in the
Schedule concerned, and any other item in a Schedule to this Act has
effect according to its terms.
Schedule 1 -- Extra shares in International Bank for Reconstruction and
Development
Item 1
1.4 This item inserts a new sentence into the International Monetary
Agreements Act 1947, allowing appropriation for Australia to buy a
specified additional number of extra shares in the IBRD.
Schedule 2 -- Changes to international agreements
Item 1
1.5 This item repeals the definition of the IFC Agreement and
substitutes it with the Articles of Agreement of the IFC set out in the First
Schedule to this Act, as amended in accordance with the resolution in the
Second and Third Schedules to this Act and the resolutions the preamble
to which and Part (A) of which are set out in Schedule 4 to this Act.
Item 2
1.6 This item inserts the resolution recommended by the IFC Board
of Directors on 20 July 2010 as Schedule 4 to the IFC Act 1955.
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International Monetary Agreements Legislation Amendment Bill 2010
Item 3
1.7 This item adds to the definition of Convention, that it is
amended by the resolution of the Council of Governors of the Agency, a
copy of which is set out in Schedule 2.
Item 4
1.8 This item inserts the Resolution adopted by the Council of
Governors on 30 July 2010 as Schedule 2 of the MIGA Act 1997.
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