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Australia and the International Financial Institutions

Programme 1.2 of the Treasury Annual Report outlines various payments made by Treasury to the Asian Development Bank, the European Bank for Reconstruction and Development, the World Bank Group and the International Monetary Fund (IMF). This appendix addresses the legislation that requires further reporting on the World Bank Group and the IMF for the 2013-14 financial year, in particular:

  • Section 10 of the International Monetary Agreements Act 1947, which provides for a report on the operations of the Act and of the operations, insofar as they relate to Australia, of the Articles of Agreement of the IMF and the International Bank for Reconstruction and Development (IBRD) during each financial year; and
  • Section 7 of the International Bank for Reconstruction and Development (General Capital Increase) Act 1989 which provides for a report on the operations of the Act during each financial year.

Treasury is responsible for managing the Australian Government’s shareholdings with the International Financial Institutions (IFIs). However, the Department of Foreign Affairs and Trade has further interactions relating to the Government’s aid programme — please see their annual report for further information.

Similarly, the IMF and the World Bank Group (comprising the IBRD, the International Development Association (IDA), the International Finance Corporation (IFC), the Multilateral Investment Guarantee Agency (MIGA) and the International Centre for Settlement of Investment Disputes (ICSID)) publish annual reports that provide comprehensive reviews of the operations of these institutions. The IMF and World Bank Group also make information available on their websites: www.imf.org and www.worldbank.org.

Australia and the International Monetary Fund

Mandate

The IMF’s purpose (set out in Article I of its Articles of Agreement) is to: promote international monetary cooperation; facilitate the expansion of trade contributing to employment growth; promote exchange rate stability to avoid competitive devaluation; assist in the establishment of a multilateral system of payments; and make resources available to members to reduce the costs of balance of payments adjustments.

Australia’s relations with the International Monetary Fund

Australia became a member of the IMF in 1947. The International Monetary Agreements Act 1947 formalised Australia’s IMF membership, and contains provisions to enable Australia to meet any obligations that may arise by virtue of its IMF membership. Australia also interacts with the IMF through: the Board of Governors; the International Monetary and Financial Committee (IMFC); the IMF Executive Board; and the IMF’s Article IV consultation.

Australia’s representation at the International Monetary Fund

Board of Governors

The Board of Governors is the highest authority within the IMF and consists of one Governor and one Alternate Governor for each of the 188 member countries. During 2013-14, Australia was represented by the then Treasurer of the Commonwealth of Australia, the Hon Chris Bowen MP, until 18 September 2013 when the Hon J.B. Hockey MP, Treasurer of the Commonwealth of Australia, became Australia’s Governor. Since 7 March 2011, Dr Martin Parkinson, Secretary to the Treasury, has been Australia’s Alternate Governor of the IMF.

Member countries cast votes as required throughout the year. The Australian Governor’s votes on IMF resolutions during 2013-14 are noted in Table 12.

Table 12: Australian Governor’s votes on IMF resolutions 2013-14
Resolution title Date Australian Governor’s vote
Remuneration of IMF and World Bank Executive Directors and Alternate Executive Directors 5 September 2013 Abstained(a)
Activation period for NAB — 1 October 2013 to 31 March 2014 28 September 2013 Supported
Annual Meetings of the Boards of Governors — Proposed Dates and Venues for 2016 and 2017 4 November 2013 Supported
2010 Reforms and Fifteenth General Review of Quotas 22 January 2014 Supported
Activation period for NAB — 1 April 2014 to 30 September 2014 29 March 2014 Supported

Note: Abstention due to the Government being in the caretaker period during the 2013 Federal election, which is consistent with past practice.

International Monetary and Financial Committee

The IMFC advises the Board of Governors on the functioning and performance of the international monetary and financial system. Its 24 members represent the full IMF membership under the same constituency arrangements that apply to the IMF Executive Board (see below).

Australia’s constituency at the IMF was represented by Korea at the IMFC meetings on 12 October 2013 and 12 April 2014.

IMF Executive Board, Executive Director and constituency office

The IMF Executive Board conducts the day-to-day business of the IMF and determines matters of policy under the overall authority of the Board of Governors. Executive directors are appointed or elected by member countries or groups of countries.

The board consists of 24 executive directors. Australia belongs to a constituency of countries that shares one Executive Director position. During 2013-14, the constituency of which Australia is a member (the Asia and Pacific constituency) also comprised: Kiribati, the Republic of Korea, Marshall Islands, Federated States of Micronesia, Mongolia, New Zealand, Palau, Papua New Guinea, Samoa, Seychelles, Solomon Islands, Tuvalu, Uzbekistan, and Vanuatu. As at 30 June 2014, Australia held 1.31 per cent of the total voting power at the IMF, and the constituency as a whole held 3.62 per cent.

The Asia-Pacific constituency Executive Director is supported by two Alternate Executive Directors and a number of senior advisers and advisers from countries represented in the constituency. By agreement between constituency members, the staffing of Australia’s constituency office rotates among members. Mr Jong-Won Yoon of Korea represents our constituency as Executive Director (from 1 November 2012 for a two-year term). As at 30 June 2014 Mr Ian Davidoff of Australia was the first Alternate Executive Director and Ms Vicky Plater of New Zealand was the second Alternate Executive Director.

Australia’s Article IV consultation

In accordance with Article IV of its Articles of Agreement, the IMF conducts regular discussions with the authorities of member countries on economic policies and conditions. Australia’s 2013 Article IV consultation included a visit by IMF staff from 11 to 20 November 2013. During their visit they met with the Treasurer, senior Treasury officials, the Governor of the RBA and senior RBA officials. They also met with officials from other agencies in the Treasury portfolio, and representatives from the business community and unions.

The 2013 Article IV staff report for Australia was released on 10 February 2014 and is available at www.imf.org.

Australia’s shareholding in the International Monetary Fund and financial transactions

Australia’s shareholding in the International Monetary Fund

A member’s shareholding in the IMF is determined by its allocated quota which broadly reflects its weight in the global economy. Australia’s quota as at 30 June 2014 was 3,236.4 million Special Drawing Ri
ghts (SDR) (equivalent to A$5,305.6 million as at 30 June 2014), which is 1.36 per cent of total IMF quota. Part of Australia’s quota is held in reserve by the IMF in SDRs and gold, and part is held in Australia — a combination of non-interest bearing promissory notes and cash amounts held at the RBA — in Australian dollars.

Australia’s financial transactions with the International Monetary Fund

Australia conducts financial transactions with the IMF to manage existing obligations. Australia’s financial transactions with the IMF in 2013-14 comprised:

  • payments of SDR charges and an annual assessment fee for Australia’s allocation of SDRs (Table 13);
  • receipts of interest on Australia’s SDR holdings (Table 13);
  • receipts of remuneration for Australia’s contribution to IMF reserves (Table 13);
  • the annual Maintenance of Value (MOV) transaction (Table 13);
  • transfers and receipts to facilitate Australia’s contribution to the IMF’s Financial Transaction Plan (FTP) and the New Arrangements to Borrow (NAB), reflecting the borrowing and repayments of other members (Tables 5.3 and 5.4); and
  • receipts of interest for Australia’s NAB contributions.

These transactions were timely and efficient and are described in the following sections.

Special Drawing Rights charges, interest and assessment fee

The SDR is an international reserve asset created by the IMF to supplement the existing official reserves of member countries. Its value is based on a basket of key international currencies (the US dollar, euro, Japanese yen and pound sterling). SDRs are allocated to member countries in proportion to their IMF quotas. Each member country may choose to hold greater or fewer SDRs than its net cumulative allocation.

Australia’s cumulative allocation of SDRs as at 30 June 2014 was SDR 3,083.2 million while its actual SDR holdings were SDR 2,860.8 million. Australia’s SDR allocation is held by the RBA, having been sold to the RBA by the Commonwealth in exchange for Australian dollars.

The IMF levies charges on the SDRs that have been allocated to each member and pays interest on the SDRs that are held by each member.1 In 2013-14, the Australian Government paid charges of SDR 2.9 million (A$4.8 million) on net cumulative allocations, and the RBA received SDR 2.8 million (A$4.7 million) interest on its holdings.

In addition, the IMF levies an annual assessment fee to cover the cost of operating the SDR Department, determined according to participants net cumulative SDR allocations. Australia’s annual assessment fee for the IMF’s financial year ending 30 April 2014 was SDR 20,744 (A$34,096).

Remuneration

Remuneration is interest paid by the IMF to Australia for the use of its funds. It is earned on the proportion of a member’s currency (25 per cent of its quota) that was paid in SDRs and is held by the IMF, and on money lent out under the FTP.2 Australia received remuneration receipts in 2013-14 totalling SDR 780,439 (A$1.3 million).

Maintenance of Value

During 2013-14, Australia’s quota remained at SDR 3,236.4 million. As the exchange rate between the Australian dollar and the SDR fluctuates throughout the year, the SDR value of the part of Australia’s IMF quota held in Australian dollars is subject to change.

Under the IMF’s Articles of Agreement, members are required to maintain the value of their quota in terms of SDRs. The adjustment required to maintain the SDR value of the quota is called the ‘Maintenance of Value’ (MOV) adjustment, and is settled annually following the close of the IMF’s financial year on 30 April.

During the IMF’s 2013-14 financial year, the value of the Australian dollar in terms of the SDR depreciated by 12.4 per cent. Thus, Australia had a MOV payable of A$455.9 million for the 2013-14 IMF financial year. This was settled in June 2014 through the issuance of a non-negotiable, non-interest bearing promissory note.

Table 13: Australia’s transactions with the IMF in 2013-14 (cash basis)
  Amount in SDRs Amount in A$
Total interest received on RBA SDR Holdings(a) 2,823,503 4,707,155
Total remuneration received for Australian holdings at the IMF 780,439 1,299,167
Total charges paid on SDR allocation 2,906,625 4,843,640
Annual assessment fee paid to SDR department 20,744 34,096
Maintenance of value transaction for 2013-2014   455,935,901

(a) Interest paid to the RBA

Lending-related transactions and Australia’s reserve position in the IMF

The IMF manages its lending of quota resources through the FTP. This is the mechanism through which the IMF selects the members whose currencies are to be used in IMF lending transactions and allocates the financing of those lending transactions among members included in the plan. Only currencies of IMF members with sufficiently strong balance of payments and reserve positions — such as Australia — are selected for use in the FTP.

In 2013-14, Australia was involved in both the transfer (loans) and receipt (repayments) side of the FTP. Table 14 provides details of individual FTP transactions and resulting reserve position at the IMF.

Table 14: Australia’s reserve position in the IMF, 2013-14(a)
Date Description Debit
(SDRs)
Debit
(A$)
Credit
(SDRs)
Credit
(A$)
Reserve position as at 30 June 2013     1,082,026,687 1,754,258,572
23 Dec 2013 FTP with Pakistan (loan)     29,000,000 50,443,380
5 May 2014 FTP with Ukraine (loan)     11,200,000 18,689,062
3 Jun 2014 FTP with Greece (loan)     12,000,000 19,836,514
Total FTP receipts (repayments) 211,320,500 351,803,047    
Reserve position as at 30 June 2014 922,906,187 1,512,960,962

(a) Because Australia’s reserve position is denominated in SDRs and AUD/SDR exchange rates vary during the year, when expressed in Australian dollars, the 30 June 2014 reserve position does not exactly reflect summation of the opening position and transactions during the year.

FTP transactions (and any transfers for administrative purposes) directly impact on Australia’s reserve position at the IMF. This reserve position forms part of Australia’s liquid international reserves because, subject to the representation of a balance of payments need, Australia can convert its SDR-denominated reserve asset into useable currency by drawing on the IMF. With the value of receipts outweighing the value of transfers during 2013-14, the amount of Australia’s reserves held by the IMF fell during the year, from SDR 1,082.0 million to SDR 922.9 million.

Australia also contributed resources
under the expanded NAB in 2013-14. The NAB was activated twice during 2013-14, on 1 October 2013 and 1 April 2014, following approval by NAB participants including Australia, with each activation period lasting six months. These followed on from activation of the NAB on seven previous consecutive occasions, each for a period of six months.

In 2013-14, Australia was involved in both the transfer (loan) and receipt (repayment) sides of the NAB. Table 15 provides details of individual NAB transactions.

Table 15: Australia’s NAB Transactions for 2013-14
Date Description Debit
(SDRs)
Debit
A$)
Credit
(SDRs)
Credit
(A$)
31 Jul 2013 NAB with Greece (loan)     20,000,000 32,767,010
12 Nov 2013 NAB with Portugal (loan)     28,000,000 45,700,109
18 Feb 2014 NAB with Portugal (loan)     6,000,000 10,350,520
21 Mar 2014 NAB with Jamaica (loan)     6,000,000 10,218,836
5 May 2014 NAB with Ukraine (loan)     42,400,000 70,751,450
3 Jun 2014 NAB with Greece (loan)     24,000,000 39,673,028
Total NAB repayments 78,050,000 130,899,239    
Net NAB payments for 2013-14 48,350,000 78,561,716

In addition, the Australian Government earns interest on any money lent under the NAB.3 For 2013-14, the Australian Government received interest payments on its outstanding NAB loans of SDR 528,258 (A$880,450).

Australia and the World Bank Group

Australia’s shareholding and relations with the World Bank Group

Mandate

The World Bank Group provides financial and technical assistance to developing countries in line with its poverty reduction mandate.

Institutions of the World Bank Group and Australia’s Shareholding

The World Bank Group consists of five arms: the International Bank for Reconstruction and Development (IBRD), the International Development Association (IDA), the International Finance Corporation (IFC), the Multilateral Investment Guarantee Agency (MIGA) and the International Centre for Settlement of Investment Disputes (ICSID). For the specific roles of these institutions, please refer to the World Bank website: www.worldbank.org.

Australia is a member of all five arms of the World Bank Group. Australia’s memberships of the IBRD, IFC and MIGA require the Australian Government to hold shares in these institutions. Australia’s shareholdings in the IBRD, IFC and MIGA as at 30 June 2014 are set out in Table 16.

Table 16: Australian shareholdings at the World Bank Group as at 30 June 2014
  IBRD IFC MIGA
Shares 28,927 47,329 3,019
Value of paid-in capital ($US millions) 214.06 47.33 6.20
Value of callable capital ($US millions) 3,275.55 0.00 26.46

In 2013-14, Australia purchased an additional 1,332 shares of the IBRD, at the face value of US$160.7 million (estimated A$170.6 million as at 30 June 2014), as the third of Australia’s five annual instalments agreed as part of the 2010 General Capital Increase. The paid-in component of this share purchase was approximately US$9.6 million (estimated A$10.2 million as at 30 June 2014).

Australia’s cooperation with the World Bank Group

Australia’s representation at the World Bank Group

Board of Governors

The highest decision-making body of the World Bank Group is the Board of Governors. This body consists of one Governor appointed by each of the 188 member countries. During 2013-14, Australia was represented by the then Treasurer of the Commonwealth of Australia, the Hon Chris Bowen MP, until 18 September 2013 when the Hon J.B. Hockey MP, Treasurer of the Commonwealth of Australia, became Australia’s Governor. In 2013-14, Australia’s Alternate Governor was the then Parliamentary Secretary to the Treasurer, the Hon Bernie Ripoll MP, until 18 September 2013, when the Hon Steven Ciobo MP, Parliamentary Secretary to the Treasurer, became Australia’s Alternate Governor.

As Australia’s Governor, the Treasurer votes on a range of issues that the Executive Board refer to Governors for their consideration. The table below outlines Governor’s votes for the 2013-14 financial year.

Table 17: Australian Governor’s votes on World Bank Group resolutions in 2013-14
Institution Resolution title Date Australian Governor’s vote
IBRD, MIGA Nomination and Election of Executive Director 8 July 2013 Supported Mr Willcock
IBRD Direct Remuneration of Executive Directors and their Alternates 5 September 2013 Abstained(a)
IBRD, IDA, IFC, MIGA Financial Statements, Accountants Report and Administrative Budget 11 October 2013 Supported
IBRD Allocation of FY13 Net Income 11 October 2013 Supported
IBRD, IDA, IFC, MIGA Proposed Dates for the 2016 and 2017 Annual Meetings 4 November 2013 Supported
IDA Additions to Resources: Seventeenth Replenishment 5 May 2014 Supported
IBRD Transfer from Surplus to Replenish the Trust Fund for Gaza and the West Bank 23 June 2014 Supported

Note: Abstention due to the Government being in the caretaker period during the 2013 Federal election, which is consistent with past practice.

Executive Director and constituency office

The World Bank Group’s Executive Boards (IBRD, IDA, IFC and MIGA), under the authority of the Board of Governors, consider and decide on loan and credit proposals made by the President, and on policy issues that guide the general operations of the World Bank Group.

Each Board currently consists of 25 Executive Directors. Australia belongs to a constituency of countries that shares one Executive Director position. In 2013-14, the constituency also included Cambodia, Kiribati, the Republic of Korea, Marshall Islands, Federated States of Micronesia, Mongolia, New Zealand, Palau, Papua New Guinea, Samoa, Solomon Islands, Tuvalu, and Vanuatu.

By agreement among constituency members, the senior staffing of the constituency office rotates between Australia, Republic of Korea and New Zealand. Mr John Whitehead from New Zealand was the Executive Director for our constituency until 1 August 2013, when
Mr Michael Willcock from Australia assumed the position. Australia also held a senior adviser position in the constituency office during 2013-14.

Australia’s contributions to the World Bank Group

The World Bank Group, with 188 member countries, has extensive development expertise, knowledge, products and analytical capabilities, and commands substantial resources to foster development outcomes globally. Australia’s membership of, and financial contributions to, the World Bank Group provide Australia with the opportunity to influence policies and priorities at the highest levels.

In addition to the shareholdings managed by the Treasury, in 2013-14, the Department of Foreign Affairs and Trade provided an estimated A$483 million to the World Bank Group, including A$265 million in joint activities through Australia’s country, regional and global programmes. The Annual Report of the Department of Foreign Affairs and Trade provides further information on Australia’s aid programme.

Australia’s contributions leverage the World Bank Group’s capital to support conditions for economic growth in the Indo-Pacific region, including creating conditions for trade and investment. Working with the World Bank Group on joint activities extends the reach, quality and impact of Australia’s aid programme.

Operational evaluation

The World Bank Group Corporate Scorecard, published in April 2014, is a new reporting product that measures the Group’s overall performance and results achieved by its clients against the World Bank Group’s twin goals of ending extreme poverty and promoting shared prosperity. As a new product, it is expected that the planned development of reporting mechanisms will improve the usefulness of the Scorecard over time.

The World Bank Group Corporate Scorecard reported financial commitments of US$52.9 billion in FY2013, with US$11.1 billion in capital mobilised on commercial terms.

The Scorecard also reported independent assessments of development impact for the World Bank (comprising IBRD and IDA), rated satisfactory and above of 72 per cent (71 per cent in Fragile and Conflict-affected States), IFC at 65 per cent, and MIGA at 78 per cent. World Bank knowledge and advisory services were rated at 61 per cent and MIGA’s at 76 per cent. Group-level performance on country strategies rated satisfactory or above was reported at 72 per cent.

The Scorecard also reported that client feedback on the World Bank’s effectiveness and impact on results was rated 6.9 out of 10. Similarly, the IFC’s investment and advisory services were rated by clients at 85 per cent and 90 per cent satisfied respectively.

The generally strong results reported in the Scorecard reinforce the findings of recent DFAT evaluations of multilateral organisations. In their assessments, the World Bank Group was rated amongst the strongest performing institutions. DFAT reported that the Australian Government can have a high degree of confidence that the World Bank Group will deliver tangible development benefits in line with Australia’s development objectives, and that they represent good value for money.