House of Representatives

Explanatory Memorandum

(Circulated by authority of the Minister for Housing and Assistant Treasurer, the Hon. Michael Sukkar MP)

Chapter 1 International monetary agreements

Outline of chapter

1.1 Schedule 1 to the Bill amends the IMA Act to authorise the Minister, on behalf of Australia, to enter into loan agreements with the IMF. The amendments will also allow Australia to meet its funding obligations under any such agreements, as well as under the existing 'New Arrangements to Borrow' with the IMF.

1.2 These amendments ensure Australia can meet its commitments to the IMF, including avoiding legislative delays that are inconsistent with Australia's commitments to the IMF.

1.3 All legislative references in this Chapter are to the IMA Act unless otherwise stated.

Context of amendments

1.4 The IMF plays a vital role at the centre of the global financial safety net and is responding to the Coronavirus crisis with unprecedented speed and magnitude of financial assistance to protect livelihoods, especially of the most vulnerable. In particular, the IMF is providing emergency financing and debt relief, as well as enhancing liquidity and adjusting existing programs and access limits to ensure countries have the capacity to effectively respond to the health and economic crisis caused by Coronavirus. It is in Australia's best interest that the IMF remains strong, adequately resourced, and at the centre of the global financial safety net.

1.5 The IMF derives its resources for lending to countries from its permanent resource base (provided through quota contributions from member countries).

1.6 The IMF supplements its quota resources with additional temporary agreements. These currently include the New Arrangements to Borrow and Bilateral Borrowing Agreements.

1.7 The New Arrangements to Borrow is a multilateral borrowing agreement between the IMF and a number of its members that allows the IMF to borrow from those members, when supplementary resources are required to address an impairment of the international monetary system. Australia is a founding member of the New Arrangements to Borrow and has participated since it formally commenced in 1998.

1.8 For the IMF to fulfil more effectively its role in the international monetary system, the IMF has proposed to supplement its permanent quota resources with increased commitments through its New Arrangements to Borrow multilateral credit arrangement; and a decreased reliance on Bilateral Borrowing Agreements with individual IMF members. This is set out in the IMF's policy paper titled 'Proposed decisions to modify the New Arrangements to Borrow and to extend the deadline for a review if the borrowing guidelines' (February 2020) that advises that a Staff Report was completed on 3 December 2019 for the Executive Board's consideration on 16 January 2020.

1.9 Currently, primary legislation is required to give force of law to amendments to the New Arrangements to Borrow, including amendments that increase or decrease the quantum of Australia's commitment under the agreement and trigger the related appropriation under section 8B of the IMA Act.

Summary of new law

1.10 Schedule 1 to the Bill amends the IMA Act to authorise the Minister to enter into an agreement with the IMF for Australia to provide loans to the IMF.

1.11 These amendments would establish a clear legislative framework for entering into new loan agreements with the IMF without the need for further legislative amendments. The amendments would also introduce a standing appropriation to fund Australia's obligations to pay amounts to the IMF under such an agreement.

1.12 Schedule 1 to the Bill also amends the IMA Act to provide that the Treasurer may, by legislative instrument, give notice of an amendment or renewal of the New Arrangements to Borrow by a decision of the Executive Board of the Fund.

1.13 The amendments also make provision for a specific update to the current definition of the New Arrangements to Borrow in the IMA Act to include the IMF Executive Board's decision (Decision No. 16645-(20/5), dated 16 January 16, 2020). While the update could be made using the proposed legislative instrument mechanism, specifying that change through these amendments ensures that it is able to apply from 1 January 2021. However, the update will only apply if the decision is agreed to by, and takes effect for, Australia.

Comparison of key features of new law and current law

Detailed explanation of new law

Authorising loan agreements with the IMF

1.14 The amendments also update the IMA Act to provide a clear legislative framework for Australia to enter into other loan agreements with IMF.

1.15 As a result of these amendments, the Minister may, on behalf of Australia, enter into one or more agreements with the Fund that:

•

provide for Australia to provide loans to the Fund; and

•

contain terms and conditions determined by the Minister.

[Schedule 1, item 4, paragraphs 8CAB(1)(a) and (b)]

1.16 These changes ensure that Australia can enter into other loan agreements with the IMF without legislation being required to implement the decision after it has been entered in to. It is expected that the new legislative framework will be used to authorise the next round of bilateral borrowing agreements with the IMF ("the 2020 Borrowing Agreements" referred to above).

1.17 This approach is consistent with other provisions in the IMA Act relating to agreements that the Minister is authorised to enter in to. Examples of such provisions include sections 8C and 8CA, which also authorise the Minister to enter into certain agreements that provides for Australia to lend money to a country, or enter into a currency swap with the country, at the request of the IMF or under a program of the World Bank or the Asian Development Bank.

1.18 Pursuant to section 19 of the Acts Interpretation Act 1901, the reference to the 'Minister' includes the Treasurer and any other Minister in the Treasury portfolio who administers the IMA Act.

1.19 The Consolidated Revenue Fund is appropriated for the purposes of payments by Australia under an agreement authorised by these amendments. [Schedule 1, item 4, subsection 8CAB(2)]

1.20 This approach is consistent with all other appropriations covered by the IMA Act 1947 (including but not limited to the appropriations in relation to sections 8C and 8CA). Appropriations of this kind ensure that Australia is able to comply with any international obligations that it has to make payments under an agreement.

1.21 The Minister is also authorised to borrow amounts that Australia is required to pay because of its obligations under an agreement authorised by these amendments. [Schedule 1, item 2, paragraph 6(1)(d)]

1.22 This means that the existing provisions about borrowing are extended to any new agreement entered into under these amendments, consistent with the treatment of the New Arrangements to Borrow and the IMF loan agreement 2016.

1.23 Importantly the provisions relating to appropriations and borrowing is only applicable after the Minister actually enters into an agreement to loan an amount to the IMF. To the extent that such an agreement also constitute a treaty action, the decisions to enter into those agreements are subject to Australia's domestic treaty making procedures. This means that before the Minster is able to enter into an agreement, the agreement would need to be tabled in Parliament with a National Interest Analysis for consideration by JSCOT. Following JSCOT's consideration of the agreement, the Governor-General must also approve Australia's signing of the agreement.

1.24 The processes ensure there is appropriate Parliamentary scrutiny of any decision of the Government to enter into agreements to loan amounts to the IMF.

1.25 In addition to the standard JSCOT processes, the Minister is required to provide details about any payments to the IMF through the annual reporting requirements in section 10 of the IMA Act.

1.26 These amendments commence on the day after this Bill receives Royal Assent. [Item 1 of the table in clause 2]

New Arrangements to Borrow

1.27 The amendments authorise the Treasurer giving notice, by legislative instrument, of an amendment or renewal of the New Arrangements to Borrow by a decision of the Executive Board of the Fund. [Schedule 1, item 1, section 3 paragraph (f) of the definition of New Arrangements to Borrow]

1.28 This allows the terms of the New Arrangements to Borrow to be updated to reflect future changes without the need for legislative amendments to be passed by the Parliament. This approach is consistent with other provisions in the IMA Act, as well as amendments proposed in relation to the International Finance Corporate Act 1955.

1.29 A legislative instrument under subsection 8B(3) commences at the later of the following days or times:

•

the earliest day or time applicable under subsection 12(1) of the Legislation Act 2003;

•

the start of the day immediately after the last day on which a resolution referred to in subsection 42(1) of the Legislation Act 2003 disallowing the instrument could be passed.

[Schedule 1, item 3, paragraphs 8B(4)(a) to (b)]

1.30 This deferred commencement ensures that the Parliament can consider and deal with any amendment to the New Arrangements to Borrow before they take effect in the IMA Act.

1.31 The amendments in relation to notifications by the Treasurer about amendments to the New Arrangements to Borrow commence on the day after the Bill receives Royal Assent. [Item 1 of the table in clause 2]

1.32 The Bill also amends the IMA Act to update the definition of 'New Arrangements to Borrow' in section 3 of the IMA Act to list the latest IMF Executive Board Decision (Decision No. 16645-(20/5), dated 16 January 16, 2020). If this decision is adopted, it will renew the New Arrangements to Borrow for a five-year period to 31 December 2025. [Schedule 1, item 5, section 3 paragraph (e) of the definition of 'New Arrangements to Borrow']

1.33 While the update could be made using the proposed legislative instrument mechanism, the deferred commencement rule for such updates may prevent the update from taking effect from 1 January 2021, as has been proposed by the IMF. Incorporating this decision through these amendments avoids any such timing or sequencing issues.

1.34 However, the update will only apply if the decision is agreed to by, and takes effect for, Australia. The amendment will not be adopted if Australia does not agree to the decision, or if the requisite number of votes of other members are not obtained.

1.35 For this reason, the amendments apply at the later of 1 January 2021 and the time the decision to amend and renew the New Arrangements to Borrow comes into force for Australia. [Item 2 of the table in clause 2]

1.36 In the event that the New Arrangements to Borrow decision does not come into effect, the amendment will not commence and the current New Arrangements to Borrow will continue to apply until 16 November 2022.

1.37 To the extent that any amendments to the New Arrangements to Borrow also constitute a treaty action, the decision for Australia to agree to such amendments will be subject to Australia's domestic treaty making procedures. This means that before the Treasurer is able to enter into an agreement, the agreement would need to be tabled in Parliament with a National Interest Analysis for consideration by JSCOT. Following JSCOT's consideration of the agreement, the Governor-General must also approve Australia's signing of the agreement.

1.38 In addition to the standard JSCOT processes, the Minister is required to provide details about any payments to the IMF through the annual reporting requirements in section 10 of the IMA Act.

Consequential amendments

1.39 The amendments repeal provisions relating to the IMF loan agreement 2016. [Schedule 1, items 6 to 8, section 3 (definition of 'IMF loan agreement 2016'), paragraph 6(1)(c) and section 8CAA]

1.40 These provisions in relation to the IMF loan agreement 2016 will not be required after it expires on 31 December 2020. The provisions include an automatic-repeal rule for any legislative instruments made about amendments to the agreement. Such instruments are repealed on the day after the agreement expires.

To ensure that any such instruments are repealed in accordance with that rule, the amendments repealing the provisions relating to the IMF loan agreement 2016 commence two days after the agreement expires (being 2 January 2021). [Item 3 of the table in clause 2]