House of Representatives

Explanatory Memorandum

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

Chapter 3 International financial assistance

Outline of chapter

3.1 Schedule 3 to the Bill updates existing provisions of the IMA Act to ensure that the Treasurer can, on behalf of Australia, continue to enter into agreements with other countries to provide them with financial assistance in support of a program of the IMF.

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

Context of amendments

3.3 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 the Coronavirus.

3.4 Section 8C of the IMA Act relates to agreements that Australia can enter into to provide financial assistance to another country in support of a program of the IMF. The provision also authorises appropriations from the Consolidated Revenue Fund for payments made under such agreements (see subsection 8C(3)).

3.5 In its current form, subsection 8C(1) authorises the Treasurer to enter into certain agreements with another country if:

•

the IMF has requested that Australia provide assistance to that other country in support of a 'Fund program'; and

•

the Treasurer is satisfied that at least one other government or organisation has or will provide financial assistance to the other country in response to a similar request from the IMF.

3.6 The types of agreements that can be entered into are agreements for Australia to lend money or enter into a currency swap with the other country. Subsection 8C(2) provides that agreements that are authorised by this provision must provide for Australia to be able to require early repayment in the event that the Fund program is suspended or terminated early.

3.7 Section 8C was introduced in 1998 and has been used to facilitate loan payments to other countries at the request of the IMF - for example in 2000 when loans were made to Indonesia and Papua New Guinea.

3.8 However, changes in the policy and operational rules of the IMF mean that it no longer requests individual governments to support particular country programs. As a result, the existing conditions for the Treasurer entering into a loan agreement or currency swap with another country under section 8C cannot be satisfied (that is, the IMF will not make a request to Australia, and the Treasurer cannot be satisfied that the IMF will have made a similar request to another country).

Summary of new law

3.9 Schedule 3 to the Bill updates existing provisions of the IMA Act to ensure that the Treasurer can, on behalf of Australia, continue to enter into agreements with other countries to provide them with financial assistance in support of a program of the IMF.

3.10 They achieve this by removing the requirement that the IMF request that Australia provides financial assistance to another country. The other requirements in the existing provision continue to apply.

Comparison of key features of new law and current law

Detailed explanation of new law

3.11 The Treasurer is authorised to enter into an agreement to provide financial assistance to another country if the Treasurer is satisfied that:

•

a 'Fund program' operates, or is to operate, for the benefit of the other country; and

•

at least one other government or organisation has or will provide financial assistance to the other country in support of the Fund program.

[Schedule 3, items 1 and 2, paragraphs 8C(1)(a) and (b)]

3.12 These changes remove the existing requirements that the IMF make a request to Australia and to at least one other government or organisation. The amendments ensure that Australia can continue to provide financial assistance to other countries in light of the IMF's change in policy, while retaining the underlying policy parameters that any financial assistance by Australia is provided with the assurance of IMF oversight of the recipient's policies and actions, and in support of broader economic reforms.

3.13 The amendments do not affect the types of agreements that the Treasurer is authorised to enter into. These continue to be limited to agreements that provide for Australia to lend money to the other country, or for Australia to enter into a currency swap with Australia (see subsection 8C(1)).

3.14 The existing provision authorising appropriations from the Consolidated Revenue Fund for the purposes of payments by Australia under in connection with such an agreement continues to apply (see subsection 8C(3)).

3.15 While the phrase 'Fund program' is not defined in the IMA Act, the term 'Fund' is effectively defined as the IMF. As such, the provision is limited to programs of the IMF that operate for the benefit of the other country.

3.16 The amended provision also makes it clear that the Treasurer can enter into an agreement where they are satisfied that a Fund program 'will' operate for the benefit of another country. This ensures that Treasurer is not required to wait until a prospective program has commenced before the Treasurer can enter into an agreement to provide financial assistance. This facilitates any financial assistance provided under an agreement commencing at the same time as a program of the IMF, where appropriate.

3.17 It is expected that the IMF would be consulted before the Treasurer reaches a view about whether a particular operates, or will operate, for the benefit of another country.

3.18 The amendments also ensure that any agreements that are entered into on the basis that the Treasurer is satisfied that a Fund program will operate for the benefit of another country must provide for Australia to be able to require early repayment in the event the program does not begin to operate. [Schedule 3, item 3, subsection 8C(2)]

3.19 This extends the existing requirements that an agreement contain provisions about early repayment in the event of the suspension or premature termination of a Fund program.

3.20 The existing requirements about national interest statements continue to apply to agreements entered into under the amended provision. These require that the Treasurer publicly release, and table in each House of the Parliament, a national interest statement relating to any agreement entered into by Australia to provide financial assistance to another country in support of a program of the IMF (see section 8D). Such statements must continue to include a description of the nature and terms of the agreement, and the reasons why it is in Australia's national interest (see section 8E). National interest statements of this kind that are tabled in Parliament are automatically referred to JSCOT for inquiry and report within two months (see subsection 8F).

3.21 These provisions ensure that any agreements for Australia to provide financial assistance in support of a program of the IMF are subject to Parliamentary scrutiny. This is particularly relevant where a particular agreement does not constitute a treaty that would otherwise be subject to Australia's domestic treaty making processes.

Application and transitional provisions

3.22 The amendments commence on the day after they receive the Royal Assent.