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Commonwealth of Australia - The Treasury

Annual Report 2014/15

Australia and the International Financial Institutions

Australia and the International Monetary Fund

Program 1.2 outlined 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 2014-15 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.

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

The IMF and the World Bank Group also publish annual reports on their operations and provide information at www.imf.org and www.worldbank.org.

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 representation at the International Monetary Fund

Australia 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 on Australia’s economic developments and policy.

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 2014-15, Australia was represented by the Hon. J.B. Hockey MP, Treasurer of the Commonwealth of Australia. In early 2015, Mr John Fraser, Secretary to the Treasury, replaced Dr Martin Parkinson, the former Secretary to the Treasury, in the position of Australia’s Alternate Governor of the IMF. The Australian Governor’s votes on IMF resolutions during 2014-15 are noted in Table 5.1.

Table 9: Australian Governor’s votes on IMF resolutions 2014-15
Resolution title Date Australian Governor’s vote
Remuneration of IMF and World Bank Executive Directors and Alternate Executive Directors 25 July 2014 Supported
Rules for 2014 Regular Election of Executive Directors 25 July 2014 Supported
Activation period for New Arrangements to Borrow (NAB) — 1 October 2014 to 31 March 2015 22 September 2014 Supported
2010 Reforms and Fifteenth General Review of Quotas 13 February 2015 Supported
Activation period for NAB — 1 April 2015 to 30 September 2015 4 March 2015 Supported

International Monetary and Financial Committee

The International Monetary and Financial Committee (IMFC) advises the Board of Governors on the functioning and performance of the international monetary and financial system. Australia’s constituency at the IMF (see below) was represented by Korea at the IMFC meetings on 11 October 2014 and by Australia at the IMFC meetings on 18 April 2015.

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.

Australia belongs to the Asia and Pacific constituency which holds one executive director position. In 2014-15, this constituency also included: 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 2015, Australia held 1.31 per cent of the total voting power1 at the IMF, and the constituency as a whole held 3.62 per cent.

By agreement between constituency members, the staffing of Australia’s constituency office rotates among members. On 1 November 2014, Mr Barry Sterland from Australia replaced Mr Jong-Won Yoon of Korea as the Executive Director of the constituency. At 30 June 2015, Mr KwangHae Choi of Korea 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 2015 Article IV consultation was held on 11 to 24 June 2015. IMF staff met with the Treasurer, the Shadow 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.

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 at 30 June 2015 was 3,236.4 million Special Drawing Rights (SDR) (equivalent to A$5,913.4 million at 30 June 2015), 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. Transactions in 2014-15 were timely and efficient and are described in the following sections.

Special Drawing Rights charges, interest and assessment fee

The Special Drawing Rights (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 four international currencies (the US dollar, euro, Japanese yen and pound sterling). SDRs are allocated to member countries in proportion to their IMF quotas.

Australia’s cumulative allocation of SDRs at 30 June 2015 was SDR 3,083.2 million while its actual SDR holdings were SDR 3,234.9 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.2 In 2014-15, the Australian Government paid charges of SDR 1.9 million (A$3.2 million) on net cumulative allocations, and the RBA received SDR 1.8 million (A$3.0 million) interest on its holdings.3

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 2015 was SDR 52,616 (A$93,175).

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 Financial Transaction Plan (FTP) (see below for further information on the FTP).4 Australia received remuneration receipts in 2014-15 totalling SDR 402,153 (A$0.69 million).

Maintenance of value

During 2014-15, 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 through a ‘Maintenance of Value’ (MOV) adjustment following the close of the IMF’s financial year on 30 April. During the IMF’s 2014-15 financial year, the value of the Australian dollar in terms of the SDR depreciated by 5.4 per cent, meaning that Australia had a MOV payable of A$212.3 million. This was settled in June 2015 through the issuance of a non-negotiable, non-interest bearing promissory note and a small cash payment.

Table 10: Australia’s transactions with the IMF in 2014-15 (cash basis)
  Amount in SDRs Amount in A$
Total interest received on RBA SDR Holdings(a) 1,766,418 3,035,181
Total remuneration received for Australian holdings at the IMF 402,153 686,731
Total charges paid on SDR Allocation 1,873,734 3,219,091
Annual Assessment Fee paid to SDR Department 52,616 93,175
Maintenance of Value transaction for 2014-15 212,328,306

(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 2014-15, Australia was involved in both the transfer (loans) and receipt (repayments) side of the FTP. Table 5.3 provides details of individual FTP transactions and resulting reserve position at the IMF.

Table 11: Australia’s reserve position in the IMF, 2014-15(a)
Date Description Debit
(SDRs)
Debit
(A$)
Credit
(SDRs)
Credit
(A$)
Reserve position as at 30 June 2014 922,906,187 1,512,960,962
13 Mar 2015 FTP with Ukraine (loan) 16,000,000 28,935,970
Total FTP receipts (repayments) 370,780,000 659,641,217
Reserve position as at 30 June 2015 568,126,187 1,038,052,598

(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 2015 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. With the value of receipts outweighing the value of transfers during 2014-15, the amount of Australia’s reserves held by the IMF fell during the year, from SDR 922.9 million to SDR 568.1 million.

Australia also contributed resources under the expanded NAB in 2014-15. The NAB was activated twice during 2014-15, on 1 October 2014 and 1 April 2015 following approval by NAB participants including Australia, with each activation period lasting six months. In total, the NAB has been activated nine times, each for a period of six months.

In 2014-15, Australia was involved in both the transfer (loan) and receipt (repayment) sides of the NAB. Table 5.4 provides details of individual NAB transactions.

Table 12: Australia’s NAB Transactions for 2014-15
Date Description Debit
(SDRs)
Debit
(A$)
Credit
(SDRs)
Credit
(A$)
3 Sept 2014 NAB with Ukraine (loan) 5,000,000 8,120,574
13 Mar 2015 NAB with Ukraine (loan) 10,000,000 18,084,981
30 Jun 2015 NAB with Pakistan (loan) 8,000,000 14,580,554
Total NAB repayments 204,316,250 360,316,612
Net NAB payments for 2014-15 5 (181,316,250) (319,530,503)

In addition, the Australian Government earns interest on any money lent under the NAB.65 For 2014-15, the Australian Government received interest payments on its NAB loans of SDR 335,199 (A$574,610).

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 twin goals of ending extreme poverty and building shared prosperity.

Institutions of the World Bank Group and Australia’s Shareholding

Australia is a member of all five arms of the World Bank Group: 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, see the World Bank website.

Australia’s memberships of the IBRD, IFC and MIGA require the Australian Government to hold shares in these institutions. Australia’s shareholdings, as at 30 June 2015, are set out in Table 13.

Table 13: Australian shareholdings at the World Bank Group as at 30 June 2015
IBRD IFC MIGA
Shares 30,260 47,329 3,019
Price per share (US$) 120,635 1,000 10,820
Value of total capital (US$ millions) 3,650.42 47.33 32.67
Value of paid-in capital (US$ millions) 223.71 47.33 6.20
Value of callable capital (US$ millions) 3,426.70 0.00 26.46
Value of total capital (A$ millions) 4,753.14 61.63 42.53

In 2014-15, Australia purchased an additional 1,333 shares of the IBRD, at the face value of US$160.7 million (estimated A$209.2 million as at 30 June 2015); the paid-in component of this share purchase was approximately US$9.6 million (A$10.3 million).

Table 14: Australia’s voting power in the World Bank Group
IBRD IDA IFC MIGA
Voting power (per cent) 1.40 1.25 1.78 1.49

Note: At ICSID, the Administrative Council comprises a representative from each contracting state with equal voting power.

Each arm of the World Bank has its own arrangement for allocating votes and shares among its members. In the IBRD, each country’s shareholding and voting power is largely based on its weight in the global economy. 6 The Board of Governors (see below) has agreed that a Shareholding Review will occur every five years to ensure that the World Bank Group has adequate resources to complete its mission and to reflect changes in the world economy.

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, comprising one Governor from each of the 188 member countries. During 2014-15, Australia was represented by the Hon. J.B. Hockey MP, Treasurer of the Commonwealth of Australia. Australia’s Alternate Governor was the then Parliamentary Secretary to the Treasurer, the Hon. Steven Ciobo MP, until 26 March 2015 when the Hon. Kelly O’Dwyer MP, Parliamentary Secretary to the Treasurer, became Australia’s Alternate Governor. The table below outlines the Australian Governor’s votes for the 2014-15 financial year.

Table 15: Australian Governor’s votes on World Bank Group resolutions in 2014-15
Institution Resolution title Date Australian Governor’s vote
IBRD, MIGA Regular Election of Executive Directors 29 July 2014 Supported Mr Eun
IBRD Direct Remuneration of Executive Directors and their Alternates 29 July 2014 Supported
IBRD, IDA,
IFC, MIGA
Financial Statements, Accountants’ Report and Administrative Budget 11 October 2014 Supported
IBRD Allocation of FY14 Net Income 11 October 2014 Supported
IBRD Transfer from IBRD Surplus to the Global Infrastructure Facility 11 October 2014 Supported
IBRD Transfer from Surplus to Replenish the Trust Fund for Gaza and the West Bank 29 May 2015 Supported
Executive Director and constituency office

The World Bank Group’s Executive Boards (IBRD, IDA, IFC and MIGA) conduct the day-to-day business of the World Bank Group and determine matters of policy under the overall authority of the Board of Governors.

Australia belongs to a constituency of countries that shares one of 25 Executive Director positions. In 2014-15, the constituency 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 and the Republic of Korea. Mr Michael Willcock from Australia was the Executive Director for the constituency until 1 November 2014, when Mr Sung-soo Eun from Korea assumed the position. From 1 November 2014, Mr Jason Allford from Australia assumed the Alternate Director position. Australia also held a senior adviser position.

Australia’s contributions to the World Bank Group

In addition to the shareholdings managed by the Treasury, in 2014-15 the Department of Foreign Affairs and Trade provided an estimated A$494.7 million to the World Bank Group, including A$283 million in non-core funding for joint activities through Australia’s country, regional and global program. DFAT’s annual report provides further information on Australia’s aid program.

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

Operational evaluation

The World Bank Group Corporate Scorecard, published in October 2014, assesses the Group’s overall performance and results. The Scorecard reported: financial commitments of US$63.3 billion in FY2014, with US$9.3 billion in capital mobilised on commercial terms;
and improvement in the rate of satisfactory completion of country strategies (from 55 in
FY2013 to 63 in FY2014 — moving towards the FY2017 target of 70, although for fragile and
conflict-affected states this ranking was significantly lower at 43 in FY2014).

Whilst the Scorecard showed positive improvement in reducing the time between concept
to first disbursement for the World Bank (IBRD and IDA) from 28 months in FY2013 to
25.4 months in FY2014, this is still far higher than the FY2017 objective of cutting commitment time by one-third.

These generally strong results reinforce the findings of previous assessments by DFAT and other donors. In the assessments conducted by DFAT and the Multilateral Organisation Performance Assessment Network (MOPAN) in 2012, the World Bank Group was rated amongst the strongest performing institutions. In 2015, DFAT developed a new Multilateral Performance Assessment process to assess the multilateral organisations to which Australia provides significant funding, and this will be applied in the near future.

1 A country’s voting share in the IMF is not equal to its quota share. While the voting share is largely determined by stop the quota share, it is adjusted for a range of other factors that impact on the representation of IMF members.

2 Charges and interest payments are accrued daily and paid quarterly. The SDR interest rate is the primary rate from which other rates are derived and is based on a weighted average of representative interest rates on short term debt in the money markets of the SDR basket of currencies. The basic rate of charge is equal to the SDR interest rate, plus a margin. Additional burden sharing adjustments, for the financial consequences of protracted arrears, is also applied (when applicable) to the basic rate of charge.

3 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.

4 The basic rate of remuneration is equal to the SDR interest rate. Additional burden sharing adjustments, for the financial consequences of protracted arrears, is also applied (when applicable) to the basic rate of remuneration.

5 For 2014-15, the net NAB repayments are expressed as a negative number as NAB repayments outweighed NAB transfers.

6 Interest is calculated using the SDR interest rate, accrued daily and paid quarterly.

7 Whilst voting power is largely determined by shareholding, a country’s voting power usually is not equal to its shareholding as it is adjusted for a range of other factors that impact on the representation of IBRD members.