International Finance Agreements Amendment Bill

I am pleased to take a call in favour of clause 5. Clause 5 is one of the operative parts of the International Finance Agreements Amendment Bill in that it gives effect to changes to the first schedule of the International Finance Agreements Act 1961. That first schedule is amended in the manner that is set out in schedule 1 of this amendment bill. It is interesting to go back to the 1961 Act and see that what we are dealing with here is, effectively, the constitution of the IMF, the International Monetary Fund.

The IMF, of course, in case we forget, is one of the institutions that was formed as a consequence of the rise in Fascism, the rise in Communism, and World War II that resulted from the economic policies of the world, particularly in the 1920s and the 1930s, when the downward spiral that various countries were in could not be recovered under the economic management of the time and the injustice and deprivation that was suffered by so many peoples around the world led to war. At the end of World War II there was a meeting of the United Nations called the United Nations Monetary and Financial Conference, which was held in July 1944, towards the end of the war. Someone else might be able to tell me whether this is correct—I think it might have been either there or at the subsequent conference at Bretton Woods, in the United States, that not only did the international community agree that it needed to reform some of the matters relating to international monetary policy but also the conference led to the formation of some of the financial institutions that were intended to both pursue reconstruction after the war and rebuild the economies in Europe and Asia that had been particularly decimated by the war, and also to form the International Monetary Fund, with functions that are set out in this first schedule that we are amending.

It is interesting to see that the purposes of the International Monetary Fund are set out in the first article of this schedule that we are amending. They include: “To promote international monetary cooperation through a permanent institution which provides the machinery for consultation and collaboration on international monetary problems … To facilitate the expansion and balanced growth of international trade, and to contribute thereby to the promotion and maintenance of high levels of employment and real income and to the development of the productive resources of all members as primary objectives of economic policy.”, and “To promote exchange stability, to maintain orderly exchange arrangements among members, and to avoid competitive exchange depreciation.” I am going to emphasise that last matter. One of the purposes of the IMF was and is “to avoid competitive exchange depreciation.” In that regard, it falls on me to again remind the Committee that whilst we are considering amendments to parts of this schedule, we have a Government that is ignoring other lines of advice that are coming out of the IMF that show that existing monetary policy is no longer working for New Zealand’s best interests. We are not avoiding the deleterious effect of competitive devaluation abroad, and it is time for New Zealand to move beyond giving primacy to inflation targeting and to manage other important aspects of management.

Of course, this legislation does not touch on this, because the advice function of the IMF is unaffected by these provisions, except to the extent of the funding of the IMF, which I presume is in terms of its advice function. This is funded from the same pool of money that is provided by Governments, and that money will be invested. I suspect it lives off some of the income that it generates from that money. I am sure that if another member has information to the contrary, they will leap to their feet and say so. When quotas are set as to the funding of the IMF, that funding funds not just some of the loan functions that we have talked about, loans of money to countries that are in trouble; it also funds the IMF itself, which has this advice function that is so important. Although it is never always right, if you like—no one is always right, and the IMF has made some mistakes over the years—it nonetheless has been a force for good in the world and the Labour Party is happy—

The clause we are speaking to at the moment is clause 5 of the International Finance Agreements Amendment Bill, which brings in schedule 1 implementing the 2008 reforms. That is the area that I want to speak to, and, as my colleague David Parker has done, I want to also refer to the International Finance Agreements Act 1961. It is from a period slightly before my experience in Parliament, but I think many of us have—

💬 Hon Ruth Dyson: 1971? You were hardly born, Trevor.

1961.

💬 Hon Ruth Dyson: 1961? You weren’t born.

Well, I give that member an assurance I was. I am trying to work out—was it Harry Lake? I am trying to work out who the Minister of Finance was. Was it Lake—John, you will remember—in the Holyoake Government?

💬 Hon John Banks: Lake.

Lake, yes. Subsequently Muldoon was a Parliamentary Under-Secretary later on, and then a Minister. But I am assuming Mr Lake was involved in these discussions, although, given some of the history, I would not have been at all surprised if Walter Nash, my predecessor in the Hutt South area—

💬 Hon Lianne Dalziel: Have you been here that long?

💬 Darien Fenton: Predecessor?

Well, not my immediate predecessor. There were one or two in between us. But I think it is fair to say—and I think Mr Banks remembers Mr Nash as well—Mr Nash was 86 when he left Parliament, so he was a person of considerable experience. He was someone who was involved in the first Labour ministry, and involved in a lot of international discussions in the—

💬 Hon John Banks: Not 86.

Sorry?

💬 Hon John Banks: Which Nash was this, leaving Parliament in 86?

Nash was a member of Parliament into the 1960s—into the 1960s—but he was first a member of Parliament in the 1930s. He was 86 years old—86—and was succeeded by Trevor Young, whom the member will know well. I know it is not quite strictly within—

The CHAIRPERSON (Eric Roy): No, it is not. Would you come to the point. I am fascinated, but would you come to the point.

That is right. I am sure I can work the fact that they were both temperance members of Parliament into the debate—they were; they both were. I think it is fair to say that Trevor Young was the last of the temperance movement members of Parliament.

💬 Hon Ruth Dyson: John Carter, originally.

Sorry?

💬 Hon Ruth Dyson: John Carter, originally.

Oh, I do not think John Carter was. I think John Carter may have been a temperance member off and on—normally the morning after.

But, getting back to the IMF and the fact that it was first brought into our legislation in 1961—in fact, it was part of the first schedule to the then, I presume, the International Finance Agreements Bill that subsequently became the Act—there is pretty substantial reform occurring in this schedule and in these changes. The first area of reform that I would like to refer to is that which is part of article 5 of the substantive legislation being amended here. In that article, section 12(h) is repealed and substituted, and it goes to “Pending uses specified under (f) above,”—and I will just get to paragraph (f), which I am just having a little bit of trouble finding. I will come back to that in a subsequent call. But the new paragraph (h) states: “Pending uses specified under (f) [in section 12]”—I will actually be able to find it, as it is not too far away from here as part of the first schedule—“the Fund may use a member’s currency held in the Special Disbursement Account for investment as it may determine, in accordance with rules and regulations adopted by the Fund by a seventy percent majority of the total voting power.” One of the things that I would be interested in hearing from the Minister in the chair, the Hon Michael Woodhouse, is an explanation, which I think is part of this and the next part, of the changes in the voting power as a result of the rebalancing, which I understand is about a 5 percent rebalancing, and whether that affects the position of the United States, which has had almost effectively a veto. With the Asian Development Bank it is sort of like where Japan goes, the Asian Development Bank goes, but with the IMF it is where the United States goes, the IMF goes. I think I would be interested in the Government’s opinion as to whether the rebalancing by about 5 to 6 percent of the balance of the ordinary capital does, in fact, give a change in effective control of the IMF. But, clearly, if we go back to new section 12(h), the income of the investment and interest received has to be put into a special disbursement account.

Then there is a new, additional paragraph (k) that is added to article V. That is a relatively important area, because it has to do with the use of gold and, effectively, the gold standard used by the IMF. It goes to when it “sells gold acquired by it after the date of the second amendment of this Agreement,”—because I think we know that there are two parts to this particular 2008 amendment, or, well, there are more than two parts to this 2008 amendment—“an amount of the proceeds equivalent to the acquisition price of the gold shall be placed in the General Resources Account,”. If there is any excess or profit, it goes into the investment account for use pursuant to article XII in schedule 1 of the International Finance Agreements Act 1961. But, of course, what we are talking about is effectively the constitution of the IMF.

I will move to article XII, which is relatively important, and which goes to the appointment of alternates. There has been, I think, quite a lot of debate within the IMF and some of the other institutions around the use of alternates and whether they have full powers in the absence of the primary executive directors, because they have a number of executive directors in this area. In fact, they are relatively well-paid executive directors. But what this amendment does is put a requirement on each of the executive directors to “appoint an Alternate with full power to act for him …”. I just want to ask the Minister in the chair whether it is just an old-fashioned approach from our current Minister of Finance that he did not accept the possibility that an executive director of the IMF could, in fact, be a woman, and—

💬 Darien Fenton: Ha, ha!

Well, you know, one might laugh, but, given the fact that it is Bill English who is involved in this, it just might—you know, he still has recurring nightmares about Jenny Shipley. But the possibility that either an executive or an alternate director of the IMF could be a woman does not appear to be contemplated in this legislative change to the IMF’s constitution.

What it also does for some of the executive directors who are appointed by more than a specified number of members—that is, people who have effectively multi-member constituencies in their position as an executive director—is that it allows them to appoint two alternate directors, so that is getting to be a pretty unusual situation. That person then has to do a designation as to which alternate should act when the person is absent—who should exercise the powers—and what effectively happens as a result of that is an ordering of the positions of the alternate directors.

Also within article XII is really the operative clause as far as the rebalancing of the power of the IMF is concerned. Section 5(a) is repealed and a new section (5)(a) is put in, which indicates that “The total votes of each member shall be equal to the sum of its basic votes and its quota-based votes.” That is a pretty standard arrangement, and it has been like that for some time. But what is happening here is a rebalancing, and section 5(a)(i) states: “The basic votes of each member shall be the number of votes that results from the equal distribution among all the members of 5.502 percent of the aggregate sum of the total voting power of all the members, provided that there shall be no fractional basic votes.”, and if one thinks about it, it gets pretty hard to start exercising part of a vote. Either you have got a vote or you do not have a vote, and having something passed by a fraction of a vote within the IMF is probably not the most logical way. Section 5(a)(ii) states: “The quota-based votes of each member shall be the number of votes that results from the allocation of one vote for each part of its quota equivalent to one hundred thousand special drawing rights.” So what that effectively does is give to the IMF a lot of power—to the people who put in the drawing rights. You know, I suppose it is a bit like the taxation and representation - type story, and that is something where the United States has for a very long period been the primary organisation to fund the IMF. I think, as we know, there is some rebalancing occurring.

Within article XII, section 6(f)(iii) is changed, and that has to do with the use of particular currencies. Again, this is a sensible sort of thing, because it means that there is not the same sort of currency risk to individual currencies. New section 6(f)(iii) states: “The Fund may use a member’s currency held in the Investment Account for investment as it may determine, in accordance with rules and regulations adopted by the Fund by a seventy percent majority of the total voting power.” I think the fact that the 70 percent majority is sitting there was something that—and I am not sure whether my colleague the Hon David Cunliffe was involved in the discussions here, but I am pretty sure it is something that the Hon Dr Michael Cullen was relatively keen on at the time when he was a governor of the IMF, because what that meant was that things could not be sort of tipped over or pushed through by a very small group of countries, given the imbalance of the funding in that area.

Clearly there is a wind-up clause to do with the investment account. I think it is—[Interruption] Well, no, there is a possibility at some stage that the IMF’s role could change. It may choose to focus—I note the scorn on the face of the member for Hamilton East or West. Which one is it?

💬 Hon Member: West.

West.

💬 Tim Macindoe: You should remember. You lived there once.

No, I just forget which of them comes from where.

💬 Tim Macindoe: Same initials, same electorate.

Well, maybe I am just blocking it out. The member is a disgrace! He is an embarrassment to Hamilton West—an embarrassment to Hamilton West!

But going back to the point, it may be that the work that the IMF is meant to do in the advice, especially around currency—

I move, That the question be now put.