International Finance Agreements Amendment Bill

I rise to take a short call on clause 6 of the—

💬 Hon Trevor Mallard: 15 minutes?

—25 or 30 minutes, a short call—International Finance Agreements Amendment Bill. Labour supports the bill, and in particular it supports this clause, which brings into effect the amendments to the schedule proposed in 2010 by the—

💬 Hon Lianne Dalziel: Which schedule?

It is schedule 1, the Hon Lianne Dalziel. The important matter here is to first put it in context by rephrasing the role of the IMF. The international financial institutions are structured around the following general roles: the World Bank is tasked primarily with providing development advice and some co-funding to important development projects; the International Monetary Fund is tasked with providing backup financial resources to assist developing and emerging economies, and to help to underpin the stability of the international financial system. Its developed member countries provide special drawing rights as liabilities against each country’s national accounts, and in New Zealand’s case those liabilities add up to something over $1 billion.

Earlier in this debate we had debate over the one clause of this bill that Labour opposes, which was the removal of the right to parliamentary scrutiny, in clause 4. Labour proposed an amendment to that, which was defeated, and the bill has carried that clause. None the less, because the IMF board has already agreed and ratified the changes here, Labour believes it is important that this Parliament play its part by sealing that within New Zealand law by passing this bill and thereby enacting the amendments to the articles of the IMF that are contained in schedule 1 and schedule 2. Schedule 2 of this bill amends schedule 1 of the Act, implementing the 2010 reforms. In particular, I would like to draw the Committee’s attention to article 12, sections 3(b) to (d). It reaffirms: firstly, in (b), that “the Executive Board shall consist of twenty Executive Directors elected by the members, with the Managing Director as chairman.”; and, in (c), that “For the purpose of each regular election of Executive Directors, the Board of Governors, by an eighty-five percent majority of the total voting power, may increase or decrease the number of the Executive Directors …”.

That figure of 85 percent is a very important number because one country, the United States, holds 16 percent of the voting power, and the astute, like Andrew Williams MP, will note that 85 plus 16 is 101. Thus the United States has an effective veto over the enlargement or contraction of the voting board. That has been historically justified in terms of the United States’ pre-eminent role in funding the IMF. It is, of course, based in Washington, DC. It was part of the post-war UN and global institutional reconstruction. But, none the less, others would say that it has conferred upon the United States a very important tool of influence and leverage on the international economy. That is reflected in article 12, sections 3(d) and (c), which in a sense entrench the current United States veto over the composition of the board.

The IMF is going through several very important transitions, and in an earlier contribution in the Committee stage of this debate I noted the shift in thinking that has gone on at the IMF. It has been led by the current and previous managing directors, Christine Lagarde and Dominique Strauss-Kahn, and it has been embodied in particular in the writing of the chief economist of the IMF, the renowned Olivier Blanchard. He has led quite an effort in revisionist economic thinking, which, for example, has contradicted earlier IMF doctrine that running budget surpluses leads you to the best of all possible worlds. Recent work by the IMF has reaffirmed the importance of the Government spending multiplier, and warned Governments around the world that excessive austerity when they are recovering from a global financial crisis might be the worst thing that they could do. That is a pretty important shift for the IMF. There is another shift that is going on that is directly related to schedule 2, and that is a shift in the membership and the relative voting weights, contributions, and potential contributions of members. It really relates to the shift in geopolitical power due to the rise of South Asia and East Asia, the rise of China and India and the nations of South-east Asia. [Bell rung] I am just warming up, Mr Chairman—just warming up. There is another 15 minutes to go.

💬 Tim Macindoe: This is your idea of a short call.

That is right—that is right. The rise of economic power in East and South Asia has had the impact, some would argue, of restoring the globe to its long-run historical shares of global GDP, where East and South Asia took about a quarter each, Europe took about a quarter, and the so-called New World took about a quarter. Of course, in the early part of this century that has not been the case, and the trends are now being reflected in discussions at the IMF board level about voting rights and membership. In that respect it is very interesting that these articles reaffirm the veto power of the United States over the expansion or contraction of the board, and thereby decision-making rights.

One could argue that there is a little bit of tension between the article that we are passing now, which is entrenching the historical pre-eminence of the United States and its power over the IMF, and the global mega-trend that is seeing the rise of East and South Asia, and potentially—China is already the world’s second-biggest economy—its relevant influence over the global economic institutions. That is a drama that will no doubt play out over the next decade or so as the world enters a very interesting time in the shift of the balance of global strategic power towards the east.

Moving on through section 3, we are repealing and substituting various entitlements of executive directors to cast a vote, whether they should be cast as units or individually, the ability to substitute executive directors for alternates, and the various abilities to appoint or not appoint an executive director.

If we move on to schedule D, we go further into the ability to cast as alternates, and in schedule E, the transitional provisions in respect of the change of executive directors. In short, the 2010 reforms are all about fine-tuning the rights and responsibilities of the executive directors of the board. Whether New Zealand assents in its Parliament or not, those matters will pass into global practice, because they have already been ratified by the IMF. Labour has some mixed feelings about it. We support the bill, we support the clause, but we recognise that the IMF will need to continue to modernise if it is to continue to be relevant to the most important debates in the global economy, and that its internal power structure, the structure of its board, will need to adapt over time to bring the rising powers of Asia more to the centre of global institutional decision-making, because that is in the interests of all of us. We want the rising powers of Asia to feel that they have a good seat at the table. We want them to feel that they are actively participating, that they have skin in the global economic game, rather than standing outside it. That will mean that they have an incentive to play by global trade and macroeconomic rules, and that we will get past the relatively sterile debate about the artificial lowering of Chinese exchange rates and the accumulation of trade surpluses, because a lot of those debates will be held around the table of the economic institutions that matter.

So Labour believes that although we support this bill to ratify and recognise our role as a participant in the IMF, it is important that our region’s executive directors continue to urge the IMF to move in the direction of modernisation. That is part of several important trends that are going on within this institution that are making it more relevant to the modern world. As I said before, the evolution in macroeconomic thinking away from the old Washington consensus, the old neo-liberal orthodoxy, and towards a more multifaceted, broad-based approach to economics that takes on board the impact of behavioural economics, that looks at the global financial crisis and its aftermath, that has a multi-tool, multi-target approach to monetary policy, that rejects extreme austerity in favour of a more balanced fiscal approach—those are all the hallmarks of an institution that is in a very important transition and a world that is in an important transition to a new era of economic management.

The question is—

💬 Hon Trevor Mallard: Mr Chairman—

The CHAIRPERSON (Eric Roy): Are you seeking a call?

💬 Hon Trevor Mallard: I am. That is why I stood up and said “Mr Chairman”.

The CHAIRPERSON (Eric Roy): I did not hear “Mr Chairman”. It must have been very dulcet. I will accept that the member said it, and I will give him the call.

Thank you, Mr Chairman. It is not that I am a polite old gentleman, but I thought Lianne Dalziel was going to take the call before me, but apparently she wants to listen to her learned colleague first.

💬 Hon Ruth Dyson: And if she can’t, she’ll listen to you.

Thank you. I think I will be voting with my colleagues opposite at the Government Administration Committee tomorrow to get a decent chair.

💬 Hon Lianne Dalziel: We’ve got the best chair we’ve ever had on that committee.

Oh, that is not true. I used to chair it years ago.

I would just like to make a point in relation to the overall approach to the International Finance Agreements Amendment Bill before I drive down into the detail of schedule 2, which, of course, amends schedule 1—not schedule 1 of this bill but schedule 1 of the 1961 legislation, the International Finance Agreements Act. I would just like to ask a question of my Green colleagues. Why are they opposed to making an international financial organisation more transparent and more accountable? I cannot see why having an organisation that is shifting the balance of power away from the domination of the United States and into Asia, and being fairer on countries around the world, is getting opposition from the Green Party. To me it just does not seem logical. If Green members really believe that the IMF should be abolished, then it is relatively easy to draft an amendment to this bill that would take out the entire schedule of the 1961 Act and would thereby take out our membership of the IMF.

Mr Chair, I have been listening carefully—you know, I think members are allowed to say that they have not always been in the Chamber themselves. I have not always been in the Chamber for this debate. I have been here for a reasonable proportion—too much, you might say—but I have been listening to it and I am yet to hear a call from a Green member to explain why they are opposed to the IMF becoming more democratic. As I say, if they are totally opposed to the IMF, then they should move an amendment to the legislation that makes their position clear. It is not hard to do. It could be drafted in 10 seconds to make it work, but it appears that we are having silence on the substance but votes being cast without any sort of reasoning, and I would genuinely like to understand from people I want to work with in the future—

💬 Hon John Banks: They don’t understand.

Well, no, people just about always have a reason for doing something, and I would like to try to understand what that reason is. But, I think, for that to occur there has to be a call.

I go back to schedule 2, and with a tiny bit of criticism of my colleague the Hon David Cunliffe. I think he did not focus on the fact that schedule 2 amends schedule 1—and that is schedule 1 of the International Finance Agreements Act 1961. What we see, actually, in looking at it, is a difference in parliamentary drafting style since 1961. In 1961 it was called the First Schedule, and now it is called schedule 1. I would like an assurance from the Minister in the chair, the Minister of Immigration, that notwithstanding that difference in drafting style, we are talking about amendments to the First Schedule, even though we are calling it schedule 1, because the naming is different. Even if there was a debate about it, I do not think it would get to the Supreme Court. I think that most of us know what we are talking about, but to use the wonderful language of Hekia Parata, the Minister of Education, I would like a “belt and braces” approach to this and to get an assurance that our trousers are not going to fall down because we say “schedule 1” and not the “First Schedule”. So we would like to be getting an assurance in the preliminary part of this particular clause in the legislation—and we are referring, of course, to clause 6, which brings in schedule 1, amended in the manner set out in schedule 2.

What happens here is that it sets up the fact that “the Executive Board shall consist of twenty Executive Directors [who are] elected by the members, with the Managing Director as chairman.” There is not a high level of understanding in the Committee, and I am trying to assist the new member for Hamilton West with his understanding in this particular area, because what we do have here are executive directors who represent either a country or a group of countries. But when they vote they have an uneven number of votes. It is not like they are on a board and they all stick their hands up and you count the votes and, you know, the group with the most hands up wins. In this particular case—Darien Fenton will remember this approach—it is a card vote. It is effectively a card vote, and it would probably remind me of a Labour Party conference, where some people stick their—

💬 Hon Lianne Dalziel: In the old days.

No, no, we still have cards at the Labour Party conference. If you are representing the Labour electorate committee you have two on there, or each of the MPs gets one. Darien Fenton always had 50 on her card and about 75 more in her pocket when she was exercising the votes. That is the sort of approach that you have on the Executive Board of the IMF, where people do not carry equal votes. It is not democratic in the sense of one man or one woman a vote. Just looking in here, it appears that as far as the executive directors in this particular section, there is the possibility contemplated of there being a woman executive director.

💬 Hon Lianne Dalziel: How many are there currently?

I have no idea.

💬 Hon Lianne Dalziel: Have a guess.

I have my doubts whether there are any, but I must say that there are some pretty competent people who have gone from the New Zealand Treasury, including women, to work in this area. I think it is fair to say that there are not currently women, in my understanding, at the executive director level.

The executive directors are to be elected every 2 years. I think it is fair to say that there has been over a period of time a degree of dissatisfaction with the performance of some of the executive directors. Some of them have worked very hard, but others have regarded it as a bit of a sinecure. What having the 2-yearly elections, I think, is designed to do is ensure that there is less of sinecure in those arrangements. What it does do is give the board of governors, which, for those people who missed my earlier contribution, is generally a group of the Finance Ministers or Treasurers or their equivalents from—

💬 Hon John Banks: I wonder what the US really thinks about this, Trevor.

Sorry?

💬 Hon John Banks: I wonder what the US really think about these changes.

I think the US is probably accepting of the changes. If it were not—in reply to the interjection of the Hon John Banks—accepting of the changes, they almost certainly would not be happening. But I think it is also fair to say that the United States has not been in the forefront of the promotion of the modernisation and the shift of power from itself to Asia, as far as this venerable institution is concerned. I think it is fair to say that it has probably, over a period of time, been relatively cautious in the area. As I say, it will lose some of its power.

I think in new section 3(i) we do get to the point that my colleague the member for Christchurch Central has been interjecting about for—

💬 Hon Lianne Dalziel: I used to be the member for Christchurch Central.

Oh, Christchurch East.

💬 Hon Lianne Dalziel: I probably will be again, as a result of the boundary changes, but you know, never mind.

Well, the member—do they have a member? Oh, Nicky Wagner. Is Nicky Wagner the member for—

The CHAIRPERSON (Eric Roy): Order!

💬 Hon Lianne Dalziel: Yes, but she is going to lose it because of the schools.

The CHAIRPERSON (Eric Roy): Clause 6.

OK, the member who is the member for Christchurch East but will probably beat Nicky Wagner interjected.

💬 Hon Lianne Dalziel: No, no. The boundary changes will—

No, well, just leave it at “the member for Christchurch East who will probably beat Nicky Wagner”. What is wrong with saying that? Is that accurate? Is that accurate?

💬 Hon Lianne Dalziel: Absolutely.

That is accurate. That member interjected and asked: “What about the possibility of a woman being an executive director?”. I think it is fair to say that in new section 3(b) to new section 3(d) of Article XII that is expressed, I think, in gender-neutral terms. But when we get down to new section 3(i)—

💬 Hon Lianne Dalziel: Oh: “his”.

That is right. As with the previous section, we do not appear to contemplate the possibility of a woman being an executive director. Or are we saying that if there is a woman executive director they cannot have an alternate? Again, I would be interested in the view of the Minister in the chair, the Minister of Immigration, on this, because it appears to give only male executive directors the power to appoint alternates—whether, in fact, that is the case, or whether there is an overriding clause hidden away somewhere in the legislation. Although, I think it is pretty unusual in 1961 legislation. I do not think it would say in all cases “his” means “her”—and remembering that this is not for interpretation, in the end, by the New Zealand system; it is for interpretation within the IMF. I think there is a definite issue to be sorted out.

I would be interested in the Greens’ position on that. Would Green members like to take a call and tell us whether a woman executive director should have rights equal to the men? I think they should, but if people are opposed to—and maybe that is the reason. Maybe I have stumbled on the reason why the Greens are opposed to this. It is because, hidden away in it, there are some sexist clauses. If that was the reason for voting against it, it would be a not totally unreasonable reason for doing it. But I would just like to hear them say it rather than—

💬 Holly Walker: Carry on. More. More.

You are prepared to take a call and tell us? That is very good. I think I have got about another 7 minutes and you can have it.

It is slightly unusual here, because schedule 2, which is amending schedule 1, does go over quite a number of areas and does pretty substantive updating. But, on the basis that the Greens have indicated that they want to clarify their position, I am happy to sit down, and, if necessary, to follow them afterwards.

The question is that the question—

💬 Maggie Barry: Mr Chair.

The CHAIRPERSON (Eric Roy): Maggie Barry.

💬 Hon Trevor Mallard: I raise a point of order, Mr Chairperson. Maggie Barry sat. She was not standing when you called her and therefore you are not entitled to give her the call.

The CHAIRPERSON (Eric Roy): Well, it is my judgment where I give the call. She stood first and called first. I started to put the question. I reverted to the first person who called.

I move, That the question be now put.