I move that the Bill be now read a second time.
The Bretton Woods Agreements (Amendment) Bill 2011 which was enacted earlier this year provided for acceptance by the State of amendments to the IMF Articles of Agreement which were approved by the IMF Board of Governors in 2008. The present Bill is a continuation of this process which relates to the ongoing reform of IMF governance.
The Bill is needed to allow the State to accept a further amendment to the IMF Articles of Agreement which was approved by the Board of Governors in December 2010. The acceptance of the amendment by Ireland will contribute to the process of bringing it into force.
The amendment which is known as ‘the Amendment on the Reform of the Executive Board’ was approved by the IMF Board of Governors as part of the 2010 governance reforms agreed by the IMF. These reforms are aimed at improving the Fund’s legitimacy, credibility and effectiveness in the modern world. It is worth recalling that under the 2008 reforms, it was agreed to (1) realign voting power in the IMF to reflect changes in the global economy and (2) increase the voting power and participation of low income countries (LICs).
Under the 2010 reforms, it was agreed to enhance the representation of developing countries and to modernise the arrangements for establishing the Executive Board of the IMF. The substance of the present amendment is that, in future, the Executive Board of the IMF will be an all elected body. At present, the Articles provide that the five largest members are entitled to appoint Directors to the Board and this provision is considered by many to be an anachronism in the modern world. The amendment will remove the category of "appointed" Directors and thus facilitate restructuring of the Board on a more representative basis.
As was the case with the 2008 reforms, the 2010 reforms also adjust the IMF ‘quota’ shares of members to better reflect their relative weight and role in the global economy and to strengthen the position of emerging markets and developing countries. The ‘quota’ of a country is a measure of its voting power and representation at the IMF, and is broadly based on its relative size in the world economy. It determines the member’s maximum financial commitment to the IMF and also has a bearing on its access to IMF financing and the terms of such financing, including the interest rate. However, current quotas have not kept up with changing economic realities, especially the increased economic weight of major emerging countries in the world economy. While the quota adjustments will benefit emerging market economies in the main, a number of advanced countries including Ireland, who have been significantly underrepresented in the past, will also receive a quota increase.
An increase in quota has the effect of lowering the borrowing cost of assistance from the Fund. The increase in Ireland’s quota share, when it becomes effective, will result in a significant reduction in the interest rate payable on the funds borrowed by Ireland from the Fund. Taking into account the 2008 quota change which became effective in March 2011 and this quota change, it is currently estimated that on a weighted average basis a saving of about 100 basis points on the interest rate could be achieved. It should be noted, however, that these expected savings may change either upwards or downwards in the light of future quota revisions.
The amendment on the Reform of the Executive Board is, by resolution of the IMF Board of Governors, required to have entered into force before the quota increases can become effective. This requires acceptance of the amendment by a voting threshold of three fifths of members, having 85% of total voting power. While it is not possible to be definitive about the timeline for the implementation of the 2010 quota changes, by resolution of the Board, each member has committed to use its best efforts to complete the necessary steps for acceptance before the annual meetings in October 2012.
The Bill is essentially a technical Bill which provides for acceptance of the amendment, the seventh amendment to the IMF Articles of Agreement. The Articles currently establish two categories of Executive Directors: those who are appointed, and those who are elected. The amendment eliminates the category of appointed Executive Directors and requires that all Executive Directors be elected.
Section 1 of the Bill sets out the definitions of terms used in the Bill. Section 2 provides for approval of the acceptance of the amendment of the IMF Articles by the Government. Section 3 contains the provisions relating to short title, construction and collective citation.
The amendment on the Reform of the Executive Board is set out in the Schedule to the Bill and has fifteen sections. The first section provides that the Executive Board shall consist of twenty Executive Directors, elected by the members, with the Managing Director as Chairman. This replaces the provision whereby five of the Executive Directors are appointed by the five largest members and provides for an all elected Board.
The second section provides 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 Executive Directors. The effect of this provision is that the existing possibility whereby the size of the Board may be adjusted will continue to apply to the restructured Board.
The third section provides that elections, to the all-elected Executive Board, will continue to be at intervals of two years and in accordance with regulations adopted by the Board.
The remaining sections (4-15) delete or amend existing provisions which refer to the category of "appointed" Executive Directors and include transitional provisions to govern the period between the entry into force of the amendment and the first election following such entry into force. These sections do not provide for any changes to the existing provisions beyond those resulting from the elimination of the category of appointed Executive Directors.
As I said at the outset, the Bretton Woods Agreements (Amendment) (No.2) Bill is a technical Bill designed to give effect to IMF reforms which were approved in 2010 by the IMF’s Board of Governors, including the then Irish Minister for Finance. These changes relate to the governance framework of the IMF and are part of the ongoing process of modernising the Fund aimed at enhancing its legitimacy in today’s world. Ireland’s acceptance of this amendment will contribute to the ratification process to enable the amendment to come into effect- the target date being by the next IMF Annual Meeting in October 2012. The implementation of the amendment when it becomes effective will trigger the related quota increases and lead to a significant reduction of the interest rate on our IMF borrowings as the interest rate is related to a member’s quota. It is thus in Ireland’s interest and in the interest of the IMF membership generally that this Bill be enacted.
I commend the Bill to the House.