Committee on Finance. - Bretton Woods Agreements Bill, 1957—Second Stage. – Dáil Éireann (16th Dáil) – Tuesday, 2 Jul 1957

Committee on Finance. - Bretton Woods Agreements Bill, 1957—Second Stage.

Minister for Finance (Dr. Ryan)

I move that the Bill be now read a Second Time. This Bill was foreshadowed in the financial statement of 8th May last when it was indicated that the Government intended to seek legislative authority to join the International Monetary Fund and the International Bank for Reconstruction and Development. These institutions were set up under the Bretton Woods Agreements of July, 1944, the text of which is given in the Schedule to the Bill. Membership of one institution involves membership of the other. The resources and facilities of both institutions are available only to members.

The International Monetary Fund has three main purposes. It strives to maintain reasonable stability of exchange rates; it encourages the removal of restrictions which hamper the making of international payments; and, thirdly, and most important, it provides foreign exchange to tide member countries over temporary deficits in their balance of payments and thus avoid recourse to restrictive measures. It is in the nature of a revolving fund, that is to say it is an institution which expects repayment within a relatively brief period, usually three to five years, of the credits it furnishes. The assets of the fund are at present of the order of £3,300,000,000.

The International Bank for Reconstruction and Development, the so-called "twin" of the fund, was established to assist, first, in the rebuilding of countries devastated by the war and secondly, in the development of the resources of its various member nations. It operates mainly by the granting or guaranteeing of loans to Governments or other borrowers. Loans by the bank are financed from the original stock subscriptions of member countries and from the sale of its securities and of borrowers' obligations on the world capital markets. It is also the policy of the bank to give advice on request on particular economic and financial problems and on general development plans even where these are not related to bank investments. The assets of the bank amounted to £1,278,000,000 at the end of 1956.

Formal application for membership in the fund and the bank was made on 23rd April, 1957. At the moment, resolutions setting forth the terms and conditions on which Ireland will be admitted to membership are being submitted to the respective Boards of Governors of the two institutions for approval by postal vote. It is, therefore, likely that Ireland will be invited very shortly to become a member of the fund and the bank.

Far from being pioneers in joining these organisations, we find ourselves almost at the end of the queue for membership. There are at present 60 state members and a number of other countries have taken steps to join. Most of the independent members of the sterling area have joined. New Zealand is one of the exceptions but a Banking Commission which reported last year recommended that that country should become a member.

There are a number of reasons why this country has not joined before now. During the period of Marshall Aid, no country benefiting under the programme was permitted access to the fund's resources. Another factor was the rather strict interpretation which the fund adopted in its early years of the provisions governing drawing rights of members. So far as the bank is concerned, we were in the position after the war of being able to finance capital development at home not only from current national savings but also from surplus external reserves built up during the war years and from the counterpart of the Marshall Aid Loan.

Conditions have now changed. In present circumstances, access to the bank would confer a benefit in that it would open to this country the possibility of supplementing to some extent the domestic funds available for capital development as well as making available the valuable advisory services I have mentioned. This in present conditions is our main interest in joining these institutions. So far as the fund is concerned, the likelihood of our availing ourselves of the short-term borrowing facilities to meet temporary deficits in the balance of payments is remote. I must stress that the Government is determined to preserve a balance in our external payments and the need for recourse to the fund should not, therefore, arise, save in the most exceptional circumstances.

An Explanatory Memorandum has been circulated along with the Bill for the information of Deputies. This Memorandum gives details of the subscriptions which will require to be paid by this country. It is understood that Ireland's subscription to each institution will be fixed at $30,000,000 (£10.7 million). A quota of $30,000,000 compares with quotas of $1,300,000,000 for Britain, $275,000,000 for the Netherlands, $68,000,000 for Denmark, $40,000,000 for Greece and $38,000,000 for Finland.

It is necessary to draw the attention of Deputies to one point in the Memorandum on which more up-to-date information has recently become available. We now learn from the terms of the Resolution of the Board of Governers of the Fund that our gold subscription will amount to $4.5 million (£1.6 million), which is slightly greater than that indicated in the Explanatory Memorandum, viz., $4.3 million (£1.5 million). The balance payable in Irish currency will amount to $25.5 million (£9.1 million). As is stated in the Explanatory Memorandum, the gold payment may be increased later if our official gold and dollar holdings increase materially. The immediate payment to the bank remains as indicated in the Explanatory Memorandum, namely, 2 per cent. of the subscription or $0.6 million (£0.2 million) in gold or United States dollars and 18 per cent. or $5.4 million (£1.9 million) in Irish currency. The remaining 80 per cent. ($24,000,000 or £8.6 million) may not be called up except to meet defaults on loans made by the bank.

The actual amount, therefore, payable in gold and dollars on accession to membership of the fund and bank is $5.1 million (£1.8 million). It is proposed to finance the gold and foreign currency payments under the agreements by adjustments as between the Foreign Exchange Account and the Exchequer. Advances originally made to the account from the Exchequer will be repaid to offset the gold and foreign currency expenditure falling on the Central Fund under the Bill. The amount of U.S. dollars in the Foreign Exchange Account at present is $10,000,000.

The contingency of our having recourse to the fund to borrow other currencies is remote. On the other hand, all the members of the fund without exception normally enjoy large favourable balances in their trading with us and they, in turn, are not likely to be short of supplies of our currency to make purchases here.

As pointed out in the Explanatory Memorandum circulated with the Bill, a country is entitled to borrow from the fund up to 25 per cent. of its quota in any period of 12 months and up to a total amount equal to twice its quota. On the basis of our quota of $30,000,000, this means that we could borrow $7.5 million (£2.7 million) in any period of 12 months and up to a total amount of $60,000,000 (£21.4 million). These limitations may be waived in special circumstances; in fact, the fund has used its powers in this regard a considerable number of times over the past year.

Indeed, recently, the fund has become more dynamic in its general approach to the world's monetary and balance of payments problems and has interpreted its articles of agreement in a more liberal spirit; in the ten months, May, 1956, to February, 1957, the resources of the fund used or committed were considerably greater than in the previous ten years of its existence. It has, in particular, made considerable use of its system of "stand-by" arrangements instituted some years ago (February, 1952) under which members are guaranteed in advance the right to draw automatically on the fund's resources up to a specified amount over a limited period. In December last, Britain was given drawing rights to the extent of its whole quota of $1,300,000,000. It was arranged that $561,500,000 could be drawn upon immediately and the balance of $738,500,000 over the succeeding 12 months.

As regards repayment of borrowings, the articles of agreement of the fund provide that one half of any member's drawings from the fund must be repaid in gold or convertible currencies within a year together with one-half of any increase or less than one-half of any decrease in the period in the member's monetary reserves. The balance must be repaid within a maximum period of five years. A service charge of ½ per cent. is currently payable by members on borrowings within their quotas. (This is the minimum service charge; the maximum is 1 per cent.). Charges up to a maximum of 5 per cent., depending on the length of time during which borrowings remain unredeemed, are levied on borrowings by a country in excess of its quota. All charges are payable in gold except in the case of a country whose monetary reserves are less than one-half of its quota. In the latter case a country pays in gold only that proportion of the charges due which such reserves bear to one-half of its quota and the balance is paid in its own currency.

While the subscription to the fund determines how much a member may borrow to meet a temporary deficit in its balance of payments, there is no necessary relationship between the amount of a member's subscription to the bank and the extent of the accommodation which the bank may afford. The main objective of the bank in making loans is to raise the level of production as efficiently and as quickly as possible in the borrowing country and assist in the attaining of a balanced economy in which exports of goods and services will eventually pay for essential imports.

In its lending operations, the bank may engage in several types of financing; it may lend funds directly, guarantee loans made by others or participate in such loans. It may make, guarantee or participate in loans to member Governments directly or to semi-State companies or private businesses in the industrial or agricultural sphere in the territories of members. Where the member Government is not itself the borrower, this member Government, its central bank or some comparable agency must guarantee the loan.

In the more recent activities of the bank, emphasis has shifted to development loans, made to assist in financing projects for developing the industry, agriculture, transport systems and natural resources of the bank's economically less developed member countries. Most of the loans made in recent times are designed to provide basic aids to production, such as the expansion of electric power facilities, railway, port and highway improvement and agricultural development. Total loans granted by the bank up to 31st December, 1956, amounted to £1,063,000,000. One hundred and sixty-three loans have been made in 44 countries.

Before making a loan, the bank carries out a careful investigation of all the economic, technical and financial aspects of the projects proposed. Survey missions study the prospective market to be served, the availability of local capital and of labour and trained management, the borrower's credit-worthiness and ability to bring the project to completion, and the country's ability to meet the foreign exchange costs of servicing the loan.

The terms and conditions of interest, commission charges and amortisation payments, maturity and dates of payment of each loan are determined by the bank. A recent loan (May 15th, 1957) made by the bank to the Finance Corporation for National Reconstruction of the Netherlands is for a period of five years and bears interest at 5? per cent., including 1 per cent. commission. The loan will be used to provide additional capital for lending to enterprises for industry, transport and commerce. Consultation between the bank and the borrower extends throughout the life of the loan.

Apart from its loan operations, the bank sends general survey missions to member countries to assist in assessing a country's total economic resources and to help its Government to draw up an overall development programme. Several missions have also been sent to examine special problems of economic development. Another of the bank's activities is the provision of facilities for the training of officials in planning, administration and management.

Reference was made in the Financial Statement to the fact that, in joining these institutions, assistance from the bank would be available, initially in the form of expert technical advice and later, perhaps, in the form of loans for approved development projects. As regards financial assistance, it is clear from the statement of the purposes of the bank that loans are made for productive purposes only. In any event, the Government would not be prepared to recommend any project for external borrowing unless it was specifically designed to increase the productive capacity of the country.

A member is entitled to withdraw from the fund and the bank at any time and is entitled to be repaid its capital subscription to both institutions. Any debts it may have incurred before withdrawing would, of course, have to be settled and it would be liable for contingent liabilities of the bank so long as any part of the loans or guarantees contracted before it withdrew was outstanding.

The facilities of a new affiliate of the bank—the International Finance Corporation—are also available to members of the fund and the bank. The principal aim of this institution is to encourage private investment in the less developed member countries but projects in other member countries are also eligible for assistance. It is not proposed to apply for membership of this institution at present; the question of joining can be considered later.

Before Ireland can assume membership of the fund and bank, it will be necessary for the Government to deposit instruments with the Government of the United States of America setting forth that it has accepted the articles of agreement of the fund and the articles of agreement of the bank in accordance with its law and has taken all steps necessary to enable it to carry out all of its obligations. The Bill is designed to give approval for the acceptance by the Government of the agreements and to provide the powers necessary to enable the Government to implement them. It follows the lines of legislation in other countries which have joined the fund and the bank.

It was the previous Government which opened negotiations with the authorities of the fund and bank with a view to joining these organisations and I presume that this is a measure which will commend itself to both sides of the House.

Mr. Sweetman

As the Minister indicated in his concluding passage, we had opened the negotiations which came before this Bill. In fact, the Secretary of the Department of Finance went to New York for the purpose of these negotiations in the early part of this year while I was in the Minister's chair. As the Minister has indicated, for that reason, and others also, we approve of this measure now before the House.

However, I think this is a measure which it is absolutely essential should be brought to the House with the fullest possible information. In his explanatory memorandum, the Minister outlined some of the purposes of membership and some of the liabilities attaching to it. In my view, it is absolutely vital in international agreements such as this that we should know exactly where we are travelling and where the responsibilities, as well as the benefits, lie.

I never was quite able to understand why we had not applied for membership of the fund and the bank earlier. That we had not done so was, I think, due to the fact that too much stress was put on the loan facilities of the fund rather than the advisory and survey facilities. So long as we had our surplus external reserves, built up during the war years when it was impossible to get the goods we required, so long as the proceeds of Marshall Aid, both of the Counterpart Loan and Grant Funds, were available to us, there was perhaps not the same necessity to consider the loan aspects of the fund.

It always seemed to me that we would have been wiser to have applied for membership at an earlier date to enable us to avail of the very substantial advisory and survey facilities which are available to members, and only to members. If for nothing else therefore, the move by which we now join is a welcome one.

The Minister in his speech referred to the fact that New Zealand is not a member and the reasons why New Zealand had not joined were not quite clear. The last Banking Commission Report in New Zealand, while indicating that the country should join the fund in the future, was somewhat silent on, and refrained from, any analysis of the reasons why it had not joined. It is rather difficult to understand why various countries did not join.

All the countries in North America, Central America and Southern America are members and I think we are the last non-Iron Curtain country in Europe to look for membership of the fund. Russia, of course, was an original signatory at Bretton Woods but never joined afterwards. Poland and Czechoslovakia both joined and subsequently withdrew. Yugoslavia still remains a member. European countries had not got the same incentive, perhaps, to join as other areas because they were able to utilise their automatic credits in the European Payments Union for some of the purposes for which otherwise the International Monetary Fund might be used.

I was glad to hear the Minister say that he and the Government were determined to preserve a balance in our external payments. I would suggest that the word "preserve" is the wrong word to use. What he should have said was that they would do their utmost to retain the balance because it was we, as a Government, who put our external payments into that balance in the first instance. As we all know, the balance which we have had in the past 12 months is the first we have had in the post-war period.

I was rather surprised to hear the Minister indicate that he had not previously been aware that the rate of interest charged in respect of the recent loan to the Netherlands was 5? per cent. It is a high rate and indicates that international interest rates are at present on a high level. I appreciate, of course, that the rate includes the service or commercial charge, whichever it is called, but even so, it is a high rate of interest for an international fund of this sort. One would have thought that in relation to international development for the purpose of building up production throughout the world and for the purpose—as it is of this fund—of making international commercial transactions freer, they would have been able to deal with their business at a lower rate. It will come as a surprise to many people to hear that this is the current rate of the corporation.

I would also have wished the Minister to expand more the reasons why the Government were not proposing to join the finance corporation at this stage. Ours is a private enterprise economy and I hope it will remain so. The finance corporation is the equivalent international backing for private enterprise, as apart from Government enterprise, or perhaps semi-State institutions, where services such as gas and power are in governmental or semi-governmental hands. The Minister would be well advised to give us, in considerably greater detail, the arguments why it is not considered desirable to join the finance corporation at this stage.

I understand that the finance corporation was proposing to operate much more on a long term basis rather than on the admittedly short term, temporary basis on which it does operate. I suppose it would be fair to describe it as something of an international credit company. If that is so, I am disappointed to hear that the Government has not thought it wise at this stage to consider making an application for membership. Perhaps there are disadvantages of which, at the moment, I am not aware, but it is necessary in the national interest that the pros and cons should be outlined in greater detail by the Minister.

The fund is managed by a board of directors of which the managing director is an economist of repute and not unknown to this country. The managing director has no vote. There are five permanent members of the board and, apart from them, there are other directors who are there in a representative capacity. Each elected board member who represents his country also acts as a representative for a group of countries. If I might give an example, the Danish member of the board represents not only his own country but also Finland, Iceland, Norway and Sweden. When we join, we will presumably have to associate with some such group as that and I should like the Minister to indicate what group the Government propose to associate with and whether that group is a matter for determination by the board of the fund, or whether it must be done at the option of the individual country.

The fund and the bank both supply some very valuable statistics. Some of these facilities are available only to member countries; they are not available in the ordinary way for general publication or general purchase. I hope that the Minister, in so far as he is not restricted by the confidential nature of any such documents, will put all the information which the fund makes available in relation to international statistics in the library for the benefit of members of the Oireachtas. It is an undoubted fact that by and large we can say we are not sufficiently acquainted with what is happening in other countries. The digest that these bodies provide of the position in various countries would be a very welcome addition in filling that void.

The effect of our joining, as I understand the situation, means that we bind ourselves to maintain par value of our currency, to keep our Irish currency at its existing level. The probability is—in fact I would put it very much further than probability—that would have to be done in any event but it is perhaps better that it should be clearly understood we are so binding ourselves in joining in this international arrangement.

I take it that, while the purposes of the fund are to seek free inter-tional exchange and international transactions, the effect of our joining the fund will not mean any amendment of our existing exchange control regulations. I should like the Minister to indicate whether that is a fact or not. This could be, as far as I understand the situation, a method by virtue of which one could quite well end the legal tender note fund. I do not think that is likely to arise but because of the necessity to provide our own currency for the balance of our quota, and to lodge it with the Central Bank, there might be a situation in which such currency would have to be made internationally available and that could be done only by the securities available to the bank through the legal tender note fund. It is very unlikely, indeed, that that would happen and it should not in any way be a bar or prevent our going ahead with the proposal.

I find some very considerable difficulties in dealing with this measure. It is virtually a one-stage Bill because we have the opportunity only of accepting or rejecting the agreement that is put before us. I have very considerable difficulty in understanding the methods by which the quotas set out on page 31 of the Bill have been calculated for other countries, notwithstanding the explanation in the official memorandum. Perhaps my difficulty in that arises from the fact that these quotas were established at those figures in 1944, and I assume for some time thereafter, rather than on the present-day value of their various reserves and currencies.

The Bill also, on page 23, refers to the post-war transitional period and it makes it clear it was the aim of the promoters to introduce this mainly for the post-war transitional period. I do not know whether the Minister is prepared to give a definition as to whether or not we are still in the post-war transitional period, or whether we have got out of that into the greater calm of normal relationships. As long as in the monetary field we maintain a monetary exchange control I do not suppose we can say that we have got into that calm.

I have asked the Minister to confirm that no part of our control arrangements will be affected by this measure. I would like him to confirm also that no part of our existing taxation incentives will have to be removed as a result of this measure, that we are free to choose ourselves the correct moment at which to vary or to ease our exchange control regulations and that we are equally free to continue to deal with our taxation arrangements in the future in the way we, have done so, if we should so desire.

I do not know how long the Minister expects it will be before it will be possible to get a survey party here to consider our position and to offer us advice from their international experience. Personally, I take the view very strongly that no country can afford to isolate itself from the advice that is obtainable from other countries. International experience is worth while wherever it can be obtained. We should be extremely foolish if we were to take the view that we knew so much about our own problems here ourselves that it was not necessary or desirable for us to get international assistance towards their solution. That has been at times the view of other politicians, but my Party has certainly never subscribed to that view.

This Bill is a welcome measure along the lines of providing the advisory services and the information that is required. It would be a very valuable addition if we required assistance, international development accommodation, for the purposes of enabling us to go forward with some large scheme of production that was temporarily beyond our resources. I use the words "temporarily beyond our resources" quite deliberately. The fund is meant to cover only temporary deficits running over a short period of time. Equally, it is not intended to cover permanent deficits in the provision of capital for undeveloped countries. Where productive development is desirable and cannot be made from immediate internal resources we should have access to those resources which are made available by virtue of this Bill, but we can only do so, and only hope to get that access, if we run our own country along proper business lines.

Mr. Norton

I have long been an advocate of the view that we should join both the fund and the bank. I think as well as that there are advantages to private enterprise here by being associated with the Finance Corporation. I welcome not only the proposal that we should join both the bank and the fund, but, indeed, I think we ought to have done so many years ago. The fund and the bank both together, though perhaps to some extent working in different directions, do provide valuable facilities particularly for undeveloped countries which are under-capitalised, and through the medium of the Finance Corporation, for private enterprise which finds it difficult, if indeed not impossible, to secure the money necessary to finance its development programmes. I think, therefore, the decision to join the bank and the fund will not only be welcomed generally but will give us access to the means of accelerating our development in directions which are calculated to give a permanent return to the nation.

Like Deputy Sweetman, I should like to know what are the specific reasons for not associating ourselves with the Finance Corporation. There are many enterprises in Ireland which, because of the State demand for public subscriptions, find it difficult from time to time to go on the money market and borrow, notwithstanding how laudable the enterprise may be. Many other countries have found it advantageous to enable private enterprise organisations in their respective countries to have access to the Finance Corporation as a means of securing finance which they are not able to obtain on the home market. Here, where many of our private enterprises are literally starved for finance, I am surprised at the decision to refain fom taking advantage of the Finance Corporation's facilities, which I think represent an important and, in our circumstances, a very useful aspect of the facilities provided by this international instrument.

We can go both to the bank and to the fund now with our heads erect. We are not seeking admission on the basis that we are a mendicant nation. We are not seeking admission on the grounds that we are a bankrupt nation. Thanks to the steps taken by the Government in 1955 and 1956, by means of the imposition of levies on luxury and non-essential articles, our balance of payments difficulties were brought under control with a speed which has surprised many of the Government's critics. This Government can now reflect that it has no balance of payments problem with which to deal. That problem has been solved. The returns clearly indicate that we are now building up external assets again.

So long as we can balance our payments—in other words, live within our means as a nation; pay for what we import with what we export—our credit in the world is high and must always stand high. I am strongly in favour of retaining that position because it not only redounds to our financial solvency at home but it gives us a status in the world as a creditor nation. Internationally, a good name is something the significance of which we can never underestimate.

The Minister has told us that, in the course of the existence both of the bank and the fund, approximately 44 nations have borrowed money through both organisations. Many of these nations are now among the wealthiest and the economically strongest in the world and many others are relatively undeveloped countries striving to win for themselves a place in the economic sun.

I do not think it is a credit to our international intelligence that we here, an outpost of Western Europe, refrained so long from taking advantage of the facilities which were embraced enthusiastically by 44 other countries to their permanent advantage. However, the fact that we have now decided to join the fund and the bank is a welcome development. I was always in favour of doing so and the last Government took the initiative in making the necessary arrangements.

Perhaps the Minister would tell us the Government's programme in relation both to the fund and to the bank. Is it proposed that the Government will borrow money or that the Government will put State-sponsored bodies which indent on the Government each year for money to finance their economic activities in touch with the bank or is it intended that the Government will borrow directly from the bank, which it is entitled to do, and then ration the money which it has so borrowed among State-sponsored bodies who must necessarily receive fresh injections of capital each year in order to enable them to continue their development? The Minister might also say, if it is possible to do so at this stage, how soon the Government intends to avail of the facilities which both the bank and the fund provide and whether it is intended, as well, to invite the assistance of these two organisations for the purpose of making available to us the excellent technical facilities provided for member countries associated with the bank and the fund.

I share Deputy Sweetman's view that we ought to avail of every possible opportunity of getting access to the store of knowledge which has been acquired, often by hard and bitter experience, by other nations who have gone through economic cauldrons before us and perhaps worse than ours. I am strongly in favour of picking the international brains of the world, particularly when offered to us, in order to enable us to ascertain whether, in what other countries do, there is for us a lesson which will enable us to avoid wasteful types of activities and at the same time give us a more direct cut to the prosperity which is so elusive.

I hope the Government will avail as soon as possible of the facilities for financial and economic surveys which this international organisation makes available and that the Government will be able to tell us—with more precision, I think, than the Minister did in his introductory speech—the immediate programme in respect of the facilities which will be made available through both the fund and the bank.

Mr. D. Costello

These Bretton Woods Agreements provide that members must join both the International Monetary Fund and the International Bank for Reconstruction and Development. Therefore, this country must join the fund as well as the bank. As indicated by the Minister, I am completely of the view that we as a country will not require the assistance of the fund, unless very extraordinary and unexpected developments occur in this country or Great Britain.

The aim of the monetary fund is to maintain stability of exchange rates. Our exchange rates are fixed by Statute in this country. Unless we are to amend our Currency Act and the Central Bank Act, 1942, it is unnecessary for us to require the safeguards which the monetary fund gives to members and the demands which the monetary fund makes on members in this regard. Unless sterling collapses completely, unless we break our link with sterling, unless the European Payments Union fails completely, we shall not need the resources of the International Monetary Fund.

There are certain, perhaps less tangible, advantages to be obtained from being a member of the fund. Membership of the fund brings about an obligation not to change our exchange rate beyond 10 per cent. without the permission of the fund. From that point of view, it is of certain advantage for us to be able to point to certain critics, certain pessimists, who have in the past endeavoured to allege, during times of crisis in our balance of external payments, that this country was going to devalue its £ that we now have an international obligation, apart from an internal statutory one, not to do so without the consent of the International Monetary Fund.

There are other reasons why this Bill has been brought before the House. We are to gain valuable services of an advisory nature from membership of the bank. In addition, our officials can get the training which is given by the bank itself. It seems to me, however, that these are not the real reasons why we are joining these two international bodies. It is true that the advisory services will be of assistance to us and could be of considerable advantage to this country. It is also true that there are advisory services available in O.E.E.C. which we could have availed of, if we wished. I think the real reason for the introduction of this measure is the fact that by it we shall become members of the International Bank. The main advantage which this country will obtain from this Bill is that membership.

I should pause here for a moment to state something which so far has not been stated in this debate. It is quite clear from the Minister's Budget statement and from what he has said here to-day, that we are very likely, in the not too distant future, to avail of a foreign loan from the International Bank. That is a remarkable change from the previous statements made by the Minister's colleagues within the last few years. I can recall that the Minister's colleague, the Tánaiste, outlined proposals for borrowing £100,000,000, some few years ago. He indicated that it was not intended, nor was it necessary, to get any of the £100,000,000 from outside this country. I can recall a speech made last year by the Taoiseach in which he strongly condemned the idea of this country borrowing abroad.

I do not accept that view; I do not accept that there are dangers in borrowing abroad. I see no reason why we should in any way put our freedom —our freedom as a country or our freedom economically—in jeopardy by borrowing from the Bank of International Reconstruction and Development. For that reason, I am glad the Minister's colleagues have changed their view on this subject and have decided to seek assistance from the bank to supplement our domestic resources.

The Minister has indicated that no fewer than 44 countries have seen the advisability of obtaining loans from the bank. In the early course of its operations in 1947, the bank lent to France, the Netherlands, Denmark and Luxemburg, all of whom obtained general purpose loans. In 1948 and 1949, the bank lent to the Netherlands to assist Dutch shipping companies. Because of the arrival of Marshall Aid, the bank's main activities were canalised away from Europe to Asia and South America. Under-developed countries such as Chile, Brazil, Colombia and India, have obtained assistance from the bank.

I think it is of interest to us in this country in particular to appreciate that one of the big borrowers from the bank has been Australia. As recently as last year, the Australian Government obtained a loan of over $9,000,000 in order to finance the purchase of aircraft. In December of last year, they obtained a loan of $50,000,000 in order to purchase agricultural equipment and to enable agricultural equipment to be manufactured in Australia. That particular type of loan was a very clear indication of the type of accommodation we could get and should get from the International Bank in order to increase our productive resources.

At the end of last year also, loans were made to Finland and Japan. I give these facts because I think it is important that all members of the House should appreciate that other countries have benefited considerably from recourse to the bank. Other countries have not lost one tittle of their freedom or nationality by recourse to the bank. I am glad the Government has decided that that is so.

I must say I was rather surprised— as Deputy Sweetman was—to learn the rate of interest which the Dutch Government were required to pay in respect of a recent loan. The Australian Government at the end of last year had to pay only a little over 4 per cent. on its loan. Japan and Finland obtained loans at 5 per cent. at the end of last year. I hope that, when we come to apply, the rate of interest may be lower than at present is being provided in respect of the Netherlands Government.

This point is important, too, that there are not talons attached to loans from the International Bank. The only requirements of these loans are that they be carried out in accordance with the agreement for the loans. The bank's officials very properly carry out an on-the-spot examination of the project put up by the Government; they supervise the spending of the money to see that it is spent in accordance with the terms of the agreement for the loan; but beyond that, there are no restrictions on the loan and in particular the agreement provides that the loan will be granted without recourse to political —or, rather, non-economic—influences or considerations.

Like Deputy Norton, I think the Minister should let us know what his plan is with regard to our application to the bank. The Minister should have a fairly clear idea now on the financing of the capital investment programme of the Government and the semi-State corporations for the next 12 months. He should know whether it will be necessary to apply to the bank this year. I should like the Minister in his reply to indicate whether he thinks he will be applying this year for a loan from the International Bank.

Like Deputy Norton and Deputy Sweetman, I agree that we should become members of the International Finance Corporation. It is just the type of body which could assist many productive enterprises of a private nature here, which are starved of capital. It is very true that Government loans here over the past ten years have largely soaked up all the available capital on the Irish money market. The examination of figures shows us what a small percentage of new issues has been made by private companies and what a large part of all the issues which have been issued on the Stock Exchange over the past ten years has been issued by the Government or semi-State corporations. The difficulties which private firms have at the present time in obtaining accommodation of a capital nature mean that a lot of our industrial drive is slowed down. I am not aware of what the restrictions are on the lending from the International Finance Corporation, but over 40 States have thought fit to join it and it seems to me that there may be very great advantages to our private companies and firms here by our accession to this corporation. The Minister has given no reasons why we have not joined it, and I think he should.

Similarly, in the Bill before us, there is no provision for any subscription by the State to the International Finance Corporation in the event of our joining and it may be necessary for the Minister to bring in new legislation, if we decide to join. The advantages could indeed be quite considerable to private individuals who will get no benefit, directly, at any rate from this present Bill. I should be glad if the Minister would enlighten us with regard to the International Finance Corporation in his reply.

Dr. Ryan

First of all, I should like to answer some questions asked with regard to any restrictive influence in joining these bodies. It does not in any way interfere with our system of taxation and it does not interfere with our exchange control. We are quite free as far as these things go. There is only a very remote possibility that it would interfere with our legal tender note fund—if the bank should fail in its obligations, which is not likely.

Mr. Sweetman

Does the Minister mean the international bank fund?

Dr. Ryan

Yes.

Mr. Sweetman

Or if there was default here as well? We hope that will never happen.

Dr. Ryan

Not so long as we are here. We are still technically in the post-war transitional period. I do not know to what group we may be assigned as regards voting for representatives on the executive board. Deputies, who have read this report, must have been very puzzled by the system of voting. It is much more intricate than that of our Seanad. It is very hard to understand. We will definitely be allocated to some group.

Mr. Sweetman

Do we get allocated to a group? We cannot choose our own group?

Dr. Ryan

I think so, perhaps by agreement. We will have to go where we are put in the end. Deputy Norton asked what our programme was in relation to the fund and the bank. I sincerely hope it will not be necessary to have recourse to the fund although we should not be too presumptuous in these matters as Great Britain had recourse to it last year. We may avoid the necessity of having to go there.

As regards borrowing from the fund, I have no definite proposal in mind for that. First of all, we must have the survey. We would have to have a suitable project before making application to the bank and we must await the survey. I agree fully with Deputies Sweetman and Norton that we should avail ourselves of all the information we get. As was pointed out by them, they have the advantage of knowing the things that were tried and failed in other countries and the things that were tried and succeeded. There is no reason why we should not take advice.

Mr. Norton

The Minister said there must be a survey before we can borrow from the bank. Is it not possible to borrow in order to finance an existing progressive development which is already taking place?

Dr. Ryan

No. The bank will have to make a general survey or a particular survey. My intention would be to try and get the particular survey on our economic situation and get advice generally. If arising out of that some project was pointed out to be to our advantage, we might find it convenient to apply to the bank for a loan.

Mr. Norton

Could you apply for a loan in connection with accelerating an existing progressive development?

Dr. Ryan

Yes, but it would have to be surveyed.

Mr. Sweetman

Is it not very unlikely they would give a loan without making a survey first?

Dr. Ryan

Yes. We intend to seek advice. I am told they would not be in a position to give us advice for at least six months from the time we are admitted. That means that we need not expect any advisers to arrive here until next spring. We intend to get the advice as soon as we can. With regard to the International Finance Corporation, first of all, we must be members of the bank before we can apply. As Deputies, who have read the history of this business are aware, the International Finance Corporation was set up primarily at any rate to help private investment in undeveloped countries. Undeveloped countries are mentioned but it is not always said what an undeveloped country is. In fact, I think that countries that are just as well developed as our own have sought loans from the International Finance Corporation. We must first join the bank. We would not be in a position to know what our obligations are until we joined the bank. Therefore, we need not bring in that at the present time. We will have to come back to the Dáil before we can join the International Finance Corporation.

Mr. D. Costello

Does the Minister think he will?

Dr. Ryan

It will probably follow all right. I do not think anything else arising out of the discussion calls for comment. Deputy Norton made some reference to our total financial position. We have to pay £1.8 million in gold or United States currency. We have to pay £1.9 million to the bank in our own currency or some acceptable currency. Apart from that, there is a note lodgment of £9.1 million to the Central Bank for the fund but that will not be drawn upon except in very unexpected circumstances.

I do not think anything else arises except the point made by Deputy Costello in reference to the fact that Australia appears to have got the loan at a much lower rate of interest than the rate I have mentioned here. That was last year, when the rate of interest was somewhat lower. It was 4¾ per cent. as opposed to 5? per cent. now.

Mr. Norton

I understand from the Minister that it will be approximately six months at least before we can get the benefit of any of the technical services. Is it contemplated asking for a survey before that and, if so, when is it likely the survey will take place?

Dáil Éireann debate -
Tuesday, 2 Jul 1957