Dáil Éireann debate -
Wednesday, 2 Nov 1960

Vol. 184 No. 3

International Development Association Bill, 1960—Second Stage

Minister for Finance (Dr. Ryan)

I move that the Bill be now read a Second Time.

The purpose of the present Bill is to enable Ireland to become a member of the recently established international lending agency known as the International Development Association.

The explanatory memorandum which has been circulated with the Bill indicates the objects and activities of the Association. Its Articles of Agreement, containing the regulations relating to membership, capital, operations and organisation and management, are included as a schedule to the Bill.

The new Association is a further addition to the Bretton Woods family of international organisations. Deputies will recollect that there are already in existence three associated institutions, the International Monetary Fund, the International Bank for Reconstruction and Development, or World Bank as it is called, and the International Finance Corporation, of each of which Ireland is a member. The International Monetary Fund is mainly concerned with the encouragement of international foreign trade by the maintenance of stable exchange rates, the removal of restrictions on international payments and the provision of short-term assistance for temporary balance of payment deficits. The World Bank devotes its activities to aiding the development of its member countries by the making of loans, mainly in the public sector of the economy, and by technical advice. The International Finance Corporation concentrates on promoting the expansion of private enterprise.

Experience has shown that in one particular sphere—and that a very important one—the World Bank has found its operation seriously hampered. That is in the provision of aid to the less developed countries. The Bank under its Charter is required to observe strict commercial standards in its operations; it must charge economic rates of interest and require loan repayments in hard currencies. These requirements have borne hard on countries in process of development, which often find high rates of interest onerous and foreign exchange scarce.

The consequence has been that the Bank has found itself prevented from making loans in certain circumstances despite the obvious utility of the projects concerned. To remedy this situation the International Development Association has been set up as an affiliate of the Bank. Its principal advantage is that it will have considerably greater latitude in its financing operations than the Bank. Paragraph 4 of the explanatory memorandum gives details of the types of financing in which it will be able to engage. It should prove a considerable boon to the less well off nations to be able to obtain loans on these terms. While the Association will have wide latitude in its loan operations, it will still submit loans to a careful scrutiny to ensure that they are of high developmental priority; loans will also be given only as a supplement to—and not in substitution for—loans made from private sources or by the World Bank.

The explanatory memorandum indicates the financial commitments involved in becoming a member of the Association. Details of the subscriptions fixed for the 68 member countries of the Bank who, subject to signature of the Articles of Agreement before 31st December, 1960, may become original members of the Association, are given in Schedule A to the Articles. An unusual feature is that for subscription purposes member countries are divided into two groups. The first group, the seventeen more industrialised member countries of the Bank, are required to pay their total subscription in gold or freely convertible currencies. The second group, comprising the less developed countries and including Ireland, need pay only 10 per cent. of their subscription in fully convertible form. Payment of the balance is made in national currency, which the Association will not be free to convert into other currencies or to use to finance exports from the country concerned without its consent. The Executive Directors of the World Bank have, however, expressed the hope that the more developed of the second group of countries, among which Ireland may be included, would be prepared to release at least some part of the 90 per cent. of their subscriptions in convertible currency. The payment in national currency can be made in non-negotiable non-interest-bearing demand notes. At intervals of approximately five years, the Association will review the adequacy of its resources and if it considers it desirable will authorise a general increase. The decision to subscribe to such an increase will be at the discretion of the member country.

If Ireland joins the Association, her subscription will amount to $3.03 million or £1.08 million. Of this amount, £108,000 will be payable in gold or freely convertible currency, £54,000 initially and £13,500 annually for the four succeeding years. The balance of £972,000, payable in Irish currency or non-negotiable non-interest-bearing demand notes, is to be paid in five equal instalments, one immediately and the remainder annually over the following four years.

Under the Articles of Agreement, the finances of the Association will be used for further development in the less developed areas of the world included within the Association's membership. It is not possible at this stage to say whether in fact Ireland will at any time seek or receive aid from the Association. The Government consider it desirable, however, for Ireland to become a member of the Association and thus give practical evidence of continued support for international economic co-operation. The initial subscription is not onerous and, as I have indicated, need only be paid to the extent of 10% in convertible currency.

Ireland has established good relations with the International Monetary Fund, World Bank and International Finance Corporation. A World Bank mission visited the country this summer to make a review of the present agricultural situation and development programme and in particular to examine the milk and pig processing industries and recommend possible lines of improvement. They have now completed their study and are at present engaged in preparing their report.

Apart from the obligation of subscribing to the capital stock of the Association, membership involves the granting of certain immunities and privileges to the Association. They are similar to those granted to the International Monetary Fund and to the World Bank by the Bretton Woods Agreements Act, 1957, and to the International Finance Corporation by the International Finance Corporation Act, 1958.

Before Ireland can become a member of the Association it will be necessary for the Government to sign the Association's Articles of Agreement and to deposit with the World Bank an instrument setting forth that it has accepted the agreement in accordance with its law and has taken all steps necessary to enable it to carry out its obligations. This Bill is designed to give approval for the acceptance of the agreement by the Government and to provide the powers necessary to enable the Government to implement it. The Bill follows generally the lines of the Bretton Woods Agreements Act, 1957, in so far as that Act relates to the World Bank, and the International Finance Corporation Act, 1958. The purpose of the various sections is indicated in the explanatory memorandum.

Mr. Sweetman

As the Minister has said, this Bill arises from membership of the World Bank. It is closely associated with that membership. It is obvious, therefore, that so far as we on these benches are concerned, we shall support such an arrangement because the step taken to join the World Bank was taken in pursuance of a decision made while I was Minister for Finance to send the head of the Department to America to negotiate the terms on which we could join. It is clear that if one is to be a member of an international association, one must belong to all facets of the association, but while that is true in a general way, it does not necessarily mean that the details should not be more clearly understood by everyone in the House before the Bill is passed.

The Minister circulated an explanatory memorandum in relation to the Bill. That memorandum takes up three pages. It deals with the first page-and-a-half of the Bill but it does not cover, in any shape or form, the remaining 16½ pages of the Bill which we are now being asked to pass. I know quite well that we are not empowered to alter the Articles of the Agreement; we must take them in toto or not at all. It is not open to us to amend in any way these Articles as they are set out in those 16½ pages of Schedule but I think the Minister might have made some effort, when circulating the explanatory memorandum, to explain the Articles in somewhat less technical language so that we might understand to what we are being asked to adhere.

Perhaps I am lucky in that I have certain facilities available to me to help my understanding of such a document more easily than other people but I find it almost impossible to understand certain of the sections in that Agreement. I cannot see any reason why, or any principle whereby, for example, the countries were divided into two sections. The Minister has said that those in Part I are the countries which are more industrially developed than the others. So far as I can gather, I do not think that follows from consideration of the names of the countries, nor is there anything to suggest, anywhere that I could find, how the various subscriptions for the different countries were determined.

We should like to know how it is that our subscription came to be fixed at just over £1,000,000, the equivalent of 3,000,000 dollars, and that certain other countries, as set out on page 19 of the Bill, do not seem to bear the same burden, having regard to our potentialities and theirs. That should have been explained to us in the Bill, and what is going to happen in relation to the 90 per cent. of our subscription which will be made in Irish currency should have been explained far more clearly.

It is quite clear that the International Development Association will be completely free to spend the ten per cent. we have to contribute in gold or hard currency. That £108,000 can be spent anywhere in the world, but in relation to the other 90 per cent., as I understand the position, it cannot be spent outside this country but must be spent here. It cannot be spent here for the purpose of financing exports, except with the consent of the Government. I cannot see, therefore, how the Association can spend it, except for development within the country concerned. What operates for us operates for everyone and if our subscription cannot be spent outside of Ireland without the consent of the Irish Government, a similar position will likewise obtain in relation to the other nations. If their subscriptions cannot be expended on exports, except with the consent of the respective Governments, how can the flow of exports be maintained—with particular reference to productive goods and factory machinery—to the less developed countries? On the face of it, that does not seem to me to be clear. I suggest it is one of the matters the Minister should have clarified in the memorandum, but it is not touched on at all.

There are some other elaborate arrangements made in relation to Article VI, Section 3, which deals with voting rights. In relation to the determination of the user of the funds of the Association is it clear that it will be entirely an executive decision or do those voting rights shown at the bottom of page 10 mean that before any country can use the funds of the Association to promote development, there will have to be the canvassing which inevitably arises in international associations? Unless the position is that these voting powers are purely for the purpose of electing the executive officials and that the executive officials then carry out their work, it seems to me that there will be chaos. I think that is what is intended, but again, when he was asking the House to pass this Bill, the Minister might have included an appropriate statement in his memorandum instead of leaving it completely in the air.

In his closing remarks, the Minister referred to the technicians and experts who were here during the summer examining our milk and pig industries. He indicated that they have finished their survey and are now writing their report. Has the Minister any indication as to when that report may hope to see the light of day, and can he say what is the procedure in relation to such reports in general? Are they communicated to the Governments concerned first— I assume they are—and having been communicated to the Government concerned, are they then at liberty to publish such reports? When the Government here receive the report, have they to go back to the World Bank authorities and ask for permission for publication? If we are to be a member of an association such as this, it is highly desirable that every member of the Irish public should be made aware, at the first available opportunity, of whatever comments and suggestions these people have to make. If we are not entitled to publish the report without consent, I suggest that consent should be requested before the reports come out. There is no sense in paying public money for these advantages or services, unless the country as a whole has an opportunity of assessing what the results will be.

I should also like to inquire about the position in relation to the Central Bank being a depository. Is it intended that that arrangement will operate in the same way as the Marshall Aid moneys operated, with a Grant Counterpart Fund and a Loan Counterpart Fund but with separate credits with the Central Bank which can be drawn off as and when required? During the period of that deposit, are the Central Bank entitled to invest that money here in Government loans, long-dated stocks. Exchequer Bills, or in ways and means advances to the Government? I am not clear from the explanation what the position is in that regard.

Can the Minister tell me what the total voting strength of the Association will be, on the basis of the subscriptions expected and indicated, and what our voting strength out of that total will be? I suppose what will happen is that the representatives of the various countries will be able to operate their voting on a par basis. It seems to me that so far as we are concerned our voice, and our strength, in that respect will be almost infinitesimal. I suppose we must accept that but I hope the business of the Association will be carried out by the executive officials without reference back to the Association as a whole, because if there is to be the pulling and tugging such reference back will inevitably create, quite clearly nothing whatever will ever be done by the Association as such.

Mr. Norton

This Bill is designed to enable Ireland to become a member of the recently-established International Development Association. That Association really stems from the parent organisation, the World Bank, of which Ireland is a member. We are also a member of the International Monetary Fund. Those three organisations are now tied together but they have different functions and operate under different conditions for the purpose of dealing with the problems of the undeveloped and underdeveloped countries throughout the world.

We can adopt either of two courses: we can wash our hands of these organisations and stand aloof, taking a grandstand seat and doing nothing in respect of the general problem of helping undeveloped and underdeveloped countries of the world to build their economies on a basis which will ensure stability of government and economic security for the people; or we can say that this is a type of work in which Ireland is interested and, as well as developing our own economy, we want to play whatever part our resources permit in the development of underdeveloped countries and emergent nations which are now for the first time feeling the effects of the heady wine of liberty. The Labour Party is strongly in favour of participating in any international movement designed to raise living standards throughout the world.

Many countries which are now breathing the air of liberty for the first time will realise, before their liberty is many months old, that political freedom is not in itself a passport to immunity from the economic blasts. They will realise that political freedom does not, in itself, provide employment, high living standards, social security and up-to-date services; neither will it ensure complete economic development. These things can only be achieved by hard work on the part of the citizens and by the utilisation of all the mass of brain and brawn. But human activities must be financed by some source, either native or international. It is good for the world, and good for these emergent nations, that a body of this kind should be in existence to finance activities and help these nations to develop their own resources and reach the civilised standards of living enjoyed by the older, more highly developed countries. This International Development Association comes at a time when financial and economic help was never more necessary for emergent undeveloped nations. We do right in associating ourselves with the other countries in endeavouring to establish this Association and in ensuring that it will be utilised for the purpose of assisting in the development of underdeveloped countries.

One of the purposes of the Association is to promote economic development, increase productivity and thus raise the standard of living, within the Association's membership in particular, by providing finances to meet the important development required in these areas. I should like to know from the Minister on what our subscription to this Association has been based. It does not appear to have been based on either territory or population because the figures given do not relate either to the size of our territory or to our population standards. No doubt there is some formula. The fractions set out on page 19 would certainly suggest there is. I should like the Minister to give us some information as to the basis governing our subscription.

I take it, too, that it will be possible for the Association to make its resources available here, if it is determined that Ireland is an undeveloped country. I should like to know what body so determines. Is it by a vote of all the countries? Is it by a decision of the secretariat after an examination of certain fundamental economic questions? One phase of the Association's activity is commendable inasmuch as it has not to follow strict commercial standards in its lending operations. It can permit long periods of grace before repayments start. Repayment may be made, in whole or in part, in local currencies. This gives the Association a flexibility not possessed by either the World Bank or the International Monetary Fund. Once established the Association will be in a position to come speedily to the aid of undeveloped countries.

Beyond inquiring as to the basis governing our contribution, this Party is in favour of the Bill. This is one of the best international organisations established so far. It can make a tremendous contribution in helping to prevent difficulty and strife, which arise inevitably out of bad economic conditions, in different parts of the world. We welcome the Bill and will facilitate any measure necessary to permit Ireland's participation as a member of the Association.

Sir Anthony Esmonde

Everyone will agree that this is a most important Bill. In view of its importance, I join with Deputy Sweetman in criticising the Minister for giving us so little information. One of the most important things in the world today is aid to undeveloped nations. This Association is a successor to the International Development Authority. This Association will be able to make money available at a very low rate of interest. The World Bank is confined to certain monetary conditions. It has to give those who invest in it a proper return for their money. The position was that one had the World Bank, on the one side, and the Soviet Union, and its satellites, on the other, competing for the goodwill of emergent undeveloped nations. The Soviet Union were able to give grants at a very low rate of interest, perhaps as low as two per cent. The World Bank could only lend money at a commercial rate of interest.

This Bill is of paramount importance. It is for international development. The Minister has given us very little information. There are many things we want to know. Countries in the Far East, in the Middle East and in Africa are coming into government for the first time. The Bill contains a list from which many new nations are omitted. As I read the limited information the White Paper gives us, the Bill deals only with those countries which are specifically mentioned. On the list, we find Burma, Ceylon, India, the South American group, mostly the smaller Republics in South America, and other countries such as Greece, Italy, Iceland and Ireland.

The Bill specifically states that the fund of 1,000,000,000 dollars which is being created is for the purpose of giving aid to the countries in this group. I thought the Bill was to counteract the sphere of influence of the Iron Curtain countries who lavish money free of interest or at a very low rate of interest. I thought the Bill was an effort to improve the position of the free nations, vis-a-vis that of the Iron Curtain countries. It is of paramount importance to Ireland, as to any country, to ensure that the new nations are included within the sphere of influence of the Bill. It is necessary to utilise the money wherever it may be required. Is it for these countries alone or for relief wherever it may be required in any part of the underdeveloped world?

According to the White Paper, the money is not for the whole world but only for specified countries. It says: "The purposes of the Association are to promote economic development. increase productivity and thus raise standards of living in the less-developed areas of the world included within the Association's membership." If that be the case, where will this money be spent? Will it be spent in the Far East, in Burma, Ceylon and India? Although they probably require help, as other countries do, they are already substantially covered by the Colombo plan. That brings us back to the other countries. Will we be helped? The White Paper says: "The Association will operate in the territories of its less-developed members." I presume membership comprises the nations mentioned in the Bill.

What countries will be included in this category and whether Ireland will be one of them is not yet decided. Who will decide? How will this money be utilised? If the Bill is to give rapid necessary aid where it is wanted so as to counteract, as in many cases it may be, Soviet propaganda and pressure in those countries, how will it be arranged? Is it a question of some 56 nations sitting around a table and deciding what will be done with the money? From my knowledge of international organisations, I can envisage about 200 persons sitting around a table to spend this 1,000,000,000 dollars and a period of about two to six months elapsing before they reach agreement on any one point.

The Minister should give us that information when we are voting this sum of money. We ought to know how the money will be spent; how the arrangements will be made; to what sphere the money will be directed. There are many reasons why we should know the full position as quickly as possible in the circumstances that arise in so many of these countries.

The Deputy who has just spoken mentioned countries which received their freedom and believed that once they had got that the rest would follow as a happy sequence. Most of these countries require some immediate assistance and advice. I notice that our contribution is fixed at approximately £1.8 millions. Will we have a say in proportion to the amount of money we have in this fund or will we just have an ordinary voice along with the other nations? Will we have a one-fifty-sixth voice, or whatever it may be, or will we have a voice in relation to the actual money we subscribe?

This is an eminently desirable Bill. It is probably the only way, at the beginning, of dealing with the extraordinary situation in which the world finds itself. The Minister for Finance should have given us some idea of the mechanics or the implementation of the Bill, so that we may know where the money is going.

The Bill says that legal responsibility rests only with the countries in which this Association has an office. I gather that these offices will be situated in the lesser-developed countries. Is it intended that Ireland will have an office belonging to the Association? Is it conceivably possible that we may have an office here and that quite a considerable amount of the fund will be expended in this country? Therefore, we may feel not only that we are playing our part in an international organisation but are getting our due reward for joining the Association and taking on the responsibility that everything it is possible for us to manufacture or produce in the agricultural or industrial sphere will be used for the great purposes which lie behind this Bill.

Dr. Ryan

With regard to how the subscription was determined. Deputy Sweetman spoke of sending a representative of the Department of Finance over to negotiate on the Bretton Woods Agreement. At that time, our subscription to the World Bank was based on a number of considerations: population, national income, trade, etc. Ours has not been altered since but others have. The World Bank came along with its subsidiary organisation, as it were. They fixed a subscription on the same basis as the subscriptions were fixed in the first instance for the World Bank. They were negotiating in the first instance on a composite basis—world trade, national income, population, and so on. Ours at that time was fixed on a certain basis for the World Bank and now this subsidiary of the World Bank is based again on the same proportion. Our subscription in this case will bear the same proportion to the whole as in the case of the World Bank.

Some Deputy asked about membership. Membership is open to every member of the World Bank. Nobody who is not in the World Bank can be a member, but, of course, as we are all aware, any country can apply for permission to join the World Bank and in that way can become a member of this organisation also.

I was somewhat criticised for not giving more information with regard to the Articles of the Agreement. The first eight paragraphs of the Schedule deal with the Articles of the Agreement and some information at least is given. As a matter of fact, some of the questions put by Deputy Sweetman and Deputy Esmonde are answered in Paragraph 5 of the explanatory memorandum, so that we did not altogether ignore these Articles in supplying this explanatory memorandum.

Mr. Sweetman

With all due respect, there is no question that I asked answered in Paragraph 5.

Dr. Ryan

The Deputy asked how the subscription was based, for a start-off.

Mr. Sweetman

I do not see any explanation of it there.

Dr. Ryan

The very first sentence in Paragraph 5 deals with it.

Mr. Sweetman

I beg the Minister's pardon—I misread that sentence.

Dr. Ryan

I apologise if the information was not as full as it might be, because, indeed, I have every sympathy, having had the experience of being in Opposition myself and trying to read documents of this kind which are very difficult, unless some explanation is given. I was also asked, either by Deputy Norton or Deputy Esmonde, who was going to determine on the particular applications for loans and the terms under which they will be issued. The procedure is laid down again in the Articles of the Agreement fairly plainly in Article VI. We have a certain voting power—I think our votes would add up to 1,106.

Mr. Sweetman

Out of a total of?

Dr. Ryan

Out of a total of 234,000, which represents about half of the total vote. Of course, the subscription is more or less in the same proportion. In fact, I should say that we get a little more. The lower subscription gets a little better representation than the subscription warrants. Everybody gets 500 votes. In addition to that, it is proportionate to the subscription. It is obvious that the small subscribers have a little more in proportion to their subscriptions than the bigger. The voting rights are used to elect the executive directors and the executive directors then manage the bank much the same as the directors of any other bank. They consider the applications and they may reject or grant them and will determine, in negotiation, on what terms the loan will be made so that the ordinary representative of this country, let us say, on the board of the bank on which everybody is deals only with very general questions. These representatives would, of course, elect the executive directors but they deal only with very general questions—perhaps taking a new line in development or something of that kind—and would not deal at all with individual applicants.

Sir Anthony Esmonde

Could the Minister say how many directors there will be altogether?

Dr. Ryan

Eighteen.

Mr. Norton

On that point, would the Minister answer the question I put as to who will determine whether we are or are not a less developed country?

Dr. Ryan

We would have to take the first step ourselves and make application. At the moment I personally cannot see that we shall be making an application to this organisation. Some particular project might crop up, however, for which we would like to get finance—a project that would appear to be particularly suitable for this form of financing and a Government might decide to make an application. I do not see at the moment that we shall be making an application. If we do make an application, then the board of directors will first of all determine whether the project is worthy of consideration from their point of view and whether the country needed it under the general scheme of the organisation.

Mr. Norton

Do I understand, therefore, that the question of our classification as a developed or less developed country would arise only if we decided to make an application?

Dr. Ryan

Yes; as far as that goes, the Deputy is correct. There is another point, however, with which I was about to deal, that is, that we are in the second category of countries in making our subscription. We subscribe ten per cent. in gold or convertible currency and 90 per cent. in our own currency. We may, however, be called upon to convert some of the 90 per cent. into convertible currency and then we shall have to consider whether we shall do so or not. I could not answer the question whether the board of directors in that case would apply the same percentage all round or would take individuals and say: "You are a little better off and could afford to give us a little more". It will be open to us either to agree or disagree when we are asked to do that.

Apart from that, we subscribe at ten per cent. over four years and the other half over four years—roughly £100,000. That will be in gold or in convertible currency. The remainder will be held by the Central Bank. It will be non-negotiable, non-interest-bearing notes held by the Central Bank. It does not cost this country anything unless we are called upon to convert them.

Mr. Norton

Is it proposed to pay in any portion in gold or is it proposed to pay in convertible currency?

Dr. Ryan

I could not say at the moment. Probably dollars will be more convenient.

Mr. Norton

As they are in the sterling area, would the British not be under an obligation to give dollars?

Dr. Ryan

There is no doubt about that because I do not think we are at one with the British in that respect.

Mr. Norton

They are a very good reserve fund.

Sir Anthony Esmonde

Is sterling not a convertible currency now?

Dr. Ryan

Yes; sterling would be convertible also, I suppose. I must say I did not catch exactly what Deputy Sweetman said. I think he was making the point that the 10 per cent. would not give them an awful lot of money to play with, but if he looks at the end of the Schedule, he will find the seventeen are subscribing three-fourths of the total.

Mr. Sweetman

That is not subject to the ten per cent rule?

Dr. Ryan

No, that goes in, the whole of it.

Mr. Sweetman

Then, in fact, three-fourths of it is convertible.

Dr. Ryan

In fact they get four-fifths of their money cash down so they are not going to be so badly off.

Mr. Sweetman

That is one of the nice little points I would have appreciated more had the memorandum covered it.

Question put and agreed to.

Committee Stage ordered for Wednesday, 9th November, 1960.