I move: "That the Bill be now read a Second Time."
I thank the House for agreeing to discuss this Bill today at short notice. The Bill is needed to allow the State to accept amendments to the IMF articles of agreement, which were approved by the IMF board of governors in early 2008. The acceptance of these amendments by Ireland will contribute to the process of bringing them into force. These two amendments were approved as part of the 2008 governance reforms agreed by the IMF in the ongoing process of enhancing the fund's legitimacy, credibility and effectiveness in the changing realities of the modern world. Under the 2008 reforms, it was agreed to first, realign voting power in the IMF to reflect changes in the global economy and second, increase the voting power and participation of low income countries, LICs.
The 2008 reforms will adjust the IMF quota shares of members to reflect better their relative weight and role in the global economy. 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. A member's quota also determines the amount of financial resources that a member contributes to the IMF and the level of access of the member to IMF financing. 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, which have been significantly under represented, will also receive a quota increase. The increase in Ireland's quota share will result in a reduction, by approximately 18 basis points, in the interest rate payable on the funds borrowed by Ireland from the fund, a saving in interest payments of approximately €1.8 million per billion borrowed per annum.
Since the 2008 agreement, I have attended two annual meetings of the IMF-World Bank where further reforms and quota changes were discussed, culminating in a further set of agreements — the 2010 reforms — which, when implemented, will have the effect of further increasing Ireland's quota. The impact of this quota adjustment, when implemented, will have a more significant increase on Ireland's interest rate, with a potential reduction estimated at 80 basis points when the 2010 quota increase is implemented. This would constitute an interest rate saving of approximately €6.5 million per billion per annum. This adjustment will require further amendments to the Bretton Woods Agreements Acts in due course. 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 autumn 2012. However, it is first necessary to implement the current 2008 quota reform, with which the Bill before us is linked.
The Bill is essentially a technical Bill, which provides for the acceptance of the fifth and sixth amendments to the IMF articles of agreement, both of which are Schedules to the Bill. The fifth amendment at Schedule 1 is known as the voice and participation amendment. By resolution of the IMF board of governors, entry into force of the voice and participation amendment is required before the quota increases can become effective. This requires acceptance by the required voting threshold of three fifths of members having 85% of total voting power. Current information from the IMF is that this voting threshold is close to being reached.
The amendment has three sections. The first section authorises the IMF board of governors to adopt rules so that IMF executive directors of constituencies with more than a specified number of countries may appoint a second alternate executive director. Currently, every constituency has only one alternate executive director. The purpose of this section is to enhance the capacity of the two African constituency offices to represent the countries in the constituencies at a higher level in recognition of their special challenges, including the heavy workload associated with the important advisory and financial role that the fund is playing in many member countries.
The second section amends the formula for the calculation of the IMF votes of member countries. The purpose of the amendment is to increase the voting power of low income countries, LICs, which has been eroded over time, in part because of the relative increase in the economic power of other countries and also because of the impact of successive rounds of IMF quota increases. This is a central element of the 2008 IMF reform package. Under the current articles of agreement, the voting power of every member state is the sum of basic votes plus quota-based votes. Basic votes are the same for every member and are set at 250. Quota-based votes are broadly based on the member's relative size in the world economy. Thus, basic votes give the smallest members of the fund a proportionally greater voice in its deliberations. However, basic votes have not been increased since the founding of the IMF and, therefore, their weight has declined over time as successive quota increases have been implemented. In fact, successive general increases in quotas have reduced the share of basic votes from 11% when the fund was established to 2% which has led to a weakening of the voting power or voice of small developing countries within the fund.
The fifth amendment to the articles of agreement will allow for a trebling of basic votes to 750. It also provides that basic votes will be a fixed percentage of total votes so that any change in total votes will automatically trigger a consequent change in basic votes. This ensures that the ratio of total basic votes to total voting power will not in future be eroded by quota increases.
The third section of this amendment is a consequential amendment, which provides that the new rules for calculating votes shall not be affected by the suspension of any member's voting rights.
The Government is also taking the opportunity in this Bill to accept the sixth amendment to the IMF articles of agreement. This is called the investment authority amendment. While it is independent of the voice and participation amendment and the 2008 governance reforms, including the quota increase, the fund has suggested to members that they may decide to communicate their acceptance of the six amendment to it at the same time of the other two amendments.
The investment authority amendment is part of reforms which were agreed in 2008 in recognition of the need for more predictable and stable sources of income for the fund and to move away from dependence on income based on loans. The first three sections of the investment authority amendment provide for a broadening of the range of instruments in which the IMF may invest by removing a number of limitations in the current articles of agreement. This will enable the fund to adapt its investment strategy over time without the need for further amendment of the articles. I am happy to elaborate on these limitations if Deputies so wish.
Notwithstanding the removal of a number of the current limitations, the amendment provides that all investments be made in accordance with rules and regulations to be adopted by a 70% majority of the total voting power of the fund. The final section of this amendment is related to the creation of an endowment from the profits of the sale of a limited portion of the IMF's gold holdings. The purpose is to generate income while preserving the long-term real value of the resources. The amendment is technical in nature. Again, I can give further details if Deputies wish.
As I said at the outset, the Bretton Woods Agreements (Amendment) Bill 2011 is a technical Bill designed to give effect to IMF reforms which were approved in 2008 by the board of governors, including the Minister for Finance. These reforms relate to the governance and income 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 Bill will contribute to completing the ratification of these reforms so that they will come into effect at an early date. Moreover, the ratification of these reforms will lead to the reduction of the interest rate payable by Ireland to the fund as the interest rate is related to a member's quota. A further reduction in the interest rate will be effected as soon as the 2010 quota reforms are implemented.
Since the first half of 2008, when these reforms were agreed, the IMF has assumed a vastly more important and central role in dealing with the global financial crisis and has come into play in our situation. It is in Ireland's interest and in the interests of the entire IMF membership that this Bill be enacted.
I commend the Bill to the House.