I move amendment No. 1:
In page 3, line 11, after “funds;” to insert the following:
“to provide that the Minister for Finance may make a payment out of the Central Fund to the Central Bank of Ireland in respect of certain transactions;”.
As the two amendments being discussed today concern the same issue and as they have a single objective, both will be dealt with together. I have moved amendment No. 1 and later I will move amendment No. 2, which states:
In page 6, between lines 13 and 14, to insert the following:
“Payment to Central Bank in respect of certain transactions
7. (1) The Minister may make a payment out of the Central Fund or the growing produce thereof to the Central Bank of an amount not exceeding €6,600,000, being the amount that was payable to the Central Bank in respect of the State’s share of the proceeds of each of the-
(a) deferred charges adjustment, and
(b) SCA-1 account, and that was transferred by the Fund to the Somalia Administered Account and the Sudan Administered Account.
(2) In this section-
“deferred charges adjustment” shall be construed in accordance with Section V 2(b) of Decision No. 8348-(86/122) on “Income Position-Principles of “Burden Sharing,” Income Target for FY 1987 and FY 1988, Rate of Charge, and Rate of Remuneration”, adopted by the Executive Board of the International Monetary Fund on 25 July 1986, as amended from time to time;
“SCA-1 account” means the First Special Contingent Account established by Decision No. 8619-(87/90), adopted by the Executive Board of the International Monetary Fund on 17 June 1987;
“Somalia Administered Account” means the account established by Decision No. 16626-(19/103), adopted by the Executive Board of the International Monetary Fund on 18 December 2019;
“Sudan Administered Account” means the account established by Decision No. 17042-(21/46), adopted by the Executive Board of the International Monetary Fund on 10 May 2021.”.
I will begin by setting out the background to the amendments, their intended purpose and why they are being introduced in this Bill at this time. Shortly after the Bretton Woods Agreement (Amendment) Bill completed Committee Stage in Dáil Éireann in March 2022, the European Central Bank, ECB, made a determination on two IMF transactions in which Ireland, together with many other IMF members, participated. These transactions concerned the transfer of funds from two IMF accounts, the special contingency account, or SCA-1, and the deferred charges adjustment, to the administered accounts for Somalia and Sudan for the purpose of clearing the arrears that both countries had with the IMF. In anticipation of the ECB finding and the likelihood that corrective measures may be required, the Minister of State, Deputy Fleming, indicated on Committee Stage that an amendment to facilitate a payment from the Central Fund to the Central Bank of Ireland for IMF transactions was being considered. The amendments to be discussed here today are the result.
It is important to understand that these transactions took place in the context of the heavily indebted poor countries, HIPC, initiative. The Deputies may recall the HIPC initiative was launched by the IMF and the World Bank in 1996 to allow the international community, including multilateral creditors, to work together to lower the debt burden of the most heavily indebted poor countries and to permanently end repeated rescheduling of debts for these countries. Somalia and Sudan were deemed eligible for debt relief under the HIPC initiative in 2020 and 2021 respectively. However, as the IMF did not have sufficient internal resources to clear the arrears that Somalia and Sudan owed to the fund at that time, they instead invited member countries to forgo their portion of two accounts, the SCA-1 and the deferred charges adjustment, to fund the debt relief. This followed the model that the IMF had previously used for Liberia in 2008-09. Ireland, together with over 100 IMF members, agreed to contribute to the clearance of arrears to the IMF by consenting to forgo its share of SCA-1 and the deferred charges adjustment. In total, Ireland agreed to the transfer of €8.3 million from these two accounts, the IMF’s administered accounts for Somalia and Sudan.
Following the clearance of arrears to the IMF and other multilateral creditors, both Somalia and Sudan successfully reached the HIPC decision point which provided both countries with vital access to the grant financing necessary to meet their public finance and development needs. In the case of Somalia, on the day the country reached the HIPC decision point, the IMF executive board approved a new three-year arrangement for just over €363 million under the extended credit facility and the extended fund facility. Similarly with Sudan, the decision point was accompanied by an announcement that the IMF had approved an extended credit facility programme for approximately €2 billion. These outcomes were warmly welcomed by the two countries and the international community, given the strong signals they gave against the context of protracted conflict and economic problems in these regions.
In late 2021, a number of member states raised a query with the ECB regarding the transfer of these resources to the administered accounts for Somalia and Sudan. Upon further investigation, it transpired that both transactions may have contravened a prohibition on monetary financing under the Treaty on the Functioning of the European Union. This issue arose from the manner in which the funds for the SCA-1 and deferred charges adjustment were generated and the fact that, in several member states, a portion of these resources actually belonged to the national central bank rather than the finance ministry. Without wishing to get too technical, a brief explanation may be helpful.
Both the SCA-1 and the deferred charges adjustment were established under the IMF's burden-sharing mechanism, which raises funds by marginally increasing the rate of charge paid by countries which owe money to the IMF and reducing the rate of remuneration paid to creditor members. The Central Bank of Ireland, as a custodian of Ireland's SDR, or special drawing rights, which are held as part of the country's national reserves, receives the interest payments made by the IMF on Ireland's quota. As such, the portion of the SCA-1 and deferred charges adjustment generated from the reduced rate of remuneration was technically owed to the Central Bank rather than to the Exchequer. In April 2022, the ECB made its final determination, including that the financial donations provided by several national central banks via the IMF for debt relief from Somalia and Sudan were not compatible with a prohibition on monetary financing. The ECB also instructed the member states concerned to take corrective measures and, in Ireland's case, the breach of the prohibition on monetary financing had to be rectified by the restoration of these amounts to the Central Bank by the Exchequer.
Amendment No. 2 introduces a new section to the Bill which provides the legal mechanism for this corrective measure, a once-off payment of €6.6 million from the Central Fund to the Central Bank of Ireland. This sum represents the Central Bank's share of IMF resources that were transferred to the administered account for Somalia in 2020 and for Sudan in 2021, namely, €876,071 and then €5,676,032.
Following close consultation with the Attorney General's office, the amendments being discussed were drafted to provide the legal mechanism for the Minister for Finance to make this once-off payment of €6.6 million from the Central Fund to the Central Bank of Ireland. These amendments will restore the Central Bank's share of the IMF's SCA-1 and deferred charges adjustments, thereby satisfying the ECB's requirement for corrective action.
While it is regrettable that we should find ourselves on the wrong side of an ECB ruling in any instance, I would like to think Deputies understand and appreciate the motivation for the actions that have led us to this situation, that is, to provide much-needed debt relief to HIPCs at a critical time in their histories. Ireland, along with more than 100 member countries, was willing and able to work with the IMF to help Somalia and Sudan to address their significant debt burdens. Legislative measures are now required in this Bill to remedy the situation. The amendments we are considering provide the necessary legislative basis for a once-off payment from the Central Fund to the Central Bank in respect of a sum of up to €6.6 million. This sum represents the Central Bank's share of resources in the IMF's SCA-1 and deferred charges adjustments, which were transferred to the administered accounts for Somalia and Sudan.