As Senators will recollect, Ireland became a member of the international lending agency known as the International Bank for Reconstruction and Development, or World Bank, as it is also called, in 1957 and in 1958 joined its affiliate, the International Finance Corporation. A few months ago a further affiliate of the Bank, the International Development Association, was established. The purpose of the present Bill is to enable Ireland to become a member of this new institution.
The Articles of Agreement of the Association are given in the Schedule to the Bill. The principal provisions are briefly summarised in the explanatory memorandum which has been circulated.
The main purpose of the Association is to supplement the work of the World Bank by providing financial assistance on terms which are less onerous than those of the Bank. Under its charter, the Bank is obliged to make loans only on strict commercial principles. For example, the interest rate which it charges on its loans has to be related to the rate at which the Bank itself borrows money. When, as has been the case in recent years, the cost of raising money in international markets has been high, the rate of interest on loans made by the Bank has also tended to be high. In addition, the Bank requires that loan repayments should be made in hard currencies.
Because of its policy in these matters, countries in process of development have experienced difficulties in obtaining loans. In certain cases, despite the undoubted value of a project to the economy, the country has been unwilling to borrow and the Bank to lend, in case the conditions of the loan should prove a burden to the country. The member countries of the Bank felt that something had to be done to meet this situation and it was decided to establish an affiliate of the Bank whose special concern would be the provision of aid to the less developed countries. The new Association has much greater freedom than the Bank in the type of finance it is able to provide. It can lend at a low rate of interest or even free of interest. Specially lenient terms of repayment may be given, such as long maturities, long periods of grace and repayment wholly or partly in local currency.
The Association has, however, been at pains to make it clear that this does not mean that any and every project submitted to it will receive approval. All applications for loans will be carefully scrutinised to ensure that only sound projects of high priority from the point of view of a country's economic development will be approved. Furthermore, loans will be given only as a supplement to—and not in substitution for—loans made from private sources or by the World Bank.
Schedule A of the Articles of Agreement gives details of the subscriptions fixed for the 68 member countries of the Bank who, subject to signature of the Articles of Agreement before the 31st December, 1960, may become original members of the Association. There are two points of importance to be noted in relation to these subscriptions. The first is that in general the amount of each country's subscription has been arrived at by the simple process of adopting the proportion that the country's subscription to the World Bank bears to that institution's total subscribed capital. This seems a reasonable and fair method of procedure and is unobjectionable from this country's point of view.
The second point is that the secretariat of the Bank have, on the basis of certain important economic indicators such as per capita national income and degree of industrialisation, divided prospective members of the new organisation into 2 groups, as shown in the Schedule to the Articles of Agreement. The countries in the first group, numbering seventeen and comprising the more industrialised member countries of the Bank, will be required to pay their total subscriptions in gold or freely convertible currencies.
Despite the fact that the countries in this group are numerically small in relation to the proposed total membership of the Association, their subscriptions will amount to some three quarters of the total resources of the Association. The countries in the second group, numbering fifty-one and comprising the less well-off member States of the Bank, are let off more lightly. They need pay only 10 per cent. of their subscriptions in gold or freely convertible currencies, the balance being payable in their own currency. Ireland has been included in this group.
It is likely that some of the more developed countries in this second group, perhaps including Ireland, may be asked to release some of the subscription payable in national currency in the form of freely convertible exchange. This will be a matter for agreement between the Association and the country concerned. The subscriptions of countries in both groups will be made in instalments, portion immediately and the balance over four years.
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, is to be paid in five equal instalments, one immediately and the remainder annually over the following four years. This money will be available only for use within Ireland except as otherwise determined by agreement between the Government and the Association; the latter will not be free to convert it into other currencies or use it to finance exports without our consent. To the extent that the portion of the subscription payable in local currency will not be required for use, there are the same arrangements as in the case of the World Bank for the substitution of non-negotiable, non-interest-bearing demand notes for it. These notes will be lodged in the Central Bank as the Association's depository, to be cashed only in the circumstances just described.
Under the Articles of Agreement the Association will be limited in its operations to the less developed areas of the world included within its membership. It is impossible to know at this stage whether Ireland will at any time seek financial aid from the Association. If at some time in the future it does so, it will be for the Association, and in particular the Board of Executive Directors, which conducts its normal day to day operations, to decide whether Ireland is eligible for assistance. Quite apart, however, from the question of securing aid from the Association, the Government consider it desirable, in view of the country's membership of the World Bank and the International Finance Corporation, for Ireland to become a member and thus show our continued willingness to co-operate with other countries in international economic development. The initial subscription is relatively small and as mentioned already need be paid only to the extent of 10 per cent. in convertible currency.
And now a few words about the organisation of the Association and voting rights. The powers of the Association are vested in the Board of Governors consisting of the Governors and Alternate Governors of the World Bank serving ex officio in the Association. However, the effective exercise of the Association's functions rests, as in the case of the Bank, with a Board of Executive Directors, consisting of the Executive Directors of the Bank, at present numbering 18, serving ex officio in the Association. I may mention in passing that the Bank's Executive Directors are chosen partly by nomination, partly by election, five of them being nominated by the five largest stockholders and the balance being elected by the votes of the other members. Voting rights in the Association are measured by the size of initial subscriptions. Each member will have a basic 500 votes plus one vote for each $5,000 of its initial subscription. On this basis Ireland's voting power would amount to 1,106 votes, out of a total of approximately 234,000. These votes would be cast at the Executive Board by the Executive Director representing this country. We are represented on the Executive Board of the Bank by the Executive Director for Canada. He would therefore also be our representative on the Executive Board of the Association.
In addition to subscribing to the capital stock of the Association, membership involves the according of certain privileges and immunities to the Association. These 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.
In accordance with the Articles of Agreement of the Association it will be necessary for the Government to sign the Articles 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.