I thank Members of the Seanad for agreeing to discuss this Bill today at short notice. I will begin by recalling the background to the Bretton Woods Agreements to which this Bill refers. The International Monetary Fund, IMF, was conceived in 1944 when representatives of 45 countries, meeting in the town of Bretton Woods, New Hampshire, in the United States, agreed on a framework for international economic co-operation to be established after the Second World War. They believed that such a framework was necessary to avoid a repetition of the disastrous economic policies that had contributed to the Great Depression.
The IMF came into formal existence in December 1945 when its first 29 member countries signed its Articles of Agreement. The planners of the agreements were far-sighted. They realised that there will always be imbalances and crises in international monetary affairs and a sound adjustment mechanism was required. The IMF began operations on 1 March 1947 and, later that year, France became the first country to borrow from the IMF. The IMF's membership began to expand in the late 1950s and during the 1960s, as many African countries became independent and applied for membership. Ireland joined in 1957. Since then, the world has changed and is continuing to change dramatically. The IMF's method of operating has changed to reflect this as it has sought to adapt to the changing needs of its expanding membership in a globalised world economy. I caution Senators against extrapolating to today the strong criticism in the 1980s of the IMF policies in Africa and South America as that critique is no longer valid. In the past four years in particular, the IMF's managing director, Dominique Strauss-Kahn, has launched an ambitious reform agenda aimed at ensuring the IMF continues to deliver the economic analysis and multilateral consultation that is at the core of its mission, ensuring the stability of the global monetary system in a very changed world. This includes reform of governance, greater accountability, financial reforms, and a trebling of the fund's lending capacity as part of the response to the global financial crisis.
This is the context in which the Bill is being discussed today. The Bill is required to allow Ireland convey acceptance of amendments to the IMF Articles of Agreement which were approved by the IMF board of governors, including the governor for Ireland, in 2008. Acceptance of these amendments by Ireland will contribute to the process of bringing the amendments into force.
The two amendments to the Articles of Agreement which are scheduled to this Bill are part of a package of reforms agreed by the IMF in 2008, first, to realign voting power in the IMF to reflect changes in the global economy and, second, to 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. A member's quota also determines the amount of financial resources a member contributes to the IMF and the level of access and cost of IMF financing. 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 for some time, will also receive a quota increase. The increase in Ireland's quota share will also have the effect of reducing the interest rate payable on the funds borrowed by Ireland from the fund by about 18 basis points or, specifically, by €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, which culminated 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 far more significant increase on Ireland's interest rate, with a potential reduction estimated at 80 basis points, or approximately €6.5 million per billion per annum, when implemented. However, it is first necessary to implement the current 2008 quota reform with which the present Bill is linked.
The Bill is essentially technical in nature and provides for the acceptance of the fifth and sixth amendments to the IMF Articles of Agreement, both of which are scheduled to the Bill. The Third Schedule contains the Articles of Agreement as they currently stand and which are to be amended.
The fifth amendment, at Schedule 1, is known as the voice and participation amendment and must enter into force 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. Our current information from the IMF is that the voting requirement is very close to being attained.
The fifth amendment contains three sections, the first of which authorises the IMF board of governors to adopt rules in order 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 the section is to enhance the capacity of the two African constituency offices to represent the countries in their 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 of the member countries.
The second section of the amendment 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 which has been eroded over time partly 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.
The third section of the 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 presented by the 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 to the fund at the same time as the two amendments.
The first three sections of the investment authority amendment which was agreed in 2008 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. Notwithstanding the removal of a number of limitations, the amendment provides that all investments should 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 the 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.
It is in the interests of Ireland and the rest of the IMF membership that the Bill be enacted. For that reason I commend it to the House.