I welcome the Minister of State, Deputy Ossian Smyth, a comprehensive contributor to this House.
Bretton Woods Agreements (Amendment) Bill 2022: Second Stage
Question proposed: "That the Bill be now read a Second Time."
I thank the Leas-Chathaoirleach and join him in welcoming the secondary school students. They have picked probably the worst time to come to the House because this is probably the most complex legislation I have had to bring in. It is a law that allows rich countries to lend money to poor countries that are in trouble and also allows us to forgive the debts of Sudan and Somalia, which got into a position whereby they would never have been able to pay them back. It was decided among 100 countries that this was the right thing to do. I will now go into the details of the Bill.
They should download the app.
The Bill was published on 11 March and passed Final Stage in Dáil Éireann on 21 September. In the Dáil, there were two Government amendments to the Bill, which were unopposed and related to a technical matter concerning previous contributions to IMF trust funds. On 30 September 2021, the Chairman of the Joint Committee on Finance, Public Expenditure and Reform, and Taoiseach wrote to the Minister for Finance to confirm the committee had agreed to accept his request for a waiver, confirming it did not wish to undertake pre-legislative scrutiny of the legislation.
In the broadest sense, the objective of the Bill could be characterised as augmenting Ireland’s role in, and support for, the International Monetary Fund, IMF. The Bill will achieve this in two ways. The first is by providing for Ireland’s adherence to the IMF's new arrangements to borrow, NAB. The NAB is an arrangement under which the IMF's economically strong member countries provide loans to the fund to supplement its resources in times of great need. Second, the Bill will allow for grant contributions to IMF trust funds, both those that currently exist and new trust funds yet to be established, in addition to funding capacity-building and technical assistance. Trust funds are an integral part of the IMF's provision of debt relief and concessional financing to vulnerable, low-income countries that have to deal with a range of challenging issues. Finally, the two amendments to the Bill on Report Stage in the Dáil have been incorporated in the draft Bill of which Senators have a copy. These are intended to rectify an issue that arose earlier this year regarding the transfer of Ireland’s share of two IMF accounts for the purpose of funding debt relief in Somalia and Sudan in 2020 and 2021, respectively.
I will now set out the main provisions of the Bill, which comprises 11 sections and one Schedule containing the text of the NAB decision. Section 1 sets out the definitions used in the Bill.
Section 2 provides for the approval of the terms of the NAB decision and Ireland's adherence to, and participation in, the NAB decision. This section also empowers the Minister for Finance to consent to future amendments to the NAB decision on behalf of the State, subject to a Government decision and to consultation with the Central Bank. It was considered necessary to include this provision given that the NAB decision is periodically renewed by the IMF.
NAB participants are consulted during this process. The terms and the conditions of the renewed NAB are subject to the approval of all participants.
In the case that the IMF makes a call on the NAB, the Central Bank of Ireland will provide the loan on behalf of Ireland. As such, section 2 grants the necessary powers to the Central Bank to perform the obligations and exercise the rights arising from Ireland's adherence to the NAB decision. It also clarifies that any moneys received by the State under the terms of the NAB decision, that is, the repayment of any loan provided under the NAB, should be directed to the Central Bank, which provided the credit in the first instance.
Section 3 provides that in cases where amendments to the NAB decisions are approved by Dáil Éireann, a notice of this approval is published in Iris Oifigiúil.
Section 4 provides for a ministerial guarantee to cover the Central Bank's participation in the NAB on Ireland's behalf. It also requires the Central Bank to submit an annual report on the use of ministerial guarantees relating to the NAB decision to the Minister for Finance. This statement will be incorporated into the annual report on Ireland's participation in the IMF and World Bank, which is laid before both Houses of the Oireachtas each year in accordance with section 10 of the Bretton Woods Agreements (Amendment) Act 1999.
Section 5 relates to IMF trust funds. Specifically, it concerns an existing trust fund called the catastrophe containment and relief trust, CCRT, which allows the IMF to provide grants for debt relief for the poorest and most vulnerable member countries in certain circumstances. Section 5 provides for the payment of grant contributions by the Minister for Finance to the CCRT up to an aggregate total of €50 million. All proposed payments to the CCRT will be subject to a resolution by Dáil Éireann.
Section 6 sets out the mechanism by which grant contributions may be made to existing IMF trust funds as well as those yet to be established. Any proposed contribution to a trust fund that has not been specifically legislated for previously will require a ministerial order followed by a resolution of Dáil Éireann. Like the CCRT, payments up to an aggregate total of €50 million may be made to each individual trust fund. Recent examples of trust funds established by the IMF include the resilience and sustainability trust, which will focus on longer-term structural challenges, including climate change and pandemic preparedness and the administered account for Ukraine.
Section 7 provides for a payment from the Central Fund to the Central Bank of Ireland in respect of transfers of Central Bank resources to the IMF administered account for Somalia and the IMF administered account for Sudan up to a total of €6.6 million. This follows a finding by the European Central Bank that a portion of Ireland's contribution to debt relief for Somalia and Sudan in 2020 and 2021, respectively, contravened the EU treaty prohibition on monetary financing. The ECB has instructed all affected member states to take corrective action. This provision will satisfy that requirement by providing a legislative basis for repayment to the Central Bank. This section constituted the Report Stage amendments in the Dáil.
Section 8 amends section 3 of the Bretton Woods Agreements Act 1957 to provide for the payment of grant contributions to the IMF trust funds, and to reflect the fact that the ESAF Trust has been renamed the PRGT, which stands for the poverty reduction and growth trust. The section also amends the Bretton Woods Agreements (Amendment) Act 1999 to replace the definition of the ESAF Trust with the definition of the PRGT, and to increase the total aggregate amount that may be paid to the PRGT to €75 million. The PRGT, like the CCRT, is a crucial part in the IMF's support for low-income countries and provides concessional financing to eligible members. Ireland has provided grant contributions totalling almost €25 million to date to the PRGT.
Section 10 repeals section 163 of the Finance Act 2010. This was intended to amend the Bretton Woods Agreements Act 1957 to provide for a borrowing agreement between Ireland and the IMF. As Ireland's 2010 borrowing agreement with the fund lapsed without taking effect, section 163 of the Finance Act 2010 is redundant and so a repeal is in order.
Section 11 is a standard section defining the Short Title of the Bill.
This is quite a technical Bill and I understand some of the references and concepts may be unfamiliar to Senators. Fundamentally, the legislation before the House today aims to bolster the IMF in its work to foster economic stability and global growth. The active support of economically stronger members, including Ireland, to ensure the fund has adequate resources is crucial to the IMF's credibility and effectiveness as we face an uncertain future.
As Members of the House are aware, the risks to the global economy remain overwhelmingly tilted to the downside, such as the devastating impacts of Russia's war in Ukraine, increasing energy and food insecurity, the possibility of a resurgence of the Covid-19 pandemic and associated disruptions, high and unsustainable sovereign debt burdens, and potential negative spillovers from monetary policy tightening in advanced economies, to name just a few. The confluence of these factors could create large and urgent financing needs over a relatively short period. Unfortunately, we have seen this play out in a number of countries recently, including in Argentina and Sri Lanka. Furthermore, as the world remains highly interconnected and vulnerabilities can spread more easily across sectors and national borders, the risk of systemic stress has increased over the medium term. This is a particular problem in low to middle-income countries, especially those already subject to climate change and conflict. The financial assistance provided by the IMF plays a vital role in addressing macroeconomic problems, limiting disruption to both the domestic and the global economy, and helping to restore stability and growth. It is important to ensure the IMF is well resourced and in a position to provide assistance to those member countries in times of difficulty. The Bretton Woods Agreements (Amendment) Bill is Ireland's contribution, as an economically strong member of the IMF, to support the fund in its work.
I look forward to hearing the views of Senators on this Bill and commend the Bill to the House.
I welcome the Minister of State. As he has pointed out, this is a very technical Bill. It has passed through the Houses without opposition so Fianna Fáil will be supporting this Bill.
The Minister of State is a hard act to follow so I will not repeat anything he has said. As a layman, I will say a few words about the new borrowing arrangements. Interestingly, the new arrangements to borrow constitute a second line of defence to supplement the IMF resources to forestall or cope with an impairment of the international monetary system. Through the NAB, a number of member countries and institutions stand ready to lend additional resources to the IMF.
In January 2021, a reform of the NAB took effect following consent from NAB participants, thus almost doubling the size of the NAB's capacity to €361 billion for the period 2021 to 2025. The size of the NAB was doubled effective from January 2021 and the amount now stands at €361 billion. The current five-year period for the NAB is expected to run from 1 January 2021 to December 2025. To activate the NAB requires support from 85% of the participants eligible to vote. It has been activated ten times between April 2011 and February 2016, with the last time being February 2016. I could continue but there is no point as we all support the measure.
I thank the Minister of State for coming here to discuss this all-important topic. That Ireland is a strong supporter and is able to contribute to the IMF fund to help out other countries is an important message.
As Senator Casey has said, this is a very technical Bill. It makes sure we are in the right position to be able to give support to countries like Somalia that are in need. The Minister of State highlighted the war in Ukraine and Covid, which were both unprecedented and things none of us knew were going to happen. While our own citizens are feeling the pinch, certainly with increased costs of fuel, energy and grocery bills, and every time you go into a shop it is easy to see the increases, there are other countries feeling the pain a lot more than us. We, as part of Europe, are able to support those countries.
We are all aware of the IMF as it has existed for quite a while. A number of economically strong member countries with the financial capacity to support the international monetary system agreed to make available resources to the fund in the form of loans. As Senator Casey outlined, it is important these low-interest loans are available. There is no point going into the details of the Bill because the Minister of State outlined very eloquently the different sections and what they do.
Fine Gael will be supporting the Bill.
The speeches today rival Abraham Lincoln's speech at Gettysburg for brevity.
Just wait.
I do not know whether Senator Ó Donnghaile can emulate that.
Let me just count my pages.
You are fine; it does not matter.
The Leas-Chathaoirleach will be glad to hear that I will not use it all-----
The Senator is very welcome to.
-----but I do want to get some of this on the record. Gabhaim buíochas leis an Aire Stáit as a bheith linn. Tá fáilte roimhe. I welcome the opportunity to speak on the Bretton Woods Agreements (Amendment) Bill. As the Minister of State knows, Sinn Féin supported the Bill's passage through the Dáil and we will support its passage through the Seanad as well.
The purpose of this Bill is to facilitate the State's participation in the International Monetary Fund's NAB and to streamline procedures for contributing to IMF trust funds. The history of the Bretton Woods Agreement dates back to July 1944 at the Mount Washington Hotel in Bretton Woods, New Hampshire. Delegates from 44 countries attended this conference in order to create a new international monetary system known as the Bretton Woods system. The idea was to create a new international system after the Second World War that would draw on the lessons of the previous gold standards and the experience of the Great Depression and provide for post-war reconstruction. It was an unprecedented and historic occasion.
The role of the IMF when it was first set up was to ensure exchange rate stability, prevent competitive devaluations and promote economic growth. It is supposed to promote confidence by making the general resources of the IMF temporarily available to members, reducing the duration and severity of balance of payment imbalances. However, it has not always met these objectives. This State joined the IMF and the World Bank in 1957 as part of a process of integration with the global economy. The legislation governing this State’s membership of the institutions is the Bretton Woods Agreements Act 1957, which has been amended several times.
While this Bill in itself is not very controversial, the same cannot be said of the role or reputation of the IMF. The imposition of austerity measures following the crash is not something people in this State will forget easily. The IMF is well known for its structural adjustment programmes that have led to increased inequality, poverty and social breakdown, particularly in lower income countries. That being said, thankfully, in more recent times, we have seen the IMF shift a little - just a wee bit - from its stalwart neoliberal position. We see that in the difference in how it dealt with loans to deal with the pandemic, which is to be welcomed. There has also been some self-reflection and analysis of the impact of those neoliberal policies with its recent article, "Neoliberalism: Oversold?", which concluded that, "Instead of delivering growth, some neoliberal policies have increased inequality". In fact, the research shows support for the introduction of wealth taxes to help recover from the pandemic. It has also produced research demonstrating how taxing the rich is good for growth. This change in attitude is most welcome.
The importance of the role of the IMF is not to be understated. Section 6 of the Bill, in particular, is a worthy provision as it deals with the catastrophe containment and relief trust, which allows the IMF to provide grants for debt relief to the poorest and most vulnerable countries hit by catastrophic natural disasters or public health disasters.
Resources for IMF loans to its members are provided by member states through payments of quotas. Multilateral and bilateral borrowing serve as a second and third line of defence, providing temporary and supplementary resources. The NAB is a second line of defence to supplement IMF resources to cope with an impairment of the international monetary system. Through the NAB, member countries and institutions lend additional resources to the IMF. In January 2021, a reform of the NAB took effect following consent from NAB participants, almost doubling the size of the NAB to $521 billion for the period from 2021 to 2025. Activation of the NAB requires support from 85% of eligible participants. The main provision of this Bill is to allow the State to participate in the NAB facility within the IMF.
I will save my blushes and will not go through all the provisions and sections of the Bill as the Minister of State covered those in his address. I and Sinn Féin continue to support this legislation and wish to see it pass effectively and efficiently through the House.
I thank the Senators for their thoughtful contributions, from both Government and Opposition benches. It is important to recall the challenging context in which many countries currently find themselves. The global economy and international trade have been tested by the Covid-19 pandemic and the war in Ukraine. These events have required a substantial response by governments and policymakers, exhausting resources and challenging debt sustainability in many countries. They have also served as catalysts for the current cost-of-living crisis, which has hit the most vulnerable the hardest and pushed an additional 71 million people in the developing world into poverty. As a result, governments around the world have come under sustained pressure to protect the living standards of the poorest and most vulnerable. However, in many countries, fiscal buffers have been severely depleted by the Covid-19 response, weakening resilience to future economic shocks.
As we face an increasingly uncertain future, it is imperative that the IMF has the necessary resources to assist members beset by multiple or prolonged shocks. This Bill, by providing for Ireland's adherence to the NAB and empowering the Minister to make grant contributions up to a total of €325 million to IMF trust funds, allows Ireland to play our part in fortifying the fund, thereby securing its ability to respond to future crises and to channel critical support to those countries that need it the most. I commend it to the House.
Question put and agreed to.
When is it proposed to take Committee Stage?
Next Tuesday.
Is that agreed? Agreed.
Committee Stage ordered for Tuesday, 4 October 2022.
Cuireadh an Seanad ar athló ar 1.47 p.m. go dtí 2.30 p.m., Dé Máirt, 4 Deireadh Fómhair 2022.
The Seanad adjourned at 1.47 p.m. until 2.30 p.m. on Tuesday, 4 October 2022.