I move: "That the Bill be now read a Second Time."
The purpose of the Bill is to approve the acceptance by the State of the agreement establishing a Financial Support Fund of the Organisation for Economic Co-operation and Development and to provide for the participation by the State in the fund. The text of the agreement is set out in the Schedule to the Bill.
Let me say at the outset that this agreement has not yet come into force nor has the Financial Support Fund established by the agreement come into operation. In fact, given that member countries making up 90 per cent of the fund must ratify the agreement before it automatically comes into force, it may be quite some time before we see the fund in operation.
The second point I would like to stress is that it is certainly not envisaged that Ireland will be seeking finance from the fund if and when it is set up. Our interest in the agreement is to play our part in what we see as a useful international co-operative measure to boost confidence in the international financial system and to show solidarity with our OECD partners. To the extent that the establishment of the fund succeeds in this objective, all member countries will benefit and the fund's resources will be available as a last resort to any member in serious balance of payments difficulties.
The agreement to establish the fund developed as a reaction to the massive balance of payments difficulties encountered by many industrial and developed countries in the wake of the enormous oil price increases in 1973 and 1974. One of the main effects of these increases was to cause a sudden and unprecedented transfer of wealth from oil importing to oil exporting countries. Since the oil producers as a whole were not immediately able to spend this money on goods produced by the oil consumers, many of the oil consuming countries, and Ireland was no exception, were faced with the problem of financing the corresponding deficits in their balance of payments. In the event, the recycling problem as it came to be known, that is, the passing of funds from oil importers to exporters and back again either directly or by way of loans through the international money markets, did not create any major payments crisis. Nevertheless the massive flows of capital involved presented a significant threat to the stability of the international financial system.
The Financial Support Fund is generally seen as a form of mutual insurance scheme through which OECD member countries in serious balance of payments difficulties could borrow from or on the credit-standing of the other members. From this point of view the fund represents an earnest on the part of the OECD countries to work together to meet the problems facing the world economy. This in itself helps to restore confidence in the ability of the international economic system to surmount the kinds of difficulties so recently presented by the twin problems of the oil price increases and the worst recession since the war.
Although the immediate need for a fund is now perhaps less, as the world economy recovers, its existence will serve to lessen the pressure on member countries to resort to unilateral measures to reduce deficits in their trading balances.
International co-operative measures of this kind cannot, of course, be a substitute for correct internal policies. I do not think anyone can be under any illusions on this score. What the Financial Support Fund does is help maintain the proper international financial atmosphere in which well considered national measures to smooth the inevitable adjustment process become that much more feasible.
Let me now briefly describe the main features of the fund. Membership of the fund is confined to OECD countries. All the member countries of the OECD, including Ireland, signed the agreement setting up the fund, subject to ratification, in the spring of 1975. Since then the majority of OECD countries have passed legislation or taken the necessary administrative measures to implement the agreement. Most of these countries have, in fact, gone on to ratify the agreement. The agreement will come into force when member countries with at least 90 per cent of the quotas making up the fund have ratified it. The agreement may also be brought into force for themselves by the unanimous decision of at least 15 member countries of the OECD with at least 60 per cent of the quotas who have ratified the agreement.
The purpose of the fund is to lend money to member countries who cannot finance their balance of payments deficits from normal sources. In other words, it is intended that the fund will be a source of last resort. Applicants for loans will be expected to have first drawn down all other reasonable sources of finance, for example, their normal access to private markets, the IMF and, in the case of Community countries, their access under the various EEC schemes. To enable the fund to lend, each OECD member country has been allocated a quota and the total of these quotas, amounting to 20 billion Special Drawing Rights of the International Monetary Fund or £13 billion at current exchange rates, constitutes the fund. Quotas determine a country's maximum liability to lend to the fund, general level of access to the fund's resources, and voting rights. The quotas have been determined on the basis of relative economic weight. Ireland's quota is SDR 120 million or about £80 million, which is more than one-half of 1 per cent of the total.
In the event of the fund approving a loan to a member country, the fund will raise the money needed in two ways, either in international financial markets on the basis of the collective undertaking of the other member countries, or from individual member countries directly.
Should the fund approach an individual member country for money, the member has the option of making a direct advance to the fund or providing an individual undertaking on which the fund can borrow the necessary amount. In general it is expected that the fund will proceed on the basis of undertakings from the member countries. There are elaborate provisions in the agreement to ensure that the burden of providing finance for loans and risks on loans made by the fund will be shared by member countries in proportion to their appropriate quota level in the fund.
Loans by the fund will be subject to stringent economic policy conditions and the approval of different voting majorities of member countries depending on the amount of the loan to be provided. Voting is on the basis of quota strength but for most decisions a majority of the members as such is also required.
The lending powers of the fund will continue in force for two years from the entry into force of the agreement. The agreement may, however, be amended and its lending life perhaps extended by a unanimous decision of the members subject to the completion of any further legislative processes which may be necessary should this occur.
The fund will be run by a governing committee on which all the members will be represented. There will also be an advisory board. The secretariat will be provided by the OECD. The fund will have the usual immunities and privileges of an international organisation.
Let me now turn to the provisions of the Bill. The arrangements in the Bill in general follow the arrangements which apply to the International Monetary Fund and the EEC medium-term assistance schemes to which the Financial Support Fund has some similarities. In brief, the Central Bank of Ireland will handle the State's financial transactions with the fund up to the winding up of the fund.
Section 1 defines the terms used in the Bill. Section 2 approves acceptance by the State of the agreement. Section 3 designates the Central Bank as the single monetary authority responsible for transactions between the State and the fund. Under the terms of the agreement each member country is required to designate such an authority.
Section 4 provides that the Central Bank shall on behalf of the State make any payments or provide any undertakings to the fund as and when it is necessary to make such payments or provide such undertakings. The section also provides that moneys receivable by the State from the fund shall be paid to the bank on behalf of the State. These provisions do not apply to transactions arising out of the liquidation of the fund.
Section 5 gives the Central Bank the necessary powers to issue notes or obligations or enter into commitments in connection with the exercise of its functions under section 4. The section also provides for payments by the Central Bank in connection with the issue of such notes and obligations and so on.
Section 6 deals with the liquidation of the fund. The section provides in effect for the assumption by the State of its ultimate financial liability in respect of the fund's operations. It is of course most unlikely that an OECD member country would default on an international obligation and indeed the fund's existence is generally seen as aimed at reducing the possibility of such an unlikely event occurring.
Section 7 will enable the Minister for Finance, after consultation with the Central Bank, to bring the Act into force at the appropriate time. Section 8 provides that any administrative expenses incurred by the Minister shall be paid out of moneys provided by the Oireachtas. In general, administrative expenses are expected to be of a minor nature. Section 9 gives the short title of the Bill.
The immunities and privileges of the fund will be covered in the usual form of order under the Diplomatic Relations and Immunities Acts, 1967-76.
In conclusion, the OECD Financial Support Fund Agreement is a useful if somewhat technical measure aimed at maintaining confidence in the international financial system. I think it can be said that the agreement represents the kind of active willingness on the part of the international community of which we are a member to do something about the problems facing it which it is in the interests of a small country, such as ourselves, to support. I recommend the Bill for the approval of the House.
