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.
At the outset I wish to make two points. First, this agreement has not yet come into force. Indeed, given the majorities necessary to bring the agreement into force it is likely to be some time before the fund comes into operation. Secondly, it is certainly not expected that Ireland will be seeking finance from the fund if and when it is set up. Our purpose in supporting the agreement is to involve ourselves, with our OECD partners, in what we see as a useful international co-operative measure to boost confidence in the international system. Of course, should the agreement succeed in this objective all member countries will benefit.
The idea of a financial support fund emerged in the context of the very large balance of payments deficits recorded by many industrial and developed countries following the quadrupling of oil prices 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 in the short term unable to absorb imports of an equivalent value from the oil consumers, many of the oil-consuming countries, including Ireland, 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—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 doubts about the ability of individual countries and the international financial system in general to manage the massive flows of capital involved did contribute to the air of uncertainty current at that time.
In this situation the agreement to establish the OECD Support Fund was seen as indicative of the industrial countries' intention to work together to meet the problems facing the world economy. Thus, although the immediate need for a fund is now less, the carrying through of the original idea 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 do not of course remove the necessity for prudent financial policies in each country. What the fund is designed to do is to contribute the kind of stability to the general international financial atmosphere which allows each country to adopt the internal policies appropriate to its situation.
Let me now briefly describe the main features of the fund. Membership of the fund is confined to OECD countries and all the member countries of the OECD, including Ireland, have signed the agreement setting up the fund. The majority of OECD countries have taken the necessary 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 basic function of the fund as such is to lend money to member countries who cannot finance their balance of payments deficits from normal sources, that is, it will be a source of last resort. Applicants for loans will be expected to have first drawn down all other reasonable sources of finance.
The fund will be financed by member countries on the basis of quotas assigned to them. A member country's quota reflects its relative economic weight. The total of 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. Ireland's quota is SDR 120 million or about £80 million, that is, 0.6 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 on the basis of the collective undertaking of all the member countries, or; from individual member countries directly.
Should the fund seek direct financing the member approached 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. It is envisaged that the fund will normally 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 turn now to the provisions of the Bill.
The arrangements in the Bill are similar to the arrangements which apply to the International Monetary Fund and the EEC medium-term assistance schemes. 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. The administrative arrangements in this connection will be settled in discussions between the Central Bank and my Department. In view of the acceptance of final liability by the Government in section 6 of the Bill, any policy decisions will of course be a matter for the Minister for Finance and the Government, in consultation with the bank, as appropriate.
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 undertaking 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, 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, I think it can be said that the OECD Financial Support Fund is a useful measure in which it would be in Ireland's interest to participate.
I recommend the Bill to the House for adoption.