I welcome the Minister of State at the Department of Public Expenditure and Reform, Deputy Brian Hayes. The purpose of this meeting is to consider the Bretton Woods Agreements (Amendment) (No. 2) Bill, which was referred to the select sub-committee by the Dáil on 16 December 2011. Is it agreed to conclude consideration of the Bill today? Agreed.
Bretton Woods Agreements (Amendment) (No. 2) Bill 2011: Committee Stage
Section 1 agreed to.
SECTION 2
Question proposed: "That section 2 stand part of the Bill."
I wish to indicate that I might put down an amendment on Report Stage proposing the deletion of everything in the Bill after section 1, that is, from section 2 on. It should be replaced with an indication that we will either resign from the International Monetary Fund, IMF, or that we will not commit to any of the Bretton Woods Agreements and will delete them from the Statute Book until there is proper democratic reform of the International Monetary Fund, whereby governance of the fund would not be based on weights which are essentially related to the size of economies and their wealth and power.
These matters were debated in the House on Second Stage. However, for the purpose of clarity I will put the current position on the record. The question relates to section 2, which is the agreement to go forward with these changes. It is a key section. For the information of the committee, I will give the view of the Government on this proposal.
As I said in my reply on Second Stage, this is a short Bill. It is mainly technical and is necessary to convey the Government's consent to an amendment of the Articles of Agreement of the IMF. It is part of an international ratification process that is taking place throughout the world. Ireland has a direct interest in its completion in accordance with the foreseen timetable of the autumn 2012 meeting, when it is intended that these changes will be put in place. When the ratification has been completed by the IMF membership, our quota will increase and will result in relatively lower interest charges on our IMF borrowings. That is worth repeating. Our quota, that is, the amount of votes we have in the decisions that are taken by the IMF, will increase and when that agreement is across the line Ireland and other countries will obtain a lower interest rate charge on our borrowings. I would have thought that is a good thing but others may have a separate view.
The amendment will become effective when ratified by 85% of the voting power. Progress to date has been slow with slightly more than 30% having ratified the treaty. The amendment relates to the composition of the executive board of the IMF and is part of a wider reform to strengthen the IMF and boost the representation of emerging markets in developing countries. In future all the executive members of the IMF board will be elected by the members. Up to now, as I understand it, the five biggest countries automatically have a member on the IMF board so they are effectively self-selected. Under this arrangement all 20 members will be elected. The objective is that the emerging developing BRIC economies would be reflected in the composition of the new executive board. I would have thought it is an important advance to have people elected rather than automatically self-selected because of the size and strength of their economies or their historical colonial power, call it what one will.
In terms of the impact of the quota increases on IMF borrowing cost, when the quota increase is in place a larger proportion of our IMF borrowings will attract a relatively lower interest charge. In broad terms the quota increase would bring about a reduction of approximately 100 basis points in the weighted average interest rate applicable to Ireland's borrowings. The sooner this happens the cheaper it will be for our borrowings, which I would have thought is important for the country.
However, the overall cost of borrowing is linked to the IMF's market-related interest rate. The expected rate can change either upwards or downwards in light of the further quota revision. As was said on Second Stage, the Government is asking the House and this select committee to approve these changes which have already been negotiated. There is a timeline for completion later this year in order that the agreement be in place for December's meeting of the IMF to introduce the important changes I have set out. Section 2 effectively recognises that and sections 4 to 15, inclusive, will effectively delete the existing provisions that have existed in the five previous amendments to the treaty that were negotiated by various Irish Governments over the years.
I want to apologise because I must leave shortly to attend Leaders' Questions.
We will discuss this further on Report Stage. While others may have other opinions there is probably consensus across much of the political establishment on the need to pass this Bill. However, I wish to dissent because I believe it is not technical at all and it is disingenuous to suggest it is. It is deeply political and arises from the fact that the IMF was utterly discredited after the Asian crisis. Many of the funding nations, particularly in the Asian area but also countries such as Brazil, which had been devastated by the consequences of IMF dogma and doctrine applied to their countries, were seriously considering - rightly in my view - their membership of the IMF and the value of the IMF as a global institution. The IMF has been scrambling to regain its credibility ever since.
This amendment to the Bretton Woods Agreement is about trying to rehabilitate the IMF, restore some of its credibility and give the pretence of increased democratisation because, of course, much of the criticism that was levelled at the IMF during that period arose precisely because it was a creature of the big global and economic powers that had been the victors at the end of the Second World War and emerged as the powerful economies in that period. They essentially used the IMF as a vehicle to asset-strip resources and impose their economic will in the developing world in particular. Faced with a very high level of criticism in the aftermath of the Asian crisis and as a result of the disastrous consequences of IMF structural adjustment programmes being imposed in the developing world, they felt the need to restore credibility by giving slightly greater voting weight to what are now called the BRIC countries because they are deeply worried about the rise of the newly industrialised nations and that they could be eclipsed in the global political stakes by the newly developing industrialised nations such as Brazil, India, China, South Africa and so on.
This is an attempt to counteract the criticism of the IMF by giving slightly greater voting weight to people who are willing to sign on. However, essentially it copper-fastens a global financial institution which is still far from democratic. It is still based on the new alignment of economic power in the world. A slightly greater voting weight is given to certain countries, but there are a great number of countries which are effectively disenfranchised in a real sense and it will still be utterly dominated by the big powers. That is wrong and indicates the IMF always acts in the interests of the big players.
I wish to comment on some of the debate regarding the visit of the troika and the comments the IMF representatives made to me when I met them which bear this out. Their policy and now this amendment are often presented as technical issues, when they are not technical but deeply ideological and political. For example, a key question of concern to people is whether the IMF, the troika or the Government is making the decision on the possible sale of State assets. In response to a question I asked representatives of the troika last week, they said that they encouraged governments to be very ambitious in the area of privatisation and sale of state assets. I asked their reasons and whether it was to pay off debts or to provide money to fiscally stimulate the economy. They replied that they just believed privatisation was more efficient. Regardless of whether one believes that, it is ideology and it is the IMF ramming a particular ideology down the throats of this and other countries which are in its grip. I believe that is not technical even though some people like to present it as such - it is ideological and political. We should question that and it is important that this Bill is not rushed through the Dáil as if it were a technical matter when it is deeply political and of great significance for this country and the world.
Where does the IMF sit internationally? Is it part of the United Nations structure?
The IMF was created after the Second World War. The Bretton Woods Agreement was an attempt firstly to recognise the disaster of the war and that in the future economic development would be crucial in ensuring no world war would ever occur again. We joined the IMF in 1957 and since then we have had seven specific Bretton Woods treaty changes, all of which were ratified by our Parliament. It came out of the disaster of the Second World War.
I understand that, but it sounds like how the United Nations came about. Is there a connection between the United Nations and the IMF?
Not of which I am aware. Of course the UN refers to financial stability as an important part of development.
Did the UN set up, help with or was it involved in setting up the Bretton Woods Agreement before we joined following the war? Does anyone know?
The major push came from the world powers or those that were victorious after the war. Some of the funding obtained directly after the war related to reconstruction especially in Europe. It came from those who were victorious in the war and the purpose was to ensure that it would never occur again.
I wish to reply to some of the remarks made by Deputy Boyd Barrett. He asked about the rehabilitation of the IMF. I do not see it that way and I suspect the great majority of the people do not see it that way. This is not about the rehabilitation of the IMF; it is about the rehabilitation of this country and other countries like us. I do not buy into the international conspiracy theory that he presents to the effect that the IMF is a global international bogeyman, striding across the continents bringing about wreckage, austerity and everything. As the great majority of Deputies in the committee are aware the truth of the matter is that without the support provided by the IMF and other external funding partners this country would face a budgetary adjustment of approximately €12 billion this year because we have no other means of funding. That is the reality we would face. We face an adjustment of €3.8 billion but it would be multiples of that were it not for the support we have obtained from our external funders between now and the end of 2013. I do not for one moment buy the idea that it is part of some international conspiracy.
The proposals which we and virtually all countries have accepted and which we wish to put in place now will reposition the IMF to recognise the emerging, developing economies to which Deputy Boyd Barrett referred to give them proper weight in terms of the newly composed executive board. I believe it is entirely democratic that people should be elected directly as against being automatically elected because of the size of one's economy or country. The reforms set out in the international treaty that the Government is calling on both Houses to accept are entirely in this vein of recognising the new world reality and where we are now.
Deputy Boyd Barrett also referred to State assets. I was in the House earlier when the Minister, Deputy Howlin, made it absolutely clear to Deputies that we are working with the troika to come to some agreement if we proceed with the sale of non-strategic State assets. We are working with it to ensure that the proceeds of a sale will not be exclusively for debt write-down. The Minister, Deputy Howlin, stated that a sizable proportion of these sales could be used for productive investment and job opportunities within the economy. This is something on which the Government has been working tirelessly. There is a programme for Government commitment from both parties in Government for the sale of non-strategic State assets of up to €2 billion during the lifetime of the Government as a means of trying to encourage investment, especially in the new technologies that must be invested in. We are working with the troika and the IMF to ensure this takes place. The idea that this has been foisted upon us by some international bogeyman is one the Government rejects utterly.
I thank the Minister and his officials for attending.
Question put and agreed to.
Section 3 agreed to.
Schedule agreed to.
Title agreed to.
Bill reported without amendment.