Program 1.2: Payments to international financial institutions, outlines various payments made by Treasury to the Asian Development Bank, the Asian Infrastructure Investment Bank, the European Bank for Reconstruction and Development, the International Monetary Fund (IMF) and the World Bank. This appendix addresses the legislation that requires further reporting on the IMF and the World Bank for 2021−22. In particular:

• Section 10 of the International Monetary Agreements Act 1947, which requires reporting on the operations of the Act and of the operations, insofar as they relate to Australia, of the Articles of Agreement of the IMF and the International Bank for Reconstruction and Development during each financial year
• Section 7 of the International Bank for Reconstruction and Development (General Capital Increase) Act 1989, which requires reporting on the operations of the Act during each financial year.

Treasury is responsible for managing the Australian Government’s shareholdings with the International Financial Institutions. The Department of Foreign Affairs and Trade (DFAT) has further interactions relating to the Government’s aid program (see DFAT annual report for information).

The IMF and the World Bank publish annual reports on their operations and provide information at www.imf.org and www.worldbank.org.

Australia and the International Monetary Fund

Mandate

The purposes of the IMF (set out in Article I of its Articles of Agreement) are to:

• promote international monetary cooperation
• facilitate the expansion and balanced growth of trade, contributing to high levels of employment and real income
• promote exchange rate stability and avoid competitive devaluation
• assist in the establishment of a multilateral system of payments and in the elimination of foreign exchange restrictions that hamper the growth of world trade
• make resources available to members to reduce the costs of balance of payments adjustments.

Australia’s representation at the International Monetary Fund

Australia interacts with the International Monetary Fund through:

• the International Monetary Fund Board of Governors
• the International Monetary and Financial Committee
• the IMF Executive Board
• the IMF’s Article IV consultation on Australia’s economic developments and policy.

Board of Governors

The Board of Governors is the highest authority within the IMF. It consists of one governor and one alternate governor for each of the 190 member countries. Australia is represented on the Board of Governors by the Treasurer of the Commonwealth of Australia. The Secretary to the Treasury is Australia’s Alternate Governor. Governors’ votes on IMF resolutions during 2021−22 are noted below.

Table 30: Australian Governor’s votes on International Monetary Fund 2021-22 resolutions

International Monetary and Financial Committee

The International Monetary and Financial Committee advises the Board of Governors on the functioning and performance of the international monetary and financial system but does not have a decision-making role.

International Monetary Fund Executive Board, Executive Director and constituency office

The IMF Executive Board conducts the day-to-day business of the IMF and determines matters of policy under the overall authority of the Board of Governors.

Australia belongs to a constituency which, in 2021−22, also included Kiribati, the Republic of Korea, the Marshall Islands, the Federated States of Micronesia, Mongolia, the Republic of Nauru, New Zealand, Palau, Papua New Guinea, Samoa, Seychelles, Solomon Islands, Tuvalu and Vanuatu.

At 30 June 2021, Australia held around 1.33 per cent of the total voting power at the IMF. The constituency as a whole held around 3.78 per cent.

By agreement between constituency members, the staffing of Australia’s constituency office rotates among constituency members. At 30 June 2022, the constituency’s Executive Director position was held by Mr Chang Huh of Korea.

Australia’s Article IV consultation

In accordance with Article IV of its Articles of Agreement, the IMF conducts regular consultations with the authorities of member countries on economic policies and conditions. The IMF’s Article IV consultation with Australia returns in an in-person format for 2022 with consultations expected to take place during November. In preparation for the Article IV consultations, the IMF conducted a virtual staff visit including consultation with stakeholders from across government and the private sector. The 2022 staff visit was scheduled for 20 to 22 July.

Australia’s quota in the International Monetary Fund and financial transactions

Australia’s quota in the International Monetary Fund

A member’s ‘quota’ is its allocated shareholding in the IMF, which broadly reflects its weight in the global economy. Australia’s quota at 30 June 2021 was 6,572.4 million Special Drawing Rights (equivalent to approximately A$12,715 million at 30 June 2022). Part of Australia’s quota is held in reserve by the IMF in Special Drawing Right and gold. Part is held in Australia by the Reserve Bank of Australia (RBA) in a combination of non-interest-bearing promissory notes and cash amounts in Australian dollars.

Australia’s financial transactions with the International Monetary Fund

Australia conducts a range of financial transactions to manage its obligations with the
IMF. Transactions in 2021−22 were all completed in a timely and efficient manner. They
are described in the following sections, on a cash basis.

Special Drawing Right charges, interest and assessment fee

The Special Drawing Right is an international reserve asset created by the IMF to supplement the official reserves of member countries. Its value is based on a basket of 5 international currencies (the US dollar, the Japanese yen, the British pound sterling, the Chinese renminbi and the euro).

Australia’s cumulative allocation of Special Drawing Rights at 30 June 2022 was Special Drawing Right 9.38 billion while our actual Special Drawing Right holdings were around Special Drawing Right 9.60 billion. As a result of an IMF general allocation of Special Drawing Rights, Australia’s Special Drawing Right cumulative allocation and holdings both increased by Special Drawing Right 6.30 billion on 23 August 2021. The Australian Government and the RBA each hold a portion of Australia’s Special Drawing Right holdings, with the Australian Government owning Special Drawing Right 6.30 billion and the RBA owning Special Drawing Right 3.30 billion. The RBA Special Drawing Right holdings were previously sold to the RBA by the Australian Government in exchange for Australian dollars. Australia’s cumulative Special Drawing Right allocation is the sole responsibility of the Australian Government.

The IMF levies charges on the Special Drawing Rights that have been allocated to each member and pays interest on the Special Drawing Rights that are held by each member. In 2021−22, the Australian Government paid charges of Special Drawing Right 9.09 million (approximately A$17.60 million) on Australia’s cumulative allocation. During this period Australia received a total of Special Drawing Right 9.29 million (approximately A$17.99 million) in interest from the IMF on Australia’s Special Drawing Right holdings. Of this interest, the Australian Government received Special Drawing Right 5.78 million (approximately A$11.19 million) and the RBA received Special Drawing Right 3.51 million (approximately A$6.80 million).

In addition, the IMF levies an annual assessment fee to cover the cost of operating the Special Drawing Right department at the IMF. This is determined according to participants’ net cumulative Special Drawing Right allocations. Australia’s annual assessment fee for the IMF financial year ending 30 April 2022 was Special Drawing Right 119,877 (approx. A$231,602).

Remuneration

Remuneration is interest earned on quota resources held by the IMF, excluding gold. In 2021−22 Australia received Special Drawing Right 1.78 million (approximately A$3.44 million) in remuneration.

Maintenance of value

The Special Drawing Right value of the part of Australia’s IMF quota held in Australian dollars changes as the exchange rate between the Australian dollar and the Special Drawing Right fluctuates throughout the year.

Under the IMF Articles of Agreement, members are required to maintain the Special Drawing Right value of their quota through a ‘maintenance of value’ adjustment (that is, a payment or receipt as necessary) following the close of the IMF financial year on 30 April. For the IMF 2020-21 financial year, the Australian dollar appreciated against the Special Drawing Right. As a result, the 2020-21 maintenance of value adjustment involved a payment from the IMF to Australia of around A$1,178.40 million, with settlement made in July 2021. For the IMF 2021-22 financial year, the Australian dollar depreciated against the Special Drawing Right. As a result, the 2021-22 maintenance of value adjustment will involve a payment from Australia to the IMF of around A$168.14 million. Payment for the 2021-22 maintenance value adjustment was scheduled to be made in July 2022. Table 31 provides details of individual Financial Transactions Plan transactions and the resulting reserve position at the IMF.

Table 31: Transactions with the IMF in 2021-22 (Cash basis)

Lending-related transactions and Australia’s reserve position in the International Monetary Fund

The IMF manages its lending of quota resources through the Financial Transactions Plan (FTP). This is the mechanism through which the IMF selects the currencies to be used in IMF lending transactions. It also allocates the financing of lending transactions among members. Only currencies of IMF members with sufficiently strong balance of payments and reserve positions — such as Australia — are selected for use in the Financial Transactions Plan.

Table 32: Australia’s reserve tranche position in the IMF 2021-22

Financial Transactions Plan transactions (and any transfers for administrative purposes) directly impact on Australia’s reserve position at the IMF. In 2021−22 the amount of Australia’s reserves held by the IMF increased from around Special Drawing Right 1,740 million to around Special Drawing Right 1,885 million.

Through the New Arrangements to Borrow, Australia and 37 other member countries, as well as 2 prospective countries, have committed to lend additional resources to the IMF. The New Arrangements to Borrow constitutes a second line of funding defence to supplement IMF resources to forestall or cope with an impairment of the international monetary system. The New Arrangements to Borrow^ is used in circumstances in which the IMF needs to supplement its quota resources for lending purposes. The New Arrangements to Borrow is covered by general activation periods of up to 6 months, with each activation period subject to a specified maximum level of commitments. Australia has received New Arrangements to Borrow repayments following past New Arrangements to Borrow lending. However, the New Arrangements to Borrow is not currently active or being called upon.

In 2021−22, Australia received total New Arrangements to Borrow repayments of Special Drawing Right 33.80 million (approximately A$64.11 million).

Table 33: Australia’s New Arrangements to Borrow transactions in 2021-22

Australia entered into an agreement with the IMF to lend to the Poverty Reduction and Growth Trust^ on 23 October 2020. The Poverty Reduction and Growth Trust provides concessional financial support to help low-income countries to achieve, maintain or restore a stable and sustainable macroeconomic position consistent with strong and durable poverty reduction and growth.

Table 34: Australia’s Poverty Reduction and Growth Trust transactions in 2021-22

Australia and the World Bank

Australia’s shareholding and relations with the World Bank

Mandate

The World Bank is a multilateral development bank charged with providing financial services, through advice, direct loans, grants, and brokerage to support stable and inclusive growth within countries and across and between regions. It works closely with the IMF, which is responsible for ensuring the stability of the international monetary system.

The World Bank’s twin goals are ending extreme poverty and building shared prosperity.

World Bank strategic priorities

The World Bank is committed to collaborating with multilateral institutions, sovereign nations and the private sector to mobilise financing and leverage knowledge to ensure assistance is harmonised and effective. It is also committed to working with the private sector and is implementing an overarching strategy to substantially increase the volume of private sector funds invested in developing and emerging market economies.

Institutions of the World Bank

• International Bank for Reconstruction and Development (IBRD)
• International Development Association (IDA)
• International Finance Corporation (IFC)
• Multilateral Investment Guarantee Agency (MIGA)
• International Centre for Settlement of Investment Disputes (ICSID).

The International Bank for Reconstruction and Development and International Development Association make up the core of the World Bank. The International Bank for Reconstruction and Development lends to governments of middle-income and credit-worthy low-income countries, while IDA provides grants and interest-free or concessional loans to governments of poorer countries.

The International Finance Corporation is the largest global development institution focused exclusively on the private sector. It helps developing countries achieve sustainable growth by financing – in association with private investors – the establishment, improvement and expansion of productive private enterprises which will contribute to the development of its member countries.

The Multilateral Investment Guarantee Agency promotes foreign direct investment into developing countries by offering political risk insurance (guarantees) to investors and lenders. The International Centre for Settlement of Investment Disputes provides international facilities for conciliation and arbitration of investment disputes.

Australia’s membership of the International Bank for Reconstruction and Development, International Finance Corporation and Multilateral Investment Guarantee Agency requires the Australian Government to hold shares in these institutions. Australia’s shareholdings at 30 June 2022 are set out below and Australia’s shareholding and voting power is indicated in Table 36^.

Table 35: Australian shareholdings at the World Bank Group at 30 June 2022

Table 36: Australia’s shareholding and voting power in the World Bank Group

^Shareholdings and voting power at 30 June 2022. Shareholding and voting power differ in International Bank for Reconstruction and Development, International Finance Corporation and Multilateral Investment Guarantee Agency due to the allocation of basic votes across countries. At International Centre for Settlement of Investment Disputes, the Administrative Council comprises a representative from each contracting state with equal voting power.

Each arm of the World Bank has its own arrangement for allocating votes and shares among members. The Board of Governors and Executive Directors continue to work towards ensuring the World Bank has adequate resources to complete its mission and that its shareholding reflects changes in the world economy.

In addition to the shareholdings managed by Treasury, DFAT contributes to replenishments to International Development Association and funds for joint activities through Australia’s country, regional and global programs. The DFAT annual report provides information on Australia’s aid program.

Australia’s cooperation with the World Bank

Australia is actively involved in World Bank strategy, supporting efforts to strengthen its governance and optimise its effectiveness. Membership also enables Australia

to pursue economic development outcomes for our region as well as promote the benefits of an open global economy. The rationale for Australia’s active participation in the World Bank and how it aligns closely with our national interests and aid priorities is highlighted in the Foreign Policy White Paper.

Australia has also been a strong voice calling for optimal use of the World Bank’s balance sheet and crowding in private sector finances, both at the World Bank and in the G20 forums.

Australia’s representation at the World Bank

Board of Governors

The highest decision-making body of the World Bank is the Board of Governors, comprising one governor from each of the 189 member countries. In 2020-21, Australia’s Governor was the Treasurer, and the Alternate Governor is the Assistant Treasurer. The table below outlines the Australian Governor’s votes for the 2021−22 financial year.

Table 37: Australian Governor’s votes on World Bank Group resolutions in 2021-22

Executive Director and Constituency Office

The World Bank Group’s Executive Boards (International Bank for Reconstruction and Development, International Development Association, International Finance Corporation and Multilateral Investment Guarantee Agency) conduct the day-to-day business of the World Bank and determine matters of policy under the overall authority of the Board of Governors.

Australia belongs to a constituency of countries from the Asia-Pacific region that includes Cambodia, Kiribati, the Republic of Korea, Marshall Islands, Federated States of Micronesia, Mongolia, Nauru, New Zealand, Palau, Papua New Guinea, Samoa, Solomon Islands, Tuvalu and Vanuatu. The constituency is represented by one Executive Director on the Board of Executive Directors. By agreement, Australia and Korea rotate this role every 2 years.