Groser Tim: International Finance Agreements Amendment Bill — In Committee 
Groser Tim: International Finance Agreements Amendment Bill — In Committee 
[Volume:642;Page:11811] 
TIM GROSER (National) 
: 
 I will take a brief call just to highlight one or two of the articles in the convention in new Schedule 7 of the principal Act that I think are quite interesting in terms of the overriding objective of helping developing countries attract—given the risk premiums involved here—greater flows of funding from the members of this agency. So if we start by looking at article 2 we see the statement very clearly that the objective is indeed to encourage the flow of investments for productive purposes amongst member countries. Later on in article 2(a) we see a very clear statement that the real objective is to insure against as is described non-commercial risks. So it is not intended to cover normal operating insurance needs but very much the non-commercial risks. 
If we turn to article 11 a little more definition is given to the covered risks there. They are obviously as my colleagues have just pointed out not the sorts of risks that any New Zealand investing company would expect to meet in Australia in any OECD country or indeed in many developing countries with reasonably robust institutions but in certain markets these become possibly a complete disincentive to investment. They are listed in article 11 as first “Currency Transfer” which is defined as “any introduction attributable to the host government of restrictions on the transfer outside the host country of its currency into a freely usable currency”. 
One would note in passing that this was a massive problem around the 1930s and right into the early 1950s when currency convertibility was more or less achieved in a very rapid period of time amongst the then major industrialised countries. It is still a fundamental problem in a few developing countries so if this were to be reintroduced it is one of the risks that is covered. 
The second one is certainly familiar. My colleague Dr Mapp referred to his own doctoral dissertation on the Iranian situation expropriation and similar measures. There is a very precise definition in article 11(a)(iii) in relation to breach of contract by the host Government. Finally article 11(a)(iv) refers to war and civil disturbance. These are risks that any prudent investor would have to take into account in certain developing country situations. This is an agency that will essentially take out those risks for a fee and deal with that risk allowing the private investor to handle only the more traditional insurance risks that would be apparent. 
Various other clauses deal with membership and capital. During the examination by the select committee which as my colleagues have pointed out was non-contentious we noted that New Zealand’s liability is encompassed in holding 513 shares. From memory there is a contingent liability of around US$5.5 million and we pay 10 percent upfront in cash. So the opportunity cost of that is not very high from New Zealand’s point of view and it is playing our part in the overall multilateral economic cooperation process. 
As I think I might have said in the first reading the only surprise to me was to find we were not already members of this agency. Clearly it is important that the guarantees are done in a cooperative way with the host Government. As everyone in this House knows there are acute issues of sensitivity about sovereignty. One would almost say there is an inverse relationship between the stage of development people have and the sensitivity they feel about sovereignty so it is important that article 15 makes it clear that this proceeds only with the host country’s approval. There are fairly standard subrogation provisions—and I understand it is a very technical issue—in article 18. The agency is also allowed through article 21 to offset some of its risks by using in certain circumstances reinsurance facilities to spread the risk. 
In terms of looking at the overall risk of the agency as a whole there is a provision that limits the total amount of contingent liability to 150 percent of the subscribed capital. Elsewhere in the bill—I cannot recall the article but I remember it from the time of the examination—there is a cap per project of from memory $110 million. This is a carefully designed agreement. It has obviously been worked through by technical experts from the World Bank who are well placed to do this. We are very pleased to support the bill at this stage. Thank you.