Cunliffe David: International Finance Agreements Amendment Bill — In Committee 
Text is incorporated into the Bound Volume 
Cunliffe David: International Finance Agreements Amendment Bill — In Committee 
[Sitting date: 19 February 2013. Volume:687;Page:7976. Text is incorporated into the Bound Volume.] 
Hon DAVID CUNLIFFE (Labour—New Lynn) 
: 
 I rise to take a short call on clause 6 of the— 
Hon Trevor Mallard 
: 15 minutes? 
Hon DAVID CUNLIFFE 
: —25 or 30 minutes a short call—International Finance Agreements Amendment Bill. Labour supports the bill and in particular it supports this clause which brings into effect the amendments to the schedule proposed in 2010 by the— 
Hon Lianne Dalziel 
: Which schedule? 
Hon DAVID CUNLIFFE 
: It is schedule 1 the Hon Lianne Dalziel. The important matter here is to first put it in context by rephrasing the role of the IMF. The international financial institutions are structured around the following general roles: the World Bank is tasked primarily with providing development advice and some co-funding to important development projects; the International Monetary Fund is tasked with providing backup financial resources to assist developing and emerging economies and to help to underpin the stability of the international financial system. Its developed member countries provide special drawing rights as liabilities against each country’s national accounts and in New Zealand’s case those liabilities add up to something over $1 billion. 
Earlier in this debate we had debate over the one clause of this bill that Labour opposes which was the removal of the right to parliamentary scrutiny in clause 4. Labour proposed an amendment to that which was defeated and the bill has carried that clause. None the less because the IMF board has already agreed and ratified the changes here Labour believes it is important that this Parliament play its part by sealing that within New Zealand law by passing this bill and thereby enacting the amendments to the articles of the IMF that are contained in schedule 1 and schedule 2. Schedule 2 of this bill amends schedule 1 of the Act implementing the 2010 reforms. In particular I would like to draw the Committee’s attention to article 12 sections 3(b) to (d). It reaffirms: firstly in (b) that “the Executive Board shall consist of twenty Executive Directors elected by the members with the Managing Director as chairman.”; and in (c) that “For the purpose of each regular election of Executive Directors the Board of Governors by an eighty-five percent majority of the total voting power may increase or decrease the number of the Executive Directors …”. 
That figure of 85 percent is a very important number because one country the United States holds 16 percent of the voting power and the astute like Andrew Williams MP will note that 85 plus 16 is 101. Thus the United States has an effective veto over the enlargement or contraction of the voting board. That has been historically justified in terms of the United States’ pre-eminent role in funding the IMF. It is of course based in Washington DC. It was part of the post-war UN and global institutional reconstruction. But none the less others would say that it has conferred upon the United States a very important tool of influence and leverage on the international economy. That is reflected in article 12 sections 3(d) and (c) which in a sense entrench the current United States veto over the composition of the board. 
The IMF is going through several very important transitions and in an earlier contribution in the Committee stage of this debate I noted the shift in thinking that has gone on at the IMF. It has been led by the current and previous managing directors Christine Lagarde and Dominique Strauss-Kahn and it has been embodied in particular in the writing of the chief economist of the IMF the renowned Olivier Blanchard. He has led quite an effort in revisionist economic thinking which for example has contradicted earlier IMF doctrine that running budget surpluses leads you to the best of all possible worlds. Recent work by the IMF has reaffirmed the importance of the Government spending multiplier and warned Governments around the world that excessive austerity when they are recovering from a global financial crisis might be the worst thing that they could do. That is a pretty important shift for the IMF. There is another shift that is going on that is directly related to schedule 2 and that is a shift in the membership and the relative voting weights contributions and potential contributions of members. It really relates to the shift in geopolitical power due to the rise of South Asia and East Asia the rise of China and India and the nations of South-east Asia. [ 
Bell rung 
] I am just warming up Mr Chairman—just warming up. There is another 15 minutes to go. 
Tim Macindoe 
: This is your idea of a short call. 
Hon DAVID CUNLIFFE 
: That is right—that is right. The rise of economic power in East and South Asia has had the impact some would argue of restoring the globe to its long-run historical shares of global GDP where East and South Asia took about a quarter each Europe took about a quarter and the so-called New World took about a quarter. Of course in the early part of this century that has not been the case and the trends are now being reflected in discussions at the IMF board level about voting rights and membership. In that respect it is very interesting that these articles reaffirm the veto power of the United States over the expansion or contraction of the board and thereby decision-making rights. 
One could argue that there is a little bit of tension between the article that we are passing now which is entrenching the historical pre-eminence of the United States and its power over the IMF and the global mega-trend that is seeing the rise of East and South Asia and potentially—China is already the world’s second-biggest economy—its relevant influence over the global economic institutions. That is a drama that will no doubt play out over the next decade or so as the world enters a very interesting time in the shift of the balance of global strategic power towards the east. 
Moving on through section 3 we are repealing and substituting various entitlements of executive directors to cast a vote whether they should be cast as units or individually the ability to substitute executive directors for alternates and the various abilities to appoint or not appoint an executive director. 
 If we move on to schedule D we go further into the ability to cast as alternates and in schedule E the transitional provisions in respect of the change of executive directors. In short the 2010 reforms are all about fine-tuning the rights and responsibilities of the executive directors of the board. Whether New Zealand assents in its Parliament or not those matters will pass into global practice because they have already been ratified by the IMF. Labour has some mixed feelings about it. We support the bill we support the clause but we recognise that the IMF will need to continue to modernise if it is to continue to be relevant to the most important debates in the global economy and that its internal power structure the structure of its board will need to adapt over time to bring the rising powers of Asia more to the centre of global institutional decision-making because that is in the interests of all of us. We want the rising powers of Asia to feel that they have a good seat at the table. We want them to feel that they are actively participating that they have skin in the global economic game rather than standing outside it. That will mean that they have an incentive to play by global trade and macroeconomic rules and that we will get past the relatively sterile debate about the artificial lowering of Chinese exchange rates and the accumulation of trade surpluses because a lot of those debates will be held around the table of the economic institutions that matter. 
So Labour believes that although we support this bill to ratify and recognise our role as a participant in the IMF it is important that our region’s executive directors continue to urge the IMF to move in the direction of modernisation. That is part of several important trends that are going on within this institution that are making it more relevant to the modern world. As I said before the evolution in macroeconomic thinking away from the old Washington consensus the old neo-liberal orthodoxy and towards a more multifaceted broad-based approach to economics that takes on board the impact of behavioural economics that looks at the global financial crisis and its aftermath that has a multi-tool multi-target approach to monetary policy that rejects extreme austerity in favour of a more balanced fiscal approach—those are all the hallmarks of an institution that is in a very important transition and a world that is in an important transition to a new era of economic management.