Australia will provide loans of up to $A500 million to the IMF in support of its program for Brazil. The loans will be provided under the IMFs New Arrangements to Borrow (NAB), from which the IMF can borrow to supplement its resources in an international crisis. The loans to the IMF will be made under the International Monetary Agreements Act 1947 and are counted as monetary transactions. Neither disbursements nor repayments of principal will have an impact on Budget aggregates.
The funds being lent to the IMF by Australia and other NAB participants are expected to be repaid when the IMFs quota increase comes into effect early in 1999. They are being provided at an above-market interest rate. Australia will bear no credit risk, but will carry some exchange risk as the loan is denominated in SDR.
The focus of Australias bilateral balance of payments support has been in its own region. We have therefore not participated in the bilateral support package for Brazil. However, our membership of the NAB represents a global obligation and the Brazilian program is crucial for efforts to control the current international financial crisis, which began in Asia but has since spread more widely. Stability in Brazil is important for stability elsewhere in Latin America and for stability in the international financial system.
The NAB came into effect on 17 November 1998 following ratification by the US and Germany. The Arrangements have 25 members and are chaired by Australia during the first year. The NAB participants have agreed to provide up to SDR9.1 billion ($A19.9 billion) to the IMF for Brazil. This is the first time that the NAB have been activated.
The total funding being provided by the IMF to Brazil in support of its reform program is SDR13.0 billion ($A28.4 billion). The World Bank, the Inter-American Development Bank and a group of bilateral supporters will also provide assistance to Brazil in conjunction with the IMF. The total support from all official sources is around $US41.6 billion ($A65.8 billion).
I am pleased that agreement has now been reached on an overall support package for Brazil. I am also pleased, as NAB Chairman, that the NAB have been able to help marshal the resources needed by the IMF to put the package together. Australia played a key role in establishing the NAB, which are based on a model initially proposed by Australia.