Examination of witnesses (Questions 20 - 39)
TUESDAY 17 FEBRUARY 1998
MR ROBIN
FELLGETT, MR
RICHARD MANNING,
MR ANDREW
STEELE, AND
MR NICK
WESTCOTT
Mr Canavan
20. Who are the main creditors?
(Mr Fellgett) Something like two-thirds of that
is bilateral debt, that is to say, money owed to other governments
whether inside or outside the Paris Club. The remainder is owed
to the international financial institutions like the World Bank
and IMF. If you want a precise split I should like the opportunity
to check the numbers.
21. How much of that total is owed by HIPCs to the United
Kingdom?
(Mr Fellgett) I am afraid that this compounds
the problem of the uncertainty of numbers because the data is
kept on a slightly different basis from the World Bank data. Approximately,
something of the order of US$1.5 billion is still owed to the
UK by these countries. I say "still owed" because a
figure approaching £0.5 billion has already been written
off in the process of debt relief.
22. How much of that is official development assistance
and how much is owed to ECGD?
(Mr Fellgett) That is owed almost entirely to
the ECGD. There are some tiny sums of ODA debt, as it is known
in the trade. As to 99.99 per cent, it is ECGD debt.
23. Is it true to say that debt repayment by HIPCs to
ECGD exceeds payment of development assistance in the opposite
direction?
(Mr Fellgett) I am sure that that is not the case.
(Mr Steele) As regards payments by HIPCs to ECGD,
the figures are rather volatile because in lots of cases payments
are not very regular. It varies from case to case. Judging from
the first three-quarters of the current financial year 1997-98,
we have been paid to date something like £30 million (US$45
million) by the 37 HIPCs to whom Mr Fellgett referred. In a full
year we might expect something like US$60 million equivalent.
Dr Tonge
24. That is per year in debt repayments?
(Mr Steele) Yes—interest and principal falling
due where it can be paid. It varies very much from year to year.
Some countries are up to date; others are in arrears. The amounts
that Mr Fellgett has spoken about refer to the original debt and
capitalised interest owed to ECGD, not the total arrears. They
may be behind in interest payments.
Mr Canavan
25. Can Mr Manning tell us whether that US$60 million
a year exceeds the amount of money going to HIPCs by way of aid
per year?
(Mr Manning) It may be better if I send a note
to the Committee explaining what we spent on the HIPCs bilaterally
in the most recent period, but it is comfortably in excess—indeed,
it is a multiple - of that figure.[3]
Mr Khabra
26. You have spoken about the meetings of creditors within
Paris Club and the question of international debt. Can you give
us a breakdown of the debt owed to the ECGD by HIPCs in terms
of types of export?
(Mr Fellgett) I am afraid that I cannot provide
an answer here and now. The information available to me does not
distinguish the type of export that gave rise to those debts.
I do not know whether ECGD has the ability to make that readily
available.
(Mr Steele) We keep the records as far as international
debt agreements are concerned but only in relation to the country
or buyer and the kind of credit guarantee lying behind the debt,
that is, the reason that we have paid out the claim by the UK
exporter. We do not keep records on our computer database of the
particular kind of export concerned, other than what can be traced
from that information. We can give details of defence-related
exports. I say defence-related because the buyer will be the equivalent
of the Ministry of Defence in the country concerned. That may
cover a range of goods which is defence-related but not necessarily
arms as such. I can give details now of the HIPCs if the Committee
would like to have it. But as to non-defence-related sales, we
do not close the file until the unrecovered claim has been paid.
However, we have thousands of such files. Without looking at all
of them, some dating back 20 or 25 years, we cannot get to the
detailed nature of the non-defence-related exports on which claims
were paid.
27. Do you think that to keep records of defence-related
exports and non-defence-related exports is valuable for the purposes
of looking at the economy of a particular country that borrows
money? One can consider whether an export that is defence-related
is necessary and whether money should be given for non-defence
purposes?
(Mr Steele) If you are talking about new business
that we are doing, we keep records and report upon it each year.
The latest report for 1996-97 was published two weeks ago. In
that report is a broad breakdown of the kinds of goods and services
that we support across all markets. We can give a more detailed
breakdown of new business. In this context sometimes we are talking
sometimes about very old claims and business where for the purposes
of international debt administration we do not need to know the
original goods which were exported, because the Paris Club does
not make a distinction between kinds of exports in terms of the
forgiveness that may arise.
Chairman
28. Mr Steele, did I understand you to say that you could
provide the Committee with details of defence spending?
(Mr Steele) I can give the Committee details of
defence-related exports that we supported for the HIPCs that have
been the subject of debt relief. The first is Burkina Faso in
Africa. There was one case involving a claim of £1.5 million.
As for Tanzania, there were three cases involving claims of £4
million, of which to date we have recovered about £1.4 million.
As to Kenya, there are three cases involving claims of £35
million, of which we have so far recovered £11.4 million.
Mr Canavan
29. Can you give some idea of what those exports involved?
(Mr Steele) As far as our database is concerned,
we have only a very general description of those exports. We may
be able to go back to the files and give you more details. Perhaps
I can see what I can do. I do not have the information before
me today to enable me to say exactly what kind of defence-related
equipment those cases involved.
Chairman: The Committee would be grateful to have knowledge
of the type of export, whether it was bullets, rockets or tanks
or food or clothing for military personnel.[4]
Mrs Kingham
30. From whom would ECGD be recovering this money?
(Mr Steele) We would be recovering it from the
government of the country concerned. The debts arose either where
a private buyer had been involved - obviously, that would not
be so in the case of arms - who would have deposited the money
in the local central bank in the country concerned and that bank
had not got the foreign exchange to pay the debt, in which case
it would become the debt of the government, or where a publicly-owned
body such as a nationalised industry had borrowed money, in which
case the government would stand behind it. It might also be a
direct government contract, for example as in arms sales to ministries
of defence.
Mr Robathan
31. There is an industry in the buying and selling of
bad debts. Is there any relationship between that and the debts
that you have been describing? Do you have any involvement with
those companies that own these debts?
(Mr Steele) I think that you may be referring
to some recent bond issues on the financial markets where the
export credit agencies of two countries have packaged some of
their Paris Club debt and sold it by way of bonds. One involved
Italy and the other France. Each involved rather different instruments.
The UK has not so far done that.
32. When one talks about ECGD, there are no commercial
companies buying and selling the debt?
(Mr Steele) We have operated a debt conversion
scheme under some of the agreements which the Paris Club has concluded
with debtor countries. With the agreement of the debtor countries,
creditor countries are allowed to sell a certain proportion of
the debt for debt conversion purposes, that is to say, export
credit agencies like ourselves may sell a certain amount of debt
from a country to a private investor in return for hard currency.
That private investor will go to the debtor country and convert
that hard currency debt into a local currency debt which is then
used for investment purposes in the country concerned and is serviced
by the debtor country. We have done a certain amount of that.
That scheme is currently being reviewed.
33. Are we and debtor countries happy with that scheme?
(Mr Steele) The position varies. Some debtor countries
have used it a good deal and have requested the Paris Club to
increase the limits concerned; others are not interested in the
process. So far we have concluded deals in relation to four countries
including Tanzania and, subject to checking, Mozambique. They
have been regarded by us as value for money, the investor and
debtor country. It is done on a voluntary basis.
Chairman
34. Where does it leave you? Your debt is still outstanding
even if it has been sold to somebody else. You are still trying
to collect from your borrower, are you not? You collect from the
borrower who has received money from selling the bond.
(Mr Steele) As to the debt conversion scheme,
when we sell the debt to the investor that debt is cancelled as
far as our relationship with the debtor government is concerned.
It is sold and so it is off our books. The debtor country reaches
an agreement with the private investor, which normally involves
converting the debt into a local currency debt.
Mr Robathan
35. Presumably, when you do a debt conversion you sell
it at a discount because it is not a very good debt. Taking Tanzania
as an example, what sort of loss on the debt did you take?
(Mr Steele) I cannot say offhand. It may be slightly
commercially sensitive information. Obviously, we make a discount.
We have an internal methodology by which we judge the price we
are offered against the money that we believe we are likely to
get back.
Mr Canavan
36. I want to go back to the subjects of debts that have
accumulated because of the export of defence-related equipment.
You gave figures for Burkina Faso, Tanzania and so on. Can you
give the proportion of the total debt that has accumulated as
a result of defence-related exports from the UK to HIPCs?
(Mr Steele) I did not give those numbers.
(Mr Westcott) For Tanzania it is about 2 per cent
of the total ECGD exposure.
37. Can you provide those figures for all the HIPCs?
(Mr Steele) Certainly.
38. What happened in this case was that private sector
arms manufacturers in this country exported to the governments
of certain developing countries and they obtained cover from ECGD.
When the receiving country found it difficult or impossible to
pay the private sector arms manufacturers in this country ECGD
stepped in and in effect used taxpayer's money to subsidise the
private sector arms manufacturers in this country. Therefore,
it is the poor people in these developing countries who lose out
through this accumulation of debt?
(Mr Fellgett) Although we cannot do the arithmetic
in our heads, only a tiny proportion of debts owed to the UK arise
from ECGD supporting sales to defence ministries, which are essentially
the figures which Mr Steele gave you in respect of Burkina Faso,
Tanzania and Kenya. As to the other of the 37, we believe that
the figure is zero. That is not to say that the Government do
not in some respects take Mr Canavan's point. One of the announcements
made by the Chancellor of the Exchequer at the meeting of Commonwealth
Finance Ministers in Mauritius was that in future, and for a period
of just over two years, all export credits in relation to HIPCs
would be for productive expenditure only, ie not unproductive
expenditure and therefore not for excessive expenditure on military
equipment. The Government's objective is to seek a binding international
agreement that all providers of official credits such as export
credits to poor countries will follow the same self-restraint.
Chairman
39. But no one has yet signed up to that?
(Mr Fellgett) Not yet.
3 See Evidence, p. 21. Back
4 See Evidence,
p. 22. Back
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