Examination of witnesses (Questions 98 - 119)
18 MARCH 1998
ANN PETTIFOR
and DAVID WOODWARD
Chairman
98. Good morning. Can I welcome both you, Ann Pettifor,
and David Woodward to the Committee this morning and thank you
straightaway for the very excellent briefing you have given us;
some of it, I think, we are going to have to explore the detailed
technical language used with you this morning, because I expect
that, like some of my colleagues, some of these technical terms
are unfamiliar to us and we do need to understand them, I think,
to discuss them with you properly. We will ask questions but either
one of you can answer the question, or both of you, but preferably
not at the same time. I understand you would like to make a brief
opening statement, both of you, and so perhaps I could ask you,
ladies first, Ann Pettifor?
(Ms Pettifor) Thank you very much. I just want
to begin by explaining where I am from. My organisation, the Jubilee
2000 Coalition, is an organisation here based on a coalition of
really broad forces, mainly the churches but also the trade unions,
the women's organisations, the Women's Institute, and black community
groups in this country. But we are also an international organisation
now and have very rapidly become so. You will know that the churches
globalised some time before transnational corporations did, and
through the churches we have spread very widely. We are collecting
a global petition now in 69 countries and we have similar coalitions
in about 40 countries, and we are very pleased that we now have
got offices in five out of seven of the G7 countries, with staff;
so we are putting pressure on other G7 creditors, as well as the
British Government, of course. So it is really quite exciting
and extraordinary how the British public have responded to our
appeal to look at this issue of unpayable debt, and that was reflected
in yesterday's Budget, when we were delighted to hear the Chancellor
say that he wanted the millennium, and I quote, "to be remembered
for the redemption of debt and the reduction of world poverty"
and that was very heartening to us. We have done a quick calculation
overnight, just to show how sharp we are, and we note that the
Exchequer will provide something like £60 million, over the
three years, towards Gift Aid, the charities for the low income,
highly indebted countries that the Chancellor is targeting, and
we note that it takes something like 18 hours for that money to
come back from developing countries in debt service; it is less
than what they pay in debt service every day. So that is a rather
sharp little analogy. But the point is, while we are trickling
down drops of charity to these countries, a flood of debt service
is coming back, and it is that imbalance that we want to address
in our contribution today. Now we have been told that DFID does,
of course, give a great deal more aid than we believe and understand
to be coming back to us in the form of debt repayments. One of
the questions we would like your Committee to explore is how much
of British Government aid is actually used to pay debts, how much
of programme aid or balance of support aid is actually used by
poor countries to pay debts to the IMF or the World Bank or to
other major creditors; in other words, does British taxpayer money
go into a country and fly back again to another northern treasury,
or does it stay in that developing country as productive investment
in that country? We think that is an extremely important issue
for your Committee and these are facts that we have not been able
to get out of DFID and Government Departments. We want to stress
how very unjust, while we welcome the HIPC Initiative and we say
that in our report, we would like in this session to show you
how very unjust is the approach of northern creditors towards
poor debtor countries, compared with their approach to other northern
debtor countries. We want to compare the kind of debt relief that
Britain was given after the second world war, which was substantial,—we
were expected only to spend 4 per cent of revenues from exports
to service our debts; Germany, which got massive debt relief only
45 years ago, was expected to spend only 5 per cent of her export
revenues servicing debts. But, today, Britain and Germany sit
on the Board of the IMF and in the Paris Club and insist that
Mozambique spends 20 per cent of the pitiful revenues that she
earns from cashew nuts and prawns to service her debts to rich
northern creditors; and we want to, in this session, perhaps,
draw out that injustice further. Another issue that excites us
is the conditionality attached to HIPC, and we would like to draw
to your attention a really important speech made very recently
by the Chief Economist of the World Bank, in which he actually
undermines a great deal of the principles of IMF policies in developing
countries, he dismisses it as dogma which is no longer relevant
and does not help economic development. These are really important
points to be made by the Chief Economist of the World Bank, they
have not received much publicity, and we would like to air them
here with you today, because we feel that the conditionality attached
to HIPC really undermines developing countries. We note, for example,
that Rwanda is not even a candidate for debt relief because she
does not have a good track record of IMF economic reforms. I visited
the IMF, I think it was 18 months ago now, and spoke to the Head
of Policy, Mr Jack Boorman, and asked why Rwanda was not on the
HIPC list; and, I have to say, he and his officials did not quite
burst out laughing but they did suppress a giggle, because, they
said, Rwanda did not have an IMF track record and how could she
be expected therefore to be eligible for debt relief? Now, pre-conflict,
Rwanda had really quite a good economic record, it was not a left-wing
regime, she was liberalising her economy, and the World Bank and
the Fund were pleased with her track record; post-conflict, she
is being penalised for her own civil conflict, and we think that
is very unfair. So we would like the Committee to look at conditionality
and to question the closeness of the links between these conditionalities
and the dispersal of debt relief. Thank you very much.
99. Thank you. We are also interested in exactly the
same questions as you are asking us, and we hope to get to the
bottom of them; one of the purposes of our inquiry is to answer
some of the very pertinent questions you have raised. Could you
help the Committee immediately by telling us whether or not your
Jubilee 2000 campaign is proposing that all debts be wiped out,
forgiven, in the year 2000, without any conditions at all?
(Ms Pettifor) No; not at all. Our proposal, and
our phrase, the phrase that we use, is that we are calling for
the backlog of unpayable debts of the poorest countries to be
written off by the year 2000; we have chosen the words "backlog
of unpayable debts" very carefully, it is a portmanteau term.
But, basically, we are saying, that debt, which you, Mr Chairman,
know and we know and the Treasury knows and the IMF knows will
never be repaid, cannot be repaid, but which is kept on the books
because, in our international financial system, it is not possible
to draw a line under debts and to write off those debts; they
are kept on the books, the countries, if you like, are kept on
the economic leash, through these debts, debt is the mechanism
which gets the IMF into these countries, and we think that unpayable
debt should be written off. So we may be well-meaning, do-gooding
types, but we are not careless or irresponsible, we want that
portion of debt written off, which everyone knows will not be
repaid. And, when it comes to conditionality, we are, of course,
concerned about IMF conditions but we are very clear that a very
important condition must be that the debt relief must benefit
the poorest sections of society; how that is done precisely is
a matter still of debate, but we are very clear that that should
be a condition of debt relief.
100. Yes. Well I think the Committee will want to explore
that with you, because what is coming back to us, from our own
constituents, is that you are in favour of simply writing off
all debt, which is not what you are saying, as I understand it?
(Ms Pettifor) Not at all; yes.
101. Mr Woodward, would you like to make a short opening
statement?
(Mr Woodward) Certainly. I should perhaps first
clarify my status, to say that I am not an employee or a representative
of Jubilee 2000 but rather an adviser to Jubilee 2000, so my views
as expressed here, or indeed anywhere else, should not be taken
necessarily as representing the views of the organisation, or
the Coalition, as such. I would like to say a little about what
I think the priorities are, in terms of securing changes to the
HIPC Initiative. Initially, as originally formulated, it was a
very welcome step forward in the debt strategy, for two main reasons:
firstly, that for the first time it allowed a reduction of multilateral
debts, including those owed to the IMF and the World Bank; and,
secondly, and perhaps more importantly, it moved away from the
earlier principle of reducing debts by an amount which was convenient
to creditors to a principle of reducing debts to a sustainable
level. In practice, as the Initiative has evolved, some very serious
shortcomings have become increasingly apparent in it, and I think
that some very major changes are needed if it is going to achieve
those original objectives. I think there are three broad areas
of changes which are needed: firstly, on timing; secondly, on
the amounts of debt relief and the rules governing the amounts
of debt relief; and, thirdly, on the burden-sharing between multilateral
and bilateral creditors. On the question of timing, at present
there are very long delays built into the whole process, with
countries having to secure a track record of six years of successful
structural adjustment; many of them have not started on that process
yet. As long as this unpayable debt remains in place, it has a
very serious negative impact both in economic terms, on investment,
on growth and on development; and in social terms, on poverty,
health and education; and deliberately to leave that debt in place
for six years, essentially as a means of sustaining conditionality,
on IMF and World Bank programmes—and Ann has referred to
Mr Stiglitz' comments on that subject—I think that is a
questionable policy. So I think the first thing is, there is a
major need for acceleration in the process. Secondly, in terms
of the amounts involved, in my view the priority on this is the
fiscal criterion for debt reduction, primarily in terms of the
restrictions which currently apply to its application. Firstly,
it is only applicable to countries which have exports of at least
40 per cent of GNP. Now that is a completely artificial restriction,
it penalises the poorest countries and the Sub-Saharan African
countries disproportionately, and there is no rational basis for
it. Even the IMF and the World Bank have accepted that it is essentially
there to limit the costs of using this criterion. Secondly, there
is a 20 per cent of GDP floor on the revenue which is considered
for applying the fiscal criterion, and that has basically the
same attributes of being arbitrary and perversely targeting, perversely
penalising, the poorest countries. And then, thirdly, there is
the question of the 280 per cent threshold for present value to
Government revenues, which is arguably set too high. I think that
is probably the order of priority for getting changes in those.
Secondly, there is the question of the export criterion; again,
the 200 to 250 per cent threshold is, essentially, arbitrary.
Other liabilities which have a similar effect to debt, for example,
the stock of foreign direct investment and private debts to overseas
creditors, which are not guaranteed by Governments, are excluded
from that calculation; whereas, in terms of the balance of payments,
which is what the export criterion is supposed to measure, they
have a very similar effect to the public and publicly-guaranteed
debt which is included. I think there is also a case for a progressive
reduction in those thresholds over time, if we cannot secure this
acceleration by the year 2000, to reflect the economic damage
which the continued presence of the debt overhang will cause in
the interim. The third broad area is burden-sharing. At present,
the 80 per cent limit on debt reduction by the Paris Club on eligible
debts only, combined with the rules for burden-sharing between
bilateral and multilateral creditors, limits the amount of debt
reduction which can be given, and therefore in some cases, for
example, Mozambique, may well stop even the optimistic sustainability
thresholds under the Initiative from being achieved. So I think
that needs to be resolved, in one way or another. Finally, if
I may take a little more time, there are one or two points which
I would like to raise, arising from some of the other submissions
to this Committee and the previous evidence. Firstly, there have
been arguments for allocating the expenditure which is to be saved
by the HIPC Initiative to particular uses, specifically to health
and education. I think it is important to note that there will
only be money which can be reallocated if the debt is reduced
below the level at which it is now being serviced, and that is
unlikely to be the case under the HIPC Initiative as it stands.
I think there is also a contradiction between that and the ECGD
principle, which is that debt relief should be offered so as to
maximise the stream of repayments to ECGD, because that necessarily
implies an increase in the debt service which is being paid, in
which case, by definition, there will not be debt service savings
which can be reallocated to other uses. A second point: there
was a reference to foreign direct investment as a mechanism for
financing, and to ECGD guarantees to promote foreign direct investment.
I think there are some fairly serious questions about the appropriateness
of much direct investment for low income countries. In foreign
exchange terms, it is quite an expensive form of financing: the
rates of return, even in developed countries, where the risk is
much lower, are in the order of 12 per cent per year; in developing
countries where the risk is higher, clearly, multinationals will
require a higher rate of return, and that is quite a high price
to pay for foreign capital. Now in some cases it may be appropriate,
but I think a selective approach and a fairly cautious approach
is needed to viewing that as a future financing mechanism for
low income countries. The third and final point I wanted to raise
is the question of unilateral action by a single Government. I
think that is something which, again, needs to be looked at quite
cautiously. Given the principle of reducing debt to a specific
level, if unilateral action reduces debt before that stage is
reached there is a risk that the effect will simply be a saving
on the debt reduction which is required from other creditors.
So I think that needs to be looked at quite carefully and critically
and on a case-by-case basis.
Chairman: Thank you.
Dr Tonge
102. Could you explain that last point to me a bit more
carefully, because we heard it from somebody else a few days ago,
did we not, that debt relief unilaterally will lead—can
you say it again, I am sorry, I have not really quite got, I know
my brain has not quite grasped this one?
(Mr Woodward) Basically, if you are reducing debt
to, say, $100 million, from $200 million, now if the UK reduces,
say, wipes off, its debt of $10 million, then because that $100
million level is fixed, when it comes to the final settlement,
the final cancellation, the debt will not actually be any lower.
So what will happen is that the other creditors will reduce their
debts from $190 million to $100 million, instead of from $190
million to $95 million, leaving $5 million for the UK. Does that
help? I am sorry, I am not sure that is clear.
103. I think I understand.
(Ms Pettifor) Mr Chairman, can I just comment
on that, because I think that is very technical and I think that
it is a problem that exists anyway, under the HIPC Initiative,
as it stands. There is a really important political issue, which
is that should a Government take the lead internationally in writing
off debts, and we think that that, in itself, will begin to put
pressure on other Governments, and that pressure, in the end,
might result in much greater debt relief. So I think we need to
be very careful that we do not get bogged down here in technical
calculations and disregard the international framework within
which a British Chancellor, say, would take such action, because
it would be a startling action and it would be an action of international
leadership, and I think it would put enormous pressure on her
fellow creditors within the Paris Club and the IMF.
Chairman: Can I ask Mr Andrew Robathan; he has got
an important question to ask you before he has to leave.
Mr Robathan
104. Can I apologise for leaving almost immediately after
I ask this question, but I am afraid I have double-booked. I think
we would all agree with what you say about wishing to see the
reduction of world poverty, and, indeed, I cannot think of many
people that would not. However, we have just returned, as you
may know, from Africa, where we saw a rather different perspective
than the one that you have put, in my opinion anyway, other people
may have their own perspectives. I would personally think that
Rwanda might indeed qualify as being a special case, because of
the awful conflict they have had and now the dreadful position
they find themselves in, and I think there is no point in trying
to get blood out of a stone. However, in Uganda, which, of course,
is maybe the first HIPC country to qualify, the central banker
said to me, "Well, actually, we wanted to do this, because
we want to be creditworthy", and this is a Ugandan speaking,
not some import from the IMF, not just for further debt, because,
of course, they all want to have further loans and they all want
further aid, but also because of private investment, and it is
not just wearing a hair-shirt and feeling macho, they understand
that, in economic terms, if they are to be taken seriously, we
cannot just say, "We'll get rid of the debt and now we'll
lend you some more money, and we don't expect that to be repaid
either." In Kenya, which I do not think is going for the
HIPC Initiative, the central banker said to us, "Don't give
us any more money, ask us what we did with the money we've had
already" and he was talking about not just Kenya, he was
talking about other African countries. Now, I have to say that
in your submission, I have read both submissions, neither of you
have referred to the responsibilities of the debtor countries,
and, I think, Africans said this to us, it is slightly patronising
to say, "Well, we'll just write off your debt", they
would like it to be written off, of course they would, nobody
wants to be saddled with debt repayments, it is slightly patronising
to say, "We'll write off your debt, and then we'll treat
you separately." I wonder if you would respond to that?
(Ms Pettifor) Can I just respond on the two points;
the first point about creditworthiness. We often have this argument,
especially from World Bank and IMF officials, that actually they
cannot write off the debts because that lowers the creditworthiness
of those countries. I would like to remind the Committee that
this country, the United Kingdom, defaulted on $12.5 billion worth
of debt, therefore we still owe the United States something which
they calculate to be worth something like $30 billion worth of
debt. It is, of course, post-first world war one debt, but we
actually went into default; that did not inhibit our ability to
attract further loans. In 1953, just 45 years ago, Germany was
given massive debt relief; far from inhibiting her attractiveness
to investors and to new capital, it was actually the basis of
her economic recovery. And the third point is that, a country
like Tanzania, Uganda is able to attract some investment, but
her debt relief under HIPC will make her more attractive to new
lenders; but Tanzania, at the moment, is not creditworthy, Tanzania
cannot raise finance in the international capital markets because
of her debt. So it would seem rather strange to say let us not
give any debt relief to Tanzania because by doing so we would
make her less creditworthy.
105. I am not saying that, actually, what I am saying
is, what are the responsibilities of the debtor countries; now
we did not go to Tanzania but I understand that Tanzania is rife
with corruption?
(Ms Pettifor) Sure, and so are many of these countries;
but we would like to point out that there are two sides to the
lending coin, there are lenders and there are debtors, there are
borrowers, and there is an awful lot of corruption on the other
side of the coin, the corruption rests with those who are powerful.
I would like to remind you that between 1981 and 1990 the IMF,
the World Bank, the British Government and the American Government
lent President Mobutu something like $6.8 billion dollars; now
that was political lending, it was in pursuance of foreign policy
objectives in relation to the Cubans in Angola: so be it. But,
today, the ordinary people of the New Democratic Republic of the
Congo are repaying that debt. Now Mr Mobutu was not able to raise
$6.8 billion from his people. A Member of Parliament pointed out
to me that one Kenyan Member of Parliament owns an Australian
ranch; it is not possible to buy an Australian ranch with Kenyan
shillings, you need US dollars for that. There are two ways of
getting US dollars, either by expropriating your country's export
revenues or by going to Washington to the IMF annual meeting,
hiring a suite in The Sheraton, putting a secretary at the door
and waiting for the bankers to queue, offering you loans. Now
those loans are often for projects in those countries which are
inappropriate for those countries. One of the very good things
about Uganda is that loans are now submitted to her Parliament
for scrutiny, but in most countries ordinary people do not hear
about the loans for building a dam which is going to disrupt their
environment and their lives, or of a road which is for the local
MP, or the Armed Forces, or whatever, which actually also disrupts
their lives, but which benefits the construction company building
the project in that country. An awful lot of lending, particularly
IMF, World Bank lending, is governed by what construction companies
in the OECD countries want to spend their money on in developing
countries. Now it is pretty tough for those local people, to blame
them for the fact that elites on both sides, if you like, of the
coin are colluding in order to incur greater debts in order to
incur more lending and in order to raise more money for projects;
ordinary people in Kenya find that this is beyond their control.
I think people in Britain want to look at the way in which we
have given loans, for example, to Indonesia, and I would commend
the work of Mrs Clwyd, over the last period, in looking at the
way in which we provided loans to Indonesia for arms. Now that
President Suharto is turning those arms on his people, it ill
behoves us to be critical of his lack of democracy, of his unaccountability,
of his corruption, he indeed is corrupt, but he has been corrupted
by a lending system, an international financial system, which
has serviced him well. I just feel that we ought not to blame
ordinary Africans.
106. I am not blaming ordinary Africans, I am blaming
the Governments and the societies that have spent the money?
(Ms Pettifor) And also those who have disbursed
it, is what I would suggest, Mr Robathan. We need to remember
that there is co-responsibility of both creditors and debtors
for this debt.
107. So you would back Governments not giving aid or
loans to—sorry, you would back international organisations
or individual Governments not giving aid to countries where the
Government was not up to scratch, in our opinion?
(Ms Pettifor) I find that a difficult question.
108. Yes, it is, is it not?
(Ms Pettifor) Because by doing that we are punishing
ordinary people, and personally I think that Africa needs both
massive debt relief and a Marshall Plan. Africa has been through
the equivalent of the 1930s, through the 1980s, and her people
are dying and suffering for that, and the UNDP has said that 21
million children will die before the year 2000, or that their
lives could be saved if money spent on debt service was converted
into health and education, 21 million children's lives could be
saved. Clearly, getting there, that is going to be difficult.
But we, as British citizens, and as the British Parliament, need
to look at our role in generating that debt before we look at
the role of local corrupted elites. I think we just need to be
a little more humble about the role that we have played, and the
benefits we have accrued from making these loans, they have helped
our balance of payments, they have helped protect jobs in export
industries like the arms industry.
109. We have written off most of our bilateral debt,
have we not?
(Ms Pettifor) No, we have not.
110. That is for certain what we were informed?
(Ms Pettifor) We have written off, and this is
a very important point, a great deal of DFID debt, ODA debt, and
for that the——
111. Bilateral debt, yes?
(Ms Pettifor) No, no; it is bilateral but it is
bilateral aid debt. Ninety-five per cent of the debts owed to
Britain are owed to the Export Credit Guarantee Department in
the DTI and that has not been written off. That is the great burden
of debt. And export credits are, of course, to promote, it is
a subsidy, Mr Robathan, for promoting British exports.
Mr Robathan: I understand that.
Chairman: I am not certain Ms Pettifor answered your
question.
Mr Robathan
112. I am not sure you answered the question about debt
and responsibility. Do not necessarily think we all disagree with
you, but I think you have put forward, if I might say so, a rather
one-sided position?
(Ms Pettifor) I think the side which just blames
the victim is one-sided.
113. I am not blaming the victims, I am blaming the people
that misuse money?
(Ms Pettifor) We are saying that co-responsibility
of creditors and debtors for the debt is the way we should look
at it, if we are going to be truly fair in this approach.
Mr Robathan: I think it is fair, too.
Chairman: Anyway, I think we should end this conversation
for a minute.
Mr Robathan: Thank you; thank you very much for your
tolerance.
Chairman
114. I do not know whether you have anything to add,
Mr Woodward?
(Mr Woodward) Yes, I wanted to add just one or
two points. Firstly, on the question of creditworthiness, debt
cancellation will only affect creditworthiness to the extent that
creditors expect it to happen again. Now that is a major part
of the rationale behind the Jubilee 2000 campaign, which is to
associate the debt reduction explicitly with the millennium, which
will not set a precedent, at least for another thousand years,
which is beyond most people's time horizons. But I think it is
also important to have a more fundamental look at the international
financial arrangements which we have at present, both to ensure
that financial crises of this nature, or indeed of other possible
natures, do not recur, and also to have in place ahead of time
effective and clearly understood mechanisms for dealing with them,
and for sharing the burden equitably between debtors and creditors,
so that those making lending and borrowing decisions in the future
will know how exactly the debts are going to be dealt with in
the event of a financial crisis. That is something that was severely
lacking during the 1970s when much of this debt was originally
incurred, and I think the absence of that clear basis for international
transactions was a major factor contributing to the debt crises,
both in Latin America and in Sub-Saharan Africa. The other question
which I would mention, which I also mentioned in my opening statement,
with reference to attracting foreign direct investment, is, as
I said, I think that this is less of a panacea than it is often
seen to be, and that simply attracting in foreign direct investment
does create long-term costs to the economy. In much the same way
as, again, with the borrowing in the 1970s, one of the major incentives
for overborrowing is that the Government in power actually gets
the benefits of borrowing, but they bequeath those debts to their
successors, and often their opponents. So there is, in that sense,
an incentive built into the system to borrow as much as you can
get away with. I think there is a risk that that is also happening
with some types of foreign direct investment, particularly the
sale of existing productive assets, as opposed to new productive
capacity built on greenfield sites. On the question of debt and
responsibility, certainly I would agree that the debtors have
co- responsibility with creditors for the debt. If I did not mention
it in my submission, it is perhaps that I take it too much for
granted that, generally, one is responding to the view that it
is the irresponsibility of the debtors that has caused the problem.
It is also the irresponsibility of the creditors, and, in some
sense, the creditors have less excuse. As I said, you have this
incentive built into the system towards overborrowing; now the
only way of controlling that effectively—I cannot see any
other way round it—is restraint on the part of lenders,
so that they do not lend more than can be repaid in the long term.
I think that is the market failure which needs to be dealt with.
As regards the use of funds, I think, also, in terms of debt and
responsibility, it is important to remember that much of the debt
was incurred by past Governments, and often unrepresentative Governments.
In some cases their successors are little more representative,
but nonetheless the debts were incurred by people who did not
have the authority of the population. And, in most cases, most
of the debt which has been incurred subsequently, over the last
ten or 15 years, has essentially been used to service those past
debts. So I think a great deal of the responsibility actually
is not with current or recent Governments but with Governments
going back perhaps ten, 15, 20 years, who incurred the original
debts, which formed the basis for all the interest payments which
required new borrowing. As regards corruption and democracy, I
think it is important to mention that one of the major factors
contributing to corruption and ineffective democracy, or lack
of democracy, in many low income countries, is the debt itself:
that the financial constraints which are there have led to extremely
low Civil Service salaries, in some cases below the poverty line;
they have led to poor education systems, low levels of literacy
and often weak media. That is by no means the only reason for
lack of democracy, but it is a contributing factor and I think
quite a significant one, in a number of cases.
Mr Robathan: I will let my colleagues ask nicer questions.
Chairman: I think we should ask questions much more
about the mechanisms that we are looking at and their appropriateness,
rather than the rather emotive, political issues which we have
been getting into. But can I ask Mr Dennis Canavan to continue
our questioning.
Mr Canavan
115. Your submission, Jubilee 2000's submission, that
is, to our Committee, argues that it is not possible for creditors
to make disinterested and realistic projections on sustainability
levels for debtors. If not creditors, who would be best placed
to make these projections?
(Ms Pettifor) We believe, Mr Canavan, that we
need a more independent and fair and transparent process for deciding
what is a sustainable level of debt for a poor country. In domestic
terms what we have in our legal system are Receivers—people
who play an independent role within a legal framework for assessing
the viability of the debtor and the viability of the amount of
debt that can be repaid. In the international system, there is
no-one independent. The IMF is both a creditor itself and also
an agent of all creditors, both private creditors and, of course,
Government creditors, and the IMF leads the decision about the
sustainability of debt. We think that is very unfair because creditors
have a very great interest in, of course, not writing off debts.
Their business is lending and they do not want to see debts written
off. Now there have been proposals as to how this can be done
and there are a variety of them. Currently, there are the consultative
groups which the World Bank organises, where donors, the UN and
creditors sit around the table with the debtor and look at what
is viable. Unfortunately, what happens at the moment is that a
debtor country will go to the Paris Club, which is only a gathering
of creditors, led by the IMF, the donors are not present, the
aid departments are not present there, and the debtor is not present
when decisions are made within the Paris Club, as Mr Fellgett
said in the evidence to your Committee. And it is this dominance
of the whole process by creditors which we think is very unfair.
There has been another proposal, which is that all you would need
is a simple committee of five people, two of them nominated by
the debtor, two nominated by the creditor, the chair nominated
by all four, whose job it will be to assess sustainability in
that country and then decide on the amount of debt service that
is viable. We have not come down in favour of any one system,
but we want to raise for debate, very broadly, the issue of who
decides how much debt relief is viable. We are interested that
Mr George Soros just before New Year, made a proposal in the Financial
Times for a new international credit insurance institution, because
of the very bad lending decisions that were made to South Korea,
Indonesia and Thailand. Those lenders, far from being punished
by market forces or by the law, have been, in fact, bailed out
by an IMF bail-out of $57 billion, in the case of South Korea.
Now there is a great deal of unease in the international financial
system, and the Financial Times almost every day runs a story
about "welfare for bankers" and how we need to look
at the international financial system and review it. We share
that concern and we would like your Committee and the Treasury
and the Government to look at ways—we welcome very much
what the Chancellor has said, which is that the debtor should
have a stronger voice in debt negotiations—we would welcome
more thinking about how the debtor can be represented in those
negotiations. So, I am sorry, Mr Canavan, not a very clear answer,
but our view is that the system as it is is unfair; we need a
great deal more fairness and we want transparency in the process
as well. Right now, you know, deciding how much debt Mozambique
can pay is a process that is, in effect, decided behind closed
doors, and certainly a long way away from the people of Mozambique.
116. How much reliability do you attach to the published
statistics which are used by debtors and creditors to assess the
level of indebtedness and the social and economic development
in HIPCs?
(Ms Pettifor) We are very worried, in particular,
by the creditor debt tables. It is very interesting to us that
we have a list of debtor tables but we do not have a list of creditor
tables. It is very hard to find out what debts are owed to the
British Government and we have had to find that out via Parliamentary
Questions. The new Government is being more helpful than the last
was, but it is still very difficult to find out how much debt
is owed precisely to the British Government and how much debt
service is being paid annually. That is almost a state secret,
but what is very well documented is how much debt is owed by debtor
countries. Now while it may well be well documented it is not
accurate, and the IMF itself and the World Bank, sorry, the World
Bank, revises almost every year its own figures for previous years,
and, if you look at levels of debt for 1985, when you were looking
at them in 1985 the level was this, look at the 1989 debt tables
and the 1985 figures have changed, look at the 1996 debt tables
and the 1985 figures have changed dramatically, and yet decisions
are being made—sorry——
Chairman
117. But that is bound to be so, because, for one reason,
these monies have been lent in foreign exchanges, and therefore
the amounts will change according to the changes in foreign exchange?
(Ms Pettifor) No.
(Mr Woodward) No. I think, when you are looking
at stocks of debt, say, for the end of 1985, that the value of
a debt in yen, in dollar terms, should be determined by the exchange
rate at that point, rather than at the current exchange rates
when the data is published.
118. What we need to know as a Committee is how they
are constructed; are they constructed on that basis?
(Mr Woodward) As I understand it, yes.
119. As I understand it, they are not, they are actually
constructed on the current rate of exchange, but I would like
to know which it is?
(Ms Pettifor) I think, when the figures are first
tabled they are based on that year's rate of exchange; that should
not change, because that year's rate of exchange will be fixed
at that year's rate of exchange. What does change though, and
we cannot explain why, we are not the people to ask this question
of, I think, it should be, I think, targeted at the World Bank
itself and its data collection agencies, but we are struck by
the fact that these numbers change; and why that matters is because
a country's level of sustainability is calculated on the basis
of this in the present and its ability to service those debts,
and so it may be penalised, or it may be expected to pay far more
debt than it can afford to, and those figures may not be real
figures. So I think these are important issues that need to be
addressed. But I am afraid we do not have the answers to that,
we are as puzzled as you are.
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