Examination of witnesses (Questions 140 - 159)
18 MARCH 1998
ANN PETTIFOR
and DAVID WOODWARD
140. But what you are talking about is, the flow of money
which is used to pay off debt is not now going to be used to pay
off debt, it is going to be used for other, hopefully productive,
purposes in the country concerned, is it not; that is what you
were trying to say?
(Ms Pettifor) That is what we would prefer to
see, rather than it being used to service debt.
141. But the write-off, the money that you have written
off, has to be funded somehow, and if it is funded, which is what
is happening in the World Bank, it is funded through the trust
fund, which, because you have diverted money out of the World
Bank's general funds into the trust fund, you are reducing the
amount of money that the World Bank can otherwise use on productive
development, so you have reduced the amount of money that they
can lend in order to write off debts against it, right, through
the trust fund?
(Ms Pettifor) Yes.
142. So you have actually reduced the amount of money
available for international development by writing off the debt.
And, similarly, we have not yet referred to IMF, as to how it
is to fund its write-offs, which, generally speaking, arise from
its ESAF lending, the Enhanced Structural Adjustment Facility,
is it not, which has been lent principally in Sub-Saharan Africa?
(Ms Pettifor) Yes.
143. And the suggestion is that that should be written
off against sales of IMF gold, again put into the trust fund to
earn interest, the interest being used to write off debt against?
(Ms Pettifor) Yes.
144. That has come to a complete standstill because we
cannot get agreement in IMF for those gold sales, principally
led by Germany and Japan, as I understand it. Have you got a Jubilee
2000 organisation in Germany and in Japan, and how are they going
about persuading the Governments not to be so obtuse?
(Ms Pettifor) We definitely have in Germany, we
are rather weaker in Japan, although we have strong links there
with a Buddhist organisation, and the new Finance Minister happens
to be a member of that Buddhist organisation, so we are doing
our very best there. What is happening is that the IMF is using—I
think the key point, Mr Wells, is that the debts are not being
written off, they are being rescheduled, in some ways.
145. You said you are going to re-fund it?
(Ms Pettifor) Refinanced; and that is our point,
that because they need to be refinanced you need to find the gold
for them, or you need to use IBRD reflows for that purpose. We
would just want to see them written off.
146. If we do that then you have got a total reduction
in the amount of money available for investment through the World
Bank and the Monetary Fund?
(Ms Pettifor) What happens then is that the returns
that would have come in from that debt service is put into the
pot. But I think we need a calculation as to the benefits of actually
using money for servicing that debt.
Chairman: I wish you luck in being able to persuade
the international financial institutions to do that, it has been
a major advance to get them to even consider write-off; but, anyway.
Dr Tonge.
Dr Tonge
147. I wanted to come in on this, because I wanted to
ask questions more or less on the lines that Bowen has been saying.
Japan and Germany are always named as the sticking-points when
we talk to the IMF or the World Bank, because, whatever you say,
if debts are written off, someone, somewhere, has got to sell
some gold, ultimately, or turn a base metal into gold, or do something,
you have got to actually replace it. And I wanted to really defend
the World Bank, in a way, because a couple of people I have spoken
to in the World Bank are very, very keen to do more, but they
say they cannot do it unless the big countries of the world actually
support them, as Mr Wells has said. So we have the problem of
Germany, that does not like selling gold, and we have the problem
of Japan, who sees debt as a matter of honour and that you should
always pay off debt, and, therefore, culturally, they cannot get
their heads round the idea that you should forgive anyone's debt,
because it is not done in Japan, although we all know it is, but
they say it is not. It seems to me that one of the ways of tackling
it would be to go for the USA Government, because the USA could
put an enormous amount of pressure on Germany and Japan to try
to persuade them to do this, and the way that you could do that,
I would suggest, is to go for all the religious groups and the
evangelical groups in the USA, who are extremely powerful. And
I just wanted to extend Bowen's question, as to what links have
you got in the USA, what pressure are they putting on the USA
Government, and are we making any progress?
(Ms Pettifor) Two points, in answer to that. One,
we definitely have, the Treasury advised us some time ago to expand
our movement, and we have taken that advice very seriously and
done it, and we have a strong organisation in the United States,
not such a strong organisation in Japan, but a very strong one
in Germany. But, above all, we are waiting for 16 May, when all
of these leaders come to Britain, to Birmingham, and we are proposing
to encircle them with a human chain, and there is terrific interest
in this country and also from abroad in being there on that day,
to say to all G7 leaders, not just to the British Government,
enough is enough. But my second point is this, that we model ourselves,
in a sense, on the anti-slavery movement, and it is very interesting
the parallels between the two, because precisely the same arguments
were used then; the British Government said, "We can't abolish
slavery on our plantations in the Caribbean because the French
have plantations next door and they will have a competitive edge
on us, in international markets, if they are able to use slave
labour and we're not. And, therefore," said the British Government
"we have to wait for the French to abolish slavery before
we can." Now the movement in Britain said, "No, we're
not going to allow the British Government to wait for the French,
we want you to take action ahead of other institutions."
We think that this issue of consensus, we hear what the World
Bank is saying, the World Bank is very right, it is wrong to target
the Bank and the Fund, they are both bureaucratic institutions
and they exist, as far as I can see, to take the blame for what
the major creditors are doing. And in that sense I do try not,
although this will not have been entirely clear to you in this
evidence, to focus on the IMF and the World Bank, because it is
right, it is the Finance Ministers of the G7 countries that are
holding back, and they are all holding back, including the British
Government, on the grounds that they can only move forward on
the basis of total consensus. Now that is a recipe for paralysis,
and that is what we have had since Mexico defaulted in 1982.
148. Yes, but, with respect, we have heard that before.
I agree with you, we are having the same argument on a code of
conduct on arms, that we would very much like the British Government
to do more, but the argument is that we must have a European code
of conduct, and then I am sure the Europeans will say, "But
we must have an international code of conduct", all this
goes on all the time. All I am saying is, bringing you back to
this, ultimately, whoever starts the ball rolling and forgives
the debt, ultimately, as Mr Wells says, somebody has got to pay,
someone has got to sell some gold, and therefore you cannot escape
the fact that it is certain countries who are preventing that
happening, and whoever starts the ball rolling we have still got
to ultimately finance writing off the debt?
(Ms Pettifor) We agree with that.
149. And therefore we have got to, those three countries
seem to me to be key?
(Ms Pettifor) Yes. I think we are in agreement,
Dr Tonge, we do not really disagree on this point. I think I would
say that the sums of money are very small. It took the international
community overnight to find sums of money, very large sums of
money, to bail out private bankers who had lent foolishly to South
Korea, Indonesia and Thailand; it is taking the international
community an awfully long time to write off the tiny debts, in
international financial terms, of some of the poorest countries
in the world. We think this is not a matter of financial capacity,
it is more a matter of political will, and, I think, in that,
we are in total agreement.
Mrs Kingham
150. You have mainly answered it, but it was just a comment
on that, really, and to ask for your opinion on this thing that
somebody has to pay; yes, they do have to pay, at the end of the
day, but at the end of the day the amounts of money are actually
quite small compared with the amount of money the international
community can find, when it needs to, to deal with its own priorities,
that it has set for what are its own priorities. And at the end
of the day somebody also pays because if we are not paying it
in terms of writing off debt relief we are paying it out in aid,
because people have not managed to get themselves out of poverty.
So, actually, I think the equation is not as simple as that. And
do you have any figures anywhere that look at the comparators
between the amount that is given in aid to the amount that is
given in debt, the amount of debt relief that has been paid off,
so that perhaps some of us could pick up this argument of, at
the end of the day, somebody is paying, i.e. the taxpayer, when
actually we are paying but we are just paying in a different form
at the moment?
(Ms Pettifor) Two things. One, the numbers are,
for every one dollar in aid given to developing countries, eight
dollars now comes back in debt service; at the same time, we lend
them a further 11 dollars, a large part of which, of that 11 dollars,
is used to finance the eight dollars. But the second, powerful
point, which David always makes, which is that we can choose to
write off debts now, and it will cost us to write off 90 per cent
of the debts, or we could wait another six years, at which point
it will be more costly, both for us, because the debts will have
built up, and for those countries. Their capacity to repay in
six years' time will be much lower than their capacity now, so
we will get less back for the taxpayer, if you like, in six years'
time, if we keep on, keep on, delaying. So we need to look at
self-interest, and we are very keen on looking at self-interest,
we think enlightened self-interest would be something quite good
for the creditors to learn, actually. But the cost will be higher
the longer we delay.
Mr Khabra
151. I have been very much impressed by your powerful
argument with regard to the cancellation of the debt, and the
debt has to be written off; technical, economic arguments have
been put forward, but, personally, I support you in your endeavour,
that the international community has got to consider your proposal,
which is a good proposal. I do not think that this is just a simple
financial matter, it is a political matter. In my view, the international
community has got an obligation. You have given the example of
after the second world war the debts were written off for countries
such as Great Britain and Germany, and I think there are two standards
being applied. As far as this argument is concerned, we should
look back at your own situation when these countries were in a
very poor condition, and you mentioned about the Marshall Aid.
I am fully convinced that, your argument, one day, if you carry
on like that, you will win in the end, and I would like to support
you.
(Ms Pettifor) Thank you very much.
Chairman
152. Can we get back to the HIPC Initiative now. Mr Fellgett,
who came to give evidence to this Committee from the Treasury,
says that if we try to go back to the drawing-board, in the way
that both your memorandums suggest, on the HIPC Initiative, it
would stop the process in its tracks and that there would be a
long delay before we got a further agreement. Do you want that
to happen, and is that what you are aiming at?
(Ms Pettifor) We certainly are not aiming at long
delay. We note that the agreement has been modified anyway by
political will, in the case of Côte d'Ivoire and the French
Government's intervention. I think what Mr Fellgett is meaning
is that it has taken a long time to generate this amount of political
will, and I think he is absolutely right. One of our concerns
is that the HIPC Initiative was agreed by the Bank and the Fund
in October 1996 without political support, in reality, it was
something that was driven by the good people inside the World
Bank and the Fund that thought that this was now absolutely essential.
But it was driven, if you like, from that bureaucratic point of
view and it was not sufficiently driven by political will. This
is what we are about. We think the British people and the ordinary
people of Germany and Japan and the United States ought to be
talking about this, ought to be talking about their Government's
role in exacerbating debt. I remember speaking with Mr Clarke
and his supporters, who were saying to us, "Look, all the
work that we are doing on HIPC and on debt relief has been done,
if you like, from the goodness of our hearts; this is not something
that our electors write to us about." And I think politicians
must be commended for acting on this issue, without, if you like,
political support; that is quite unusual in politics. What we
are about is giving politicians a mandate, if you like, from ordinary
people to act on this thing, and we need to do it not just in
this country but in other countries.
153. But what you are trying to do then is to modify
the present plan, not actually to stop the process in its tracks?
(Ms Pettifor) We think we need much more debt
relief by the year 2000, we think time is now absolutely urgent
for relief for these countries, and that would require considerable
modification, if we were going to get HIPC to work effectively
by the year 2000, to include far more countries and to offer far
more debt relief. At the moment HIPC offers too little, too late.
To speed up the process and to offer more would require substantial
modification of HIPC.
154. You will know, actually, or possibly you do not,
that the All-Party Group on Overseas Development in this Parliament
has been working on these debt issues since 1984, I think was
the first publication, and so that some of the World Bank's reaction
to these debt issues has been brought to bear in Washington, most
notably by our present Chancellor, who came with me to the World
Bank and the Monetary Fund and the US authorities to urge a debt
programme such as this, so that the politicians have been aware
of this problem and have been working, some of us anyway have
been, which is important.
(Ms Pettifor) I was referring to Germany, to a
large extent.
155. And I know that most of us welcome very much the
increased profile that your organisation is managing to give to
this subject. Can you tell me what you would like to see, in terms
of changes of United Kingdom policy, on debt relief; the last
statement we have had, I think, was the Mauritius statement, discussed
in Hong Kong in the autumn, but very little seems to have happened
since then? What would you be asking the Chancellor to do?
(Ms Pettifor) I think David and I would both like
to address that question. And if I could say, for us, the most
important thing is to remove the three-year qualification period,
and certainly we need that if we are going to get there by the
year 2000, which the Chancellor has committed himself to. Secondly,
we think the hurdles placed in front of these countries are far
too great, and those are the economic conditions, if you like,
which, they are bound to fail. Ethiopia, at the moment, is failing,
Nicaragua is failing, and that is tragic. And, thirdly, we need
a new level of sustainability defined, and it has got to include
human development at the start and it cannot be an add-on at the
end. Those are our three points.
(Mr Woodward) I would say, again, to accelerate
the timing, considerably. I think it is a matter of considerable
urgency to get effective debt reduction to a genuinely sustainable
level which is not going to impede economic and human development.
Secondly, to put on pressure for removing the restrictions to
the fiscal criterion under the HIPC Initiative, which are entirely
unjustifiable.
156. When you are using the term "fiscal",
what are you including in that term?
(Mr Woodward) That is the ratio of present value
of debt to Government revenue, with a threshold set at 280 per
cent.
157. This I always think of in terms of tax, but you
are talking about Government revenue, so I suppose it is tax,
yes?
(Mr Woodward) Yes. So to remove the 40 per cent
exports to GNP rule, which disqualifies 33 out of 41 HIPCs. I
think seven out of the eight which qualify are among the richest
third of the HIPCs. Also to get rid of the 20 per cent floor on
revenues. If a Government's revenues are below 20 per cent of
GDP then, for the purposes of applying this 280 per cent threshold,
the creditors pretend that they are 20 per cent of GDP. Now there
is no clear rationale for that figure, and it does not particularly
help. If you think, again, of a country like Rwanda, its tax base
is very seriously limited, partly by its poverty, 85 to 95 per
cent of the population are estimated to be in poverty by the World
Bank, as of about two years ago.
158. And its huge lack of productivity?
(Mr Woodward) Huge lack of productivity, but not
only that, also the fact that so much of it is outside the cash
economy, something like 40 per cent of the economy is subsistence
production for home consumption and it is very difficult to tax
that.
159. Yes, absolutely; but, for example, in coffee, we
were told, its productivity is a third that of Kenya, and in tea
it is a quarter of that of Kenya. So that is a degree of inefficiencies
with that country?
(Mr Woodward) Yes, certainly. I suspect that may
relate to the ownership structure of the coffee in Rwanda, in
that it is very small-scale, most smallholders have one or two
coffee trees, and it is probably easier to get technical efficiency——
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