Examination of witnesses (Question 172 - 199)
31 MARCH 1998
MS SHRITI
VADERA and MR
KEVIN WATKINS
Chairman
172. Good morning. Thank you very much indeed, Ms Vadera
and Mr Watkins, for coming to give us evidence this morning. We
are looking forward very much to discussing with you the whole
question of debt relief, debt forgiveness and debt as a subject
in terms of international development. I understand that you would
like to make an opening statement. I do not know whether you both
will do that or whether Ms Vadera will lead on this but you are
both welcome to make a statement, and then we have a number of
questions that we would like to put to you which I hope will excite
a discussion of these issues between us. Perhaps you would like
to start, Ms Vadera?
(Ms Vadera) Thank you. I am very grateful for
the opportunity because, as you know, I did not make a written
submission. I believe the questions that the Committee are asking
about the process and the structure in terms of the HIPC initiative
really boil down to: have the multilaterals genuinely accepted
and structured, and are they implementing, a permanent viable
exit for HIPCs from their debt problem and would this fulfil the
condition that is necessary to get the HIPCs off the treadmill
of aid dependency and able to attract sufficient levels of official
and private capital for investment. I am sorry to say that with
a few exceptions and possibly with the provision of a few oil
strikes I think I would put the answer somewhere between "unlikely"
and "no". That is essentially because the level of relief
is inadequate. The sustainability ratios that are being considered
are certainly not viewed as attractive by foreign investors, and,
of course, if we are talking about genuine, self-sustaining economic
recovery, foreign investment is a key condition and the debt overhang
is a deterrent not only directly but also because investors are
concerned about exchange rate and interest rate fluctuations and
the lack of domestic liquidity which are partly a result of the
overhang. I think that the HIPC initiative appears to be structured
and implemented more with an eye to the apparent funding constraints
and fear of losing control over conditionality than really to
a sustainable exit. Kevin will talk and we can talk more about
the eligibility criteria but I want to make a brief statement
about funding. I believe that if there is a real commitment to
increasing the level of relief, finding the financing should not
be a serious issue and that can be done without eroding the bilateral
aid that is essential for other expenditure which is essential
for economic recovery. For starters, the Fund could and should
be considering selling its gold reserves. Quite apart from the
HIPC problem, central bankers all over the world are looking at
whether gold is genuinely a good asset to be holding. It is low
yielding and it is not really now an asset of last resort. The
IMF also has access to additional ESAF funds, because the level
of disbursements from ESAF has been rather slow. Also, the World
Bank could, without impairing its creditworthiness, contribute
significantly more. Its loan reserve account alone is $3 billion,
whereas its non-accruing overdue principal is only $1.3 billion,
and, as everybody knows, it will never actually have to write
off that principal in any case. The World Bank's credit status
is effectively granted to it by the commitment and the creditworthiness
of shareholders such as Britain and it should be used. That creditworthiness
is granted to it to allow it to be used as an effective financial
intermediary and that is what it should be made to do without
additional bilateral support. I think the additional funding can
and should come from the Bank and the Fund, who really have been
dragged into this process kicking and screaming, I am sorry to
say, and they have to recognise that the loans they have made
to HIPC countries are fundamentally value impaired. The last point
I would like to make is that time is of the essence in this recognition
because the cost of relief snowballs. If, for example, the Paris
Club had in the early 1980s recognised the real fundamental value
impaired nature of the loans and had given Naples terms at that
time in the early 1980s rather than dragging out the process over
15 years with improved but still unrealistic terms, we may well
not be here today. We would not be discussing this issue of the
HIPC problem and I would hate to be here in ten or fifteen years'
time saying the same thing about the HIPC initiative.
173. That is very valuable indeed, Ms Vadera. Mr Watkins,
you are going to talk to us about conditionality and other issues,
is that right?
(Mr Watkins) We can cover that but I was going
to cover some other issues.
174. I just want to ask Ms Vadera immediately, while
it is in my mind, a question about the funding of the write-offs.
You would agree, would you not, that a loss has to be taken somewhere
if we are writing off debt?
(Ms Vadera) Yes.
175. That loss, I think you have just told us, in terms
of the Monetary Fund should be funded out of gold sales, which
has been proposed, notably by our previous Chancellor of the Exchequer,
Ken Clarke, at an international meeting but has not yet met with
any success or agreement internationally, so there is not any
money to write it off against in the Fund's case, but in the World
Bank's case you are saying that money generated through surpluses
and repaid loans with interest should be used in the trust fund
that HIPC sets up to write off debt against, is that right?
(Ms Vadera) Yes, that is right.
176. Does that not have the effect, therefore, of reducing
the total amount of money available for investment in third world
countries who are not indebted, or, indeed, who are indebted?
Does it not shrink the fund, the amount of money available, for
development?
(Ms Vadera) That is obviously the major concern
of the medium income countries. The argument I was trying to make
is effectively that, yes, there is a limited pie and there is
an issue about how you allocate that pie, but there is also an
issue about the World Bank sweating its assets more effectively
and using its credit standing, which essentially do not come from
its balance sheet. Yes, its balance sheet is important, but essentially
the AAA rating of the World Bank comes from the fact that its
shareholders are committed to it. So it does have access, it has
the ability to increase the pie.
177. Yes, exactly, so you would argue that, in fact,
the World Bank can raise additional money to replace that which
they would be using for writing off and you would not like to
see, as I understood you to say, bilateral funds being used, as
they are at the moment, to repay the Bank's or IDA lending? Is
that what you are saying to us?
(Ms Vadera) I think that I would be very loath
to ask the bilaterals to withdraw their current funding because
we are in the situation that we are in today and withdrawing it
is not going to help anybody, but if we are looking at increasing
the level of relief I certainly think that it should be the Bank
and the Fund contributing and not the bilaterals. The target of
their aid should be other sectors which are just as essential
to economic recovery, which is effectively human capital.
178. And very often on grant terms and not on loan terms?
(Ms Vadera) Absolutely, yes.
179. Thank you. I wanted to make certain we were understanding
you correctly. Now Mr Watkins?
(Mr Watkins) Thank you. We in Oxfam are also very
grateful for this opportunity to give evidence to this Committee.
Britain has for some time had a leadership role in addressing
the debt problems of poor countries and I think credit where it
is due has to be given to the last Government for taking that
role, and also to the present Government for taking on the mantle
and doing very good work since it was elected. Just to make a
couple of points about Oxfam's perspective on the debt issue.
It is easy when we work on debt to get swept aside by the vast
number of acronyms and the huge amounts of finance that are implied
by the debt problem. We in Oxfam see debt very much as a problem
with a human face. I have recently been in Tanzania where we have
done a paper on the debt problem. This is a country with less
than half of its children in primary school; it is a country in
which the quality of education is massively deteriorating on a
year-by-year basis, it is getting progressively worse; it is a
country where about one in six children die before the age of
five because of infectious diseases which could be very easily
prevented through basic interventions. If you look at the budget
for the Tanzanian government, it is spending roughly twice as
much on debt repayments as it is spending on health and education
combined and I think this is a situation which all of us, whatever
the complexities of the issue that we are addressing, ought to
regard as being intolerable. I could multiply that example many
times over, but the important point to start from is that debt
is essentially a human problem. The debt problem is depriving
children of desks and books in schools; it is depriving women
and children of access to essential drugs, and I would like us
to keep that very much in mind.
180. Or it has that potential, does it not? That is to
do with decisions on the part of the country concerned to actually
make that decision?
(Mr Watkins) I hope we can discuss that and I
think in each of these countries there are budgetary allocations
domestically which we would all want to challenge and consider,
but if we are talking about the unproductive use of public resources,
I think transferring funds from creditors would have to figure
fairly prominently in the equation. We are concerned about the
HIPC initiative because we believe it is an initiative which carried
a great deal of potential. There was very much about the initiative
that was good. For the first time it dealt with debt in an integrated
and comprehensive way; it covered all creditors; it tried to set
debt sustainability thresholds. We can discuss the way the thresholds
were set but the principle was that debtors should be left with
a sustainable debt position and with an exit from the debt crisis.
The President of the World Bank pronounced the adoption of HIPC
as good news for the poor, if you remember the statements he made
at the time. Our concern in Oxfam is that the poor in the countries
that we work in can be forgiven for wondering what all the fuss
was about, that HIPC has really not delivered to anywhere near
its full potential, and we believe that for two reasons: first
of all, that there were design flaws in the original package,
which again I hope we can discuss. Those flaws relate to where
the debt sustainability thresholds were set, to debt stock and
to debt servicing. They relate to the fact that the fiscal criteria
for measuring debt sustainability are entirely inappropriate and
unacceptable in view of the debt problems of the countries concerned.
The time-frame for the implementation of the initiative, if we
are speaking frankly, is silly: three years plus three years'
adherence to IMF conditionality. According to the IMF, this is
to avert moral hazard. Previously for the Paris Club bilateral
debt reduction and rescheduling operations, three years was deemed
sufficient to avert moral hazard. Why has it been extended to
six? The upshot is that between 12 and 15 countries are not going
to get debt relief until after the year 2000. What these countries
need is debt relief now. There are serious problems with evaluating
track record for compliance and eligibility, and again all these
problems I hope we will discuss during this meeting. I think we
would argue that the more serious problem is the problem below
the surface, which is about political will. The HIPC initiative
basically happened because Britain, the United States, Australia,
Canada, New Zealand and the Nordics made it happen. They worked
very closely with the World Bank to get it on to the G7 agenda
and to push it through the boards of the International Monetary
Fund and the World Bank. I think what we have seen over the past
18 months is the fragmentation of that coalition. The United States
is pushing for a longer time-frame for implementation; Canada
and Australia are prevaricating. We would argue the World Bank
has not taken a strong enough position, and the coalition against
HIPC, by contrast, which comprises principally Germany, Japan,
Italy and arguably the IMF—although that is a source for
some debate—
remains very strong and resolute and we have seen that coalition
systematically obstructing progress and seeking to undermine HIPC.
It seems to me that one of the major challenges facing the British
Government is to work with the World Bank and others to restore
the initial coalition that we had behind HIPC and to use that
as a catalyst for change. One of the ways that we believe it could
do that is to take the initiative linking debt reduction under
HIPC to very concrete poverty reduction initiatives. We would
like to see special treatment given under HIPC to governments
who are willing to allocate a significant share of the savings
on debt into poverty reduction areas like primary education, women
and child health, primary health care and so on. It is not another
layer of conditionality. We are basically arguing for the right
signals to be sent to reforming governments with a serious commitment
to poverty reduction.
181. You would put then serious conditionality on the
forgiveness or waiving of debt, from what your last statement
suggests, on the host government, the host being the receiving
government or the government that is in debt? You would put very
serious conditionality before permitting debt write-off?
(Mr Watkins) Conditionality already exists. What
I would argue for is a shift in the focus of conditionality and
I actually used the word "incentive", giving incentives
and the right signals to governments. I accept that the dividing
line between incentives and conditionality is a blurred one, but
nonetheless I am on the side of incentives.
Chairman: That sounds very encouraging. I am going
to ask Mrs Barbara Follett if she will lead our questioning on
debt and private investment.
Ms Follett
182. I am concerned here, Ms Vadera and Mr Watkins, with
the debt overhang and what effect that has on private investment,
and in the next three questions I will really be looking at that.
What effect do you think that unpayable external debt has on the
willingness of private investors to invest in a country and what
is the market reaction to debt relief and debt cancellation? Perhaps,
Ms Vadera, you would like to start?
(Ms Vadera) I think that essentially there have
been arguments about this area and the Fund and the Bank have
spent quite a lot of time researching the fact that there is no
impact on the debt overhang of foreign investment. I think it
is basically not a subject that lends itself very easily to an
analytical survey. I think you have to look to practitioners,
and I consider myself a practitioner essentially rather than a
researcher and analyst. In my opinion, it has had a very serious
impact on foreign investment, particularly on foreign investors'
ability to invest, because they are concerned about essentially
aid dependency, the conditionality of the Bank and the Fund on
sometimes very unrealistic programmes. They are concerned about
access and availability of foreign exchange; they are concerned
about the impact on the exchange rate itself, which is very difficult
for them because they obviously need to get their return in foreign
exchange rather than a domestic currency, and one of the factors
that is overlooked by the Fund and the Bank also is that returning
a country to creditworthiness does not necessarily mean that it
should be borrowing huge amounts of commercial debt. We all accept
that but commercial banks and particularly foreign commercial
banks are essential in those countries to reform the banking system
and to give sufficient liquidity, and what foreign investors very
often find is that the cost of domestic debt to run an enterprise
is very high because of the debt overhang and the indirect effects
of that, and that is something that is really overlooked completely
in the whole IMF structural adjustment programme and the Paris
Club debt overhang. So when I am talking to foreign investors
that is a question that is always asked and the ratios are always
analysed, not always the same ratios as the Bank and the Fund
use but they are certainly looked at, and it does have a serious
impact.
183. So you are saying that, though it is hard to quantify
it, it does have a serious impact?
(Ms Vadera) Yes. There will always be certain
types of investors who will invest in countries regardless because
they have special projects, because they have special access,
because they have other conditions, other requirements, for a
return, but if you are looking at the scale of foreign investment
that is necessary to enable economic recovery, removing the overhang
is a necessary if not sufficient condition.
Chairman
184. Would you say that Kenya is an example of this?
Although it is not heavily indebted, as some are, to the international
institutions, it nevertheless has a huge domestic borrowing and
its domestic interest rates are at 27 per cent. Do you not think,
therefore, that is an example of debt overhang taken together,
that is to say, its debts to international financial institutions
and its domestic market are a serious inhibition to inward investment?
(Ms Vadera) Yes, I would say that. What I would
say in the case of Kenya is a complicating factor is that political
risks in Kenya seem to be very high, so along with the question
about interest rates that is obviously going to be a question.
But another point you should bear in mind is the rather strange
situation in some of these countries that the cost of debt is
higher than the cost of equity, which is very perverse, and that
is partly a reflection of the debt overhang indirectly. The second
question was about how the market perceived debt relief. I think
that they are relieved that somebody is doing something and that
it is moving forward and that it is going to happen. I think what
they will look to, however, is how it is implemented and whether
it actually means that those countries are going to be creditworthy
or not.
185. Yes, and they will see whether it is actually real?
(Ms Vadera) Yes.
186. My second main question in this area is: is debt
relief the best mechanism for increasing the amount of foreign
currency available to a country? What other mechanisms exist?
(Ms Vadera) I think that debt relief is one of
the most cost-effective ways of providing relief. I do not think
any more it is an issue of foreign currency; it is an issue of
capital for investment and that is not just foreign exchange capital,
it has to be domestic capital as well. So I would rather say the
question should be: is debt relief an effective way of enabling
a larger flow of capital investment, and I would say it is about
the only way. In fact, it is necessary, it is an essential condition
of it. The only other way, I am afraid, is private flows. Private
flows are not going to be a panacea but that is the largest source
of capital in the world and most HIPCs do not have access to it.
Africa had £$5 billion worth of foreign direct investment
last year, which is about 3 or 4 per cent. of the total to all
emerging markets.
187. Finally, debt cancellation: is debt cancellation
in itself sufficient to move HIPC countries on to a path of sustainable
economic development, do you think, and if not, what are the other
necessary elements for economic development? That is a big question,
I know.
(Ms Vadera) Yes. I think it is a necessary and
not a sufficient condition, as I said before, and I think that
what foreign investors, and domestic investors now—
the division between the two gradually tends to blur—
are really looking at in countries, besides not having the problems
of the overhang, is high returns and low cost production and certainly
there are high returns to be had. Africa had one of the highest
rates of five-year returns but it still does not attract large
foreign investment. I think that labour and human capital is something
that is ignored, particularly by the Bank and the Fund. They are
increasingly coming to realise that, especially the Bank. You
would not question an investor saying, "There is no electricity
for this project," but you would think he was crazy if he
said, "Well, there are no people. Can you invest in the people,
please." That is what I mean about where bilateral aid should
be going. It should be going into the creation of institutional
capacity, labour capacity and skills, and that is a necessary
condition as well, and nobody has said that some of the IMF reforms
were not necessary because these economies were very badly managed
in the 1970s and quite often corrupt as well. So reform processes
are necessary but I am not entirely convinced personally that
an IMF structural adjustment programme is the right way because
it is very damaging in the short term and what investors often
question is whether there is going to be enough left in the medium
term to invest in at all. So it is a reform process; it is looking
at investing in human capital and skills and resources, political
stability and good financial conditions.
Ms Follett: That is where you and Mr Watkins come together
particularly on the human capital side.
Chairman
188. Would you like to add anything, Mr Watkins?
(Mr Watkins) Just very briefly because I think
Shriti has given very comprehensive responses to those questions.
If you look at the debt stock position say for Sub-Saharan Africa,
according to the World Bank a sustainable debt stock to export
ratio is somewhere in the order of 200 per cent. in net present
value terms. The average for Sub-Saharan Africa, if you exclude
South Africa, is something like 450 per cent. If you are a foreign
investor you look at headline figures like that and they send
very worrying signals to you about the threat of exchange rate
instability, of high inflation and so on. But also there is a
problem from a government perspective, because it is important
to bear in mind the accumulation of debt stock in Africa is in
large measure a consequence of arrears on principal and interest
payments, which I think now comes to something like half the total
debt stock in many countries, and this is happening because the
debt service ratio that many governments have, the scheduled payments
they are supposed to make, is equivalent to something like 20
per cent. of their export earnings. The actual payments they are
making are of the order of 12 to 14 per cent. and the remainder,
of course, is just being added to debt stock. The problem here
is simple: supposing you generate export growth, what is going
to happen to the export growth? It is essentially going to be
taxed in order to repay debt up to the scheduled level. So I think
the challenge is both to get debt servicing down to realistic
levels and simultaneously to address the debt stock problem. Whether
HIPC can create debt sustainability by those criteria I think
depends critically on where the sustainability thresholds are
set, which I think is an issue we will probably come back to later,
but we would argue that at the moment they are set far too high
to achieve the objective of an exit from the debt crisis and to
provide an incentive for foreign and domestic investment along
the lines that Shriti has outlined.
Ms Follett
189. If you were going to set it, where would you set
it?
(Mr Watkins) We have argued that the debt service
ratio should be set at between 15 and 20 per cent. and possibly
lower than that for countries facing particular problems. When
one thinks of countries like Mozambique or Ethiopia that are engaged
in post-war recovery, I think probably 10 to 15 per cent. would
be more appropriate. For the debt stock to export ratio we would
argue for a figure of between 150 and 200 per cent. rather than
the present 200 to 250 per cent., but what we would also like
to see happening is more weight being attached to the fiscal weight
of debt problems. It is frankly not acceptable that these governments
are often spending between a quarter and a third of domestic revenue
to repay foreign creditors. These are countries with extremely
limited revenue bases, with a limited potential for expanding
the revenue base, although many of them are engaged in reform
efforts to do that. I do not have an off-the-cuff answer to where
the fiscal threshold should be set but I think some sort of threshold
should be set in this area taking into account the level of income
in the country, the government's revenue collection capacity and
other factors.
Dr Tonge
190. Could I come in because I wanted to ask you a question
on this later but I will do it now. If you reduced the sustainability
factor levels would the HIPC initiative still be fundable and
if we changed those criteria would it not slow it down or throw
it out altogether and we would all have to start all over again?
I am terribly worried about delay and everyone arguing about this
and nothing is ever done as a consequence?
(Mr Watkins) Delay is something we have in abundance
already, so that is a problem.
191. I appreciate that but we do not want to extend it?
(Mr Watkins) No, we do not want to extend it,
and I think the only answer to the question you ask really is
about political will. To draw an analogy with what has happened
in response to the East Asia crisis——
192. This is as to whether the initiative is fundable
or not?
(Mr Watkins) Yes, but I think it relates to the
question of political will. In the case of East Asia we saw in
the space of about three months the IMF mobilise about US$100
billion, subverting its own rules in the process, twisting all
hitherto accepted rules of international finance backwards, sideways,
right and left, in order to accommodate the interest of countries
deemed to be strategically important. I think that is a signal
of what is possible if the international community puts its mind
to the task. What we have suffered from in HIPC is an initiative
which actually costs very little. We are talking about US$7 billion
currently over a five-year period. I would argue that there is
substantial scope for raising additional finance within the multilateral
system to finance an initiative which provided greater levels
of debt relief and provided them earlier. It will be pointed out,
of course, that there is a potential for taking resources from
one area that could have been used for something else but this
is not a cost-free exercise whichever way you turn it because
at the moment between a third and a half of bilateral aid flows
are being recycled in the form of debt refinancing.
Chairman
193. Where do you get that figure from?
(Mr Watkins) It varies from country to country
but that figure is based on Tony Killick's research at ODI. The
work that we have just done on Tanzania shows that about 40 per
cent. of programme aid flows are being recycled in the form of
debt repayments. I think bilateral aid programmes have public
support because they offer a poverty-focused edge, if you like,
to development assistance. I think it undermines those programmes
to have aid diverted into debt relief in the way that is going
on at the moment.
(Ms Vadera) I just wanted to answer the question
about funding. As I said at the beginning, it is perfectly possible
to fund just selling a quarter of the IMF's gold reserves. You
could do that in a month and just the profit would raise you $6.5
billion.
Dr Tonge
194. How do you convince Germany to do that then?
(Ms Vadera) I think that is something that a lot
of pressure could quite easily do but you will find that a lot
of the European central banks in the last year in the run-up to
the creation of the European Central Bank have been looking at
selling gold. Switzerland is looking at selling gold. People have
come to realise that if gold is not really going to be usable
as an asset of last resort, it is not that valuable. So the gold
market is at a very delicate stage politically and one of the
members of the Federal Reserve actually said, "If you are
holding an essentially unsaleable asset it behoves you to be the
first one in the market selling it," and that is really what
the Fund should be doing and the Bank could raise significantly
more finance for its other programmes if it was prepared to take
a write-off or to put additional money into it.
195. But do the other countries, and the World Bank for
that matter, tend to hide behind Germany and Japan all the time?
(Ms Vadera) Yes, absolutely.
196. "We would be able to do it but Germany and
Japan will not do it"?
(Ms Vadera) I should not have said that, but yes.
197. It gets back to political will too. I wanted to
extend your point on political will. I agree with what you said
about raising the bail-out package for Indonesia. Of course, we
all noticed it, but it is because it is strategically important
in the eyes of the United States and the United Kingdom, for that
matter, because of the balance of power with China presumably.
So what you are saying is that the reason Africa in particular
does not get taken any notice of is because it is not strategically
important. How can we make it strategically important? You have
to face realities and I want very much to do something about this
problem but we have to tackle the things that are stopping it
going forward, like Germany and Japan selling gold reserves and
the fact that the very poorest countries in the world are not
strategically important, and they are very basic issues.
(Mr Watkins) I think your question goes to the
heart of the problem: you cannot create political will out of
thin air and ultimately governments have to take responsibility
for this. I think perhaps the tragedy of our political age is
that we have an international leadership, certainly in the G7
countries, that is afflicted with a singular lack of imagination
in addressing some of these problems. If we had an international
leadership which was pointing out to people that none of us is
going to be immune to the consequences of Africa becoming increasingly
marginalised and impoverished within the global system, this has
implications for conflict, for refugee flows, for health problems
and other things, and in that context we all have a responsibility
to push our political leaders into adopting a slightly broader
approach to what constitutes a strategic interest. I think Shriti
is right that the United States and to some degree Britain and
certainly the World Bank, do hide behind Germany and Japan and
every reform you suggest in relation to HIPC, they will say, "Of
course, that might be a good idea in principle but the Germans
will scupper it." Interestingly, the Germans, of course,
were resolutely opposed to the United States bail-out of Mexico
in the financial collapse of these and we know that they got fairly
short shrift. There are other instances where there has been political
resolve shown despite opposition from Japan and Germany. One of
the ways we believe it will be possible to generate the political
will to drive HIPC forward will be by linking to the poverty reduction
initiative along the lines that I had already suggested. For example,
we have argued that at the forthcoming G8 summit Britain could
challenge Germany and Japan to recast HIPC in the mould of a major
investment in poverty reduction with a focus perhaps on primary
education, to say to them, "You have signed up to these targets
for achieving universal primary eduction as part of the OECD DAC
targets by 2015. We know that all these HIPC countries are wildly
off course in reaching their targets. We know none of them has
a cat in hell's chance of getting back on course because of financial
constraints operating on governments. Let's use HIPC as an incentive
to act on our own commitments." I think if the argument were
pitched in those terms rather than going yet again through the
hoops of an arcane debate about the merits of gold sales versus
the demerits of gold sales, we could drive things forward and
I think the British Government has a major responsibility in that
area.
Dr Tonge: I think they pay lip service to it but I
am not sure the political will is there.
Chairman
198. Mr Watkins, you will know that next week the Chancellor
of the Exchequer, Mr Brown, and Miss Clare Short are coming to
this Committee to give evidence and so we will take some pleasure
in putting to them the points you have just put to us to see whether
they can see a way through in that way, but before we get carried
away with the comparison with the IMF behaviour in relation to
the Asian countries I think it is important, is it not, to recognise
that that was done on commercial terms, whereas what we are talking
about could be argued to be commercial in a debt situation, but,
in fact, is to be done as a write-off?
(Mr Watkins) I take the point. The point I was
trying to make was not that the financial instruments which have
been deployed in East Asia would be appropriate in the HIPC context.
Clearly they would not. The point I was making is that an extraordinary
degree of political will has been shown to address the problems
in East Asia and that were a similar degree of political will
shown in relation to Sub-Saharan Africa and other HIPC countries,
I do not think we would be where we are today.
199. But it is very different money, is it not?
(Mr Watkins) It is very different money.
Chairman: It is going to be repaid on commercial terms.
I think it is important to add that. I would like to bring in
Mr Piara Khabra at this point, because, although we have touched
on questions of the HIPC initiative and its progress to date,
I think we need to get on the record, for the sake of good order,
the questions that Mr Khabra is going to lead on.
Mr Khabra: Talking about the HIPC Initiative, Oxfam
argue that the HIPC Initiative, though promising at the time of
its agreement, has "failed to deliver". What are the
weaknesses of the HIPC Initiative? Why has it failed to deliver?
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