Examination of witnesses (Question 220 - 239)
31 MARCH 1998
MS SHRITI
VADERA and MR
KEVIN WATKINS
220. Yes, but if a country is not adhering to any sort
of democratic way and is not providing services but may be pocketing
the money that is given in aid or coming from taxes, what would
you say to that?
(Mr Watkins) I would say that is a very good illustration
of why the sort of framework that I was outlining to you before
would be a good one because you would be saying to this government:
"You have had a lamentable track record in the past. We know
it, you know it. We are deeply concerned about levels of corruption.
However, if you are willing to enter into a contractual relationship
with us to ensure that resources which can be saved from debt
will be geared towards areas which bring concrete advantages to
the poorest sections of your society" and this will be done
not just with government but in dialogue with NGOs and civil society
groups in the country concerned, "If you will do this we
will commit ourselves to providing the additional debt relief.
If you do not do it it will be reflected in very stringent aid
conditionality". I think this is a fairly clear cut way forward
and better than what we have got at the moment.
Dr Tonge
221. I wanted to tackle you in the absence of Mr Grant
who I am sure would tackle you if he was here.
(Mr Watkins) A frightening prospect.
222. On development speak, part of which is this phrase
"good government". When we were in Uganda we had some
pretty heated debates amongst ourselves as to whether you could
have good governance if you ban political parties. What do you
both see as being "good governance"? What are your criteria?
It is very easy to say it. We all think we know what we mean.
(Ms Vadera) I think I might say something outrageous
here. I actually do not think in the case of Uganda that it is
essential, although it would have been inadvisable in the last
ten years, to have had parties. I think that Uganda is an excellent
case of good governance without having the Westminster style democracy
that we all hanker for. The most amazing thing in that country
is that there are no libel laws. You get completely harangued
in the press, as the President regularly does, and you have a
very vocal opposition, a very vocal parliament. Essentially what
President Museveni has been doing is nation building. I think
you need to give people and countries a time to do that. Having
Kenyan style elections are not anybody's idea of good governance.
Uganda style no-party is my idea of reasonable governance for
a country like that.
223. It is good while Museveni is there.
(Ms Vadera) Yes. I think there is a big issue
about succession. If you end up with somebody in power for too
long they do not make way for succession.
224. We did hear in Uganda that a lot of time and energy
of the administration was going on all the time on electing because
they have this multi-level democracy which is very attractive.
(Ms Vadera) Yes.
Dr Tonge: A lot of energy and administrative expertise
is going on.
Ann Clwyd
225. There might be an argument here now.
(Ms Vadera) This is an area where you are using
judgment and it is not very objective. It is very difficult. The
only thing I would say is that I do not think that the IMF is
the right policeman for good governance. I think it is a political
issue and it is a judgment issue.
Dr Tonge: That is why I hate the phrase, I just do
not know how you can define it.
Mr Robathan
226. I think one word is "corruption".
(Ms Vadera) I would still argue that the IMF is
not the right agency.
Ann Clwyd
227. There are definitions of good governance which we
all know and one of them includes respect for human rights. One
of the questions I would like to ask both of you in the case of
Indonesia, where quite clearly the population of Indonesia has
been denied basic human rights over a long period of time, is
is it right that the IMF should simply make as one aspect of its
conditionality, and the only one as far as I can gather, in its
present negotiations with Indonesia that President Suharto should
actually divest his family of some of the organisations that they
are involved in? Should not that conditionality also include respect
for human rights? Indonesia has some of the worst human rights
records in the world. Is there not an argument for the IMF and
those who support, including this country, the present moves by
the IMF to bail Indonesia out, should not other arguments prevail?
(Mr Watkins) I am going to get myself into trouble
with Oxfam here because I have particular views about Indonesia.
I think the linkage between human rights and financial rescue
are difficult. There are some cases where the offences are so
egregious that countries ought properly to place themselves outside
of the financial community. I think Indonesia comes pretty close
to that definition. I do think, however, that there is a problem
in a country which is heading for a great depression style economic
slump which is probably going to quadruple poverty levels this
year to around 90 million from 13 million, whether the international
financial community should stand aside and let that happen, given
the fact that Suharto would clearly be unwilling to negotiate
the human rights agenda in the same way in practice that he has
been unwilling to negotiate the withdrawal of his family from
virtually every monopoly in the country. He has now confronted
the IMF on this and dialogue is deadlocked. I suppose the truth
is I do not have a straight answer to that question. I think in
general terms, and certainly in the case of countries which are
relevant to HIPC, I would say that in cases where the human rights
offences are so vast and well documented as to be completely beyond
the pale of reasonable conduct that those countries exclude themselves
from dialogue with the international financial community and ought
to be excluded from government to government aid. I think the
difficulty is that most countries are somewhere in the area, they
sail fairly close to the wind, and they are the ones who are difficult
to deal with. Without trying to duck the question, that is an
issue you can only look at on a case by case basis.
(Ms Vadera) I think the only thing I would like
to add to that, coming back to the point about the IMF, is that
the IMF is a sort of central monetary authority, its purpose in
life is to balance dis-equilibria in the market and provide short-term
temporary support for countries with balance of payments problems.
It is not meant to be a de facto aid agency which is what
it is now and it is certainly not meant to be a human right activist
and an agency that monitors human rights. It does not have the
capacity to do it. It has its own corporate governance problems,
let alone monitoring somebody else's.
Chairman
228. Would you like to withdraw entirely from the ESAF
programme because under your definition, Ms Vadera, they are not
competent in this area?
(Ms Vadera) I have actually looked—and I
could send you a paper on this—at the structure of the Bank
and the Fund and I am not suggesting anything drastic like overnight
withdrawal but in the medium term I think one of the issues which
should be looked at is whether each of those organisations is
fulfilling its functions properly and doing what it was set up
to do. If it is not doing what it was set up to do and you want
it to do something else then you should actually, as a shareholder,
direct it to do that as opposed to allowing it to move into a
role because it found it did not have anything else to do. After
the fixed exchange rate system it did not have a role so it found
itself becoming an aid agency and a long term lender to developing
countries. It is set up to look at short term problems. It always
produces over-optimistic projections and forecasts because unless
the books balance at the end of the day it is not permitted to
lend. It has been responsible for some pretty ridiculous forecasts
and projections upon which everybody else bases their aid programmes
and their investments. So it was just completely set up the wrong
way. The ESAF portion is a duplication of what the World Bank
does. Administratively both institutions together spend two billion
dollars a year, just under two billion, administering this. They
go into countries and create confusion and conflict which is sometimes
exploited by the countries. It is just a ludicrous situation and
needs to be looked at properly.
229. Have you written a paper on this?
(Ms Vadera) I have. It is a bit outdated. It was
1995 but I will be very happy to give it to you.
Chairman: Yes, I think that is very important,
what you have just said.
Ann Clwyd
230. I am going to ask you about the process of debt
negotiation but before I do that can I take you both up on what
you described as the lack of political will. Now governments very
often react to public opinion, as you know, is it not a failure
of yourselves, particularly the campaigning organisations, that
public opinion has not been sufficiently persuaded of the justice
of the argument that you are making to put pressure on our own
Government and other governments to do precisely what you have
been arguing this morning?
(Mr Watkins) The short answer to that is yes,
we all should have done a lot more. I have no doubt that if a
greater degree of political will had been generated within the
wider public the Government might have responded to it. I think,
as you know, Ann, it is not always easy to generate political
will given some of the current preoccupations of the media in
this country in particular but I think there is a very significant
political movement now building in this country, under the auspices
of Jubilee 2000, which brings together the churches, trade unions,
the NGO community has a very large membership and it has started
I think quite effectively to raise the profile of the debt issue
in public debate here. I think probably where we need to do a
lot more is in countries like Germany and Japan and there is the
real dilemma which faces us all, these are not easy countries
to penetrate politically for outside agencies. I take your point
and I think NGOs do need to do an awful lot more, I think we all
need to do an awful lot more, journalists, MPs and others.
Chairman: I was going to point out that actually
the All Party Group on Overseas Development has been publishing
reports on this subject since 1984 so I think we can pat ourselves
on the back in that respect, MPs at least, or those that took
part in it.
Ann Clwyd: In a minimal way.
Chairman: In a minimal way, it did not have much effect.
Ann Clwyd
231. I really do think that the basic problem starts
with education and the lack of development. Education has been
a major factor in the lack of interest amongst the public in this
country, the lack of interest in the media, even a broad sheet
newspaper like The Guardian which did have a Third World
supplement dropped it. Discussions of these issues in the quality
papers are very sparse. What can we do about that?
(Ms Vadera) I think one of the ways to tackle
this is through the Bank and the Fund directly. They are immensely
powerful organisations. If you can get the senior management and
the staff and the implementing staff, the people who work out
these ratios, etc., motivated, I think that is a parallel route
to lobbying in Germany and elsewhere. One of the problems is it
is a very technical subject and a boring thing to read in the
papers and that is why basically it has been dropped. It enables
the Bank and the Fund to use very technical arguments which not
enough people are sufficiently au fait with to argue about.
So they get away with quite a lot. If there was a will within
the Bank and the Fund that would be one way of dealing with it.
They have problems themselves with accountability and governance
but if we got behind this programme it would be one way of using
the fact that they are not very accountable.
(Mr Watkins) I do think also there have been particular
periods where interventions in the press by senior political figures
have made a lot of difference. I remember before the G7 summit
a couple of years ago Kenneth Clarke writing an off the head piece
in The Financial Times which was very sharply critical
of the German stand in relation to blocking HIPC. Recently the
Chancellor has done a piece in The Economist, I realise
this is not the popular press but I think that sends the right
sort of signals. I guess from the standpoint of this Committee
that a strongly worded statement from this Committee would also
attract a certain amount of press attention which is something
that we would very much welcome certainly.
232. I would have liked to have pursued that at some
length but we do not have time this morning. Can I take us back
to the process of debt negotiation. You say in your evidence that
"... more work needs to be done within debtor countries to
ensure representatives of civil society are able to play a full
role in the negotiation process as we believe that this is one
of the best ways of ensuring that governments channel the proceeds
of debt relief into poverty reduction". How can such an involvement
be encouraged? Since we cannot even do it in our own countries,
how do you do it in some of the debtor countries?
(Mr Watkins) We have argued that process could
be facilitated through the sort of debt for poverty reduction
arrangement that I have mentioned already. What we have seen in
a lot of countries is that NGOs have been involved already in
setting targets and setting up structures for achieving poverty
reduction targets under whether it is the action plans for the
World Summit of Children, whether it is national poverty reduction
plans in areas like health and education, and we would like to
see those sorts of agencies—many of whom are already working
very closely with UNICEF, the World Bank and governments—brought
directly into the negotiating process which looks at what would
be possible if savings from debt could be converted into these
sorts of investments, determining what would be the most appropriate
sort of investment and making sure that it happens. I think in
many of the countries that we work, certainly we are working with
NGOs who are already involved in dialogue with government to that
purpose.
233. Is there any resistance in any of the debtor countries?
(Mr Watkins) It varies quite a lot. An example
of a country where there is a lot of resistance is Nicaragua which
is one of the most indebted countries where relations between
the NGO community and the government are fraught because of political
divisions in the country's history. In other cases like Uganda,
for example, the Government was very open to engagement with NGOs
around these sorts of targets and that sort of strategy. The work
we are doing now in Tanzania I think is pointing in that sort
of direction as well, the Government is willing to start the process
of constructive engagement. After all, governments themselves
have a lot to gain from this. Governments are losing credibility
because of the crumbling state of their health infrastructures
and their education infrastructures and if the price of restoring
those structures is dialogue with NGOs I think many of them would
be willing to pay it.
Chairman
234. Should there not also be some incentive, to use
your own earlier term, to the debtor country, the country that
has got unpayable debt, to actually participate if it was seen
by those countries that they would actually gain by the process?
After all, at the moment forgiveness of unpayable debt, they are
not paying it anyway, gives them absolutely no relief and, therefore,
there is nothing in it politically in their own countries to actually
engage in this process.
(Mr Watkins) Precisely. That is why we have argued
for deeper debt relief and debt relief to provide that sort of
incentive to go down that route.
235. Can we just look at changes to the HIPC Initiative.
We were given evidence by the principal negotiator for the Treasury,
Mr Fellgett, in the Paris Club to the effect that if we tried
to change the HIPC Initiative now, which has been a tortuously
negotiated process, we will bring it to a complete standstill
and, therefore, to actually try and replace the HIPC Initiative
with something else would be counterproductive and would take
many years to do. Do you agree with that?
(Mr Watkins) No.
236. You do not agree with it?
(Mr Watkins) No. I think it is wrong on virtually
all counts. The HIPC Initiative is not set in stone. We started
off with two criteria for measuring debt sustainability, a third
criterion was introduced at the behest of the French Government
to accommodate Côte d'Ivoire. It is quite clear that change
is possible within the existing framework. I think it is also
clear that change is necessary with the existing framework. Like
Shriti I do not want to be coming to these hearings in ten years'
time discussing the debt problems of countries who have debt relief
under HIPC which did not go far enough and left them with an unsustainable
debt situation. I think that is the great threat. Sustainability
thresholds have clearly been set too high and if this initiative
is going to work they have got to be reduced. That obviously poses
a range of political and legal problems which governments have
to address, but simply to say it is set in stone and this is where
it ends is I think a fundamentally flawed approach.
237. Perhaps, therefore, it would be better to say that
we want to build on the HIPC Initiative and change it addressing
some of its most obvious faults? Would that perhaps not stop the
process that Mr Fellgett suggests but actually make the process
evolve into a better initiative?
(Mr Watkins) I think the phrase "reform in
the light of realities and current experience" suggests itself.
I would suggest that Mr Fellgett uses that sort of formulation
in the future.
238. That is very interesting. Do you have views on this?
(Ms Vadera) No. I would agree with that. I understand
the problem of stopping something immediately but it is a very
defeatist attitude.
239. Yes, indeed. Let us look at UK policy. What can
we in the United Kingdom alone do in this sphere? Let us take
the Mauritius Mandate which sounded ambitious but when Mr Brown,
our Chancellor, got to Hong Kong they noted what he said at the
Monetary Fund and Bank meeting in Hong Kong but nothing very much
happened. Do you think the Mauritius Mandate objectives are achievable
or not?
(Mr Watkins) Well, they will not be achievable
if Mr Fellgett's reasoning prevails in the Treasury, that is absolutely
clear. In order to achieve the targets set by the Mauritius Mandate
reform of the HIPC framework is clearly necessary. In terms of
what the British Government can do to advance that objective I
think in a sense you can divide it into two different levels.
The first is political but I think Britain has a central role
to play in rebuilding a political constituency behind HIPC in
turning this into a high profile issue for the group of eight
countries and demanding action. I think the Chancellor has a special
relationship with the United States. The United States is a key
player on this. I think Britain and the US together could do an
awful lot to create an environment in which a more constructive
implementation of HIPC would be possible. Along with the World
Bank they could provide a sort of leadership role that is really
lacking at the moment. I think that ought to be regarded as an
imperative. The second level of action really concerns what happens
to individual countries that go into the HIPC process. We saw
this appalling situation with Mozambique where the boards of the
IMF and the World Bank agreed on a package for achieving debt
sustainability and we then had almost one year of quarrelling
in the Paris Club about a minor amendment of the rules which would
have facilitated the financing of that deal. I think that could
have been averted by countries coming up with constructive proposals
for financing that package, which they have virtually done in
the end anyway, by perhaps agreeing to the possibility of a reform
in the Paris Club's own rules and going beyond the current level
of debt relief provided for under the Naples terms and I think
advancing the interests of countries that are going through the
HIPC pipeline, as it were, as vigorously as possible. I think
in those areas again Britain has a central role to play.
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