Examination of witnesses (Questions 240 - 251)
31 MARCH 1998
MS SHRITI
VADERA and MR
KEVIN WATKINS
240. It is interesting. This is the second time your
arguments have led you to suggest that the United States of America
is in fact a clue to this when you were previously arguing about
their action taken in debt relief in Mexico—and of course
the Brady plan before it throughout Latin America was successful
in protecting American banks, should we say in brackets—but
nonetheless what you now suggest also is an Anglo-American initiative
on this question is what would unlock it because as you pointed
out earlier they ignored objections through Germany and Japan
in the case of Mexico anyway and got the international financial
institutions to play ball with them. This suggests that you are
suggesting that our Government now has an opportunity or should
take the initiative to try and bring the United States into a
central role for an evolved HIPC. Is that what you are suggesting
to the Committee?
(Mr Watkins) It is, yes, along with other countries.
241. Of course.
(Mr Watkins) Principally, yes.
Mrs Kingham
242. Can I just ask on that one. First of all, great
apologies for being late, I had to see a Minister about another
aid issue so it was relevant. How realistic do you think that
is, the United States coming on board with a joint initiative,
obviously playing a leading role in any initiative, when it was
very different with Latin America and Central America which are
in its own back yard and in which it has vested interests? There
are not so many vested interests in countries like Rwanda and
Mozambique.
(Mr Watkins) No, although it is fairly interesting
that Clinton has prioritised Africa to a certain degree, hence
his recent trip. I think America has been very ambivalent on the
implementation of HIPC, it took a very strong line initially in
getting HIPC on to the agenda, and I think without Britain and
America pushing it in the way that they did it would not have
seen the light of day. When it got on to the agenda they took
the view that one of the purposes of the HIPC framework should
be to reinforce IMF conditionality and in order to qualify for
exceptional debt relief countries should undergo exceptional conditionality.
So, for example, in the case of Uganda and Bolivia and Mozambique
they argued for debt relief to be delayed by another year, the
date actually adopted. I think it has to be pointed out that President
Clinton has just been in Uganda dispensing largesse towards the
primary education system. Had the US Treasury got its way on debt
relief to Uganda it would have cost the country about 160 million
US dollars which is double the investment that they are now offering
to make. I think if these sorts of issues have to be brought to
their attention you are looking at a far higher political level
than is happening at the moment. I would like to see Britain putting
it to the United States that it needs to have a clearer sense
of purpose of what this initiative is about. Conditionality is
not going to disappear because a country becomes sustainable.
Uganda is still going to be very heavily dependent on debt for
the medium term future and the United States should stop using
HIPC as a mechanism for reinforcing the position of the IMF and
start seeing HIPC as playing the role that it is supposed to play
which is to achieve debt sustainability.
Chairman
243. Is there any future in the United Kingdom itself
trying to unlock this door by offering more generous debt relief
than any other creditor and thus shaming them in the tradition
established by Mrs Helen Liddell in the case of pension selling,
trying to shame other countries to take similar action?
(Ms Vadera) I think there are arguments for and
against. The argument for is that it can work but the arguments
against should be taken into account and one of them is that you
lose your voice in some of these creditor forums if you do not
have any debt because you have forgiven it and also that in the
long term if the ratios are going to prevail your forgiveness
today is going to be taken into account later so there is some
gain, it is all coming out of the same pie in the end, it will
not add to any relief. Personally I am of the view that it does
help and particularly if it is a part of an on-going campaign
to lobby and to bring this to the attention of other countries
and the public in other countries. President Clinton has just
been on a big visit and presumably that has generated some interest
in the United States about Africa itself, there is certainly some
interest from the private sector investors in Africa. The debt
overhang is a deterrent to private investment. If you combine
the forces together, if it was a part of that, certainly I think
it could be effective.
244. Are there not dangers in this in that we would forgive
debt and then other debtors would simply reap the benefit and
say "Goodbye, we have got our debt repaid thanks to you"
and nothing would go to the Third World debt indebted country?
(Ms Vadera) If you are going to take the view
this is going to work in the end that will not be the case. What
you are really trying to do is get everybody to the same position
at the end of having forgiven that debt.
245. Yes.
(Ms Vadera) It is like risk capital, this is your
risk that it is going to work and by doing this you are going
to help it to work.
246. It might be a shot in the locker which we should
reserve to use if it is likely to be effective?
(Ms Vadera) Or if you are very wary of doing it
directly you could say "We will do it if everybody else does".
That is reasonably shaming too.
247. Yes. Now whilst we are on this, Ms Vadera, can you
tell us whether or not there is any will amongst private investors,
those interested in emerging markets and those interested in high
returns, because you have given us evidence to suggest Africa
does provide high returns but of course for high risk, is there
any way of mobilising private sector pressure on our Government
to take the initiative?
(Ms Vadera) I think that is an interesting idea
and certainly I will give it some thought. I think the private
sector investors are very loath to come together as a group in
any forum but there are some forums here for Africa which might
be effective. There is the East African Asian Group, there is
the East African Business Group, there is the West African Group
and those are possible forums. They do discuss these issues. I
am not entirely sure that they are very effective at lobbying
and saying "You must do this otherwise we are not going to
invest". I am not entirely sure what impact that has.
248. Mr Murdoch seems to be fairly effective in his own
interests.
(Ms Vadera) I do not think that they are in the
same league as Mr Murdoch
Dr Tonge: Perhaps you ought to get him interested in
debt.
Chairman
249. I do not think he is interested in debt, he is rather
more interested in profit I think.
(Ms Vadera) I think that the interest generated
in investing in South Africa has generated a lot of interest in
the rest of Africa and I think the South African angle is also
quite interesting because Southern Africans are great advocates
for the African renaissance and they would be useful.
250. South Africa could be a lever, could it not, in
this argument?
(Ms Vadera) Yes.
251. Now we have come to the end of our exploration with
you into these difficult issues. I would like to thank you very
much indeed for coming this morning and discussing these issues
very frankly and very forcefully. Are there last minute thoughts
you would like to give the Committee before we end?
(Ms Vadera) Only to say that I hope you will be
very vigilant and very sceptical about the way the Fund and the
Bank are actually implementing the initiative. This is just one
aspect of the recovery of Africa. There is trade and the ability
of African countries to export and attract foreign investors and
the reform of the Bank and the Fund and the way it is accountable
for what it has done and should be accountable for what it has
done, all these are part of the same issue. I hope the Committee
will continue to look at these issues.
Chairman: Yes, well the Committee hopes to issue this
report on debt before the G8 meeting so that we have an influence
on that, the G8 meeting in Birmingham in May. Then we propose
to travel in the Autumn to Washington and New York. I think the
Committee has recognised that this will be our first report but
not our last report on debt issues. I am certain that because
it is so central to some of the most poverty stricken countries
in the world, to their recovery, we will issue debt reports volumes
two, three, four and hopefully no further so that some action
can be taken. As you have demonstrated to us it is essential that
action is taken at an international level. Thank you both very
much indeed for your time and evidence to us this morning. Thank
you.
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