Examination of witnesses (Questions 280 - 299)
7 APRIL 1998
RT HON
GORDON BROWN,
MP, RT
HON CLARE
SHORT, MP,
MR RICHARD
MANNING and MR
GUS O'DONNELL
280. Can I ask a final question. It is difficult to get
answers on this in general. How much do you estimate of British
Government programme aid is actually used to pay debts to the
IMF or the World Bank or other major creditors or are you totally
convinced that it remains in developing countries as an investment
in that country?
(Clare Short) I do not think I can fully——I
have got a list here of United Kingdom aid to HIPC countries and
I have referred in the case of Mozambique and others where we
have specifically and deliberately helped a government to pay
its debt off while it is getting into a programme of reduction
so they can get on with the business of redirecting their spending.
I think we can let you have what information we can but we need
to prepare it and give it to you properly.
Chairman
281. I think the Committee would be very grateful for
that. It is very difficult to explain why you suddenly give great
dollops of money to the African Development Bank, for example,
which I understand from your evidence this morning you gave in
order to repay the debt to the African Development Bank or to
get it up to date with their repayments so that they can continue
to lend. Is that right?
(Clare Short) Under HIPC the regional banks also
have obligations to the HIPC Initiative and the African Development
Bank does not have enough resources to make its contribution under
HIPC to Ugandan debt reduction so we put resources into the African
Development Bank. The implication of your question is, I think,
that it has a terrible record and was allowed to lend totally
irresponsibly in the past but is now undergoing a major progress
of reform under much better leadership and it is about to have
a re-settlement of its constitution that will give donors like
us more authority and it is expected it might get a triple-A rating
again. You are right to question the history of that bank. There
has been massive improvement and we have been working for that
reform, but because of the past and because of bad lending in
the past, not now, it was not able to meet its obligations under
HIPC. Therefore in the case of Uganda and again in Mozambique
we have said we will find the African Development Bank's contribution
to the debt relief so this is not all held up because the African
Development Bank cannot play its part.
Mr Rowe
282. Do we need all these elaborate international structures?
When I think what a lot you have achieved with a $10 million pump-primer
and when I think how little distance $10 million goes in the salary
structures of a lot of these international agencies, one does
wonder whether there are not more cost-effective ways of delivering
help than propping up international civil servants' salary structures.
(Clare Short) Could I say one thing, the United
Nations costs less than the fire brigade costs in New York. There
is a need for reform and greater effectiveness in the UN. Kofi
Annan is leading a very admirable process of reform which we are
seeking to back in every way we can within the system. There is
need for reform and improved effectiveness but one can get the
costs out of proportion. The whole UN systems costs less than
the fire brigade in New York so it is important to keep these
things in perspective.
Mrs Follett
283. Chancellor, could you tell us what will be the cost
to the Exchequer of the HIPC Initiative?
(Mr Brown) What is the cost to the Exchequer?
The British debts involved are something in the order of £1.5
billions. At the moment, as I understand it, we receive about
$60 million in interest payments per year for export credit. I
think the debt reduction process over recent years has cost us
something in the order of half a billion.
(Clare Short) Could I just add—a lot of
this debt is unpayable so payments are not being received and
I think, Gordon, after the privatisation of ECGD there is a premium
charged on all credits to cover bad debt. It may be that the cost
to the Exchequer is really quite limited, if you understand the
point I am making[32].
(Mr Brown) I am giving you estimates of what I
think. I am told there is no useful estimate that can be given.
First of all, we do not know about one or two countries and their
role in this process and, secondly, some of the figures are necessarily
ones that cannot be easily calculated. I think the best thing
to say is that I will give you a note of any further information
we have[33].
284. That would be very helpful. NGOs like CAFOD, Oxfam
and Jubilee 2000 have argued that the HIPC Initiative has failed
to provide a sustainable solution to unpayable debt. Do you agree
with this argument. If you do, what do you think needs to be done
to provide a sustainable solution?
(Mr Brown) I think we could speculate a lot about
the future of HIPC and look at what it has achieved and what it
has failed to achieve but the truth is that as far as the rest
of the international community is concerned we must work through
HIPC and therefore we must attempt, if we can, to improve its
operation and certainly to speed up its implementation. I do not
think it is going to be fruitful over the next year or two to
say HIPC should be torn up because it is not working as well as
it should. What we have got to do given the degree of effort taken
to get it going in the first place is to make it work more effectively.
That is really why my aim has been, with Clare, to get an urgency
to the process, to speed it up wherever it can be done, in some
cases by taking a case-by-case approach to be more flexible as
has actually happened in the case of one or two countries which
have completed the process far quicker than could be expected
at the beginning. Speeding it up, a new voice for the debtors
themselves, looking at many of the social issues in a new light
wherever that is possible and of course, where we can, taking
action that persuades other countries to follow us.
(Clare Short) On sustainability the formula is
to reduce the debt to a level given the strength of the economy
and its export performance that it can afford to pay. Whether
that remains sustainable depends on government policies and success
in attracting inward investment and possibly increasing exports.
No one can guarantee sustainability. It requires good economic
performance by those countries, and of course no one can predict
when El Nino, acts of God or nature could cause difficulties for
countries in the future. El Nino has set back Uganda for example.
No one can guarantee sustainability except a government itself
in terms of good economic policies that bring benefit to the poor
and then there is all the work we are trying to do to help these
countries attract inward investment to get increasing growth that
would make it easier for them to pay off the remaining debt.
Dr Tonge
285. Chancellor, could you just remind me what you mean
by "speeding up the process"? Do you mean cutting down
the six-year qualifying time before they qualify for relief?
(Mr Brown) Yes I do mean that and I think that
is possible. When I say speeding up the process, I think there
was a danger in the summer of last year that the process would
not move quickly enough for countries that had met the terms,
like Mozambique, and for other countries who had to be encouraged
that the process was serious and it was worth their while being
part of this for the benefits that could be brought. That is why
it was a good suggestion to put targets that everybody should
be part of the process by 2000. Three-quarters should be at decision
point by then and I think these are realistic targets and I think
we can make them with both goodwill and of course the reforms
that are necessary in some countries to get them into that process.
We see with the ESAF programme that Rwanda is coming to a point
it could be considered as part of this process and we have managed
to push Mozambique to the point of completion.
(Clare Short) Uganda has gone faster than six
years.
286. So all creditor countries are agreed that that six-year
qualifying time can be reduced?
(Mr Brown) It would not be the best idea for us
to re-open the question of the qualifying times as the stipulated
dates are given but I think you can see from the way the process
has worked that where countries have become part of the process
there has been a willingness to consider completing it in a far
earlier time than six years.
Chairman
287. It is a pragmatic approach.
(Mr Brown) Indeed, as I said at the beginning,
it is an approach based on realism and pragmatism and there have
been achievements made as a result of the case-by-case approach.
At the same time, as I said in answer to Barbara Follett, I do
not think it is to our advantage to open up the theory of HIPC
at this stage. What is to our advantage is to move it along as
quickly as we can.
Ms King
288. Is it not the case that many of the problems that
have arisen from this extension previously with the Paris Club
that it did used to be three years and the prevarication that
has gone on now is not a lack at all on the British Government's
part but the political will and a breakdown of the coalition behind
HIPC that initially put that through? On that point will Rwanda
be within the three year time because obviously almost all countries
such as Rwanda need debt relief now not in 2002 or beyond and
if we cannot make an exception for genocide what can we make an
exception for?
(Mr Brown) I have set out what the timetable is
likely to be with the executive board of the IMF making a decision
that they will consider in June. They have completed negotiations
on the ESAF programme and that does start the process off. I agree
with you that we want to move it as quickly as possible but I
do not think I can say now that we can predict everything that
is likely to happen even in the first year or two. When you are
dealing with countries like Uganda what is absolutely clear is
that there have been many many years in which they had been making
reforms and that had not been recognised until the HIPC process
came into being. Now that is recognised I think the important
thing in the Rwandan case is starting the process off which we
are very keen to do and we have always taken the view, at least
since we came into power, that we should not be inflexible about
these time limits. It is important that there is a record of reform.
(Clare Short) Rwanda needs as the outcome of this
to have a good international record and to be able to borrow for
responsible investment and to be able to attract public/ private
partnerships to get investment into infrastructure and so on.
Rwanda needs not just help specifically with its debt, it also
needs enough of a track record that it will get back a record
amongst international borrowers. It needs some time of track record
to earn that credit just in reputation. In the meantime it is
possible for donors like us to assist Rwanda, as we have in the
case of Mozambique, to pay in the meantime so that it redirects
its spending but it would not necessarily be completely helpful
to Rwanda to say it is because it is such an exception because
it if it did not have a reputation that gave it the capacity to
borrow internationally it would still have a great disability.
Chairman: Time is pressing and we have got about half
way through what we wanted to cover and yet more than half way
through the time. I have to ask the Committee to be as short as
possible. Andrew Rowe?
Mr Rowe
289. I do not want to be a spectre at the feast, but
I think it is worth asking the question what is going to be the
response when in fact, as is bound to happen, one of our swans
turns out to be a goose? The history of our international relations
has been we have backed people who after they have been in power
for a while have turned out to be corrupt and incompetent and
awful. This is going to happen again. Clearly the international
community needs to know what the sanctions will be. Sanctions
always bear down on the poor. That is a difficult question.
(Clare Short) No one can guarantee against mistakes
or against political change, as happened in Sierra Leone with
a coup. No one can ever guarantee that that kind of historical
development does not take place, but a lot of the cynicism in
development in the past came out of the effects of the Cold War.
Lots of propping up of deeply undesirable regimes, Mobutu being
the classic example, an absolutely corrupt kleptocratic dictator,
but the West's absolutely corrupt kleptocratic dictator that was
kept going for a very long time up to 1992 by donors. You cannot
guarantee perfection but a lot of those ulterior motives are gone
now and it does give us a real chance to make much more progress
in development by backing governments that really are about poverty
eradication and responsible economic policies.
Mrs Follett
290. Chancellor, Oxfam suggests there is a lack of political
will amongst creditors and that is one of the reasons they think
the HIPC Initiative has failed. What measures are being taken
to encourage other creditors to sign up to the targets and principles
of the Mauritius Mandate?
(Mr Brown) I am pleased you asked that question
because I did read Oxfam's submission and their evidence and also
that of Jubilee 2000. They do understand and agree that the process
of HIPC does involve multi-lateral responsibility and it does
provide a comprehensive framework for action but there is concern
about the urgency of the process and there is also concern about
the attention we give particularly to areas like education and
social security help for these countries and taking into account
the vulnerability of the economies to crises. What I have been
trying to do since we have been involved in this, particularly
since Mauritius, is build support amongst other countries for
this process for getting the urgency that I want to see into debt
relief agreements, to getting everybody into the process by 2000.
There are now six that have come to a decision-making point. I
believe you can reasonably say that nearly three-quarters will
be at that point by 2000 if certain things are done both by these
countries and by the international community so the process is
being pushed forward. You will see it consistently on the agenda
at G7 as a result of us and other countries. When you see the
list of countries that have been prepared to come in on Mozambique
you will be surprised that countries which have not previously
indicated their willingness to be part of these operations are
now prepared to consider it as a result of discussions we have
had.
(Clare Short) Could I add one important thing.
Oxfam are saying there should be a new conditionality about a
commitment to universal primary education. I respect and share
that enormous stress on the importance of achieving universal
primary education but I do not think that is the root. The root
is, as Gordon indicated in his introduction, to look at ESAF and
adjust them to make sure they take development criteria into them
so a country has to be on track with ESAF and with the IMF to
get debt forgiveness and we have to look at poverty eradication
targets more strongly incorporating the international development
targets into the IMF's adjustment. That is the way to secure the
Oxfam objective in a more flexible and stronger way without disturbing
HIPC.
291. Oxfam also suggest that we should encourage the
United States government into playing a more proactive role. I
wonder if you would comment on that.
(Mr Brown) I think they are prepared to do that
and I think we have to keep working with all our colleagues particularly
those in G7 to make that happen. The United States signed the
G7 communiqué which referred to the importance of 2000
and referred to the importance of productive expenditure being
the subject of export credits. I think it is the strongest statement
that has come from a G7 meeting on debt relief and that means
all the countries, Japan, Germany, as well as America and France
and others have signed it. I think the process is moving forward.
I am not wanting to suggest we are complacent. I am wanting to
emphasise the importance of urgency but it must be through the
HIPC process an urgency that is achieved by persuading our other
colleagues to work with us and in some ways I see them taking
the lead and us following.
(Clare Short) President Clinton was reported to
have said to Thabo Mbeki when he was in South Africa that the
United States was going to pay more attention to debt relief.
Chairman
292. The suggestion was if you really got the
United States on side with you behind the HIPC Initiative and
the Mauritius Mandate that you could resolve this problem. Do
you agree?
(Mr Brown) I agree that we have got to have not
just the United States but all the countries (particularly those
with the biggest debts owed to them) on board for this process.
Without trying to sound complacent, there has been progress and
we need more progress. I am aware of the urgency if we are going
to meet some of our targets by 2000 in getting people moving forward
and that is why it will be a significant part of the Birmingham
process. It also involves some of the countries that are not part
of G7 who have got many debts that they are having to consider
being relieved and of course we are in contact and have raised
it with all our European partners as well and I think we are getting
a better response there also.
Dr Tonge
293. Chancellor, you mentioned Germany and Japan and
I am always being told they are the great ogres in this field.
Have you got anything to say about Germany and Japan? Are they
coming on board? Have they agreed to the Mozambique initiative?
(Mr Brown) I did not single out Germany and Japan
and I would not want to do that.
294. You did mention them.
(Mr Brown) What I do say is that they signed that
communiqué at the G7 meeting. I continue to have talks
with the individual finance ministers about these issues. I think
there is a general recognition that in the particular case of
the millennium that in their countries as well as in ours people
expect to see action and I am very keen that the millennium does
signal a change in the attitudes that we have to debt relief and
progress in practical terms in relieving and indeed eliminating
some of the debts of some of the countries.
295. What about this problem of selling gold vis-a-vis
Germany and Japan?
(Mr Brown) Our policy is the policy that the previous
government had and we supported them then and thought they were
right to propose it. In actual fact, if you look at the figures
at the moment, what I mean is the IMF's requirement for money
to deliver the process, the sales of gold are not needed at this
particular point in time.
(Clare Short) Which is good because gold is down!
(Mr Brown) Since the proposal was made the value
of gold has actually been reduced.
296. A cunning move!
(Mr Brown) That does not mean to say that will
last forever. The situation is of course there will come a point
when this will have to be an issue again and we are prepared to
raise it again but the money is not needed at this particular
point in time. In other words, for the IMF the problem is not
the absence of money to meet the HIPC requirements; the problem
at the moment is getting the countries into the process on a sustainable
basis.
Ann Clwyd
297. Some of the more effective UN agencies like the
UN High Commissioner for Refugees continue to complain that they
do not have enough money to do their job effectively. Of course,
the United States still owes money to the United Nations. Have
we got any proposals to shame the United States because this seems
to be a constant fact of life as far as paying dues to the UN
are concerned.
(Clare Short) When Kofi Annan was in London the
Prime Minister gave him a letter with an increase in our commitment
in spending to most of the UN agencies, so if example is the way
we are going down that road.
298. I think we have been giving examples over a long
period of time and the United States has continually not paid
its dues.
(Clare Short) Actually, with respect, that is
not true. Britain has in previous years been cutting and cutting
its commitment to UN agencies. It is a reversal of policy by this
government. There is a problem about the United States paying
its dues into the UN system, everyone recognises that, and we
have got a limited capacity to influence it.
(Mr Brown) Those of us who are familiar with the
United States decision-making process, as Ann is, knows that proposals
have been made in the State of the Nation and the Budget by the
Executive but these proposals have got to get through the legislature
as well and that is a different set of decision-making issues
in the States.
Chairman: They got them to bring their IDA
contributions up. Tess Kingham?
Mrs Kingham
299. I think one of the reasons we have such a rush for
questions for this meeting today is that a lot of us find it quite
difficult getting information out of the World Bank and the IMF.
As you know, we have no power in this Committee to ask officials
from the World Bank and IMF to come and give testimony.
(Clare Short) I am sure they would.
32 Note by witness: i.e., bad debt arising from
business underwritten by ECGD after the privatisation of the short-term
business in 1991. Back
33
See Evidence, pp. 89-90. Back
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