Examination of witnesses (Questions 300 - 319)
7 APRIL 1998
RT HON
GORDON BROWN,
MP, RT
HON CLARE
SHORT, MP,
MR RICHARD
MANNING and MR
GUS O'DONNELL
300. They are instructed that they are not supposed to
give evidence.
(Clare Short) You cannot oblige but I would be
very surprised if they refused. I would have thought the Bank
would be happy to.
301. Not on the record. We can have private meetings
but not on the record where they are actually documented. I wonder
if you are making any moves within our Government to try and make
those international financial institutions more accountable so
that for example select committees can see minutes of meetings.
Transparency and accountability are the buzz words. What are we
doing about it?
(Mr Brown) I am very keen that far more of what
is done by the World Bank and the IMF is made public, that the
reports on individual countries are not kept secret, they are
made public, that there is a far more open process of decision
making both in the World Bank and the IMF and in relation to how
countries report what is happening to their economies. I think
you will see the process of greater openness move forward. Gus,
are you in a position to answer about the World Bank and IMF and
their willingness to give representations?
(Mr O'Donnell) As part of the overall process
of improving transparency we think is crucial to improving governance,
but of the international financial institutions themselves we
are pushing for both the Fund and the Bank to publish a lot more.
You will have seen in the Asian case, for example, letters of
intent, which were one of the most secret documents the IMF ever
used, were published. The programmes have been published. We are
pushing for all Article 4 reports where there is a press information
notice, which basically says what the Fund thinks the country
should do, for those to be published and it is up to the member
government to agree to do that. The United Kingdom agrees to do
that and we are pushing other countries to do that. The key document
in the World Bank is really the country assistance strategies.
We very much want the country assistance strategies to be published
and we are pushing all the time and both the Chancellor and the
Secretary of State will be discussing these issues at the Interim
and Development Committees next week to try and get real progress
on getting more of this information published earlier. If I can
help in any way in getting more information from either institution
I am very happy to do so.
(Mr Brown) We will publish the IMF's report on
this country whether it is good or bad.
Chairman
302. I understand, Secretary of State, that you
are going to publish your own Department's programmes?
(Clare Short) We are indeed. Let me stress it
is part of being accountable to our own Parliament but I think
it is very important to civil society in the countries themselves
that the whole of society knows what the government's programme
is and can help to keep the government on track because there
are always pressures on any government to spend less on the poor
and more on other groups. I think it is not just about our own
accountability, as important as that is, it potentially improves
the informed debate within the developing countries and the capacity
of their civil society to hold their government to responsible
development programmes.
Mr Rowe
303. You said at the very beginning, Chancellor, that
you had been encouraged and impressed by the campaign of the churches
and others. I did wonder whether, in fact, you had suggested to
that campaign that they might actually consider extending their
efforts to our partners in multi-lateral aid agencies because,
in fact, if they bring pressure to bear in Germany and elsewhere
that might be beneficial?
(Mr Brown) These are decisions that only these
organisations can make themselves. There is talk of postcards
that have been sent to other different parts of the world. There
have certainly been many postcards and requests sent to the Treasury,
including——
(Clare Short) —— And to my Department.
(Mr Brown) —— Including money to help
pay off the debts of the individual countries.
Chairman
304. How much have you received, Chancellor?
(Mr Brown) I can give you the exact figures. We
received 7,000 letters which include 1,600 post cards in response
to the Christian Aid Campaign on third world debt. The total amount
of money is over £6,300 which will be used to help pay off
debts owed to the United Kingdom by Tanzania. We continue to receive
letters every day. Can I say one thing about this: in the Budget
we introduced a new gift aid for the millennium that would allow
people to give to third world or developing country charities
and organisations which are engaged in poverty reduction and education
in particular, and the normal tax relief available for gifts above
£250 is extended to gifts of £100 not over one year
but over three years allowing large numbers of people who might
have thought previously they could not give money to do so. I
believe this is a important contribution which we can allow people
to make in helping some of the organisations that are doing so
much in some of the countries we have been talking about today.
I hope we will be able to devise with them means by which this
can be publicised so that large amounts of money with a considerable
supplement given by the Treasury makes possible some of the projects
that are so important to these countries.
(Clare Short) Did you hear him say he hoped the
Treasury would pay a lot more!
(Mr Brown) It is not a hope; money has been set
aside.
305. The money that people have contributed through Jubilee
2000 is actually going to pay off some of Tanzania's debts. Is
that right?
(Mr Brown) That is right but the new millennium
gift aid will mean that for every £100 people give, we would
match it with £20, £23 or £40.
Mr Robathan
306. Since you brought the subject up, Chancellor, I
have to say I am surprised how little I disagree with what you
have been saying!
(Mr Brown) It is good to have a constructive discussion!
307. I agree but you have raised the question of money.
In the past and in the distant past the Conservative Government,
you will recall the last Government committed itself in the long
term to giving .7 per cent of GDP to international development
and aid. I know that that was in the manifesto of 1992 and not
in the last one. Given that the financial position in this country
is now quite good, would you be considering moving towards .7
per cent of GDP?
(Mr Brown) Yes, we are looking at that. Our public
expenditure review is taking place at the moment and it would
be premature for us to give a report of what is going to come
out of that. I have to say on the last Government, just to give
factual information on a non-contentious basis, that the proportion
that was given fell from 0.52 to 0.27.
Ms King
308. We know the IMF provided information to the Paris
Club about the necessary levels of debt rescheduling and debt
cancellation. Evidence we have received advises that the IMF is
not suited to making these long-term projections and it has been
over-ambitious with predictions particularly in relation to growth
rates and the actual ability of countries to repay the debts.
In fact, the evidence we have received from NGOs and academics
to this Committee has been unanimous in advocating a reduction
in sustainability levels used in HIPC. Firstly, should the IMF
be responsible for dictating sustainability ratios and, secondly,
are you satisfied that the measures of debt sustainability used
to determine debt relief under HIPC are realistic and actually
lead to enough debt relief?
(Mr Brown) I think these are very important points
and they have all got to be dealt with and answered and, where
necessary, improvements have got to be made. The first thing is
that the debt to sustainability ratios are ones that were decided
after a great deal of examination of what had happened in the
past and although they are not the same, as someone pointed out,
that Germany benefited from in the early 1950s, they are based
on a realistic assessment of both what can be done and what is
necessary for the sustainability of the process over the longer
term. I just point out that it is not the IMF alone, it is the
IMF working with the World Bank that are drawing up these sections
of advice. Of course one of the things, as Clare and I were talking
about today, is the importance of including first of all an allowance
for unexpected things that may happen, in other words a preparedness
to look at some of these things where, for example, there is a
big change in commodity prices or whatever but secondly taking
into account social and educational factors. I did say at the
beginning that if this was going to succeed, because the issue
is long term sustainable development, then the conditionality,
that is the making sure that the process is sustainable, is very
important in the long run to its success. The idea that you can
eliminate conditionality or not have any expert advice is in my
view not acceptable but, of course, you have got to be prepared
to look at these things over time and see how they are working.
(Clare Short) The answer here lies in getting
better collaboration between the Bank and the Fund. The Fund's
responsibility is macro-economic stability. The Bank's responsibility
is the structural changes that are necessary to promote development.
We could do better if the two organisations could work more together.
That is where we need to press and make improvements and then
we can get better judgments. The development perspective, that
is not the Fund's job, will be taken into the equation. That is
what we need to press for.
Chairman: Can we plunge into conditionality
now.
Dr Tonge
309. We are now coming on to my least favourite bit of
development-speak which is Structural Adjustment Programme, which
I always thought was something to do with civil engineering and
I find that it is not. Some of the NGOs are there to alleviate
poverty it is said in the broad sense but some of the NGOs, and
indeed some of us, feel that they have actually stopped developing
countries spending on education and health which are the things
that will ultimately alleviate poverty. Is it your view then that
Structural Adjustment Programmes will lead to poverty alleviation
in the long run or is the reverse true?
(Mr Brown) I think there is a general recognition
that in these programmes everything should be done that is possible
to protect the most vulnerable sections of the community. What
we are talking about is putting the countries into a process where
they themselves can ensure sustainable development and, therefore,
economic reform is going to be necessary. To leave things as they
are is not going to be the correct way forward. To have a degree
of openness that allows a public debate in these countries about
the best way forward is important as well. There is a sense, I
think, that is accepted by the IMF as well as the World Bank that
of course the vulnerable sections of the population should be
protected in these programmes. How far that is happening in individual
cases is subject to review and, of course, we should be prepared
to look at that.
(Clare Short) I think there is lots of room for
criticism of past structural adjustments. This is a point I keep
making about improving structural adjustments and bringing the
Bank and the funding to a closer working relationship. You cannot
abolish structural adjustments because countries go to the Fund
when the economics of the country do not add up and they are in
trouble, immediate trouble, and need some immediate assistance.
We must ensure that any programme of adjustment has got a really
serious developmental perspective and a really serious poverty
eradication perspective. There has been some improvement, there
is room for more improvement. As Gordon said in his opening remarks,
we are very committed to strengthening that work and there is
a strong commitment in the Bank and in the Fund, although there
could be a bit more there, to make this improvement. That is really
the way it has got to go.
310. Is this documented somewhere?
(Mr Brown) Maybe Gus will come in. I think the
one thing you should know is that these programmes are now being
assessed by independent advisors and perhaps some of the experts
who are coming to your Committee may be part of that process over
time. They are now being assessed by independent advisors for
exactly the things that you are mentioning.
(Clare Short) I think the replenishment is due
for ESAF funds fairly soon. I was thinking yesterday, Gus, I am
sorry I have not discussed this with you, we could probably use
that opportunity to press this case forward.
311. I think the difficulty is that we hear this phrase
"structural adjustment", but we have not seen it written
down, for instance: "This country was asked to do this, this
and this".
(Mr O'Donnell) Like I say, part of this is getting
the programmes the IMF puts forward public so you will know precisely
what is involved in an ESAF programme. There has been an independent
evaluation of the ESAF programmes by a group of academics. That
report has been discussed in the IMF Board and it will be discussed
further at the spring meetings next week. The idea is that the
Fund is basically saying that ESAF programmes have not been perfect
in the past, there are lots of things we can improve on and we
are looking to see ways of improving the Fund's performance in
these areas. The Secretary of State has spoken to Michel Camdessus
about this and so has the Chancellor. The idea is that we will
get some more staff within the Fund who will specialise in some
of these areas. We have to maintain the distinction that this
is not the Fund's comparative advantage. Certainly within the
programme they can say "we need to be careful about how these
impact on the poor" but it will be the Bank that implements
the programmes that actually make that happen. We need the two
institutions to work very carefully together which is why it helps
that we are on both boards.
(Clare Short) If I could suggest, Chair, this
is such an important issue that I hope the Committee will keep
an eye on it. If we can make improvements on the way the two institutions
work together it could make a lot of difference.
Mr Robathan
312. I have to say that I think the full and frank answers
from both the Chancellor and the Secretary of State have covered
many of the questions I want to ask about the funding. I wonder
if you could explain to me the funding of the IMF and to a lesser
extent the World Bank? I understand in the past there were conditions
attached to the money that we gave the IMF. In particular in the
Mauritius Mandate I understand the Chancellor pledged that future
UK contributions to HIPC would be free of conditions. What were
the conditions that you stood by? Why were they removed?
(Clare Short) The HIPC Trust Fund.
(Mr O'Donnell) If I can explain. The IMF's articles
do not allow it to cancel debt relief, therefore there has to
be a rather complicated process that we go through to provide
the money. Basically what happens is we get agreement on debt
relief from a country. We then set up a trust fund such that that
is an escrow account, so to all intents and purposes it is the
money provided to the country itself, and then when the debt interest
would have become due the money is paid for out of that escrow
account. It is as if the debt relief happened, it is just that
because the articles do not allow us to write it all off in one
go we pay the debt interest through time. The UK provides overall
funding to the IMF through the quota that we provide, and indeed
there is a quota increase that will be considered by Parliament
coming up, but that is for the Fund's overall activities. It is
lending throughout the world, not just to HIPC.
313. Is the money that we provide to the IMF from DfID
funds or from the Treasury?
(Mr O'Donnell) The overall money for the IMF is
a quota which is money which we move across from the UK into the
IMF.
314. From the Treasury?
(Mr O'Donnell) It does not actually count as public
expenditure. It is callable capital, not actual capital.
(Clare Short) If I am right, Gus, the funding
for ESAF comes out of my budget and that is about to be reviewed.
(Mr O'Donnell) The money I am thinking of for
the IMF is the big money that will be used, for example, in the
Asian programme.
(Clare Short) That is a distinction between the
Asian programme and the particular needs of Africa which as you
know is coming out of two different funds.
Chairman
315. That is why there is such a great need for strong
co-operation between yourself and the Chancellor, is there not,
because ESAF is IMF and therefore his bailiwick?
(Clare Short) It is our money.
Mr Grant
316. The IMF was set up some time ago. You just said
that the articles do not allow for debt relief. Why can you not
change the articles?
(Mr O'Donnell) It is a long and complex process.
Basically to change the articles of agreement you need an 85 per
cent majority of the Board so that can be quite difficult to achieve.
One or two countries together can block it.
317. In order to get round the lack of an article then
you have to go all over the place in order to compensate for that.
Would it not be easier to just change the articles and put some
effort into getting the 85 per cent?
(Mr Brown) The problem over IMF gold is exactly
the same as the problem that Mr O'Donnell is talking about over
any big changes in the articles in securing an 85 per cent agreement.
In the case of Mozambique it has been possible for the IMF and
the World Bank to move when it became necessary to do so. I see
other instances where that will happen.
(Clare Short) Even this Government would have
trouble getting an 85 per cent majority!
Dr Tonge
318. Secretary of State, I think you have just said that
the ESAF money, some of the debt relief money comes out of the
aid budget.
(Clare Short) The ESAF money, this famous structural
adjustments money comes out of my money and in relation to the
Bank we replenish the Bank for IDA funds—that is concessional
loans. The Bank can raise funds on the market for higher interest
loans and indeed there is a need for a rebalancing of its endeavours
so it can from middle income countries get more profits so that
we can replenish IDA better.
319. We have got you both together and it is Easter at
the weekend, so how about you, Chancellor, increasing the aid
budget? I know you have done one or two little things but how
about a direct increase in aid budget like you always said you
were going to work towards?
(Mr Brown) We did say that was part of the public
spending review. What Clare has achieved in the first year is
to shift resources to those areas of greatest need and of course
what we are looking at in the strategic spending review is the
future spending requirements and our ability to meet them in the
country and that is very much part of our us discussions. As far
as IMF and the World Bank, our contributions are roughly about
five per cent. As Clare said, the contributions to ESAF come through
the international development budget, but all these things are
being considered.
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