Select Committee on International Development Minutes of Evidence


Examination of Witnesses (Questions 1 - 19)

MR MYLES WICKSTEAD, MR BARRIE IRETON AND MS MARGARET CUND

THURSDAY 22 JULY 1999

Chairman

  1. Can I welcome all of you to this Committee again this morning? I think, Mr Ireton, this is the first time that the Committee has seen in Westminster the alternate director, if I have the right term, representing Britain in the World Bank. In the past, some of us have been able to go to Washington to learn first hand from the World Bank alternate directors what British policy is and what they are doing at the World Bank, but I think this is the first occasion we have done it in Westminster. We welcome this very much because it enables this Committee, and therefore this Parliament, to keep in direct contact with how this country is being represented and the policies we are following in the World Bank. I think this will benefit your representations at the World Bank and also Parliament's and the country's understanding of what is happening at the World Bank. I am sure that by getting greater support for those policies we will benefit. Thank you very much for making the time. I hope it is not during your holiday, Mr Wickstead?
  (Mr Wickstead) No. It is business for the first few days.

  2. I hope you get compensating leave. Margaret, you stand at this end of the process, do you not?
  (Ms Cund) I do.

  3. We thought we would ask the first question, an all-embracing one, which will enable you to give us a ball park situation at the World Bank. What are the Department's main priorities for the annual meetings of the International Monetary Fund, for which you are largely responsible? Of course, we realise that the Monetary Fund and the World Bank are working together, not just in ESAF but in HIPC and also the Asia development crisis. What are your priorities for the annual meetings of the World Bank this autumn and, connected with that, IMF policy?
  (Mr Ireton) I was asked whether we wanted to make an opening statement and I said no but I do have one thing to say and that is, because our Secretary of State has been stranded in Sierra Leone, I have been asked if I could host a meeting and lunch which would mean me leaving between 11.45 and 12 o'clock, if that is all right.

  4. It is a very major amount of work we have to do here but let us see if we can get through it so that you are not embarrassed by leaving before the end. Perhaps we could lead off with the main priorities for the annual meetings?
  (Mr Wickstead) Perhaps it might be helpful first if I just very quickly run through what the agenda for the annual meeting is and then say a word or two about what our own priorities are for the various subjects that are coming up. The agenda is not yet finalised but what we expect to be on it are, first of all, HIPC and debt; second, Bank Group capital adequacy. That is the World Bank itself and the IFC.

  5. The World Bank capital adequacy?
  (Mr Wickstead) World Bank capital adequacy and the International Finance Corporation, the private sector arm of the World Bank. We expect those to be taken together. We expect some sort of discussion of the Comprehensive Development Framework and we also expect some general discussion of the international financial architecture and I expect various things to be wrapped into that, including the social dimensions of economic crises and perhaps some of the issues surrounding the linkage between the interim and development committees. There is a report of the Small States Task Force which will also be taken by the Development Committee. Finally, we expect one point on trade and development and the Bank's role within the new beginning trade round.

  6. The Seattle trade round?
  (Mr Wickstead) Yes. Just going back and spending a little more time on each of those and what our own priorities are, first of all, on HIPC, it seems to me there are really two big sets of issues which now need to be addressed following the Cologne summit. One of those is the overall design and the links specifically between debt relief and poverty, education and health. One of our key priorities is to establish that link and to discuss mechanisms for the delivery of debt relief, whether it is through the ESAF programme or some different sort of mechanism. The other key issue of course is the financing. First of all, we need to know how much it is all going to cost and we do not yet have firm figures for that. The IMF and the World Bank are doing some sums, but once we do have a clear idea of numbers we need to know who is going to come up with what and discussions are going on now and will go on over the next few weeks on both those subjects.

  7. This relates to the Chancellor's proposal to set up a millennium trust fund, does it not?
  (Mr Ireton) It relates to what was agreed at Cologne to be recommended to the autumn meetings, in terms of the enhanced HIPC proposals.

  8. It was a two billion fund that was proposed?
  (Mr Ireton) The Chancellor has proposed establishing this millennium fund and, as you know, we announced a contribution of $100 million in the context of the summit, which was additional to the sums which we had previously committed to the previous HIPC debt initiative.

  9. The total fund was to be two billion, much of it funded out of EDF, I think?
  (Mr Ireton) There is a proposal we put forward that the European Commission should come up with a proposal to allocate a billion euros from EDF funds by reallocation, which would otherwise not currently be utilised, as a major contribution towards the funding of the enhanced HIPC.

  10. The rest to be provided bilaterally so that we got to a fund of two billion. Is that right?
  (Mr Ireton) The rest would be a variety of sources, bilateral, the Bank itself through net income is making contributions, and so on. That is for discussion over the next few weeks.
  (Mr Wickstead) Part of the issue is that we do not yet have a very specific figure about how much this will cost and therefore what the share of each of the individual players will be in that, what the World Bank's contribution will be, what the IMF's contribution will be and what the bilaterals will do. That is the first important thing to get much clearer than it is now.

Dr Tonge

  11. One thing I particularly wanted to ask you about—and I know it is not directly related to the World Bank—is what is your opinion of the gold sale saga? Bowen and I and Oona King met representatives from the South African Government yesterday who are very unhappy about the fall in gold prices. This was going to make a contribution towards the relief of debt and I wondered if you had any views on that.
  (Mr Ireton) Can I separate out what I understand, only as a member of the public, to be the Government's policy of selling some gold, which is not related to HIPC and which I would not deign to comment on? The second issue is a modest sale of gold by the IMF as one means of financing its own contribution to the HIPC arrangements and that is something which we still think should be pursued. There is not an agreement yet on this with all the IMF members.

  12. There is an argument that that, combined with what western countries are doing too, diversifying their reserves, is going to make a huge difference to the economies of those countries that the gold is being sold for to help. It is not just South Africa; we have a whole list of countries. That is still the resolve and you think that is the right way forward?
  (Mr Ireton) We still think that is the right way forward. There will have to be judgments made about the extent of gold sales and their timing clearly in relation to the overall position on the gold market. The World Gold Council have indeed been putting out a lot of literature on this subject.

Chairman

  13. Presumably we do not actually necessarily have to sell the gold, do we? We could do a financing exercise like the World Bank does anyway, which is to raise loans against the security of the gold.
  (Mr Wickstead) I think there are various financing options which are available and all those will need to be looked at very carefully, particularly in light of the recent developments on the actual price of gold. My expectation is that those rather specific issues about gold sales will be discussed at the annual meetings in what used to be the Interim Committee, the new Council. Very specifically, the impact of IMF gold sales will be discussed I think there. The rather more general issues over the design of HIPC, the links to poverty, how it supports education and health spending will be dealt with in the Development Committee. There will be a split between those two issues, which is an extremely sensible way of dividing the issues.
  (Mr Ireton) It is perhaps just worth clarifying that the relevance of gold sales or not is related to the ability to establish a permanent Enhanced Structural Adjustment Facility (ESAF). At the moment, ESAF is funded by capital borrowings combined with an interest subsidy which has been provided by bilateral donors. In particular, the United Kingdom has been a very major contributor. What we have been looking for is a mechanism which would allow for a permanent ESAF to be created which does not require what are these temporary arrangements.

  14. I thought that it was the fact that there are defaults on ESAF loans which was the real interest in the IMF on this. Do they go into the HIPC process for refinancing? Is that the linkage?
  (Mr Ireton) Not so much default, no. The real linkage is to try and create an ESAF which is self-sustaining and does not require an interest subsidy. An ESAF loan to a country is concessional. It is half a per cent instead of 3.5 per cent or 1.5 per cent, so the difference has to be made up by subsidy on the interest and that has been provided by a number of bilateral donors, in particular the United Kingdom, over the last several years.

  15. So it is not directly related to the write-off of debt?
  (Mr Ireton) It is related then to the [International Monetary ]Fund's ability to take part in the whole HIPC process on a sustained basis.

  16. I did not realise those linkages. Thank you. Have we finished the agenda, Mr Wickstead?
  (Mr Wickstead) We have finished the agenda and I think we have covered in some detail now the first item which is HIPC. I was going to go back over one or two of the other items.

Dr Tonge

  17. Could we stay on HIPC just a couple of moments longer? What calculations are the World Bank doing for specific countries? There are a lot of countries which are going to be included in the initiative. Is that what you meant when you were talking about links between debt relief, education, health and social issues, that that would be carefully worked out? I suppose I am asking this question because I am worried that, as in the old HIPC initiative, those issues are lost somehow and health and education often deteriorate. For instance, when we were in Uganda, we saw it had deteriorated.
  (Mr Ireton) Can we disaggregate that and I will ask Margaret to say what is now in process as regards calculating sustainability.
  (Ms Cund) The World Bank organised a meeting in Paris at the end of June which I attended with the Treasury. There they set out some of their preliminary indications of the cost, which we thought needed to be substantially expanded and to be made more realistic, because we know that some countries certainly will not be getting HIPC debt relief in the short term. The Bank have gone away to look at the various options and what, not only the World Bank but also the Inter American Development Bank and the African Development Bank, can do to contribute to their share of the costs of HIPC debt relief. All of them are working on this, including through use of net income. They are looking at whether there is some scope for using IDA—that is, the concessionary resources from the World Bank—and just seeing if there is a way in which, without actually harming the poorest countries, some of those resources might also contribute to the cost of HIPC. They are working on all of this on the one hand. On the other, they are also working on a paper on the debt/poverty link and we have put our own paper in on that giving them some ideas on a way that we think it might be done, to release more money from debt servicing, so that countries can put that into health and education. We have just heard this morning that the World Bank will be having a follow-up meeting on 2 September in Paris and they will be reporting back on all the work they have been doing.

  18. Uganda now finds itself in a worse state than it was when it started trying to qualify for HIPC. Are you going to try and project that sort of thing for other countries being brought in?
  (Ms Cund) The ratios have changed now and Uganda's position will be reviewed and they will undoubtedly be getting additional debt relief. This is part of the calculation being made at present.

  19. It is unlikely to happen again?
  (Ms Cund) It is unlikely to happen in other countries.
  (Mr Ireton) This is an extremely complicated area, as you will appreciate. What has been recommended from Cologne has been a reduction in the export debt ratio in particular, very substantially, combined with a smaller reduction in the fiscal ratio. When calculated for individual countries, that will lead to an increase in the present value of the debt relief that they will be eligible for. That will be calculated at the decision point on the basis of decision point information, which is also advantageous for the countries concerned. An issue which we are following up, which Margaret was alluding to, is that debt relief could in principle be provided over different time profiles. It could be provided rather up front to ensure that considerably more resources were released, for example, for education and so forth. On the other hand, there is also this debt overhang issue, so an element of it would be in reducing the stock of the debt over time. There are a certain amount of trade offs here which we are encouraging the Bank and the Fund to look at and clarify. It would be quite sensible if the recipient country itself, the HIPC country, could have some choices in this and some discussion about what would best suit its circumstances.


 
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