Examination of Witnesses (Questions 120
- 140)
MR MYLES
WICKSTEAD, MR
BARRIE IRETON
AND MS
MARGARET CUND
THURSDAY 22 JULY 1999
120. It sounds to me as though you as an experienced
economist recognise their frailty, Mr Ireton, quite rightly.
(Mr Ireton) Even short-term forecasting is a very
hazardous business, as we know.
121. Indeed, judging by the Treasury's forecast
of the public sector borrowing requirement I am sure we can endorse
that. It seems to me that in the Asian region we are crucially
dependent upon the Japanese reforming their banking system.
(Mr Ireton) That too, absolutely.
Chairman: Thank you. Mr Worthington is going
to ask you some AIDS/HIV questions.
Mr Worthington
122. Linking with the Chairman's questioning
talking about economic modelling, how broad is that economic modelling?
Do you take into account factors such as HIV/AIDS or inequality
when you are estimating the necessary growth that is required
by a particular region in order to meet international development
targets?
(Mr Ireton) The answer to that is yes. The central
work that the Bank did specifically in relation to the targets
just assumed neutrality in terms of inequality. If there was a
degree of inequality today that would persist and then one would
look at the sorts of growth rates required to achieve the over-arching
target. The work that ODI are doing for this of then looking at
some sensitivity analysis there—
123. Did you say the ODI are doing it?
(Mr Ireton) Yes. Then they are looking at what the
trade-offs are. If inequality can be reduced by certain factors
then to that extent lower growth rates will still achieve the
targets. And they have been looking at this in a preliminary way
so far and looking at various regions and the region that is the
most worrying for us is undoubtedly sub-Saharan Africa as well
as parts of Eastern Europe. As I think we have said in previous
hearings, to lump sub-Saharan Africa as an homogeneous area has
its pitfalls, it is a great mistake, but that area will not reach
that target unless we can put in place much better policies, additional
resources including private investment.
124. When you say ODI are doing work for us,
does "us" mean DFID?
(Mr Ireton) Yes. We have commissioned through our
research programme work in this important area. They have also
been looking at the likelihood of meeting some of the other international
agreed goals such as infant child and maternal mortality. There
they have been looking at the effect of the HIV/AIDS pandemic
and in their preliminary conclusions—I must stress these
are very preliminary conclusions, but I know they have been aired
so I will give a flavour of them—they have identified HIV/AIDS
as a crucial variable in whether or not there is any chance of
those particular goals being met. If the sort of forecasts of
rates of infection of the sort that epidemiologists have been
predicting were to materialise, then our ability to reduce infant,
child and maternal mortality significantly will be severely eroded,
very severely eroded indeed. We have to assume in order to see
an impact in those areas that infection rates are rapidly stabilised.
Those are the preliminary indicators. In a sense the value for
us is less that it is a simple prediction of what will happen
than the importance of what we seek to do to combat the issue
and where the key issues are we have to tackle. That is what is
emerging.
125. Perhaps this is a cynical interpretation
but the fact that DFID have commissioned this research from ODI
is this an indication that you are not satisfied that these kinds
of issues are adequately taken into account when the World Bank,
for example, is doing its estimates or doing its projections and
there is a need to broaden the economic modelling? Is that too
cynical?
(Mr Ireton) It is too cynical. In the area of research
a degree of pluralism is very valuable. We are encouraging work
within the Bank on their own predictions of these matters but
we have British economic institutions with considerable competence
in these areas that we feel we should be helping to fund to inform
us, to inform our partners and, importantly, with our influencing
role both in the Bank and the international system generally we
want to be well-informed and inform our partners.
126. I have no quarrel with that.
(Mr Ireton) It is not because we think the Bank are
falling down on the job. This is a contribution to some very key
policy issues, that is all.
127. There is a bit of an inconsistency there.
If the Bank were adequately taking these issues into account you
would not rate it as a priority for your research.
(Mr Ireton) We would rate it as a priority. These
are such important issues that I think it is important that some
independent research is done which can validate or otherwise and
be compared with the work the official institutions are doing.
128. What is the World Bank itself doing on
those issues?
(Mr Wickstead) I do not know in detail is the answer,
I am afraid. I certainly know that they are looking very carefully
at the impact of HIV/AIDS on the prospects for economic development
in sub-Saharan Africa. It is an issue that is certainly covered
in Country Assistance Strategies and we have had one or two very
good discussions of this particular impact in one or two recent
Strategies.
Chairman: It is very unpredictable.
Mr Worthington: Sure.
Chairman
129. This area is very difficult. You must have
to work within huge parameters of uncertainty. It is anybody's
guess really. I suppose the more informed guesses you can get
the better is your argument.
(Mr Ireton) It is and to identify where the key policy
issues are for us. The exact numbers are much less important than
identifying what the key issues are.
Dr Tonge
130. Surely the key issue is that 25 per cent
of the economically active people of a particular country will
not be economically active; they will be dead from AIDS. Is that
built into your projections?
(Mr Ireton) That is precisely the type of analysis
that is being done.
Dr Tonge: We were told somewhere in Africa that
a businessman built in a 25 per cent death rate.
Chairman: If the boys and girls of Kisumu high
school are taking notice of the inter-active play we saw funded
by DFID that horrific statistic might well go down. You will have
to project for both of those possibilities. It could go up. We
have got one or two other points quickly.
Mr Worthington
131. Can I switch to the Balkans and the consequences
of the Kosovo war. At the donors' meeting the total pledges of
the World Bank and the European Union as far as we can work them
out is 200 million to Albania and 250 million to Macedonia at
the present time. Of the money that has been pledged by the World
Bank how much of it has been disbursed and on what?
(Mr Wickstead) I think the answer to that is probably
none of it has been disbursed yet. I think what there has been
is a shift in potential allocations within the country assistance
frameworks for those countries so that some of the longer-term
proposals that were in the country assistance frameworks have
been switched to reconstruction type activities. I do not think
that any of that money has yet been spent.
132. I think there is a widespread concern that
now there is no actual bombing that the military aspect has ceased
that all the heat goes off and that the pledges are not met or
are met slowly and that the risk is very, very considerable of
stimulating further social unrest in the area because of the lack
of follow through.
(Mr Ireton) I do not think that is manifesting itself
so far certainly. There are a number of important initiatives
in the region to seek in the medium to longer term to integrate
the countries of the Balkans within the wider Europe. There are
proposals for a stability pact. There is a bewildering range of
meetings taking place over the next few months which relate both
to Kosovo but also to the Balkans region and this is not just
a question of aid, this is a question of economic cooperation
and integration. It has trade implications, investment implications
as well as development assistance for the poorer countries affected
by this whole crisis.
133. We went to Albania and Macedonia. If you
take Macedonia as an example, their costs have been borne. They
have got continuing costs but the costs of coping with the refugees
and the consequences to their economy have been met, but the assistance
to them to overcome those costs is still on the horizon.
(Mr Ireton) There have been substantial releases of
funds by the European Commission and indeed Member States. We
have borne substantial costs, as you know, of humanitarian assistance
both in Macedonia and in Albania. It is the case that the Macedonian
Government have continued to highlight the costs that they incur
and continually seek additional funding but that is now fortunately
somewhat history in terms of the way the refugees were being dealt
with at that time. I do not want to go over old ground. I see
no lack of, as it were, political interest in trying to seek a
medium-term resolution of the Balkans issue for Europe. It is
the case, of course, that Kosovo being a part of the FRY is not
a member of the World Bank or the IMF. That does not entirely
preclude the World Bank providing some assistance through a trust
fund arrangement and the Bank is co-operating with the European
Union, the Commission, to look at the needs assessment in Kosovo
itself and we hope that will be able to provide some important
advisory and technical help in defining those needs and helping
to mobilise the resources that will be required. As I say, it
is not a member of the Washington institutions and therefore it
is not a question of IDA money or Bank money being made available.
134. What do you see as a reasonable timescale
for getting this money out? How quickly will that translate into
particular projects or decisions to be made not just on capital
projects but one of the frightening thoughts is about the consequences
for those hundreds of thousands of displaced people, the disruption
to their families, the lack of education and lack of health services
and some of this I think is fairly urgent and when might these
countries expect there to be a coherent response by the World
Bank and the European Union across all these areas?
(Mr Ireton) Are you referring here to Kosovo or to
countries outside?
135. I am referring to the Balkans. There was
a pledge of 200 million to Albania and 250 million dollars to
Macedonia. When might those countries see how that is broken down,
that kind of intention to disburse funds to assist the economy?
(Mr Ireton) Are you referring to World Bank money?
136. World Bank and European Union pledges together.
Let's just take the World Bank.
(Mr Wickstead) I think as far as the World Bank is
concerned, which will be concerned essentially with the longer-term
issues, the intention will be that the Government and the Bank
would develop a revised country assistance strategy in respect
of each of those countries which will set out the framework of
specific proposals which Bank funding will support. I think those
Country Assistance Strategies will also, given the regional dimension
of this, cover a number of broader issues such as trade policy
issues. The countries are all inter-related in trade terms and
clearly trade links have to be restored but I think the country
assistance strategy will be the mechanism through which decisions
are made by the Government and the Bank about precisely what Bank
funding should be for.
137. It sounds like we are months away from
this.
(Mr Wickstead) I think we may be some time away but
I think it is very much an issue that the governments and the
Bank are talking about on a daily basis. My expectation is that
European Union money would be available for the shorter-term needs.
(Mr Ireton) Indeed some of that has already been disbursed.
Chairman
138. Have you ever tried to draw down from the
European Union? We have not covered the Small States Task Force
report. What is the issue there?
(Mr Ireton) May I leave?
139. Thank you very much, Mr Ireton.
(Mr Wickstead) This is simply a report that has been
on the stocks now for about a year or possibly two years. A Commonwealth
task force in conjunction with the World Bank has been looking
at what are the particular issues that are faced by small states
that large states do not have, countries of less than one million
people. Are there particular vulnerabilities they face and if
there are what should the Bank do about it, particularly for example
the Caribbean islands or Pacific islands which are subject to
certain climatic difficulties, hurricanes on a regular basis,
and how can the Bank help. We have not yet seen the paper which
will be put to the Development Committee but my expectation is
that one of the recommendations might be that the Bank should
contribute to some sort of insurance fund which would hedge bets
about countries which are going to be particularly affected during
the hurricane season so there will be some sort of insurance scheme
there to allow them to build up their infrastructure again very
quickly after a hurricane strikes. I think that is all I can say
about it at the moment.
140. We are expecting it this autumn are we?
(Mr Wickstead) This will be produced and discussed
by Ministers of the Development Committee.
Chairman: I think we have covered your agenda
and certainly we have covered most of our questions and I would
like to thank you very much indeed for being so frank and informing
us so well. Thank you very much indeed.
| 
