Examination of Witnesses (Questions 141
- 159)
THURSDAY 28 OCTOBER 1999
MR STEPHEN
PICKFORD AND
MR PAUL
SPRAY
Chairman
141. Can we start straight away by saying how
welcome you are to this Committee, Mr Pickford, and your colleague,
Mr Spray. Thank you for coming. We have been trying in this Committee
to be able to understand the policy being pursued in the International
Monetary Fund and the World Bank and other international bodies.
This Parliament has had no mechanism for doing that until select
committees have begun to meet people like yourselves who have
the day-to-day responsibility for representing the UK on the board
of the IMF and the World Bank. That is why we are particularly
grateful and interested to see you today. We have prepared a series
of questions and perhaps I can start. I know that you have already
seen the Treasury Committee but this Committee, of course, is
particularly concerned with development and therefore the IMF's
role in what used to be called the ESAF, now called the Poverty
Reduction and Growth Facility, and our emphasis will be on the
question of poverty and development and the way in which the IMF
operates in heavily indebted and other very poor countries. The
first question on the outcome of the meetings in September is
that we are going to extend from 29 to 36 the number of countries
who will qualify under HIPC. What I really want to know is what
are the extra countries which will now probably be eligible for
HIPC relief after the changes in the sustainable ratios, which
we have noted have been amended much in accordance with the recommendations
of this Committee.
(Mr Pickford) Thank you. Let me say how
pleased I am to be able to give evidence before you. Let me introduce
Mr Paul Spray who is an economic adviser in the international
financial institutions department in the DFID, who I hope will
come in on any questions he feels he wishes to. Let me say at
the outset that I think these annual meetings were very significant
in respect of the IMF's approach to helping poor countries. As
you said, the changes to the HIPC initiative, the enhancements
that were announced, were very significant and very much in line
with your Committee's recommendations and the UK Government's
thinking which was reflected in the Cologne Summit communique.
In particular, the poverty focus of the initiative I think is
a very important step forward. As a result of that, you will probably
find also the way in which the IMF has tried to change and transform
the ESAF facility gives it more of a poverty focus and allows
it to make more consistent the various elements of macro policies,
structural policies and social policies within that framework.
I suspect you will welcome those changes. Specifically on the
countries that might benefit from those enhancements to HIPC,
it is of course still uncertain at this stage which countries
will end up being eligible because, of course, eligibility will
be decided, if this is not a truism, at the decision point and
precisely what the ratios show at that point we cannot predict
at the moment. On the basis, however, of the IMF and World Bank's
current estimates, the seven countries which are likely to be
brought forward compared to HIPC 1 are Benin, Central African
Republic, Ghana, Honduras, Malawi, Senegal and Togo.
142. That is very interesting. Is the UK Government
now happy with the architecture of the HIPC initiative, or are
there other amendments which you think need to be made?
(Mr Pickford) I think the enhancements to the framework
itself and the way in which the poverty focus has been emphasised
are very much in line with the UK Government's thinking. Having
gone through the process of reaching agreement within the international
community on these enhancements and changes, the UK Government's
priority at the moment is to ensure that all these changes are
fully implemented as quickly as possible. I am sure my energies
and the energies of DFID will be concentrated on that end over
the next while, especially with the challenging target of trying
to ensure that at least three quarters of the eligible HIPC countries
have reached decision-point by the end of 2000.
143. And will we reach that? Now we have another
eight countries on the list we are talking of three quarters of
that figure.
(Mr Pickford) We are talking about three quarters
of the thirty-six or more countries.
144. Yes. How likely is it that we will achieve
the Mauritius target? There are still only four in HIPC.
(Mr Pickford) There are four that have reached completion
point and they will have to be re-examined for retroactive treatment;
and a further five have been through decision points already.
It would be foolish of me, to predict precisely how many will
have reached decision point by the end of the year 2000 but I
can say that all of the evidence I see within the two institutions,
the IMF and the World Bank, are that this is being given the highest
priority. For example, there was a meeting at the beginning of
last week which all the country directors from both institutions
attended, that Mr Camdessus and Mr Wolfensson addressed. The general
tone of that meeting, at least from the reports I have had, were
that both institutions are fully committed to doing everything
they can to reaching that target.
145. Have you got enough staff to do that?
(Mr Pickford) I think staffing is always a problem.
My own view is that they will need extra resources in these areas
and we have already suggested that they may want to reallocate
resources from other areas in order to work on these priorities.
146. Would the United Kingdom Government be
willing to lend them some people to help them do this in time?
(Mr Pickford) We have actually already done two things.
DFID have seconded a person into the Comprehensive Development
Framework Unit within the World Bank, which I envisage will be
very heavily involved in the process of developing poverty reduction
strategies and also helping countries get ready for HIPC relief.
We have also made available the possibility of two ex-DFID consultants,
who are at an organisation called CAPE.
(Mr Spray) The Centre for Aid and Public Expenditure.
(Mr Pickford) They have already been out to talk to
the Fund and the Bank, and we expect that the two institutions
will want to make further use of the contract we have with them.
I should also mention that DFID have made available a social development
adviser, one of two social development advisers who have recently
joined the Fund, to improve the collaboration and co-operation
between the Fund and the Bank on social issues.
Mr Rowe
147. Is this initiative worth all the trouble?
It seems to me in a world in which the poorest countries are spiralling
further and further down compared to the richest countries, in
which the richest 20 people in the world have more money between
them than the 20 poorest countries, and in which, as I was reading
yesterday, the countries you are trying to help have between them
something like 0.4 per cent of external trade in the world, are
we not putting a plaster on somebody who has actually got cancer?
(Mr Pickford) I think everybody accepts that debt
relief is only part of the solution. The intention behind the
original HIPC initiative and the enhancements which were agreed
last month is to ensure these countries can actually have a sustainable
exit from their debt problems. I believe that having a sustainable
exit requires not only that some of their debts should be relieved
but also that their policies are consistent with sustainable growth,
and that these policies and the assistance, through bilateral
assistance as well as IFI assistance, are targeted on the poor.
The combination of those can produce extremely good results, as
we have seen I believe in Uganda.
Mr Robathan
148. It is Uganda which I want to immediately
address myself to and it leads on from what you were saying. We
went to Uganda 18 months ago and one thing which did impress me—although
not necessarily every member of the Committee—was the discipline
in financial economic terms which had been imposed because of
the HIPC initiatives and the way that country had progressed in
many policies as well. The question is, in countries such as Uganda
which have received HIPC debt relief, what evidence is there that
the relief itself rather than the conditionality attached assisted
the country in poverty reduction?
(Mr Pickford) That is a very difficult question to
answer, partly because Uganda received debt relief only about
a year ago, so it is difficult yet to point to areas where it
has had a marked effect. It is also very difficult to disentangle
things which are happening at the same time. As you have mentioned,
the structural policies, the macro-stabilisation policies, the
launch of its own poverty eradication action plan and the debt
relief all happened around about the same time, so trying to disentangle
the effects of those I think is very difficult indeed. Arguably
though, trying to disentangle them is not necessarily the most
useful process because what we have tried to do, especially with
these enhancements to the initiative, is to say all of these elements
are important as a part of the solution. So debt relief is not
enough on its own, you have to have also in place the right policies,
you have to have a poverty focus. You have also crucially to have
ownership of the policies, which I believe the Ugandans have achieved
very successfully through their poverty eradication action plan
and the process that they followed in terms of consultation and
participation to build that programme. I was in Uganda at almost
the same time as you, though not for very long and I was also
very impressed by the way in which the programme had been put
together and the way in which they are using the discipline of
debt relief to make real improvements.
Ms King
149. Welcome, it is a pleasure to see you again.
I wonder if you could tell us what will happen if the US will
not agree to the off-market gold sale that has been proposed as
the IMF's means of funding its contribution to HIPC? That is the
first point. The second is whether you agree that it is unacceptable
that the US has 18 per cent of the votes on what was the Interim
Board and has more than Sub-Saharan Africa, Latin America and
South Asia combined? Given that the IMF quota formula is currently
being reviewed, what are you arguing for? What is the British
Government position on that?
(Mr Pickford) On the first issue, as you know, the
gold transaction mechanism is currently being debated in Congress.
It is part of the overall US Budget Bill, which is a very complicated
process, where many factors will be weighed up. I think anyone
who tries to predict the outcome is—
Chairman
150. Is this the Continuing Resolution which
they are tussling over at this point?
(Mr Pickford) They have a Continuing Resolution at
the moment simply to carry on paying Federal wages and other expenses
because they have not agreed a budget yet. The budget year starts
at the beginning of October, so they have been funding the Government
on an emergency basis through October. Indications suggest that
they are getting close to reaching a final resolution on the budget
but the outcome is still uncertain. If the gold revaluation sales
element is not approved by Congress, that will produce a large
hole in the financing of the IMF's part of the HIPC. If that happened,
I think we would have to go back to square one and look again
at the overall financing of the IMF's part of the HIPC enhancements.
I sincerely hope they will approve it and we will just keep our
fingers crossed for that one. On the second question about the
US quota, as you are aware the voting share in the IMF is determined
by quotas, which are essentially the money that countries pay
into the IMF. Those quotas are calculated on pretty complex formulae
which are intended broadly to reflect the share of a country in
the world economy, so they take into account GDP levels, trade
performance and so on. As you say, the quota formulae will be
being reviewed, but we have not started that process yet, and
I am not sure at this stage we have a firm view about what we
would expect to see coming out of it. It is a very complex negotiation
in which by definition some will be losers and others will be
gainers, and I suspect it will take a fair time to work it through.
151. As I understand it, there is a committee
of experts reviewing it at the moment and they will present their
report in December.
(Mr Pickford) That is correct.
152. I cannot believe the British Government
has not decided what it is or is not backing. Specifically, as
it stands at the moment whoever has got the most money gets the
most votes, would you be supporting a proposal to put a country's
population size into the quota?
(Mr Pickford) I genuinely believe the Government has
not formed a firm view on what it wants to see coming out of the
quota review. As you say, there is a panel of external experts
looking at this. We have had in the board no inkling of the way
the panel's thinking is going and I suspect we will not see anything
until it produces its report. After that, there will have to be
a very full period of consultation and discussion in the board
and maybe at the spring meetings.
153. What is the time frame for the final decision?
(Mr Pickford) I do not think there is any particular
deadline we are facing for this. We are committed to having a
review every few years but I do not think there is any commitment
to introduce revised formulae by any particular time.
Mr Worthington
154. The Chancellor of the Exchequer went into
the recent meetings as the new chair of the Interim Committee
and he came out as the chair of something else. Was that just
a change of words or was it a change of substance in terms of
how the IMF is to be run?
(Mr Pickford) The words have changed. We have abolished
the Interim Committee and we have created the International Monetary
and Financial Committee. The main difference of substance is that
the Interim Committee was, as the name suggests, put in place
initially as an interim stage in moving towards a Council which
is provided for in the IMF Articles. This International Monetary
and Financial Committee is actually a permanent Committee now.
It still only has an advisory role but I believe in practice that
for the Ministers making this change and making the Committee
permanent, giving it a name which suggested its role was more
than interim, was an important signal about how they expect the
Committee to develop. I suspect the Committee will want to continue
the increased role it has had over the last couple of years in
terms of guiding the overall policy of the IMF. Certainly since
the Asian crisis, when there have been a lot of discussions about
international financial architecture and other changes to the
international financial system, and the role of the Fund in that
system, that Committee has played a very important role. I believe
the most important signal of that is that they expect the Committee
to carry on playing that important role.
155. But it is essentially advisory?
(Mr Pickford) It is still technically and legally
an advisory committee. If it wanted to change IMF policies, that
would have to be ratified by the Board of Governors, which is
the whole of the 182 members which come together at the annual
meetings. In practice though, I believe that recommendations from
the IMFC would have a very good chance of being passed by the
Board of Governors, if only because the countries with the biggest
quotas are all represented on the IMFC and the decisions of the
Board of Governors are taken by votes according to quotas.
156. Can I ask a question about the so-called
sunset clause, where there is a deadline for entry into the initiative
of December 1999—
(Mr Pickford) December 2000. We have extended it to
2000.
157. So countries which want to be part of a
revised HIPC have to be in by December 2000?
(Mr Pickford) That is the current position. There
was a sunset clause, I believe I am right in saying, of December
1998, which we extended last year to December 2000. We argued
at the time that the sunset clause should not be that restrictive.
My strong expectation is that almost irrespective of the number
of countries that have reached decision point by the end of 2000,
if there are still significant numbers going into the process
which have not reached decision point we will extend that deadline.
158. There are a number of countries where the
internal situation is parlous, countries like Liberia, Somalia
and Sudan, where there is an enormous amount of poverty but where
really the international financial institutions have nothing to
do with these countries, they do not get into HIPC. What thinking
is going on there about how you might be using the international
financial institutions as part of the remedy rather than simply
saying, "They are outside any assistance"?
(Mr Pickford) I think there are a number of things
which the IFIs can and to some extent are doing to help in cases
like this. As I said in answer to an earlier question, I think
the approach that we are taking in general is to try to ensure
that help for the poorest countries happens across the board.
The elements of debt relief and assistance on policy changes and
a poverty focus are very important elements; and we will want
to encourage all countries, including the ones you have named,
to move towards a position where we can bring into play those
elements of assistance. The problem which the institutions face
is basically that they need to have some assurance that the help
they give will produce tangible results. This comes out from a
whole range of experience, most recently the work which was done
at the Bank in terms of stressing the importance of policy changes
to producing results. The institutions can help in terms of providing
technical assistance. I am not sure I know the position with regard
to these particular countries but in the first instance, and this
happened for example in Kosovo and East Timor, the first reaction
of the international financial institutions was to provide technical
assistance; and, in some cases, the Bank can come in with grants
in post-conflict situations even for non-members. So there are
some initial responses. Both institutions have also been working
to make the help they can give to post-conflict countries more
flexible and to come through more quickly, and there are some
technical changes we have made over the last year to help improve
that situation. But essentially the first responses that the institutions
can make are technical assistance and to some extent grants, and
then when countries are demonstrating they can benefit from more
substantial help in terms of financial assistance from the institutions,
then the institutions stand ready to do that.
Chairman
159. Is the Committee to conclude from your
answer on the sunset clause that the HIPC initiative is changing
its nature? Because the HIPC initiative and the reason for the
sunset clause, we understood, was that this was a contained solution
to the crisis, which I seem to remember the IMF proclaimed at
the beginning of this process. Now you are saying that you are
going to flexibly change the sunset clause into the foreseeable
future, so that seems to change the nature of the initiative.
(Mr Pickford) I do not think the UK Government ever
expected that we would achieve a sustainable exit to debt problems
by the end of 1998.
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