TUESDAY 7 NOVEMBER 2000
_________
Members present:
Mr Bowen Wells, in the Chair
Ann Clwyd
Mr Tony Colman
Barbara Follett
Mr Nigel Jones
Mr Piara S Khabra
Ms Oona King
Ms Tess Kingham
Mr Andrew Robathan
Mr Andrew Rowe
Mr Tony Worthington
_________
MEMORANDA SUBMITTED BY DEPARTMENT FOR INTERNATIONAL DEVELOPMENT
EXAMINATION OF WITNESSES
RT HON CLARE SHORT, a Member of the House, (Secretary of State for
International Development), MR TONY FAINT, Director, International
Institutions, and MS MARGARET CUND, Head, International Financial
Institutions Department, Department for International Development,
examined.
Chairman
1. Can I thank you again, Secretary of State, for coming in front
of the Committee to tell us about the problems of debt and the results of your
negotiations in the summer and the autumn at the IMF and the World Bank Annual
Meetings. We are very grateful to you for coming at this stage so that we can
update ourselves as quickly as possible on the latest developments. I believe
you have an opening statement, which I am sure will cover most of our
questions, so that will foreshorten our questioning. May I ask you to do that
and perhaps for the benefit of the shorthand writer introduce your colleagues,
who are well known to the Committee and who we would also like to welcome.
(Clare Short) Thank you very much, Chairman. I think the Committee
requested Gordon Brown to come again and do a joint hearing. Was it this
hearing? I just wanted to say that he was sympathetic but obviously the
timing for him is dreadful, as you will appreciate. After that we were
looking for a senior Treasury official and Gus O'Donnell, who is now the
Permanent Secretary for International Affairs, whatever the title is, and used
to be at the Bank and IMF, was quite keen to come but he is out of the
country. I just wanted to say that the Treasury were keen to come before the
Committee but the timing just proved impossible for them.
2. We did learn that the Chancellor was trying his best to change
his diary to come, and we were very grateful for that, but the only time we
could have you together was some time in the new year and we judged that to
be too late. I am sure you will give not just a perfectly adequate but a very
good explanation of what has been going on. Thank you.
(Clare Short) There is no doubt that my Department and the Treasury have
been working more and more closely in the Bank and the Fund on the development
of poor countries aspects, and in a very satisfactory way, that strengthened
the UK's arm in Washington. I have with me Tony Faint, who is the Head of our
International Financial ---- That is not the proper title either, is it?
(Mr Faint) Director of International Institutions Division, yes.
(Clare Short) Who I think the Committee has met before.
3. Yes, we have.
(Clare Short) And Margaret Cund, who I do not know whether the Committee
has met before.
4. Yes, we have.
(Clare Short) She hails from the centre of the universe - Birmingham -
so she is of enormous quality. She heads up all our World Bank, Regional
Development ---- I do not know what your title is either.
(Ms Cund) Head of International Financial Institutions Department.
5. Thank you.
(Clare Short) I do not have a long opening statement, am I meant to?
(Mr Faint) No.
(Clare Short) I would just like to say a couple of things. We have been
working since the Department was formed to get the Bank and the Fund to co-
ordinate much better and be much more systematically focused on reducing
poverty and looking at economic policy, revenue and taxation systems, debt
relief and aid as a whole alongside economic policy that will generate growth
that will help reduce poverty. We believe that the PRSP way of working that
has come out of the debt relief process, but is becoming a wider instrument
of the Bank and the Fund working in developing countries, that asks the
country to put in place its own overall strategy for the running of its
economy, the increasing of growth that will reduce poverty, the generation of
revenues and the provision of services for all their people, is an enormously
radical breakthrough. Of course, it is agreed now by all that the country
itself must lead on all of this, it must be open to everyone who lives in the
country, whereas all IMF and World Bank programmes used to be secrets behind
the backs of the people who lived in the countries concerned. We are in early
days with this but it is a very important shift that we have put a lot into
achieving. We value it greatly, want to drive it forward and it is proving
popular so far with finance ministers in Africa and so on who think this is
a big change in the method of working. We have been working for change in the
Bank and the Fund with more focus on the systematic reduction of poverty and
support for strategies that will achieve that. We think we have had some
considerable breakthroughs and significant further changes taking place,
because there had been change before that since Jim Wolfensohn took over for
example in the Bank and the Fund and Kohler, the new Managing Director of the
IMF, is being very sympathetic to this agenda. Secondly, on debt relief, I
think I have said before to the Committee that the Civil Society Campaign
achieved enhanced HIPC, but if all of those people had not come to Birmingham
when the G8 were there and then on to Cologne, and had not campaigned
internationally and campaigned, for example, in Germany, before the change of
Government in Germany, we would never have got a much more generous commitment
on debt relief. Some of the campaigning that talks as though debt relief is
the only issue in development has got a bit out of proportion. This is such
an important prize and all that campaigning and all that support, particularly
from faith and church groups, has been such a powerful instrument that I do
think it is important to feed back to the people who supported it what they
have achieved and that it is a very big achievement, but that debt relief
alone cannot eliminate poverty in the poorest countries and other forms of
support and sustained help are needed. If you look at the commitment to 20
countries, which we will come on to I am sure in your specific questions, that
we are very hopeful will be achieved. I want everyone to start looking at the
list of countries we are talking about thereafter because everyone knows a lot
of them have been entrenched in the most terrible conflicts and then we are
up against some of the hard realities of development. Conflict is holding
back many countries, it is entrenching lots of people in growing poverty and
we have got to get better at resolving conflict to bring development to some
of the poorest people in the world. I have not got a prepared introductory
statement but these are my two things. We are making very significant
progress and I am getting this systematic commitment to poverty reduction led
openly by developing countries. Enormous gains have been made in debt relief.
I am very hopeful on the 20 countries. We are going to have problems
thereafter but all the countries that have had debt relief will need
continuing support and help, it does not put them in a position where poverty
disappears immediately the debt relief kicks in.
6. In some cases they will be paying more actual money to the
international institutions after they have done HIPC than before?
(Clare Short) Yes, I think this is Zambia most particularly. Again,
that is the thing with campaigners, they are always better at negatives than
explaining complex positives. Zambia had a debt recycling before that comes
to an end and, therefore, whether there is HIPC or not, certainly the old
recycling ends and they would have to pay off the old debt in very high
numbers. They will get HIPC and that will help. Without HIPC the situation
would be even worse. Zambia is in an untenable situation on those numbers and
needs some additional help. It is not the fault of HIPC that Zambia has this
problem. To use Zambia's problem and the need for additional help to kick
HIPC is to misrepresent the situation.
7. We were wanting to talk about the 20 HIPC countries on which it
has been the target, has it not, of reaching decision point, not completion,
by the end of 2000. Are we likely to realise that target, we have only got
a few months to go?
(Clare Short) We are very hopeful. As you all know, we have had this
coup in C“te D'Ivoire, which was a good performer. There are some things that
the World Bank, the IMF, none of us can control. Then there was an election
that was stolen and then the leader of the coup and the person who attempted
to do that have now left the country, so that puts C“te D'Ivoire back as a
possibility. I am simply pointing out that you can get developments like that
that nobody could have predicted. We have given you a list of the countries
that are in the original 14, they are in here somewhere.
8. They are in your briefing.
(Clare Short) And then the countries that are forthcoming. I would ask
the Committee to look at the list.
9. We have numbered it WB6, which is your Debt Reports, and it
starts with Benin, Bolivia, Burkina Faso, Honduras, Mauritania, Mali,
Mozambique, Senegal, Tanzania and Uganda.
(Clare Short) Just going through them, these are the ones that are
already at decision point, or is this the list that is about to come through?
No, these are already in, Uganda has completed. Just to point out, Burkina
Faso has done quite well on reform but there are real worries about support
for Charles Taylor and Liberia and causing trouble in Sierra Leone. I just
want people to face up to some of the complexities and difficulties of trying
to help countries through. If we fail in Sierra Leone the whole of West
Africa will be destabilised. We need to keep Burkina Faso on track but they
have got to do something about no longer supporting diamond smuggling and
things that are weakening Sierra Leone and strengthening those who would
destabilise it. Most of the other countries on that list are doing pretty
well.
(Mr Faint) They have come to decision point from Benin to Uganda. Down
below from Cameroon to Zambia, they are the ones that are under action.
(Clare Short) If you are at decision point there is still the process
through to completion point. We have to watch what countries are doing. A
country cannot be given lots of resources by the international community if
it is feeling ---- There is a dilemma here and we need to take action if it
is continuing to feed any instability and continuing conflict in Sierra Leone.
For example, Uganda had a delay just before its completion point because of
some of its activity in the Democratic Republic of Congo when it started
fighting Rwanda. That, happily, is through. We have not got a settlement in
the DRC by any manner or means, and the Lusaka peace process is weakening, but
I simply want to say to the Committee we support Uganda very strongly but we
supported that delay because these other developments matter enormously. I
just want to point that out. Then you come to the next list of countries.
I think Cameroon is now ---
10. Cameroon has got to decision point.
(Clare Short) It is now through. Cameroon has got terrible, terrible,
terrible corruption problems.
11. I know, very serious.
(Clare Short) With all of this you want to get the countries into the
process and hope that gives leverage to help the reform agenda. I do not want
to go on at too much length but I do want to explain some of the difficulties
and complexities that come from driving the process forward. As you all know,
Ethiopia was on a list to move early but it had this terrible war with
Eritrea. It was like a First World War, lots of young men's lives were thrown
at each other over a very barren piece of territory. A lot of money has been
spent on armaments in desperately poor countries that are constantly in need
of humanitarian relief to stop people dying when there are droughts and so on.
There is a peace process starting, the UN monitors are about to go in, and we
are hopeful that Ethiopia will come forward. In Gambia there have been trials
of students, but it is there. In Guinea-Bissau there is terrible instability
and fighting. Guyana we are hopeful about. They have had some setbacks, they
are coming up to elections and you all know what has happened in elections in
Guyana in the past. Personally I am hopeful about Guyana. Malawi there has
been some commentary about, we think they are trying but there are real
problems with systems and problems of corruption that we have been working on
for a long time. Progress is being made but it is there. Rwanda you know
about. There is French resistance to Rwanda making progress, let me just make
that point. We have talked about the problem of the old recycled debt for
Zambia kicking in at the same time but there have also been terrible
corruption problems there. We are hopeful that Zambia is at a new point. I
just want to make the point that we are determined to drive this but we cannot
do it at any cost and reward bad policy because that does not bring any
benefit to the poor of the countries concerned.
12. Of course you have been tackling, I understand very successfully,
the Poor Policy in Malawi, for example. You have put that right, have you
not?
(Clare Short) We have been supporting an anti-corruption bureau that did
a big report. What you have got here is under Hastings Banda the systems of
governance will completely weaken, the civil service is grossly underpaid, the
financial management systems are non-existent. Always in those circumstances
in any of our countries you get some people who will engage in corruption and
you get very badly paid civil servants who cannot live on their pay and you
get people charging because there is no way that their families can survive.
We have been engaging in a lot of reform processes. The anti-corruption
bureau we supported just did a report and named a number of ministers and that
is why the President has dissolved the Cabinet. Work is going forward. As
you know, corruption is not just a matter of will, you can get a new
government with good intent, like Nigeria, where the systems are not working
in the country at all and there is all sorts of misuse of public funds or
people misbehaving beneath the President, who was a starring member of
Transparency International and determined to make progress. The final group,
of course, is the ones we come on to after that that are in the list of the
47 HIPC countries but they are not listed here, the ones that are engaged in
conflict. Barundi, the Democratic Republic of the Congo, now C“te D'Ivore,
Liberia is a HIPC country, Myanmar, Burma is a HIPC country, Sierra Leone,
Somalia and Sudan. We are facing up to the reality in these very poor
countries of some of their difficulties and the fact that lots of them are
entrenched in conflict and we would be better resolving conflict.
13. Given all those difficulties, Secretary of State, what is your
guess about the number that we will get to decision point by the end of the
year?
(Ms Cund) The World Bank and IMF have produced a very useful table
indicating ----
(Clare Short) Has the Committee got the table?
(Ms Cund) Not to my knowledge.
(Clare Short) We will make sure you have that.
(Mr Faint) It was in one of the papers for the annual meetings, was it
not?
(Clare Short) I think it has come before you but you probably have not
got it in front of you.
(Ms Cund) They have made an assessment of the countries that are most
likely to get through in 2000. In their high category, apart from Cameroon
which has already gone through, there is Chad, the Gambia, Guinea-Bissau,
Nicaragua and Rwanda.
14. We have got this list actually. Guinea-Bissau and?
(Ms Cund) Rwanda. Nicaragua and Rwanda.
15. That looks like another four to add to our 11, so that sounds
like 15?
(Ms Cund) And Nicaragua as well.
16. And Nicaragua.
(Clare Short) Could I say, for example, in Rwanda they have had some
difficulty with their revenue flows and, therefore, their IMF programme and
there is resistance in France to Rwanda making progress. I think your
Committee and I share a passion for Rwanda more than just helping it recover
from what history has done to it. Even that we cannot take for granted.
Chairman: It is between 15 and 16.
Mr Robathan
17. Do I understand that the Malawi Government has sent back the
Mercedes cars, which was a big issue about a week ago, a headline captioning
issue? The second is, could you say more about the French position regarding
Rwanda, because I think that is important.
(Clare Short) On Malawi it was the subject of misinformed and false
comment. We have become used to that pattern. The cars were not corruptly
acquired at all. There was no bribe, there were no hidden expenses, they were
extravagant and inappropriate. The new Finance Minister said they are going
to be sold and more appropriate cars will be provided for Government
ministers, and we welcome that.
18. The French position?
(Clare Short) How can I put this?
19. Frankly, I hope.
(Clare Short) You all know the story of the genocide in Rwanda. It is
a terrible story of disastrous failure by the whole international community.
France did send in some troops towards the end in a way that appeared to
favour the genociders. Of course it is originally a Francophobe country. The
leadership of the new Government, although it is a mix of Francophobe and
Anglophobe, were exiles and speak English. There is a version of history
that sees Rwanda as an Anglophobe plot against Francophobe Africa. This is
very unfortunate, because Rwanda's suffering has been so great, and it is
really making reforms very seriously. Our whole international community owes
to the people of Rwanda enough support to escape from all this horrendous
conflict that has been entrenched in their history. There are parts of the
French Government that are aggravated by this Anglophobe/Francophobe question
and sympathetic to Rwanda. It has been said that they will be very resistant
to Rwanda getting debt relief. We all have to do all we can because that would
be intolerably unfair. All I want to say is that we cannot take it for
granted, even though that is on the high list. I am very hopeful and we will
do all in our power.
Chairman
20. On the Malawi issue, can you confirm that no British aid was used
in the acquisition of these cars?
(Clare Short) Absolutely, yes. We are having a hearing fairly soon on
corruption. It never was used. It is very aggravating. These matters are
so complex and so important. There is so much public sympathy. To get
factually false allegations made on the floor of House of Commons, then good
officials of my Department provide the journalists, to whom these stories are
given, with great detail, and then false stories are written, is aggravating.
There is general public sympathy for the work we do. If everyone thinks every
single country is corrupt and all of the Governments are corrupt that we are
helping, it undermines public support for development.
Mr Rowe
21. Can I revert to Rwanda? I have heard recently, again ,that the
IMF certainly, and the World Bank to some extent, are insisting on democratic
elections in a way which normally one would entirely accept. Looking at the
conditions in Rwanda, it seems to me that to insist on that almost as a
precondition of assistance is asking an awful lot of a country where the
tribal imbalances are so pronounced. I wonder if you would like to comment?
(Clare Short) These things have happened in the past. After Kapila took
power in the DRC it was suggested there must be elections within two years.
You do get these crude statements that have no understanding of the reality
of the country. In the case of Rwanda under the Arusha Peace Accord it
required a Government of National Unity of all of the parties which we have
currently and then a revision to look at that interim, and to start looking
at what the electoral system might be. I have had conversations with
President Kagame about looking at proportional representation. Most of Africa
takes on our electoral system - I see our Liberal colleague nodding firmly
- because you need politics in Rwanda that make alliances not divide people.
They are starting to work on that. They had three years - I cannot remember
the deadline - so that is an international agreement. The IMF and the World
Bank are working with Rwanda on economic management and its revenue flows.
We are helping them with tax reform. I know its revenue flows are lower and
disappointing, and that would be the kind of problem with the IMF programme.
In the past there is no doubt that the IMF has tended not to take account of
the kind of delicacy of a situation like Rwanda, but they are improving. We
will stay close to them on this. We want to help Rwanda increase the tax
revenues - because a lot of very poor countries have terribly low tax
revenues, even though there are some very wealthy people in their country -
but not at the expense of throwing it off track, losing its debt relief and
throwing it back into conflict and trouble.
Chairman
22. If the target is not going to be met - we have just discussed
this, about 16 instead of 20 - will a new target be set, do you think, or will
the failure to meet the target affect competence?
(Clare Short) As we get towards the end game we need more people who
have engaged with them and really care about debt relief to be more fully
informed of the country's concerns and some of the complexities. We have
produced a briefing listing the names of the countries so that people begin
to see. A lot of church groups have a very strong view on Sudan and are very
critical of the Sudanese Government, but are very much in favour of debt
relief and then they begin to see some of the dilemmas. That said, we are
still very hopeful on 20. The degree of commitment in the Bank is very, very
great now. I am simply trying to say that there are some countries we are
going to have to do a lot work on and we cannot take for granted, we are still
going to drive very hard. Gordon Brown will be in the lead of that drive to
get the 20 through, if these countries stick beyond the end of the year, and
some of them come in in the early part of next year. One of the things that
happened at the Prague meeting is that the Sunset Clause was put back for two
years. That is a question, for some of these conflict countries, that we
might need to return to. If they cannot, can we get peace in the DRC in two
years so they can qualify for HIPC. If not, maybe we can come back to that
Sunset Clause and keep it as an incentive. If you have peace you can still
look for debt relief.
Mr Jones
23. I just wanted to tidy up the Malawi situation, you say they are
not going to make it by the end of year. How far away are they, is it a
matter of a few months or do they have a lot of things to do? Incidentally,
can I pass on thanks from the Malawi delegates at the Commonwealth Conference
for the generous œ67 million which you announced for primary education in
Malawi.
(Clare Short) Following the election the new Government said, as Dr
Hastings Banda fell, "We will provide free primary education within weeks".
Double and more of the number of children turned up at school. This is a
desperately poor country and it just shows the hunger for education. We have
been trying to help Malawi to catch up to provide enough school places to keep
all these children in school. We did build buildings in an emergency and now
we are trying to work with them to get a good quality, sustainable primary
education system. It is very moving. A lot of these children are hungry but
they still walk to school because they are so keen to be in school.
24. How long will it be?
(Clare Short) They are on the medium assessment of probability for "by
the end of the year". At worst we will slip into the beginning of next year,
and we are very hopeful we will be there. There is a lot of real commitment
to reform in Malawi, but there is a desperately weak Civil Service, the public
financial system, and we are desperately trying to help them build up.
Mr Rowe
25. We will not be recruiting teachers from Malawi?
(Clare Short) I fear, given where Malawi is, there is not even a danger
of that.
Ann Clwyd
26. The World Debt Movement in its memorandum to us suggests that
some of the debt relief to HIPCs is doomed as being delayed by relatively
unimportant reasons. They detailed in particular Mali, whose debt relief was
delayed for six months, and it had failed to reach all of the structural
benchmark relating to privatisation. In Bolivia debt relief was delayed by
three months because the IMF was not convinced that the recently elected
Government would implement the ESAF programme to the letter. Jubilee 2000
provide further evidence that the responsibility for delays lies with the
creditors. Where would you say the fault lies, with the World Bank and the
IMF or the developing countries themselves?
(Clare Short) I would say there is a change of culture and systems
going on in both the Bank and the Fund, more the Fund than the Bank, around
the changes that we have on the PRSP process, from enormous lists of detailed
conditionalities to this kind of asking a country to put a sensible outline
strategy in place and then elaborating to stay on course. For the Fund in
particular that is a transformation of its way of working. I think the top
of the IMF is committed to it but you still have officials who belong to the
old mind-set. You still have countries represented on the board who rather
prefer the old way - the US is one of them. It is a very powerful country and
a big contributor to these institutions. It is our judgment there has been
a big change, that the detailed conditionality is dropping away. The
requirement now is to get to a decision point, to have a kind of sketched
outline of the productivity reduction strategy. If you wait to elaborate it,
it would take years and then you could not get started and get a good
momentum. That is the broad picture. There have been those kind of delays.
There is a lot of change. The new arrangements do not allow for it. There
are a lot of people stuck in the old mind-set. I do not personally have such
detailed knowledge of Mali, but I can find out and come back to you on that.
On Bolivia we do; it is not a recently elected Government, it has been there
for some time and headed by a President who was previously a military dictator
but now elected, by the way. It is complex. It is a country of staggering
beauty, terrible poverty, predominantly indigenous people, 70 per cent to 80
per cent and if you look at the Government you see none of them in the
Government. So, you see some of the historical problems embracing more and
more of the commitment to reform on poverty reduction. It has had a cocoa
growing problem in the remote areas, the country has cracked down, but it
means the rural poor are now poorer. It is getting a lot of trouble and
turbulence. Teachers have just been on a big strike. I do not know about the
three-month delay, but Bolivia is becoming a major reformer and I think it
needs some help to keep on track, because it is facing such great strain it
could lose its reform agenda. Three months is not a long time.
(Mr Faint) The only other thing to say, I think, is that there have been
complications regarding financing HIPC in Bolivia and other Latin American
countries, because it was dependent on the United States being able to come
forward with its contribution to the HIPC process overall and to the
Inter-American Development Bank being able to fund its contribution to HIPC.
That has now happened and been resolved by the US Congress coming up with the
contribution that President Clinton pledged, probably a year or more ago, I
should think. That money is now available. There should not be a financial
obstacle to Latin America HIPCs progressing now, but that might have caused
some of the delay.
(Clare Short) On the two cases you make, Mali and Bolivia, six months
and three months, I will look into the specifics and write to the Committee.
The one other thing I would say about Jubilee 2000 is that a lot of the
briefing that comes from the office, as opposed to the broad sweep of the
campaign, I think describes the position elegantly, and has always lent on
very weak or no conditionality, with which I profoundly disagree. We as a
Government profoundly disagree. We believe that leveraging good policy on the
economy and on social policy really brings benefits to the poor, not just for
the debt but on the revenues of the country itself, its general economic
policy and how aid is used. It has been with very great pride that the debt
relief is leveraging much better than just the benefit of that debt relief.
The Jubilee 2000 office has not been particularly supportive of that thrust
of United Kingdom Government policy, which I believe is absolutely right, and
I believe, as I said in my initial remarks, we have made gains that are now
going into broader IMF and World Bank ways of working.
Ann Clwyd
27. What is the length of time between the US Congress agreeing the
money and the money being made available, do have you any idea?
(Mr Faint) I cannot answer that question. I think some of it has been
appropriated for the current US fiscal year. As far as I know that amount
should be available immediately. We can provide details about the
distribution of the appropriation between fiscal years, because some of it is
for future years, I believe. There should be a substantial amount of money,
more than $200 million available immediately.
(Ms Cund) Congress has actually appropriated $435 million out of the
$600 million that President Clinton pledged. That is not a problem, because
we hope that they will appropriate the remainder in a future year. They have
now caught up on what they should have done last year and this fiscal year.
Mr Robathan
28. We have been taking about the lack of progress and your concerns,
indeed changes in culture from the World Bank. In your response, your report
on debt relief, you said you have written to the IMF and the World Bank
putting forward proposals for change. What were the proposals? Do you think
they have been taken on board?
(Clare Short) Is this the joint letter from Gordon Brown and myself
suggesting the Joint Implementation Committee? That is some time ago, I cannot
remember the date of the letter. The culture of the two institutions
traditionally has been in deep conflict, lack of collaboration, the IMF
saying, "We are speedy and fast and the Word Bank lumbering and slow", so even
though things were improving you can get procedural delay, just as you get
between Government departments, as you know. There was some of that
technically unnecessary, not even politically motivated, bureaucratic delay,
in the system. I cannot remember what else we said in the letter. We
recommended the setting up of a high level, high authority, Joint
Implementation Committee to get the two institutions to move together to share
information and not to cause delays, and that was agreed and done. Gordon and
I went over to Washington and we met with Koeller and Wolfensohn, and others,
to try and get that entrenched and working, and it is now working.
(Mr Faint) The joint statement that Jim Wolfensohn and Koeller issued
shortly before the annual meetings about the relative roles of the Bank and
the Fund and the cooperation between them was also very much influenced by the
approach that the Chancellor and the Secretary of State made and we very much
welcomed it.
(Clare Short) The spirit of working between the two institutions is very
good at the moment, unprecedentedly good. Hans Koeller, who did not
particularly have a development background, went around the world visiting all
of the regions of the world in preparation for taking up his post and was very
deeply moved by his visit to Africa. It has created a very good atmospheric,
both on debt relief and on the working between the banks and the new kind of
strategies on systematic poverty reduction. That sounds too good to be true,
I know, but that is where we are at the moment.
29. Pursuing whether it is too good to be true or not, do you think
the Joint Implementation Committee has been effective?
(Clare Short) Yes. The bureaucratic delays have been shoved out of the
way. There is a real will in the institutions at the top level - and the
people running the Joint Implementation Committee know it - to drive forward
the 20.
Mr Colman
30. I agree with you, Secretary of State, that Jubilee 2000 have this
fixation about the number of countries through by the end of the year, and it
is not helpful. Their Report about what happened in Prague did not put
forward strongly, if you like, the changes that happened there, in moving the
whole debt relief concept forward. You mentioned that detailed conditionality
was dropping away and you mentioned that the Sunset Clause being put back two
years. Can I explore two other areas which did not seem to make it into the
press? You mentioned about Zambia having a situation that when HIPC comes to
an end it will need additional help. The discussions that were going on in
Prague were very much that Jim Wolfensohn was putting about the figure of 11
per cent being the sort of figure that a country should not be in excess of
in terms of the amount of money which it should have to use for debt relief.
Oxfam, as you know, have banded the ten per cent figure. Is there any
codification coming out of the discussions in Prague which would deal with,
if you like, an enhancement of the enhanced HIPC, which would deal not with
Zambia on a one-off basis, but with other countries like Tanzania, and other
countries which at the end of this situation are going to have levels of debt
payments which will be in excess of Jim Wolfensohn's figure of 11 per cent?
(Clare Short) I do not think there is much prospect of changing the
formula. For the Cologne Summit we tried to get a more generous figure on the
percentage of fiscal revenues that would be used up in debt payments. There
are two figures. One is the amount of payment, because it is foreign currency
in proportion to earnings, and that figure has improved. Did we get any
improvement on the fiscal, or not as much as we wanted?
(Mr Faint) We got some improvement, but not really enough to make it
bite in very many cases.
(Clare Short) We tried very hard as a country and we could not get that
far. The countries that have qualified so far are all around 11 per cent, so
that is interesting, given that Oxfam said that it should be ten per cent.
That is where it is coming in. Zambia is an enormous exception, the numbers
are just unpayable, it is because of previous debt recycling. We have called
for - and the work is going on in the Bank and the Fund - some special extra
arrangements for Zambia. It will get its HIPC, and then some sort of
recycling over a longer time. I do not know what the formula is. We have
asked for detailed work, because Zambia could not pay the debt that is going
to kick in, but it is exceptional.
31. Tanzania?
(Clare Short) I think Tanzania is in the 11 per cent figure. People
quote all these different figures and sometimes they quote increased payments,
and sometimes it is quite an increase because some of the previous debt was
not being paid. For a country to clean up its record, there are two
purposes: one is obviously what it can afford to spend on social policy but
it also not to have a debt overhang that damages it economic performance,
which has rather dropped out of the argument of the campaigning NGOs.
(Mr Faint) The comment that we have here is that Tanzania will receive
$2 billion in debt relief in NPV terms. The debt service payments in every
year from 2000 to 2005 will be roughly a third less than otherwise as a result
of enhanced HIPC. It is true that debt service payments will not rise after
a decision point.
(Clare Short) That is just factual on Tanzania. The final point of your
question was, is there any chance of any enhancement on this fiscal? I think
there is not. I think it has been such a monumental political achievement to
get everyone together. You know, countries like Japan do not believe in debt
relief. They are generous contributors to development. They believe in
development, they believe really in the Mulhazard(?) argument, very powerfully
for themselves and their own people. They cooperated because the world was
so moved. I do not personally believe that we can reopen the formula. There
are other ways in which countries can help HIPC. I do believe that the HIPC
countries will need more aid and as they become reformers they will receive
more aid. It is unrealistic to re-open the HIPC formula.
32. Is the 11 per cent figure written into any agreement?
(Clare Short) It is where we are on the countries that are so far
qualified, the reality figure.
Ms King
33. On the conditionality, I agree entirely with what you are saying,
we need some conditionality for leverage in terms of the policies, et cetera.
In your note here from DFID you say that there are ten countries currently
classified by the World Bank as being ineligible for debt relief because they
have been affected by current or recent conflict. One of them is Burundi.
Given your remarks on Rwanda, I just wonder how that judgment is made that
Burundi is not able to, but Rwanda is. I can guess some part of your answer
to that question. I wonder if you think that will change in the future. Just
in case anybody is interested in this topic, there will be a report launched
tomorrow at 2 pm in Portcullis House in the Macmillan Room.
(Clare Short) On Burundi.
34. Yes.
(Clare Short) The World Bank's list of the countries unlikely or unable
to qualify is another list of countries affected by conflict, held back; it
is not the HIPC list, it is a conflict list.
35. It says here, "They are unable to qualify for debt relief in
2000".
(Clare Short) Countries that are in conflict that do not have any proper
management of their public finances. In the case of the Government of Sudan,
who is on that list, they spend very, very large amounts of resource on arms.
It is not a legalistic disqualification, it is a failure to comply with decent
policies that would help the poor disqualification. It was agreed at the G8
meeting in Okinawa, and the Department are trying to drive this more and more.
We have to have more attention to resolving conflict, obviously because it
would be good in itself, because it is blocking so many countries from
development. A lot of the international development targets will not be
achievable in Sudan, DRC, Angola and Somalia, and so on unless we can resolve
conflict. As you know, Nelson Mandela has been leading the efforts in Burundi
since President Nurawe(?) died, to get a resolution to the conflict. Agreement
has been reached, although fighting still continues. I think there is
pessimism/optimism, people are in balance about whether the peace can hold
and, therefore, reform can drive forward and Burundi would qualify for HIPC
and other post-conflict support from the Bank and the Fund and more support
from development agencies. Of course there is so much fighting in Burundi that
no one can get out there even with humanitarian relief currently. I do not
know whether in Burundi the peace is going to hold and Mandela can persuade
the fighters to stop. We hope so. We will all be supportive. We need that
kind of attitude in country after country. What is meant to happen after
Okinawa is that the G7 look at country by country - they are going to visit
them all. We have taken responsibility for Ethiopia, Manila and Sierra Leone
- for which we retain responsibility in other senses too - to try to talk to
the countries in conflict about their debt problem. Because the Sunset Clause
has been removed they could kick into debt relief if we could make more
progress on resolving the conflict. So that is where we are; we need more
attention to this issue, and Burundi I know you are giving attention to in
your Committee. I think it is not certain that Burundi is going to make it,
but I think we should do everything in our power to help Burundi make it.
Chairman: If anyone can achieve miracles, it is Mandela.
Mr Rowe
36. I think it raises an important question about how accountable are
the NGOs? When it suits us we all quote the NGO as our view, and when we are
angry we quote some NGO who is making what we regard as a daft statement. The
fact of the matter is that all over the world, it seems to me, there are NGOs
moving in on conflicts and other situations, many of whom distort the local
market; they do not get on together. I heard a shocking story yesterday that
even though a whole lot of NGOs moved into Tanzania to help the refugees from
Rwanda, they would not actually allow any of the indigenous organisations that
were helping to use their e-mails, for example. So we have this situation in
which the NGOs are increasingly influential and increasingly used as agents
for delivering programmes. To whom are they accountable? What are we going
to do about that.
(Clare Short) On delivering humanitarian programmes, we discussed this
before, and there is a new code and standards that we and the humanitarian
deliverers are working with. That is about 5 per cent of international
development. It is the stuff that catches the headlines, but it is not
development, it is helping people through crises. On the broader campaigning
questions, whatever is said in Prague, Washington and Seattle, I think there
is mounting concern within the best of the NGO community; there is deep
concern in developing countries and there is a growing irritation coming into
anger at development NGOs from the north speaking for developing countries,
and often calling for different things than the country itself calls for -
which is a really quite profoundly important question. We are more and more
able to catch the headlines, and in this modern world of the speed of
communications that becomes a power in itself, and big institutions are scared
of the headlines. NGOs, of course, also have to collect money from the
public, so they have to keep their name in the headlines. Sometimes quiet
patience is needed, but that does not suit that culture. There is a book by
Michael Edwards (who used to work for Save the Children in the UK, and then
I think in the NGO unit of the World Bank) and a report with the Foreign
Policy Institute - that new Think Tank - calling for NGOs to put in place
arrangements about accountability for themselves, which I do think is wise
advice. Who decides the policy? On whose behalf do we speak? Did we consult
the poorer countries in the world before we adopted this position? The other
thing that is going on is that developments are becoming more and more
complex, in a good way in the sense that it includes trade policy,
international investment policy and international environmental agreements,
and it becomes difficult to command the whole agenda, and then it is easier
to be in a negative stance. I think that is another strain that is in the
system. I think this call for the NGOs themselves to engage in a discussion
of greater transparency and openness about their accountability is timely and
important.
Mr Colman
37. If I can take you back to the Prague meetings, can I thank you
for clarifying that the Oxfam target of 10 per cent is related to a reality
of 11 per cent in terms of countries that have gone through, and that on an
ad hoc basis countries which have higher than the 11 per cent would be looked
at again ----
(Clare Short) I cannot commit for the rest of the international
community, but all the HIPCs are receiving aid. Sub-Saharan Africa is 10 per
cent of their GDP. We must remember that, otherwise sometimes people talk as
though debt relief is the only money. So I cannot guarantee to you that every
country will come through at 11 per cent, but any country that came higher and
was doing good reform would be deserving of more aid in budgetary aid to
enable it to keep on track with its reforms.
38. The second point, which I do not think has been featured in the
press, is, in fact, a variation to enhanced HIPC, which I think was in the
final press release, which was that any changes in commodity prices within a
country or within the world system that has happened since 1997 would be taken
into account in any enhanced HIPC, both in terms, as I say, of a drop in
export earnings from HIPC countries and, particularly, in terms of import
costs - and the obvious area there is world oil prices. Would you be able to
confirm that that change did come forward at Prague and, of course, has
received no publicity at all?
(Clare Short) It is in the communique of the Development Committee,
which is always finalised at the lunch of the Development Committee, and the
words were discussed at some length - I think I can say without breaking any
confidences. There is a commitment to look at external shocks. Some
countries are being good reformers, and then, suddenly, the price of oil
(which, of course, benefits some and disbenefits others) or gold, or cocoa,
or some other effect that a country has absolutely no control over - like
Bolivia, doing the right thing on coca growing but having some sort of deep
political effects in the country - throws its reform agenda off course. It
was agreed to look at that and take it into account, I think - or some words
to that effect. We, the UK DFID budget, are trying to refine the way we deal
with this, and we have just been looking at countries in Africa that are
affected by commodity prices and looking at whether we cannot provide them
with some more budgetary support to help them through. Otherwise the whole
reform agenda just falls apart because the economy cannot hold, they have to
do some short-term manoeuvring, and often the reform agenda is lost. So there
is this commitment, which is at the end of the communique. We have to work
on the detail. It was delicately phrased. The commitment to do so is
important, but we need to watch it to make sure that it is implemented well.
39. My last point is, again, in a sense, to deal with perhaps the
doubters, Secretary of State. Where, in fact, HIPC has happened, is there any
evidence that the reduction in payments for debt has resulted in increased
spending in the social sectors?
(Clare Short) I think it is absolutely undoubted in the case of Uganda,
which has both been adopting good reform and set up a special fund. We are
not that keen on special funds because we do not only want the debt relief
spent on poverty we want the whole of revenues, and to look in a new way at
the budget. Uganda did both that; it has systematically increased its
spending on social programmes that will benefit the poor, it did a
participative poverty assessment - listening to the voices of poor people in
Uganda - and has adjusted its programmes and, indeed, put into the Ministry
of Finance, which is led by an enormously competent Permanent Secretary,
Emanuel Timosimi (?)?
(Ms Cund) Timosimi Mutabili (?)
(Clare Short) I call him Emanuel. He is a fantastically high-quality,
superb, Permanent Secretary. They have even now put the participatory poverty
assessment unit into the Ministry of Finance, so on the budget they will have
some kind of continuous feedback on how people in rural Uganda are receiving
the benefits of policy change. There are worries about the DRC, but on social
reform and its government reform it is a start. Anywhere else? I think we
think "so far so good". Uganda's completion point is the clearest case. I
am pretty confident that everywhere it is leveraging better policy focus on
the poor. It is too early to say that is a long-term gain, but it is leading
to that kind of change everywhere.
Mr Khabra
40. Jubilee 2000, in their evidence to the Committee, argue for the
establishment of a new independent mechanism to introduce a more disciplined,
fairer and more transparent approach to international lending. This would
involve independent arbitrators ensuring that funds released from debt
cancellation were spent on agreed poverty reduction and development priorities
and scrutinising future loan offers to help prevent a debt crisis of this
scale re-occurring. Do you have any sympathy with such proposals? What
effect do you think current lending from the IMF and World Bank to HIPCs has
on their debt burden?
(Clare Short) I do not think it is possible to have an independent
arbiter. I do not know who it would be, or who would appoint them. Some of
these are deep, sovereignty questions, especially the second set of questions
on whether countries borrow again. We do need to get improvements, but who
can we appoint in the world that can take away a government's sovereign
rights? So I have sympathy with the objective, but I think the instrument is
unrealistic. On the first point, simply looking at the spending of debt
cancellation funds is too unambitious and is an error, in my view, because if
you only look at those, then the main budget of the country and its revenue
collection could be moving against the poor, which would be a nonsense and
would be tokenistic debt relief that had not leveraged any improvements. I
do think you have to look at the debt relief funds, what is happening to aid
funds, what is happening to the revenues and the whole of public sector
spending in a country to see whether you are getting policies that will bring
benefits to the poor. I think the first objective is too narrowly drawn, but
I share the objective of ensuring the poor benefit from the whole process.
On ensuring that HIPC countries do not get into this difficulty again, I think
this is an enormously important question. Through the PRSPs we are putting
in place -- because, of course, any future lending would be within that
framework of an overall, government-published strategy, openly discussed with
the people of the country, on what it could afford and what repayments it
could afford. There is a second strand to this: countries' capacity to manage
debt. We have been helping countries and finance ministries just to have more
technical capacity to manage their debt, because often you get people in the
Ministry of Finance who are trying to manage the debt and other ministries
making agreements to borrow and going beyond the country's capacity to repay.
It is, again, the system where there are good people in the Ministry of
Finance trying to look at the macro, but there are other people - trying to
drive social policy - borrowing. The third dimension of this is export credit
guarantees. They have been patchy in the past. There have been some very bad
projects - roads that stop in the middle of nowhere, or hospitals with no
equipment. Also, there has been what we consider to be very inappropriate
export credit lending when a country borrows for a couple of urban hospitals,
and that will swallow more than the whole of their health budget, which means
no health care at all in rural areas or no primary health care. So Gordon
Brown has been trying to drive this and we have been trying to work it through
the OECD to get stronger commitment to productive expenditure; to not give
export credit guarantees to non-productive expenditure. The PRSP framework,
looking at all the resources of a country together and what it could afford,
provides the possibility of judging each proposed contract in a sensible way.
We are in earlier days in the OECD. We are trying very hard to get an
agreement across countries on export credits on non-productive expenditure to
the HIPCs. There is some sympathy but not firm agreement. We are not firmly
there yet. I think the weakest part of the picture is probably the debt
management capacity of countries, whether we have got enough commitment in
export credit guaranteed bonds across the world. I think we are making
progress but it is a matter for scrutiny and pressure, and the more pressure
that can come to the table the better.
41. Has any discussion or any further negotiation taken place so that
the funds made available from debt cancellation will be spent on poverty
reduction?
(Clare Short) Yes, as I have said, the whole point of the poverty
reduction strategy is not just to have a separate fund for the debt money to
be spent on poverty but to look at all the resources of a country: the debt
relief, aid money and its own revenues - and how they are all spent, in terms
of the needs of the poorer of the country. That is better than just
scrutinising the spending of debt relief.
Mr Worthington: Mark Brown of the UNDP was speaking here yesterday and
he was saying - and I have some sympathy with what he was saying - that with
regard to World Bank policies he wondered about whether we were stacking up
problems for the future when we lend on activities that do not have an income
stream. The example he gave is AIDS. I can see the sense; if you invest in
education you hypothesise that that is wealth-generating, and that the country
will be better off for the investment in education. It comes up later when
we are talking about this thing called "global public goods". Should there
be some discipline on the World Bank, or other lending institutions, about
creating future debt on areas where one cannot see an income stream in the
future?
Chairman
42. Secretary of State, can we leave the question of HIV/AIDS aside
for the moment and address the income stream question?
(Clare Short) It is more than just a question of income stream - which
is a very important question - it is also a question of foreign currency debt.
Of course, what countries need is in terms of better government systems,
better primary health care, better primary education, and, increasingly, they
borrowed from the banks, the banks moved away from the infrastructure in that
direction - rightly, in terms that we now know these are fundamentals that
need to change to move the country forward - and although they might produce
income stream they cannot conceivably provide foreign currency income streams.
Yet, a lot of these countries, if they had to wait for the generation of their
own resources to put in place universal primary education systems, would have
to wait a very long time. We know it is a profoundly developmental
intervention; just ten years later, when those children - particularly girls -
grow up their impact is very great. So I think we are back to the PRSP; the
beauty, for the first time, of being able to look at all the resources
together. To borrow to invest in primary education or health, we now have a
clear developmental impact. It is increasingly clear, not just that ill-
health makes people suffer but that it makes people poorer; often people will
improve the life of their family and then get a sickness in the family, cannot
work, have to buy drugs, and it throws people back into poverty. So you need
to help with health so that countries can develop out of the proceeds.
Borrowing sensibly and on very concessional terms - and IDA is very
concessional indeed; it is not borrowing in the kind of commercial spirit of
the thing - and with the expertise that comes with it, if you can afford it
within your whole budget and your foreign expenditure and your fiscal, it is
worth doing, but it needs to be judged within that. I will finish with this,
and I will bring Tony in because he has worked on these matters for a very
long time. I think PRSPs are a breakthrough because we have the chance of
openly putting all the resources together and looking at government's
priorities and what they can afford.
43. That is going to bring a very important point up, that, in fact,
this social lending we are talking about should be done on grant terms.
Therefore, it is a combination of World Bank, the IMF and the Department of
International Development, with the Department for International Development
doing the education and the social health issues, and so on, for the poor,
with policies being financed by grant money from DFID or other sources. You
have still got to repay the IDA capital which, as you say, Secretary of State,
is denominated in foreign currencies.
(Clare Short) We must be careful with this. This is the position in the
MASFER Committee (?). Its political origins are in the USA and its political
origins are on one fringe of that country. Of course, you can see the
immediate logic in it, but the development banks would give agencies such
superb credit ratings that two things could happen: they could borrow and get
more resources into development and they could also have differential rates
between middle-income countries and very, very poor countries. So that the
IBIDA lending to Latin America and so on is at a higher rate of interest, and
some of the net income from that lending comes back into IDA lending, which
is highly concessional. So if we go down this road we will slash resources
that are available. The other thing - and I have been thinking about this a
lot - is that as we all know aid is very important. If you look at just the
economics of the poorest countries they cannot develop without external
support. It is economically impossible. However, the relationship of giving
is not the most healthy for them at the moment because it is necessarily
paternalistic and all the power lies with the giver, whereas borrowing on very
concessional terms, especially behind the kind of open process that the whole
country owes, puts the country in control. That is an attractive feature of
it, because then you choose to borrow and you commit yourselves to something;
you as a government decide that this is something you want and you are in
charge of it; not will someone deign to give you the money if you ask them.
I think that is an attractive feature. I have just been in China, which, like
India, has graduated from IDA lending (not because they have not got poor
people but because there is not enough IDA and these countries are just so
massive), and we are looking at putting some grant with World Bank loans and,
also, maybe, in Indonesia, to soften the terms, to put in more kind of
technical inputs that improve the quality of the programmes as a way of
getting to scale in these high-population countries. For example, Indonesia
is the fourth most populous country in the world and is engaged in a
transition to democracy that the people really want, with lots of barriers
from the old order trying to prevent it making it. We are on 15 million a
year and very strong in forestry and we can grow - we, in pounds, the UK. The
Asian Development Bank, to which we are a subscriber, seeks to lend $1 billion
a year. If we can collaborate with the Asian Development Bank, which is
moving towards an interest in poverty in a big way, but has not got the
experience on the ground, we can help leverage money that countries are going
to borrow anyway into better policy. This is a profoundly important question
and worthy of a lot of thought by all of us. That is my answer. Tony is the
UK's IDA deputy, because every ten years IDA has to be replaced, because it
is almost a grant it is so concessional.
(Mr Faint) The only point I was really going to underline - because I
think the Secretary of State has covered all the issues - is that countries
need to consider their overall borrowing capacity and their ability to service
their debts over a period. I think that is one of the most important things
that needs to come out of HIPC; countries take control of their debt
management, they do not have unsustainable burdens, and it is up to them to
ensure that they do not slip back into the unsustainable situation. I do not
think there is anything wrong with poor countries borrowing, especially at
very concessional terms, for social sector purposes, within the framework of
overall sustainability in dealing with the future debt situation. They are
getting a combination of grants, soft loans and, maybe, some export credits,
and they need to view that in the overall framework of their financing
requirements and their ability to service future debts. If they have that
sustainable position, I think a limited amount of borrowing for social sector
purposes is perfectly acceptable.
44. Yes, but supposing you take the attitude of President Bernam (?)
of Guyana, who used to take these loans. I said "You cannot possibly repay
them" and he said "No, but they want to lend them to us so we are not going
to repay them anyway."
(Mr Faint) That would be in a different spirit.
45. And he did not!
(Clare Short) I am determined and proud to take responsibility for our
input into the World Bank now, but I cannot take responsibility for what the
World Bank did with Bernam.
46. However, you are mopping up the consequences in Guyana. That is
the problem.
(Clare Short) Except we should remember that an enormous part of the
debt is export credit debt as well, and that is our individual countries.
47. Not in his case.
(Clare Short) No, but in general, in the whole of HIPC debts. It is
just not good enough to pile it all on those. These institutions are public
sector institutions, and a lot of criticism of them forgets it, and they are
run by representatives of governments. In periods when fashions change and
the policy of the institutions change, the answer is not to abolish the
institution it is to change the messages they are getting from their country
and their government about what the priorities are.
48. Yes, but they also see the necessity to lend, and I saw them
change the arithmetic because it did not actually work, so they changed it in
order to fit the programmes. So you have got to make the international
institutions responsible, which, in the past, they have not been on all
occasions.
(Clare Short) I think it is fair to say - I do not know if the Bank is
still guilty - that the IMF has got a lot of outstanding loans. Even a
country that is going into British trained policy and behaviour has a terrible
imperative to get a new package, and sometimes that leads to rather less
stringent reform requirements which might be desirable, in the interests of
the people of the country.
Mr Rowe
49. I wanted to ask two questions. One was about that. What are the
career incentives for people within these institutions? That does seem to me
terribly important. The other thing is that I am relieved and excited to hear
that countries are being encouraged to get a much better grip on their total
debt. Are the international organisations exercising the same restraint?
Just to take one example: there is tremendous pressure to create a much more
generous regime for selling life-saving drugs across the world. If that were
to move forward the enthusiasm of the World Health Organisation and other big,
international bodies to capitalise on this would, it seems to me, put huge
pressure on countries that desperately needed the drugs to take the money to
get the drugs. That would be very difficult to resist, but, I would have
thought, make life very difficult for the finance ministers who are trying to
control their overall borrowing.
(Clare Short) I think there is no doubt - and, again, I will ask Tony
to come in - that although the Bank and its thinking has improved enormously,
country directors have notional amounts to lend, and there must be some
incentive to lend up to them. For example, Indonesia. I met the Asian
Development Bank this year and they say "$1 billion a year is our target".
On the other hand, the country needs help. There is a real desire to make the
transition to democracy, and they may or may not. I hope they will and I
think they might. So there is an incentive to lend. On international
organisations pushing things on countries that they cannot really afford, what
I would say is that in the end it comes down to politics and politicians, who
are ultimately in control. Just as we all know in our countries, politicians
will change budgets pre-elections and so on; we all know that is part of the
political cycle. "We do not want short-term unpopularity. Find some money
for something, even though it might cause inflation in your country." That
is the stuff of politics in all our countries. It is the stuff of politics
in very poor countries where mistakes are more painful, where mistakes throw
people into hunger, where there is so little give in the economy. Imagine
running a country when the GDP per head is $200. Ours is the 25,000. That is
just part. There is no protection in the end from the reality that you have
to be responsible with the national finances and promote development for the
poorest, and there is not enough money for everything. That is hard politics.
In many poor countries you get good governments coming in with shocking
systems. So, like us, we take over as a government, we have a good government
machine, if you know what you want it to do you can do it. President
Obasanjo, in Nigeria, takes over a country where they now have corruption
right through it. 70 per cent of the people are poor, on a dollar a day,
though this is a naturally rich country with its oil revenue. He says, "Do
this and this", and nothing happens. There are no government systems. That
is what we have to remember. We have to plug away at it and help countries
put in place systems and help the better politicians. Governments in
countries like our own make short-term populist mistakes with the public
finances - and I do not make comments on any individual party.
Chairman: This is developing into a conversation which is delightful
and interesting.
Mr Rowe
50. She has not actually answered the question I asked. The question
I asked was the other way round. It is not the problems of the country
itself, it is to what extent are the enthusiasms of the international lending
organisations constrained by a joint perception of what a country can afford
to borrow?
(Clare Short) I would say - and I think I have answered, but let me
spell it out - that in the end what the country takes from all the different
international organisations is decided by the politicians of that country.
Up to now - and I think this is changing, and we are working to change it -
we have had a very, very fragmented international development system with lots
and lots of different UN agencies, lots and lots of individual countries
development agencies, all pushing good things, and often very weak capacity
to look at the total effect of all of that. I think, again, the PRSP are
trying to get the UNDAF and the UN system to collaborate in a country and work
together to start to make it possible to do that. In the end the World Health
Organisation might push something, but the governments decide whether they can
afford it or not, and that is why I was giving the answer I was, I was not
just trying to make a political point. That is the reality that poor
developing countries have to struggle with.
Chairman: I want to tell the Committee and the Secretary of State that
we want to cover, in half and hour or so, the global public goods, HIV/AIDS,
growth and inequality, comprehensive development framework, strategic compact,
the global development gateway and the reform of IMF and the World Bank. If
we are to do that we are going to have to speed up our conversation a little
bit. Can I ask for discipline on all sides in order to try and cover this
programme. Tess Kingham is going to ask you a difficult question.
Mrs Kingham
51. In your response to this Committee's Report on Debt Relief:
Further Developments, DFID stresses that it is important that countries own
their own poverty strategy development programme and take a lead to develop
their own national poverty strategies; that this is to ensure that economic
growth and social development go hand in hand, and also that civil society
plays a full role in the process. The Treasury briefing also stresses the
importance of civil society involvement in order to sustain growth. The WDM,
however, claims that in Prague it was implied by the head of the IMF's Africa
section that they would not be willing to endorse PRSPs that did not contain
standard IMF economic policies. It went on to argue that there is a potential
conflict between the time needed in countries for a broad civil society
consultation and the IMF deadlines that are in place for the PRSP programmes.
I would like to ask you to what extent do you feel that the IMF is seriously
committed to the principles of consultation behind PRSPs, and what is DFID's
assessment of those PRSPs which have been produced? What sort of commitments
do you feel they contain?
(Clare Short) The first point I make is that you need countries to own
their strategies to want them to succeed. In the past there was a culture of
signing up to reforms to get the loan or to get the grant, that were not
believed in, and then you always got slippage and failure. So, it is just
effectiveness required for countries. Secondly, I think that there has been
a culture - and I think some of the NGO attacks on the IMF and the World Bank
reflect this - of dishonesty. The IMF would be the tough guy, making
governments adopt just responsible and economic polices, not promising to
spend more than they were getting in in revenues of all kinds, and governments
prioritising sometimes things that did not help the poor and blaming it on the
IMF. The IMF have said, behind closed doors, "You have to chose between
primary education and Mercedes for the elite", or whatever it might be, "and
then they can choose Mercedes for the elite and say, 'The IMF made us do it.'"
I do think that has been out there. Again, it is a nonsense if you cannot get
commitment to reform, and honesty between the people, you cannot have secret
deals about development behind the back of the people. Again, this is one of
the desirable features of the PRSP. It is early days. There is that tension
between speed and getting it right, there is no question, and we have argued,
and it is now agreed, that interim PRSP should be a sketch and outline of
intent of the broad economic policy, the broad social intent, the revenues,
not all elaborated, but good enough that the intent is good. You can get to
the initial stages and start to receive your debt relief, then you have to
start implementing all of that and do that openly with your country, and to
keep on track it goes deeper. That is now agreed. That tension is there, but
that is now where we are and we needed some of that sort-out to get the 20 on
track. It was one of the causes that Ann Clwyd raised earlier about too much
conditionality. The interim strategies are far from complete. When you come
to a country like Cameroon it is a worry; we will go with it, but it means
some of them might fall off, I think. I was very disappointed - and it got
a bit fractious - at the meeting with some of the NGOs in Prague attacking
PRSPs before they have hardly been born. Let me be clear, there is
conditionality, and I say this wherever I go. The funds we have and our
influence in all the development institutions are for poor people; it is not
unconditional support to any old government that wants to spend it on any old
nonsense and corruption and helping the elite and so on. The beauty of the
present moment is that we have conditionality that we have both agreed to.
That is the International Development target, and we are voting for that, but
I believe in a heavy conditionality of being committed to meeting that. Then
there is the local leadership, because there is always more than one way to
do anything. That is where we are trying to get, and I think, so far, so
good. It is early days. I am going to Ethiopia next weekend to meet with the
African Finance Minister and we will talk about PRSP. It is hard, though.
I met also the HIPC countries' Finance Ministers in Prague. It is very hard,
though. All of the political flak is on them now. The old deal did put a lot
of it on the IMF and the Bank. When you do it openly like this, all the
political difficult stuff that I was just talking to Andrew Rowe about comes
back to the government. They have to say no. That is where we are. So it
is a very interesting point and I wish the NGOs would just take what could
come from this a little more positively. They are carping and it is too early
to carp. The intent is good.
52. Different interest groups are calling for various important
matters such as HIV/AIDS and corruption to be included in the PRSPs. Is there
a danger of PRSPs becoming rather unfocused wish lists rather than genuine
poverty reduction strategies?
(Clare Short) There could be that danger and, of course, great lists of
good intent that are never implemented have been around the business of
development for --- There have been Presidents of all countries going to the
UN, talking development and going home and doing the other thing. There is
no doubt that, either in countries with high incidence of HIV/AIDS or a
threat, like Bangladesh, India, China, you need very strong policy either to
reduce it and deal with its consequences or prevent it spreading across the
country. So one would expect any reasonable and serious PRSP to say, in the
initial one, "This is the level of the problem in our country and we are going
to need to do this", and then start putting in place the strategies.
Corruption, of course, is about the whole of the government system, it is not
just a kind of add-on; it is not all moral misbehaviour - though that is there
and, of course, we have it in all our countries - it is finance systems, it
is ministries' effectiveness, it is the pay of civil servants, it is training
and the management of them all and health workers, et cetera. Corruption
cannot be an add-on. If corruption is an add-on, it is not going to be dealt
with. It has to be about all reforms that need to be driven to get a
government system that works, that is effective, that manages the public
finances properly and that prioritises properly. That has to be part of the
PRSP, but it is hard. Some of us think we have to have some courage in
politics. What we have to do is nothing to what governments in these
desperately poor countries, who inherit useless management systems, useless
ministries, have to do. It has to be there in an intelligent and achievable
way, which is always a journey, getting started on it, taking things forward,
improving, but not promising you can fix it all tomorrow. When you have too
many civil servants paid a pittance, what do you do? You cannot just throw
them all out, but you need to increase pay, increase training and morale.
That is crucial to do with corruption.
53. In terms of the consultation in civil society it is much easier
in countries such as Mali where there is a very strong civil society to be
built on than, say, countries like C“te d'Ivoire or some other areas that,
which perhaps might not be quite as strong or there is some kind of turmoil
going on. What process has been bolted into this PRSP process to help to
develop civil society if it is not already there? Is that strong enough at
the moment?
(Clare Short) In many countries this is brand new stuff. In Tanzania
there are not that many NGOs indigenous. They had a meeting early on in the
PRSP called by the Finance Ministry. The Finance Ministry had never met these
people and these people had never been asked about such things. It is a
wonderful beginning, but it is a frail civil society. It not only has to look
at the whole economic management of the country, but on all of its public
spending. This is difficult stuff. It is highly desirable that it becomes
open. The churches and faith groups were the backbone of the Jubilee 2000
Campaign. The voices of the poor and the World Bank study are the groups that
the poor of the world trust most. They hate politicians, they do not trust
their governments, they do not see much of NGOs, churches and faith groups,
NGOs and so on. I think it is really urgent, as we have PRSPs, to put a lot
of the north/south civil society cooperation into building an informed civil
society that understands PRSPs, the basic rules, how the World Bank works and
when you can say yes and no. I do hope that, particularly, Christian Aid and
CAFOD - and we are talking about our partnership with them - will start
focusing on this. I have met Bishops who say, "We need to be basically
economically literate." We know they care about the poor, but asked to say
what to do with the PRSP, they need to build up a few more informed people
that are part of that country, not northern NGOs saying, "Do this. Don't do
that." We are there too, and that is a fantastic job, as you know. It is
also an exciting new agenda for NGOs, I think.
Mr Worthington
54. You know the traditional criticism of the IMF and structural
adjustment programmes, that they brought in structural adjustment programmes
and the poor got poorer. That was the argument. What has the IMF done to
monitor the impact of its programmes? It now has this new mandate to put
poverty reduction at the centre of its activities, but how is it checking on
that?
(Clare Short) This was a matter of deep passionate concern to Michel
Camdassus, now retired from the IMF. He would argue passionately and list
countries that had high enough adjustment programmes, and say they did better
in their economy and economic growth started to turn round, without which
poverty grows and grows. So, he contests the past. We are of the view that
there was not enough concern for social policy and who was excluded. All
change has losers, and you need good economic policy, but you also need to see
who is benefitting. If they are losers by change, they need to be helped to
get through the change and find new livelihoods and so on. There was not
enough of that. The review of enhanced structural adjustments, which was very
influential, by Mr Bewartu(?), who used to be the Finance Minister of Ghana,
and the Ghanaian guy who then went to the World Bank, Mr Buchwea(?). It was
a very good review and it looked at exactly this question: How far ESAFs,
which is funded by aid - this is now the poverty reduction and growth facility
and it is an IMF instrument to help countries with reform programmes - was not
taking enough account of the needs of the poor. We have gone for a big
modification on that and looking for sensible macro economic management,
otherwise you throw a country in chaos, but who gets the benefit? Who will
lose? How are the poor doing in this? The whole question of charging for
primary education was a disaster. It drives poor children out of school. So,
Camdassus would contest the past, and he was a man who had some concern about
development, I just want to say that for him. There is now more focus.
Again, the PRSP and trying to get statistical tracking of progress against the
targets is trying now to say that the point of economic reform is to improve
life for the people, especially the poor. It is changing, but this is a big,
powerful, arrogant institution that is having to change its culture deeply.
55. Can I switch back to what you referred to at the start, that over
the next couple of years your interest is going to be particularly in these
very poor countries that are involved in conflict, and that of the next 15
countries that could qualify, 11 are affected by conflict? What are your
thoughts on this? I know Sierra Leone best of those and applaud completely
what you and the Foreign Office and other government departments have been
doing there, but you will know just what a minefield it is when you are not
just working with Sierra Leone but with other countries around, you cannot
solve it within the country. What international thinking is there going on
about increasing the pressure to get these countries into a stable situation
where then the World Bank and IMF can do their stuff?
(Clare Short) This is very, very, very important and we all have to pay
more attention to it. Of the 45 poorest countries in the world, 20 are
involved in conflict or just emerging from it. There is a Mauist convergency
growing and growing in Nepal and preventative action should have been taken
much earlier, it is getting worse and worse. There is another extremely poor
country - plus Sudan, Somalia, DRC, Sierra Leone, and so on and big, big
chunks of the continent. Then if you look at Sierra Leone, that is a tiny
country, 4.5 million people, with the biggest UN peace-keeping operation in
the world and major United Kingdom commitment. The difficulty is not going
to be solved tomorrow by any manner of means, but it shows us the scale of
challenge. There has been a review of the UN's failure in Rwanda and
Trzebnica, a very honest assessment by Kofi Annan and this new Ryiming(?)
Report about what needs to be done better on peace keeping. I keep saying
that the reality check is Sierra Leone. I would invite the Committee to take
an interest. This is of more importance to us than anyone. If we cannot be
better at resolving conflict in these countries that do not really have
government --- That is the other thing, we have this failed state problem.
The international system needs to deal with countries as though they are
proper states. President Kapila in the DRC does not command the country,
schools, roads, let alone even militarily. I think a new initiative to get
my Department, the Foreign Office and the MOD working together about how we
can do better in Africa, which I chair, is a very important initiative. I
Would invite the Committee take an interest in that. It is difficult, but if
we cannot do better at this, some countries will remain marginalised and
imploding into worse poverty. That is what is going on. Look at Sierra
Leone, it is a tiny country, and look, with the whole focus of the
international community, at trying to solve this problem. It is a bunch of
bandits causing the problem. I am glad for the question. I think we all have
to do better and focus more on this and look at what is required, not just in
general terms to make peace - which we are all in favour of - but getting down
to the nitty-gritty of what has to be done country by country.
Chairman: We have to have go on to even more difficult World Bank
jargon and the term being used now, "global public goods". Andrew Rowe is
going to lead us on that.
Mr Rowe
56. You have already said elsewhere that other international
institutions have specific mandates which the World Bank must respect. We
would be very interested to know whether you support the proposals by the
World Bank to extend its mandate in what it calls the area of global public
goods, and how you prevent turf wars from breaking out?
(Clare Short) Global public goods is a fashionable new concept. The
UNDP did a rather good book, and a lot of it is doing some work to improve the
analysis, but some of it is obvious. Fresh air is a global public good, but
increasingly in a globalising world, as well as HIV/AIDS being a terrible
purge for Africa in its development, if it is not resolved it remains a threat
to the rest of the world. So, there is a global public good in getting an HIV
vaccine that goes beyond the benefit it would bring immediately to the African
countries that have it. It is also in the interests of the most selfish,
greedy and rich countries in the world. Similarly, the multi-drug resistant
TB is spreading, and because of travel and the way the world is
interdependent, it will come back into all our countries. It is very
expensive and difficult to treat, unlike old-fashioned TB. In the area of
drugs and vaccines, the science is ready for great breakthroughs, and with HIV
now, very few people in this country are dying or having their lives shortened
very much because anti-retroviral drugs are prolonging life. You could get
this country turning away and saying, "We are doing okay", but we have a
selfish interest in doing better on multi-drug resistant TB and on HIV.
57. Is it not best done by the World Health Organisation?
(Clare Short) That is the concept. I did a speech on the drugs thing
in Geneva, which you may wish to look at, trying to clarify that question.
I contributed on this discussion in the World Bank, and because it is
fashionable everybody wants to get into it. It has a profound truth in it,
that in a globalising world we are more interdependent. There are a lot of
things that have to be done together in order for any of us to be safe, but
then there is always a danger with a fashionable concept that --- The World
Bank is quick on its feet - the IMF says not - but quicker than any other
development agencies and has a lot of intellectual capacity. Then it becomes
a fashion and they go for it and waste a lot of resources. That has been my
contribution to the meeting, to say, "Could we just have a bit of proper
thinking about what the options are, what the issues are that concern poverty,
and what is the World Bank's comparative advantage?", and that we are
promised. I share your worry. That was very much my contribution to the
meeting and we are promised this paper, which will be publicly available, to
answer the very question that you raise.
Ms Follett
58. We have had some mention of this, Secretary of State, and in
September the World Bank set aside US$500 million for a three-year HIV/AIDS
programme for Africa. Given the fact that 24.5 million of the world's 34.3
HIV/AIDS cases are in Sub-Saharan Africa, this, on the face of it, is most
welcome, and countries like Ethiopia and Kenya have already made use of the
loans under this programme. However, other countries like Malawi and Zambia
have said that they cannot afford these loans because they already cannot
service the debts they have, and that the preconditions attached to the loans
do not match there priorities for treating HIV/AIDS. This is serious, and I
wondered whether the World Bank had given thought to the sustainability of the
loans under this programme, what conditions are attached to these loans, and
whether you think that the World Bank, and, perhaps, the rest of the world,
have really taken on board the potential that AIDS has totally to undermine
the development of the programme in every sense of the word, including your
Department's very worthy target of reducing by one-third the proportion of
people living in poverty by 2015? This could completely derail that target.
Given the fact that in Zambia at the moment 42 per cent of hospital beds are
occupied by HIV/AIDS patients, should we not be doing something more about
this?
(Clare Short) Firstly on the 2015 target, it is a sad reality that we
can meet it, with many individual countries not meeting it. If we get major
continuing progress in Asia because of the scale of the population, we can
meet the 2015 target, but there will be many African countries going
potentially backwards because of conflict and because of HIV. The target
remains precious. I want passionately for us to build an international system
that is capable of collaborating to such an end and then setting another
target, and then we have an international development system that can seek to
ensure that everyone in the world has a decent chance. The 2015 target is not
a write-off, even if HIV/AIDS takes a number of African countries backwards,
which is a really very serious threat. One in four adults in Zimbabwe has the
infection. It is bad in Southern Africa, Botswana is very bad too, although
Botswana has been an African success story. It is spreading in South Africa,
as you know - 20 years' life expectancy wiped out, with measured progress and
development in increased life expectancy, 20 years in Zimbabwe wiped out. On
top of all the human loss and suffering, it is the economic and active
generation that goes, leaving elders and children, all these orphans, and with
a deep economic effect. So, it is personal tragedy, but the economic
destruction to development is phenomenal. I agree with you, it is a complete
priority. We have been engaged in this very strongly. There has been, in
governments all over the world, a reluctance to be honest about the questions
involved. I have just been to China. It is coming into China across the
border from Burma with drug use and so on. They are getting the bad side
opening up as well as the good side, as they say. China needs a big effort.
There is me talking to senior politicians in China about HIV/AIDS, drug users,
sharing syringes, gay men of which, officially, in China, there are not any.
I had a bet with the minister that there were, for œ100, but he said he would
not take me on. It is difficult, and there has been delay. Uganda took it
on very openly from President to village level to get everyone to change, not
only seeing it as a health crisis, but every work place, children in school,
every part of activity has to change. Now the levels of infection in young
people in Uganda are dropping massively, which does look like a serious
behaviour change, which shows what is possible. So I absolutely agree with
you that for Africa, HIV and conflict are the issues that prevent development
and could drive the continent backwards very easily, I am sad to say, but I
do think further progress is possible. I think we know more and more what has
to be done. Cambodia did extremely well. Senegal has a low rate but went for
all-out prevention. Nigeria is only on 5 per cent. Some areas need to go big
time for prevention, like China and India, which has it spreading. That is
probably enough, to try and not be too long. On the World Bank package, we
have here an example of what some of the NGOs, particularly OXFAM, were
calling for in relation to primary education. You cannot take out the issue
of the time and make a separate fund, you have to lever the policy response
in the mainstream of the activity of each country that needs to change. It
was absolutely right that the Bank should take on the issue, give it high
priority, drive it, be supportive with UN aid and all the other parts of the
UN system that are meant to lead. We have coordination problems there, but
they then had a separate fund that has its own imperatives that are not always
the same as how you get things moving in a country, and I think that is the
down side, as you said.
(Mr Faint) I think that is really the point I was going to make. We do
welcome the World Bank's involvement in the HIV/AIDS programme. Coming back
to Mr Worthington's question, it seems to me that the World Bank's comparative
advantage as compared to other international organisations is basically at the
country level, country policy, country programmes and country lending, and
they can make an enormous contribution to HIV through those vehicles. I think
the global aspects are probably better handled by some other international
organisations such as the WHO.
(Clare Short) That is Andrew Rowe's question.
59. It is at the country level that I am troubled, because in Zambia
their priority with HIV/AIDS is to get anti-retrovirals, but the World Bank
says that that money has to be used for consultation and research purposes and
they are saying, "No, we want to get cheap drugs to prevent transmission from
mother to child".
(Clare Short) Hang on. We must be careful with these anti-retrovirals
that this is not a kind of American-led Franz Kissinger before he went to the
Kosovo campaign to say, "Anti-retrovirals are saving lives in our country.
We owe them to Africa." I think the cost per patient in the UK is œ10 per
person per year, just in pure drugs to the National Health Service, not any
care. These are new drugs, they are very expensive and they are extremely
toxic. You need good food and all sorts of other things for them to be able
to help you. Because of the campaign, the drug companies have said they will
make them available at cost price in Africa, which is - I met with Glaxo
Wellcome - $2 to $3 a day, which is very cheap compared to what the NHS is
spending. Most Sub-Saharan African countries are spending less than $10 per
head per year on health care. So we have people who are dying of HIV, without
enough to eat, without water and soap and basic decency and care, and, of
course, we have the elite wanting anti-retrovirals. This is a very important
question, and it links with President Mbeki getting himself into difficulties,
I think. I understand partly what he was concerned about, but he went too
far. My own view is that there should be arrangements to take up the offer
from the drug companies and to make them accessible, but not that people
should pay for themselves, because the rural poor will not get anywhere near
being able to pay. There is a case for looking at mother to child
transmission - we agree with that as a Department - but you realise it will
make more orphans. Look at the dilemmas we are dealing with here. These
orphans are so impoverished that they are not getting into school because they
have to work or care for their other brothers and sisters. There is a case
for that. That is not all. Zambia cannot just say that is all it is doing.
It has to do all the preventive work, all the public education work and so on.
Chairman: We cannot go into HIV/AIDS on this. I do not think we can go
into this any further. I think we have to truncate this session in the sense
that we have to simply send you some of the questions which we wanted to ask
you on things like the strategic compact, the global development gateway and
the reform of the IMF and the World Bank. I think we need to go on to growth
and inequality, which is a very important issue.
Ms King
60. We already know that pro-poor growth is one of many buzz words.
I just wondered if you can give us your definition of what pro-poor growth is.
We understand it to mean, firstly, that governments are willing to distribute
what they have more fairly, and, secondly, that growth should be concentrated
in certain areas. Can you tell use what your understanding of it is?
(Clare Short) Pro-poor growth being a buzz word, I think that is not the
way to look at it, and I think a lot of the NGOs' criticisms of commitment to
growth are just horrendously against the interests of the poor in the world.
If you look at the countries where poverty has grown in Africa, its population
growth was faster than economic growth. That means the invincible and
inevitable rise in poverty. For those to say, "We are interested in growth,
we are only interested in distribution in this desperately poor country", I
think is the most irresponsible and disgraceful kind of demand, but that said,
if you simply promote growth, it might be coming into your total GDP figures,
but not reaching many people. So it can be a one sector, one region of the
country - the mining industry might be going well - and you have to have
growth, but you have to look at who is getting the benefit, not just in social
policies terms, but also in improved livelihood terms. In some of the bad
days of neo-liberal ideas being strong, there is not only the phrase that we
used in our country - it was growth at any price, regardless of the
distributive effect. It is right that you must have growth, but look at the
distributive effect. If you look at the poorest of the world, some people say
globalisation is hurting. Globalisation is not touching them, they do not
even have rural roads, they have no connections to markets, they cannot get
any credit of any kind. So, an economy needs to grow, but then you need to
look at who is connected to that growth and getting opportunities from it.
For example, rural credit and rural roads are key to rural communities being
able to grow a bit more crop, get the things to market, borrow a little to
enhance their livelihood, start to be part. So, pro-poor growth is growth,
and then it is who is included economically. It is not just the social
question of distribution, although, obviously, that is important and it is
fundamental. The confused argument about are we in favour of distribution or
not is nonsense. Anyone who has been doing it should stop immediately,
because if they have any influence - and that is what they love you for - they
are sentencing people to growing poverty if they will not support the call for
policies that will grow the economy and that include everyone in the benefit
of that growth.
61. So you are more or less happy with the World Development Report
2000 which some people say has prioritised growth over redistribution?
(Clare Short) We contributed to that in the push on the participating
poverty assessments, which you know about, and we were commissioned for that.
I think the representations of the arguments about the report has been untrue.
You just have to read it. It is not concerned with the distribution and is
just a falsity. I think that was an of example of that headline-catching
propaganda work that gets your name in the paper.
62. Although Ravi Cumbert(?) did resign, did he not?
(Clare Short) Indeed he did, and lots of people regret it and tried to
persuade him not to. I do not know him personally. It is our very serious
judgment that it is a good report. The truth really matters and it is just
false that it is reactionary and not in favour of growth.
Ms King: I have a question on comprehensive development frameworks,
but I do not think it is as important as Nigel's question on strategic
compact. Are we going to manage to get through everything?
Chairman
63. I do not know. What is your timescale?
(Clare Short) Well, let us go quickly, and I say that to myself.
Ms King: Perhaps we can list them. You will know that the
comprehensive development framework put forward by the World Bank represents
a change in its policy. What do you think the main conclusions of the pilot
phase of CDF have been? What difficulties have been encountered and what
plans are there to extend the coverage of CDF? That is my question.
Mr Jones: My question is about the strategic compact which James
Wolfensohn agreed to when he became the World Bank President in 1997, a three-
year programme. What inadequacies was the strategic compact seeking to
redress? Are there any plans to assess the impact of the strategic compact
reform programme, and to what extent has James Wolfensohn been able
significantly to transform the World Bank at an operational level?
Chairman: What are the Secretary of State's views on the global
gateway?
Mr Colman
64. What is the Government's decision on improving the voice of
developing countries at the World Bank and IMF? I was hearing Mr Koldar and
Mr Wolfensohn saying there is a blocking mechanism for developing countries,
but, frankly, what are the proposals so that we perhaps move closer to the
WTO, one country, one vote, rather than at the moment where it is dominated
by the Americans and the European Union?
(Clare Short) The comprehensive development framework was Jim
Wolfensohn's attempt to bring together all the things that need to change to
get sustainable development that brings benefits to everybody, right through
economic social policy, democracy and respect for human rights, to try and
draw everything together. He did it as a matrix on a piece of paper, but I
do not think that matters. It was meant to be long-term development drawing
everything together. Then 10 countries were asked to volunteer to be pilots.
I think that was unwise, in that countries just volunteered. Ethiopia and
Eritrea volunteered and then went and had a war. There were a number of other
countries that you would not think were good pilots for good development.
Then along came the poverty reduction strategy papers, which really are a sort
of immediate encapsulation, short-term perspective of the CDF. That is
looking comprehensively at the economic performance, all the revenues, social
priorities, opening it up. That is really, I think, the same idea as the CDF,
I think, the PRSPs and the CDF in action for real in an emergency. People
looking at the CDF are saying they can still be complementary. Jim Wolfensohn
was deeply attached to the CDF and I personally think it helped to give birth
to the PRSPs, so he is getting it anyway. People are saying CDFs are more
long-term. I actually think the PRSPs' role should be long-term, because if
you really want to transform a country's opportunities you cannot do it in two
years, you need the capacity to have a long-term perspective. I think the
evaluation of the CDF has been patchy and there is now some agreement to do
an evaluation. Really my answer is, the PRSPs are it. Jim Wolfensohn is
going to do an evaluation of them. A lot of people are saying CDFs are more
long-term, but my own personal view is that we want PRSPs to include both the
long-term and the short-term. I think the PRSPs are the victory of the CDF,
but Jim, whom I really get on with, will not like what I am saying. As to
strategic compact, that was all in place before I took over the Department.
Jim was very much a fan, dealing with corruption, focusing on poverty, getting
more people out of the golden cage of Washington and getting them into
countries, all the sorts of reforms that we would all applaud, but like all
change hard to manage, so it was getting some money up-front to help to manage
the change, and that was agreed. I would like to hand over to Tony who was
there at the beginning of all that and used to be out there as one of our
executive directors.
(Mr Faint) I think we should ask Margaret, because she has been very
closely involved with the arrangements of this project.
(Ms Cund) This came about in 1997. President Wolfensohn was very keen
that the Bank should become closer to its borrowers, not just geographically,
but understanding better what their needs were and helping them to cope with
poverty reduction. We are very pleased to see that now 24 out of the 51
country officers are actually in the field, because we have encouraged
decentralisation, because we think it is very important as a way to help
develop country ownership and help the World Bank to speak closely to the
governments of these countries. What we are finding is that there is a
strength and focus on poverty reduction, and higher products of the country
assistance strategy seem to be coming out of it. The general quality of
projects has improved during the past three years. This has now come to an
end and it is about to be evaluated. There will be a first meeting in the
middle of December between the board and the managing directors to talk about
it and how they should carry it forward. It has done a great deal. It has
made the Bank look at its whole training of staff, its skills mix and all the
different aspects. It has been a thorough look at the Bank's management and
organisation.
(Clare Short) We think there has been a lot of improvement. You never
get perfection in this life and there is more to come, but there has been
genuinely a change of ethos in the Bank, more focus on poverty, more
decentralised, more respectful of countries.
Chairman
65. James Wolfensohn will like you for that. Can we go on to the
global development gateway?
(Clare Short) This is a sort of run by the World Bank gateway to
information on development, linking-up, like it would link-up our website, all
the information that is available in the world and on the Internet to do with
development, and providing guidance of ways through to make the information
accessible to people. It could be very important. It could be very, very
expensive. There are a lot of academics and NGOs who are worried if the World
Bank are going to tell people the way through and which is the good material,
which is a legitimate concern. So we are cautious, we want to know more about
the detail, whether this is a project for the Bank at all. I have my doubts
myself. It is effectively sensible to have a gateway that links all the
information that is available, but whether there should be a mega Bank
project, I am not sure. We have asked for far more detail. Nothing is going
to happen in implementation terms until we have more detail of what is
proposed and whether we are contributing. Some of the Scandinavians have said
they will contribute.
66. And the reform of the IMF and the World Bank?
(Clare Short) I think the World Bank cannot get to one country, one
vote, because it is a bank, it lends money that is contributed by countries.
People have to face this, it is a bank. As I said, Jim Wolfensohn was the
inspirer of this idea and I think it is a good idea. People will not put
money in and replenish if there is a majority of countries that are not
putting any money in and who are constantly taking different policies. I
think it endangers the future. If you went to a WTO, one country, one voice
it is desirable if that is in democratic terms. All countries are represented
and they are all in constituencies. Not many countries like us have a seat
of our own and this sort of rotating interest. There are a couple of African
seats. One of the new African representatives has been in touch with the
Department for the kind of back-up and support that could really increase the
effectiveness of his representation - just back-up, information, training,
training back in country, which I think we should really get on with. There
are questions about how many people can be in a team for developing countries.
There is always a danger that developing countries lose all their best
financial people to international institutions; they need to keep some of them
at home as well. My own broad answer is WTO, one member, one vote, would
wreck the Bank, it would cease to be a bank, but there is lots of room for
more micro reforms that would fantastically improve the access to information,
knowledge of commitment, enough staffing and back-up for developing country
representatives to be much more effective and have a stronger voice. There
are rarely votes in the board. So although it is true that the US is the
biggest single contributor ---
(Mr Faint) 17 per cent.
(Clare Short) It is not done by votes. Similarly the EU tend not to
move together always, because that is a bigger voice. No doubt that is there.
In the culture of some of the countries concerned, they feel that they are
entitled to tell everyone else what to do, as you know, because it is true
that the WTO too, in theory, is one country, one vote, but lots of the
countries do not have people there or are not backed up enough to have their
voice. I think the micro route to reform that really strengthens the voice
of developing countries is the real route. I think we can make a lot of gains
there, whereas if everyone just wants to balance everything, it will never be
agreed, countries would not replenish the money and the Bank would start
collapsing if you went to an extreme point of one country, one vote, because
it is a bank.
67. Secretary of State, thank you very much indeed for covering such
a lot of ground. You have brought us up to date on a lot of these things
which you have been dealing with, and we are very grateful to you for spending
so much time here. I think we got into great depth in some of these issues
which are terribly important for us to understand, and, indeed, for the wider
world to understand, so thank you very much indeed on behalf of the Committee.
(Clare Short) Can I just thank you. I think so much is changing in
development, and the agenda is becoming so complicated because it straddles
the whole of the political and economic agenda of the world, that there is a
danger that we make less progress than is possible just because there are not
enough people out there who see the best that is possible. I enormously value
the work of the Select Committee. I mean this genuinely. It is not so that
we should agree, it is that more and more people would engage in what is a
positive agenda. I am happy to spend time being scrutinised by you because
you in turn are spreading analysis that needs to be more widely understood if
we are to make more rapid progress.
Chairman: I think we have your goal objective there. Thank you very
much.
