Examination of Witnesses (Questions 80
TUESDAY 23 JANUARY 2001
80. Do you have a target for this year for countries
(Mr Pickford) We do not have a target at this stage.
As I say, I think a lot depends on how quickly these countries
can get themselves out of conflict and that is not something that
we can legislate for or have any measure of control over. What
we can do is try to ensure that we have got processes in place
so that as soon as they come out of conflict we can go in very
quickly to support them and try and reinforce that process.
81. Before I hand over to Sir Teddy to ask a
question about the Chancellor's announcement of bilateral relief
which Mr Gus O'Donnell was referring to, could I ask about the
United Kingdom's attitude at IMF with respect to IMF relief. I
noticed in your very informative HIPC debt relief update of 10
January, at the back the Treasury has answered "frequently
asked questions about debt relief" and the question that
you were answer is "Why cannot the World Bank and IMF also
provide 100% cancellation on the debts owed to them in the way
the UK has done?" In answer to that question you write: "There
is no international agreement that the institutions should take
this step." That seems to me a very nice way of saying that
the United Kingdom Government would like to take this step but
as yet has not got colleagues and other Member States on board
for that. Is that true?
(Mr O'Donnell) If you carry on reading the final point
there: "Writing off 100% of multilateral debt would jeopardise
the ability of the institutions to finance new capital flows in
support of development and poverty reduction in all their countries
of operation." In the discussions you have with NGOs here
quite often they say, "Do not use United Kingdom aid money,
use IMF money because that way you will increase the overall flows
to developing countries." I can understand that point. What
we are worried about is can you get the IMF and the World Bank
to fill this gap without themselves cutting back on the amount
of help they provide to developing countries? That is the area
that we are discussing with them.
82. I am glad to hear you are discussing it.
The question is really whether one could go beyond what is referred
to again in that same answer "substantial debt reductions"
towards the 100 per cent target, which the UK Government has managed
to achieve. There is probably some way in between. I want to push
you on this about how far down that road you can go towards 100
per cent, which it is my impression that the United Kingdom Government
wants to achieve despite the last sentence in that answer.
(Mr O'Donnell) The Chancellor has not said anything
on this other than that we are keen to make progress in these
areas but recognise the fact that we would not want to do so to
the extent of damaging the financial well-being of the IMF and
83. Are the barriers really the reserves of
the IMF and the World Bank because quite a lot of people's analysis
is they are fairly well-stocked at the moment? Is it really that
barrier or is it that we have still got to get a few other Member
States on board, and we are waiting to find out what the new administration
of the US's attitude will be on this.
(Mr Pickford) Having been involved in trying to get
the financing sorted out for HIPC II, I can assure you that there
are problems in getting the money. We had enormous problems trying
to get international agreement on measures, for example on gold
revaluation from the IMF, and getting parts of the Bank's net
income put aside for HIPC debt relief, so there are enormous problems
in terms of going further.
84. You are admitting that the money is there
but it is getting international agreement that is the difficulty?
(Mr Pickford) No, no, on the Bank's side, for instance,
we fought very hard to get agreement to earmark 250 million dollars
a year of the Bank's net income. What that is doing is taking
away potentially from what the Bank put into IDA or what it could
do in the way of making grants to countries. These are resources
which are essentially limited. You can raise the net income of
the Bank but to do that you have to raise the cost of borrowing
from other countries, you have to increase the spread between
its borrowing and lending costs so there is not a pot of gold
85. The rumours we hear, the speculation is
that there are senior sources in the IMF who really do want to
follow the United Kingdom's excellent lead and have a 100 per
cent write off. Is that not true?
(Mr O'Donnell) I wish it were as clear as that. Part
of the reason for getting through the pricing review for the Fund
in the last meeting was that that generates some income, so you
can improve balance sheets, and once you improve balance sheets
then you are in a situation where more is available and it is
a better position to start from. But there is still some way to
go in terms of convincing everybody.
86. You are suggesting to the Committee that
this is actively being looked at. Do you have any timetable for
those discussions? Do you think it is something that might happen
within the next year?
(Mr O'Donnell) Again, this is the kind of issue where,
first of all, I would be interested to know what the new US administration's
Sir Teddy Taylor
87. Just a very brief question. I wonder if
Mr O'Donnell is aware that there are some very respectable and
informed people who have got a funny view of the Government's
debt policy. I can remember the Financial Times of 19 December,
which is quite recently, published an article saying in their
view that the Government's policy on debt was more to do with
public relations than debt relief. It would be quite nice to find
out exactly what the score was. I understand in September in Prague
when the IMF was having one of their great meetings, you had these
wonderful Canadian people (who are obviously public spirited because
they are in the Commonwealth and are very nice people) putting
forward a suggestion saying let us have a moratorium on debt and
what I am told is that the British Government did not support
that at all. Is that right?
(Mr O'Donnell) The problem with their moratorium is
that it was not tied in with the HIPC process itself. What we
came up with is what we think is a much better systemand
this is for countries in conflict we are talking about nowto
say we will put the money aside, we will have a debt moratorium
but it will be linked to ending conflict and establishing the
right track record to allow you to enter the HIPC process. The
Canadian process is simply a moratorium.
88. Say, for example, I owed you £1,000
and I said, "Couldn't you scrap this?" You say, "Oh
no, I will keep the interest payments but I am going to put it
in a pot and if you are good I might send you something and if
you are not I might not." That is the position, is it not?
They are still having to pay the interest. You are saying, "I
am going to keep this." I remember the Chancellor saying
it was put into a trust. Is there actually a trust or is there
no such trust? Is there a proper trust?
(Mr O'Donnell) The money is being put aside.
89. In what way? Is there a trust, a separate
pot, a separate bank account?
(Mr O'Donnell) The money is being held in trust, so
that all money received can be returned to that country. This
does not need a separate accounttransfers between existing
accounts will ensure this happens. So the money is being put aside.
Remember, not all of it is being paid but the money is being put
aside and will be made available. I think the important point
here is you want to give the right incentive. For the countries
to come back on track then they will get it all and it will go
into helping their poverty relief programmes.
90. Put it this wayand I do not want
to be unkind or to make political pointsyou put out this
kind of stuff with public money and you say here: "Although
the UK and some other countries are providing 100% debt cancellation,
the focus of the World Bank and IMFwho also hold substantial
HIPC debtis to bring the level of those debts down . .
" What you seem to be saying is, "We are the goodies,
we are scrapping all the debt, and these nasty people in the IMF
are not doing it at all." I think the IMF is a pretty good
show. I honestly think that you are becoming obsessed with public
relations. I do not want to be unkind but the Financial Times,
which is a very respectable organisation, actually says it. It
says it is all public relations and not debt relief. Is it not
the case that you have not had a 100 per cent scrapping of debt?
What you are saying is, "Keep on paying the money, we will
keep it in a pot and if you are good we might give it back to
(Mr O'Donnell) Imagine the situation where we said
we were going to stop accepting this money from countries that
are in conflict. We would then be throwing away something which
can act as an incentive and that money can be provided back to
the poorest groups in that society.
91. I do not want to talk about policy. Obviously
you should not put out stuff like this because it is just not
(Mr O'Donnell) This is exactly factually correct.
92. You are saying you have a 100 per cent scrap
debt policy while these nasty IMF people only want to cut it back,
but you are not scrapping the debt. If they are still having to
pay the money it is not scrapping the debt, is it?
(Mr Pickford) For those that have reached decision
point they already have 100 per cent debt relief from the United
Kingdom. It is the ones where we have not got to a decision point
where the United Kingdom is going further than other countries
in terms of saying that we are not going to be financially better
off as a result of the payments even though they have not got
to decision point. When and if the countries get to decision point
all of that money will automatically go to them.
Sir Teddy Taylor: All I am saying is
I think it would be far better putting out official publications
that tell the story. If you get people like The Financial Times,
who are very respectable people and not politically-motivated
Chairman: Except when they are talking
Sir Teddy Taylor
93. I find it very sound indeed on some things.
I think the IMF is a pretty good show and I think you are a wee
bit nasty saying they are the baddies and we are the goodies because
I do not think it is like that at all. When we had the Canadians
proposing a moratorium we had the British Government, although
they never publish it, saying, "We are not voting for that".
I think it would be so much better to tell the whole story. I
mean that sincerely. I would hate to be criticised by The Financial
Times, it is a terrible indignity and I would not like you
to have it happening to you again.
(Mr O'Donnell) We suffer these indignities from time
to time. We have got 100 per cent debt cancellation in general
94. In general cases. That is not really the
whole story. It does not say that here. If they said "in
general cases" it would be different, but they do not say
(Mr O'Donnell) What they say here is absolutely correct.
Sir Teddy Taylor: It says "100%
Mr Davey: That is because it is.
Mr Cousins: The Canadians do awfully
well considering half of them are foreign too.
95. On that note let us close the proceedings.
Thank you both very much for coming to our annual hearing on the
whole issue of the IMF and also for producing, as I said, the
report. We shall probably produce a short report ourselves. Thank
(Mr O'Donnell) Thank you very much.