Select Committee on Treasury Minutes of Evidence

Examination of Witnesses (Questions 80 - 95)



  80. Do you have a target for this year for countries to achieve?
  (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 World Bank.

  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 sitting there.

  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 position is.

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 system—and this is for countries in conflict we are talking about now—to 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 account—transfers 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 way—and I do not want to be unkind or to make political points—you 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 IMF—who also hold substantial HIPC debt—is 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 you"?
  (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 the case.
  (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 rascals—

  Chairman: Except when they are talking about Europe!

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 cases—

  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 that.
  (Mr O'Donnell) What they say here is absolutely correct.

  Sir Teddy Taylor: It says "100% debt cancellation".

  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 you.

  (Mr O'Donnell) Thank you very much.

previous page contents

House of Commons home page Parliament home page House of Lords home page search page enquiries index

© Parliamentary copyright 2001
Prepared 13 March 2001