Select Committee on International Development Minutes of Evidence

Examination of Witnesses (Questions 100-119)



  100. I think that all sounds very good sense. Can I just ask some questions about the International Development Trust Fund; now I am really just trying to understand how it works. In the Red Book, it very fairly comments on the significant increases in Official Development Assistance, goes on to acknowledge that there will be a need for an extra $40-$60 billion a year, and then speaks of the Chancellor's proposals for the International Development Trust Fund, to pool contributions and to leverage private sector finance. I then go to the "Responding to the Challenges of Globalisation", the joint paper between the Treasury and the Department, and it talks about the International Development Trust Fund—sorry?
  (Ms Short) It is just the Treasury.

  101. Just the Treasury, this one, yes; there was another one between the Treasury and DFID. It talks about the International Development Trust Fund, and I am not quite clear how the private sector gets involved and where the leverage comes in?
  (Mr Brown) I think this starts from the Zedillo report, which I think you all are aware of, and I have been talking about in recent weeks, and there are certainly some submissions to your Committee that mention it in detail. What Zedillo was saying is that if we are to meet the International Development Goals by 2015 then we will need an extra $50 billion a year, I think $10 billion for education, $12 billion for health, $20 billion for the anti-poverty programme; so there is no doubt about the scale of the additional cost that would have to be met, if we were to meet these Millennium Development Goals. And I think it is quite interesting that the World Bank has got similar figures, and also I think Kofi Annan, of the United Nations, who obviously was involved very closely with Zedillo, talks about this figure of $50 billion. Now the question then is, how do we raise that $50 billion, if that is the sum of money that is necessary; and a great deal, indeed, as I said in my opening remarks, could be achieved by the better use of existing funds. And we believe, as Clare says, that, in maximising the effectiveness of delivery, particularly redirecting some of the resources, for example, the EU budget to the poorer countries, we could make a difference; but there will still be a gap. What happened at Monterrey was really two things, as far as finance. First of all, the European Union made this collective commitment that no country would be less than 0.33 per cent by 2006, and that, collectively, the European Union's total would be 0.39, and that would be, essentially, moving from 0.33 to 0.39 in the space of the next three or four years. That would involve an extra $7 billion a year by 2006, according to our estimates; then the Americans made this additional commitment that they would run up to 2006 by increasing the amount of aid each year, that by 2006 they would be spending an extra $5 billion. So we have $12 billion extra that is to be made available. If all these commitments are honoured, and that requires a great deal of discussion, we might talk about this within the European Union, about how each makes their contribution to the whole, because, as you know, some countries are at 0.7, some are beyond that, some, like us, are below the 0.39, and others are very substantially below 0.39. Now the question then is, is it possible for there to be a financing facility, not too dissimilar from what had to happen when the international institutions were created after 1945, that, by putting this additional money to maximum effectiveness, by drawing in potentially private funds, could we actually raise the $50 billion that was necessary, from now, or from 2006 to 2015, on the understanding that, if we were to achieve that by 2015, in other words reduce poverty substantially, it may require us not to do as much after 2015, but that is open to question as well. And then the question is, could countries guarantee, over a period of, let us say, 30 years, that they would provide X amount of money, on the basis that private funds lever up the $12 billion to a greater sum of money in the immediate years to 2015, on the understanding that there is a guarantee provided not by the indebted countries but a guarantee provided by the richest countries. And that is really what the proposal is about, it is not a fund in the normal sense of the word, it is a facility, and it is not intended to overrule the existing flows that are being guaranteed by individual governments, or by international institutions, but it is an attempt to maximise the use of a large sum of additional money that is being committed by Europe and America, and potentially also, I would hope, by Japan reverting to being a country that is increasing its aid, rather than cutting it. And this is where the debate with Finance Minister colleagues and with some of the international institutions, as well as private financiers, will have to take place, over the next few months. Now, as you know, there have been other proposals, like Special Drawing Rights and Tobin tax, and everything else, but each proposal comes back to this essential question, are the individual countries who are the donors prepared to do more, because it requires political will, whichever solution you come to, whether it is a Tobin tax, or whether it is Special Drawing Rights, or some of the other proposals, and this is one proposal that we believe deserves some consideration. But I think there is an assumption that somehow it is a fund in the normal sense of the word; it is not. There is an assumption that it would override the existing mechanisms, like the Poverty Reduction Strategy facility; it would not. It is essentially a financing facility that we think should be looked at amongst the other proposals.

  102. I think we all endorse the Secretary of State's view, that we should try to limit the number of initiatives that we are taking, and try to ensure, so far as is possible, we are all singing from the same hymn sheet; and I do not know about other colleagues, but I am not sure that I would pass the examination question on the International Development Trust Fund, as yet. And I was just wondering if you could let us have a briefing note, that we could then all feel confident that when we are in, say, the United States, or meeting colleagues in Europe, or elsewhere, we actually feel confident we know, that, for example, that is the first time, I think, it has been explained, it was a facility and not an actual fund, and so on. I think that would be very helpful, Chancellor?
  (Ms Short) Can I just say one thing? I am sure Gordon will provide that, and there is one thing I would say that might help. The World Bank has a Triple A rating borrowing capacity, because governments are committed to cover it, and therefore borrows very cheaply and lends to middle-income countries the IBRD part of it, and part of the net return on that subsidises IDA for the poor countries. So, just as a help to explain some of the types of thinking, I think it helps clarify the idea. But the other thing I would like to say is this. Of the $51 billion we have got in the international development system, in ODA, it has just gone down because of exchange rates, and so on, if it was all untied and if it was all distributed as well as IDA is, the concessional arm of the World Bank, in terms of backing reformers where the poor are, to increase its effectiveness in reducing poverty, we could make the existing $51 billion be 50 per cent more valuable; and then, of course, we have got the extra 12 promised, and then we are getting near the $100 billion. So we must drive on both. And I think we increase our public's confidence in aid when we show we are using it well and it is really getting children into school, lifting people up. So when you are going to America, and all that, if you could also get people to disburse what we have got already more effectively, we can bring very quick improvements, and then, of course, the EC money; if we could direct that properly we could enormously improve development effectiveness.
  (Mr Brown) I would certainly be very happy to give a paper showing the framework of the proposal[1]; but it is one of many, obviously, that are on the table. And, while I do accept what you say, that if there is a surfeit of proposals then it becomes very difficult to know what is the best way forward, the problem is that each of the other proposals, like the Tobin tax, the Special Drawing Rights, and you may want to come on to this during our discussion, has very substantial drawbacks and they have failed to command the international support that is necessary for us to raise the level of finance over a short period of time so that we can achieve the Millennium Development Goals.

  103. I am sure we will go on to Tobin tax and Special Drawing Rights, but the International Development Trust Fund is HMG's proposal, that is what you are taking forward.
  (Mr Brown) We have always said it is one option, and we have put it on the table as something that should be discussed amongst Finance Ministers and amongst the international institutions and the private sector. And we have said all along that we are ready to examine all practical proposals, we invite other people to put forward proposals, if they have them, but this is one thing that ought also to be examined, as part of an attempt at resolving this issue of raising the finance necessary, in a relatively short period of time.

  Chairman: I think all of us on the Select Committee would want to feel able that we could respond constructively and in an informed way, if we are asked about it.

Mr Battle

  104. Could I go back to general principles. I think, Chancellor, you said in your opening remarks, aid is not charity but investment, and just to invite you to say a few more comments about that, of why does Official Development Assistance actually matter? There has been an argument that it is trade and investment we should concentrate on and forget aid, and some even argue that aid undermines the ability of developing countries to actually develop their own financial incentives, not a view I share; but what would you say to that, and why would you say that Official Development Assistance actually matters and is important?
  (Mr Brown) I think, in a sense, this is a question that is best answered by Clare, because she is actually providing the investment aid through her budget. But if I just say, by way of introduction, that what we envisage is, what we call, a new deal, that, in return for developing countries being prepared to pursue corruption-free and pro-stability policies that will add to trade and investment as a result of the pursuit of these policies, we too have an obligation to help these countries increase their capacity for development. And when we say we are not talking about charity, what we means is, the aim must be to increase the capacity of the poorest countries to develop, so that not only are they free from poverty but they actually have policies that can give them sustainable economic development in the longer term. And, therefore, I do not regard this as pursuing trade and investment or giving people aid, it is necessary to encourage policies that will give the chance of economic development. But there is absolutely no doubt that, when we are talking about health and education and anti-poverty programmes, these cannot be done properly without the richest countries being prepared to devote a higher share of income to the poorest countries. And when you look back on the 1940s and the Marshall Plan, which was conceived by America to help the restructuring of Europe, at that time it was 1 per cent of American national income that was transferred for a period of time into Europe, the benefits to America being in increased trade as well as the reconstruction of Europe as a social issue. What we are talking about with the $50 billion is not 1 per cent, it is just 0.2 per cent, and it ought to be possible, with the political will available in the richest countries, for that to be done.
  (Ms Short) If I could add. I sometimes say, we have got to get international development out of the charity box into the investment and economic box, and it is not that there is anything wrong with charity, but, if we have got rules of trade and other ways we run the international economy and we cannot resolve conflicts and we are just giving out dollops of money to very poor people who are absolutely dependent, this is not development, it is charitable relief for people who are in desperate straits. So the conceptual move, to say, create the capacity of a state to run its economy well, therefore that its economy will grow, its banking system is competent, its management of its own revenue systems are competent, that is one reason you need to deploy aid; there are lots of failed and weak states around the world which just need strengthening to have the competence of a modern, effective state. The other thing is, there are so many economies, least-developed countries, with $200 a head GDP, even if they run themselves as competently as it is possible to run them, it will take hundreds of years before they can afford to have healthcare for all their people, or all their children in school. So then some resource transfer behind the reformers can speed up how rapidly a country can move to universal primary education, for example, and we know that that, in turn, speeds up the development of a country. So then you are deploying the money in a way that has got a strategy behind it, that will bring sustainable change, that will help a country to lift itself up and lift its people up and be able to go on, rather than giving handouts to desperate people who just have no chance of improving the prospects of their lives.

  105. In the joint DFID/Treasury memo., paragraph 12[2], there is the statement: "The UK is determined to be at the forefront in the fight against global poverty. We are committed to the target of raising ODA to 0.7 per cent of national income." If I remember rightly, in 1979 it was round about 0.4 per cent, just slightly above 0.39, in 1997 it was 0.26, it is increasing now, it is currently, I think, 0.32. Could I ask you, when will the UK Government commit itself to a timetable for actually reaching that 0.7 per cent?

  (Mr Brown) We are committed to 0.7 per cent. I think what we will announce, in the coming Spending Review, is where we can reach by 2006, because that is where the Public Expenditure Review figures would lead us to, and I hope that people will not be disappointed by the agreements that are reached as we go to 2006.

  (Ms Short) So do I.
  (Mr Brown) And Clare is particularly hopeful that she will not be disappointed by what is agreed. And we have already said that there will be a substantial increase in aid.

  106. I know I cannot expect you to give us the particular number now, but if I just—
  (Mr Brown) Tempting as it is, to this Select Committee.

  107. Tempting though it is; we might be disappointed if it was only 0.39 and, the average of everyone else, we will perhaps see that as a marker to move beyond that, if that were possible?
  (Mr Brown) I think you will have to wait, but I think you know that we have made a commitment to substantially increase our aid; but that is a matter of discussion, depending on what resources are available in the Public Spending Review. I think the interesting thing about what has happened over the last few weeks, and that is why I think this is a very important opportunity for us to discuss this at the Committee, is that, for 20 years, aid has been going down, indeed, the figures published today are not themselves encouraging about what happened in the previous years; but these two commitments made by Europe and America are a reversal of the trend. I hope that Japan and other countries will be in a position to do likewise soon as well. And we have got to make a reality of these changes, and we want to play a part in working with other countries as they raise the levels of aid as well.

  Mr Battle: That is encouraging.

John Barrett

  108. Coming to the 0.7 per cent target, debt relief and aid both work towards that target. Would there be any advantage in separating debt relief and aid, because the general perception is that aid is increasing, but if debt relief is increasing faster, aid could in fact reduce on the way to that 0.7 per cent target?
  (Mr Brown) To a large extent, we have already made our commitments on debt, the 100 per cent debt relief, and the extent to which we are committed by the actual expenditure, or the wiping out of liabilities, is now on whether countries can actually come forward; and the biggest barrier at the moment is conflict countries, as Clare would testify, because she has been very much involved in trying to help these countries. There is a special facility set aside to help, Post Conflict Assistance, but of the 26 countries which have gone through, I think, $62 billion of debt relief have been given. I think, in our case, we have done quite a lot so far, and what is preventing us doing more, although we have budgeted for much of that, is the countries that are currently in conflict. But I do not see the relief of countries from the debts of the past and the granting of overseas aid as any way in conflict; obviously, you would want the maximum amount of resources to be made available to enable us to do both.
  (Ms Short) But if I could add, you are on to something here, in that, obviously, the debt that, well, of the $100 billion for debt of the HIPC countries, I think, crudely, it breaks down to about 50 per cent of it is to Export Credit agencies, and about 50 per cent to the international financial institutions, the IMF, the World Bank, and so on. And the Export Credit debt, which for these countries is never going to be paid, as everybody knows, but is being used to leverage much better policy, that really is bringing benefits to the poor; once it is written off it counts to ODA/GNP, for all countries. So you have got new money spend and you have got, when the debt relief is completed, it goes into the ODA/GNP figure; and that needs watching, I agree with you.
  (Mr Brown) And it is true, I think, 65 per cent of the money that has come from debt relief is going to education and health, so it is encouraging.

Tony Worthington

  109. If I can just follow that through. I think, to the person in the street, it would seem rather odd that debt relief money should be added to ODA, there just does not seem to be a logic to it, does there?
  (Ms Short) Barrie, would you like to comment? Because, as you all know, it is in the Development Committee part of the OECD where the figures on what counts as ODA are worked out, and obviously you have got to hold it in common across the world, and you have enormously convoluted discussions there, about what is included and what is not. Do you know the origin of this, Barrie?
  (Mr Ireton) Yes, Secretary of State. When debt relief started, in the form of the Export Credit relief, under Trinidad terms, back in the mid/late eighties, it did not count as ODA; the DAC then took a decision, in about 1992, I think it was, that it should count as ODA, and it has been counted ever since, provided it is debt relief that is given for the purpose of assisting a framework of economic reform and poverty reduction. That is the origin of it.

  110. I may be completely misunderstanding, but it sounds as if the Chancellor allocates so much money in the UK for ODA, and other Chancellors do, and then, if more countries go forward for HIPC and are successful in HIPC, they would get fewer projects, or less aid, for new things; that is not how it is?
  (Ms Short) No. When we have completed our Comprehensive Spending Review, the Chancellor will make decisions about the budget of DFID; that budget, in cash money, we will deploy for developing countries, and that is cash money, and it gives Britain an ODA/GNI, as it now is, ratio. But, on top of that, as and when countries qualify for their debt relief, money that is written off as debt would be added to the ODA/GNI ratio; so nothing comes out of the budget, apart from what we put in the HIPC Trust Fund in the World Bank, but the ODA/GNP ratio might go up or down, depending on the debt relief that comes in that year. It is just to be clear. Do you want to add to that?
  (Mr Brown) Yes; and, remember, we have got different estimates for how much we may have to cover for debt relief, depending on how many countries can come through the process, and some quite big countries have not come through the process, and, therefore, if they were to do so, and we would want that to happen, we are committed to the 100 per cent that we announced some time ago. But I think it would be a mistake to say that you should take no account of the amount of resources countries are prepared to put up through debt relief, in looking at what the contribution is to overseas development. What you may want to say is that debt relief is an important part of that, but equally we should not neglect any other area as a result of our commitment to debt relief. But, I think, if other countries, for example, were to be told that debt relief had no bearing on what was published for Official Development Assistance as a percentage of GNP, they might not be as keen to enter into the process. I think you should take that into account, rather than say that there is a contradiction here, you should just take it into account.

  111. But it is a question we are asked, and I think it would be one of those situations where another note would help[3], of what you have just said here, because it is a complicated situation?

  (Mr Brown) Yes. Can I say that what I did say in my introductory remarks, and, again, you may wish to come back to this, is that we have identified certain problems, as we move from decision point to completion point, partly because of commodity prices, and so on, and we know that a greater international effort will have to be made in that direction as well. But, again, I think it would be unfortunate if you recommended that the amount of money put up in debt relief should not be taken into account in ODA, because it might discourage some from being committed to it. But, I think, as you rightly say, it should be taken into account when you look at how well people are doing.

  (Ms Short) But there are two categories, and we will put this in the note, and it is good to clarify. I think there is a lot of muddle in the public debate, because, of course, because of commodity prices, we are going to need another billion dollars for the HIPC countries to reach sustainability, as proposed in the original HIPC scheme, and we will have to find cash money for that, either in the Trust Fund of the World Bank and IMF, which would come out of cash ODA, or, if we can, some of the grants that are proposed in IDA. So that will not be notional money, that will be real cash money. That is the problem, is it not, it is the notional versus the cash that causes confusion in the debate; but we can clarify this in the note.

  112. Can I move to the business of the effectiveness of aid, which DFID has been majoring on, really; if we could make the money work better, that would be, in a sense, a cash injection into the economies of these countries. Would you go through what are the major areas where the effectiveness of aid has to be improved; obviously, something like untied aid would be one area, but could you take us through the targets that DFID are setting, in order to measure whether aid is becoming more effective?
  (Ms Short) Yes. First, untying; we have completely untied all UK aid. It sounds technical, but did you visit the wire factory in Ghana?

  Tony Worthington: Yes.
  (Ms Short) Some of you did; well then here is a man who sets up a business in Ghana, a poor country that needs to grow its economy, because he knows they are going to electrify. He buys the equipment to make wire, then he finds that most of the electrification is being funded by aid, which means the wire is all being purchased back into European and North American countries. That is just an example of how tying fails to get that Keynesian multiplier effect that you normally get; it has worse effects than that, because, of course, if you have got a fleet of vehicles because you are doing your health service, to a German, to a French, Korea, British, duh, duh, duh, then all the spares and all the maintenance, it is gross inefficiency on top of that lack of a Keynesian multiplier. And, do not forget, most of the aid in the world is still tied; and so not only is it a sort of disgrace, because it is bundled with ulterior motives, it is making that aid less effective and its knock-on economic growth that will benefit that economy and help it to improve itself. And there are varying estimates of the value of untying. There was a World Bank study that gave a 20-odd per cent figure, I think that has been reassessed recently, to, say, maybe 12 per cent. But we have got $51 billion this year, 12 per cent of that is a lot of money for a lot of poor people around the world, a lot of kids who could go to school, a lot of people who could get healthcare, or whatever. And then, similarly, where the aid is deployed, you know about how ineffectively EC aid is deployed; very big resource transfers to middle-income countries have very, very limited effectiveness in reducing poverty. In fact, what they often do is prop up the failure to engage in social reform. If you take Brazil, or the Latin American countries, the most unequal countries in the world, if, because they have got lots of poor people, you give them money that they give out to those poor people, they do not have the pressures in their political system to get all those children into school, or to include the excluded in a way that will benefit their economy, as well as get more social justice. So lots of aid, EC being one of the major bad players, but there are many others in the world, is deployed for political reasons on projects that do not reach the poor, that do not create sustainable reform, across the international system. And the Collier/Dollar work, which I presume the Committee has looked at, has looked at where, when you deploy aid, is its maximum poverty-reducing effectiveness, dollar for dollar, and it is where there are large numbers of people and where there are reformers; and, by the way, it is both. Even where there is a lack of reform but where there are large numbers of poor people, if you can get it in effectively, it still has high effectiveness in poverty reduction. So it is deploying it where the poor are and taking account of where reformers are. And then the third sort of tranche of things that need to be done is deploying it in a way that does not have a massive, costly, bureaucratic tail. You know, the famous Tanzanian case, highly aided, 30 major donors, 1,000 major projects, 2,500, or something approaching that, aid missions a year, each with their own evaluation system, accounting system, bank account in the central bank, using up all the resources of the Finance Ministry in accounting to the donors, and thus eroding the capacity of the state, instead of strengthening it. So this harmonisation, getting behind the budget, not having separate projects and plans for everything but strengthening the capacity of the country to run its own systems, makes it less administratively burdensome and more effective in building up the capacity of a state to run its economy better and provide better services for its people. And it is these three kind of bundles of reform.

  113. The extra $5 billion that is coming from the United States is, of course, tremendously welcome, but I have got an awful fear it is going to be bad aid, in the sense it will be tied aid, it will be highly conditional aid, it will not go in a co-ordinated way, it will be political aid, and so on. Can you reassure me that I am wrong on that?
  (Ms Short) It is true that the US has been very critical of budgetary aid, which we think, in the end, is the most effective. You cannot give it unless the country will tighten up its procurement systems, its public expenditure systems, and the prize is, in order to account to our own Parliament for the good use of money, you have helped a country tighten up its own systems and get rid of the great bureaucratic burden. The US has never been attracted to that, resisted that in the Board of the World Bank, and so on, under the previous administration, not just this. But having amounts of this extra money, and, by the way, I think it is $10 billion up to 2006 and then $5 billion a year thereafter, it doubles, the original President Bush announcement was $5 billion, and then, maybe, I do not know, because the mood was good at Monterrey, it increased, so we had a second and more generous announcement. And the US is now consulting with all its partners in the international system about how to deploy this aid. It has said it will not deploy it through US Aid, in the way that it normally does. And our Permanent Secretary has had discussions with them, and the invincible logic that the test of economic reform is systematic poverty reduction is becoming a significant part of the discussion. So we are not there yet, but the discussion is going reasonably well, and they are doing some kind of open-minded consultation with other players in the world. And I think some of them are coming here, and there is some suggestion we are meeting with the all-party group, or something, as part of the consultation about how to use that resource. So that is well worth working on.

Mr Robathan

  114. Secretary of State, if I can take you back to untying of aid, for which you made an extremely good case, the question I would like to ask you is, has our good example, originally taken, I think, in 1997, for major projects, has it been followed by others, and, in particular, how many of our European partners have now untied all their aid?
  (Ms Short) In 1997, we got rid of mixed credits, which is using the aid budget to subsidise contracts from the private sector into developing countries; and then it was the second White Paper when we got rid of any tying of any of our aid. We have also been working very hard, in the Development Committee of the OECD, to get other countries to untie it, with enormous difficulty; and we got agreement, not that long ago, that all would untie, project aid only, or something, to the least-developed countries, and we had sweated blood for that, all the members of the DAC. There is another issue alive, which is whether the EU countries will untie to each other; we think they are in breach of the Competition Directive on that, and Action Aid made some proposals, and I think The Netherlands Government is taking that forward. And then, in Monterrey, the document commits to movement on untying. But when you see how difficult it is to get progress in this, you see some of the vested interests, that are not about development, that we have got in the international development system. So we are creeping forward, but it is enormously difficult; but we are dedicated to making progress.

Chris McCafferty

  115. Secretary of State, I was reminded, when you were talking about the difficulties of separating trade from aid, of when the Committee visited Pakistan, in November, and we saw a classic example of UK money being spent locally, on the border of Afghanistan, around Pakistan, buying grain locally and it being delivered much more cheaply and faster than the US aid was being shipped in from the mid-west state, probably at considerably more expense and taking a lot longer to get there, but obviously it was helping the mid-west farmers. So I think there is an issue there of how you persuade a big country, like the US, to look outside of itself. On the point of how best to engage the US in development issues, I have just come back from the UN Summit on Children, and I have to say that I was in total despair about the attitude of the current administration to children's rights. I understand that Somalia has now said it will sign the Convention on the Rights of the Child, then, if that is the case, it will leave the US as the only country that has not signed it. In particular, I am sure you are aware, they forced the removal of the word "services" from the paragraph on reproductive health, they wanted the definition of "families" narrow, and they refused to have the paragraph on the abolition of the death penalty for under-18s included in the statement. Now, to me, all these things are very pertinent and important, and I just would like your comments on how are we to engage the US in development issues, when they clearly have a very different approach to issues of sustainability, and certainly access to reproductive health, I think, and education of girl-child; and access to services for young women and children, education for children, is very, very important?
  (Ms Short) Yes. On your first point, and Gordon might want to come in on the Children's Summit, because he has been there, was it last week, or the weekend, whenever it was. On food aid, your first point is about food aid, and there is a Food Aid Convention, it might be a thing that the Committee wants to look at, at some point. A lot of it was driven by OECD countries getting rid of food surpluses, and that often leads to very bad food aid, because, of course, in absolute emergencies you have to give people food, but if you carry on for too long you undermine the local economy, you undermine local agriculture. Now handouts of food can be very destructive for an economy, and that has happened to part of Ethiopia, it was so food-needy, but now it has constant food aid, even when it has a good year agriculturally, which Ethiopia is looking at. The UK, all our resources for food aid are given in cash, so that the food can be sourced as locally or regionally as possible, so that both you do not have all the costs of all the shipping and the multiplier effect on the economy. We have got the FAO, International Hunger, whatever it is called, a Hunger Summit, five years on, coming up soon, and you might want to keep an eye on this; this is an area, again, where we need to have reform, and you are right on the point, and we need to push the international system forward. I am aware of the US position at the Children's Summit. It is amazing that the US and Somalia are the only two countries in the world that have not signed the Convention on the Rights of the Child, and I did not know that Somalia was going to sign, but well done Somalia. And I am aware of the position they took on reproductive health services, and the abolition of the death penalty, and lots of our hard-working officials in the UK delegation in New York stay up all night negotiating these texts, so as not to give in on the point. We did get a reference on the death penalty, the undesirability of the people under 18; and the whole thing on reproductive health services is that they do not want there to be any abortion services to be available anywhere in the international system. So end games are played over languages, you know. But we think, after an enormous struggle, we have protected the principles that had been agreed at Cairo. But, I have to say, this is a big question; is there any point in having these plus-five conferences, where you make no advance and you have an enormous fight to defend what was achieved in an international consensus. Because Cairo was "Let's do reproductive healthcare by choice and respect people's choices, and have no forced population control but give people the right," and we did not need to re-examine that; but if you have the plus-fives, you spend a lot of energy just defending gains that were made before. It is difficult. The US, probably because it is such a big country, it does live in a different discussion than a lot of the rest of the world, on development issues, but it is worth engaging; one, you cannot not engage with the world's biggest economy and the world's only great power. But, on the way to Monterrey, the US delegation said, "Don't need any aid, we're against aid, capitalism's the answer," and a few other things, and were not very helpful; and we ended up with the Monterrey Consensus, which is a breakthrough in the agreement of the world. So we struggle on. And the US often does change its position, and does take very confrontational negotiation tactics, which probably Gus can testify to. Do you want to say anything about the Children's Summit?
  (Mr Brown) I was not involved in the discussions on the communique«, on which Hilary Benn and John Denham were doing very well for the United Kingdom. But I would just reiterate this point that Clare made. Nobody expected Monterrey, which is what we are really discussing today, to produce additional resources in the way that it did. The European agreement came quite late on; the American agreement was perhaps even more surprising, given what had been said previously. And, as Clare has said, the figures have been raised substantially since the original announcement was made by President Bush. We move on to the G8 meeting in Canada, where there is to be discussion on the New Partnership for Africa's Development proposals, and, again, I think the US, like other countries, are engaged in looking at what more can be done in relation to African development, and again it is a deal in return for certain things changing, more money is available for education and for health. Paul O'Neill, the American Treasury Secretary, is about to leave for Africa, to visit many African countries, with Bono, and over the next few days I think you will be hearing the American administration saying some quite positive things about education, about health, about water, about some of the development projects that are worth investing in.

John Barrett

  116. The increase in US contribution will be $5 billion in some years, $10 billion in other years, is not being channelled through the World Bank, it is going through Millennium Challenge Accounts. Will this affect donor co-ordination, and what is also the thinking behind this change?
  (Ms Short) This is the consultation they are engaging in. They have said they will have this Millennium fund, they are not putting it through their usual mechanisms, which is US Aid, you know, they have a devolved agency that spends the other money that they have; and whether they agree to deploy it according to what we see as the best principles of harmonising, so not having the great bureaucratic burden, making it untied, building up the capacity, that is under discussion. They have said there will be a separate fund in the State Departments; the rest is all up, I think, to win, in discussion and consultation.
  (Mr Brown) I think it is fair to say that the Americans have opened that discussion, and the UK has already been involved in the original part of this discussion, and it will continue, and it is a discussion about how they can make most effective use of the resources; and I think that is actually a positive thing, that there is this dialogue with a number of donors about what might be done. It is true that they had said that they would not put the money through the World Bank, in the way that you might want them to, but, equally, one of the reasons why I think it is worth investigating an international financing facility is that large amounts of additional money are going from both Europe and America, and it may be that we could reach some sort of agreement about the way forward.
  (Ms Short) Could I, for your information, give you those ballpark figures. Of the UK £3.6 billion budget in my Department, our contribution into the World Bank is £178 million a year; just so you get an impression, because people think of the World Bank as sort of predominant and having all the money. That is just for your information.

Mr Khabra

  117. First of all, I would like to congratulate both of you on being at the forefront of fighting against world poverty, and it is well-known to the international community. The UN Summit, Financing for Development, discussed the issue of world poverty; it also focused its attention on issues of aid, effectiveness, conditionality and the nature of development partnership. My question is, on the question of the issue of conditionality, what efforts are being made to ensure that low-income countries, particularly countries under stress due to conflict or other shocks, are included in the international development effort and are not marginalised as a result of strict conditionalities and the targeting of aid?
  (Ms Short) First, on conditionality, we have been trying to use the Millennium Development Goals to slim down the conditionalities. Instead of hundreds of different requirements from each donor, from the IMF and the Bank, saying, countries, "The requirement is that you are committed, as rapidly as possible, to grow your economy and improve your public services, so you meet the goals for yourself," so it is not an imposed conditionality, it is "Let's mean what you've already voted for." And that is the whole point of the Poverty Reduction Strategies, that, instead of the reform agenda being written in Washington and the Bank and the Fund, the country puts together how it is going to run its economy, raise its revenues, use its aid, use its debt relief, in order to take itself forward. So we are trying to slim down conditionality and make them be behind, the Government leading, in open consultation with its people, how it meets the International Development Goals. Theory is a bit ahead of practice, but that is where the system is going. But you are absolutely right, and that is a much better way of working, both democratically and in terms of effectiveness. As we stress, and we do, that putting resources where there are poor people and where the reformers are, we have to say what happens to the poorest, most oppressed people in the world, the people living in poor, very badly governed countries, what happens to them; we are clearer and clearer about how to use resources effectively where there are reformers in place, and there is work going on in the World Bank on this issue and in the DAC, the OECD Development Committee. Obviously, we already provide humanitarian aid whenever it is needed, you know, if people are hungry they have got to be fed, and sort of basic assistance like that, but the task is, how, beyond that, can we help to drive advances in countries that are very badly governed, which is a very hard question, it is the toughest question in international development. I will not elaborate in detail now; we are doing work in the Department too, and there is some work we do across the world, because, actually, if you have it in your mind there are reformers and then badly governed countries, it is not like that, there are lots of gradations in-between, different kinds of interventions can help. And, often, even within a Government, there might be a couple of reformers, so the Ministry of Health might be a reformer, where you can get in and get some health reform, and you might not get anywhere with the Ministry of Education, or whatever. So, on your second point, we are doing a lot of work, and I would like to keep the Committee informed; it is a very important question, I do agree with you.

Mr Robathan

  118. If I were to stick with the question of conditionalities and partnerships for development, particularly the responsibilities, which you have alluded to, of the recipient governments, I think we would agree that local ownership, or national ownership, is an important feature of effective development plans. But the question I have is, how does the Government ensure that these conditionalities are made compatible with national ownership and an aid programme, because there are these very different standards, and you have alluded to reformers and bad governments and the spectrum between them; so how do we make these conditionalities apply?
  (Ms Short) There is a constant dialogue. For example, the countries that are in receipt of debt relief, or have programmes with the IMF and the World Bank, which they want both for the money and for the reform, and for the reputation as a reformer, because that is part of their reputation and their likelihood of attracting inward investment from the private sector too; there is a constant dialogue on what the reform agenda is. So you get, say, a Poverty Reduction Strategy, or an agreement with Bank and Fund for a programme, and then there will be missions to see if the thing is on track. And we are working more and more to get those conditionalities to be reasonable, to be in tune with the Poverty Reduction Strategies, and then the UK's aid to be in tune with that, so there is not an endless series of hurdles that countries have to jump, you know, first they satisfy the Bank, then the IMF, then Britain, then France, then Germany, and there is still so much of that. But there is a constant dialogue, and we are trying to move it from "We're the donors, we'll tell you what to do; jump over all these hurdles or you can't get your money," to "This is a partnership, we have agreed on this Poverty Reduction Strategy together; let's check that it's on track." And, often, with goodwill, countries go off the track a bit, they might have a drought, commodity prices might fall, and then it is a question of helping them to get it right, not always just saying "You're off track, we'll cut off the money." So we are trying to change the culture of how we interpret those conditionalities, and that work is going on and is a constant endeavour.
  (Mr Brown) I think we have moved quite a long way from the days of the structural adjustment programmes, and the sense in which the IMF, for example, was posed as the IMF versus a country. And I think the key is how successful the Poverty Reduction Strategies are going to be in the future, because, in theory, these are country-owned, indeed, they are not just country-owned but they are civil society and community-owned, and obviously they have not been going for a great deal of time, but we believe that that is the key to future success. And I think there is some evidence that they give that sense of ownership, and there is some evidence also that they are working.

  119. I do not gainsay that, at all, indeed, I applaud it, but, on the ground, we see perhaps less evidence of that. And, as you know, we were recently in Nigeria, which, as the Secretary of State knows, I have particularly fixed views about, where we are increasing our aid programme, we have identified reformers, in about four states, but I have to say that what we saw was deeply depressing. And, to go back to the public confidence in aid, of which the Secretary of State was speaking earlier, it gave me no confidence at all that any aid would be well spent; and I just wonder how one addresses these issues in a concrete and tangible manner?
  (Ms Short) There is no doubt, we have discussed Nigeria before, Nigeria's return to democracy is fantastically important. This is a very important country, one in five of all Africans cannot move forward, just in terms of the population of the continent, unless Nigeria moves forward, and the reform effort since the democratic elections has been extremely disappointing. So we have got a country that is naturally wealthy, with enormous oil wealth, but 70 per cent of its people are dollar-a-day poor, and lots and lots of children are not in school, and people are not having any kind of basic healthcare systems or access to clean water, and not much progress in the last few years; so you have got a low-income country under stress. Now it has gone off track, with attempts to have programmes with the Bank and the Fund, because it did not keep to the agreement in the way that I have just been trying to describe, but we, the UK, have tried to engage both with pushing the reform effort with the federal government, with limited success; but we have got to hang on in there and keep saying what would reform be, not disburse money but staying aid. And then it is quite a decentralised federal system, as you know, so we are also in at the state level, trying to find states where there is a reforming effort and trying to push forward that effort. So I agree with you that you must not transfer resources to countries that are not trying, but you must not turn your back on the poor of the world because they are badly governed, and it is that dilemma; but never using funds to prop up a non-reformer, making it easy for them not to reform, never, but not abandoning the poorest of the earth, finding the spaces where you can push a bit of reform effort, that is what we are trying to do in Nigeria. It is difficult, but I am sure it is the right thing to try to do.

1   Ev 100. Back

2   Ev 80. Back

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