Draft Caribbean Development Bank (Further Payments) Order and Draft African Development Fund (Additional Subscriptions) Order 2002

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Rev. Martin Smyth (Belfast, South): In one recent report, I heard that many of the donor countries were demanding consultants, so the money, instead of going to the countries where it is needed, comes back to the donor countries. How much of this money is coming back through consultancy fees and other activities?

Dr. Lewis: I am very grateful to the hon. Gentleman for alerting us to that point. I hope that the Under-Secretary will be able to address it directly.

Reverting to the comments that were made in January 2000, the then Under-Secretary pointed out that the then Secretary of State had approved publication of the DFID institutional strategy paper for the African Development Bank. That set out the Government's objectives for working with the bank for the next three years. I am a little unhappy about what were then set out as the three main objectives of the Government, and I want to take a little time to list them so that people can see whether we have a specific goal in mind when we make such donations, or whether our goal still borders too much on vagueness.

The first aim of the Government as set out in January 2000 was to continue their support

    ''for the strengthening of the bank through the on-going programme of institutional reforms introduced by the president''.

We know why that was. The bank had gone off the rails, and a better president had taken control of it and was trying to improve the situation. Nevertheless, it is a little like running to stay in the same place when one of the three main aims is simply to support the bank in getting its act together as an institution.

The second aim is

    ''to help the bank to improve its poverty focus so that it can play its part in contributing towards achievement of the international development targets''.

Again, should it be necessary for a major aim of the Government to be to assist the bank to improve its ability to focus on the problems? I would have thought that the bank's role was to help to solve the problems. If it has trouble focusing on them in the first place, that makes one wonder how effective the organisation is at supplying solutions rather than simply identifying or focusing on problems.

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Mr. Baron: In one respect, I can see why the Government have mentioned that, as focus is terribly important. For example, we are all aware that the EU overseas aid package does not focus on its prime objective of relieving poverty across the globe. Instead, it pursues political objectives on its borders. The top 10 recipients are all countries that border the EU. Unless the focus is right, the delivery hardly follows.

Dr. Lewis: I am grateful to my hon. Friend. If an intermediate organisation is between the gift and the recipient for whom one intends the gift to do good, it is important that that organisation is kept up to the mark, is shown to be capable and applies the funds that one gives it for the purposes for which one originally intended them. However, that raises the broader question of whether that is the best way to assist the people in desperate need whom one is trying to help in the first place, if indeed one were channelling funds through a medium that had difficulty focusing on where it should apply the aid rather than applying it in a more efficacious way than one could if one did so it directly through embassies, the British Council, other aid agencies or non-governmental organisations.

Miss Kirkbride: I agree with my hon. Friend, who raises an obvious question. Why do we not give the money as direct aid rather than through a bank? What are the advantages of giving it as suggested in the order?

Dr. Lewis: I think that my hon. Friend divines the thrust of part of my line of questioning. I hope that I may gently channel her question through the medium of my contributions in the direction of the Minister, who will be able to reassure us, I trust, that there are certain ways in which intermediate institutions can do a better job than we would if we tried to do all the work ourselves. That is really what we want to hear.

As was pointed out in some detail in earlier contributions and interventions, a better job is something that has not happened to money channelled through the European Union. The point is not party political. The Secretary of State for International Development has rightly described as a disgrace the way in which the European Union failed to channel funding to, in particular, sub-Saharan Africa and others of the poorest countries, rather than putting it towards the middle-income countries. They may be geographically closer to the European Union itself, but are certainly not the countries most in need of the assistance.

The third aim listed in January 2000 was

    ''to start a process of re-engagement between the DFID Africa division and the bank with a view to helping it to improve the developmental impact of its country programmes.''

That again suggests some sort of breakdown in the relationship between our DFID operatives and officials and the bank. It certainly suggests, when one examines those three aims, that all was not well with this institution, even though at that time it was already being reported that, under the new president, it had raised its game significantly from the dire straits into which it had got in the early 1990s.

I shall continue with the fourth of my 12 questions. In January 2000, the then Under-Secretary reported

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that despite an upturn in performance, the African Development Bank

    ''in terms of the quality of its lending programmes, the bank still has some way to go to reach the level of the other regional development banks.''

He continued by saying that it was especially

    ''hampered by inadequate staffing and delays in developing the right skills mix''.—[Official Report, First Standing Committee on Delegated Legislation, 25 January 2000; c. 3.]

What improvements have there been in those regards in the past three years?

Mr. Field: I appreciate that the African Development Bank has a broad and extensive range of activities. However, given the increasing importance of the Commonwealth Development Corporation and the increasing extent of its work in Africa, does my hon. Friend think that there is an opportunity, through, dare I say it, joined-up government, to use some of the CDC's expertise to channel the moneys that we are donating to this bank?

Dr. Lewis: I am very sorry to say that I must disagree entirely with my hon. Friend. What he said would have been absolutely true had we been talking about this prior to the attempt at part privatisation of the CDC. However, my hon. Friend the Member for Meriden encouraged me and others to apply for a one and a half hour Adjournment debate on the subject of the CDC, in which we expressed our grave concern that the CDC was no longer doing the sort of grant giving and loan making on extremely favourable terms that in the past had been so successful.

We thought it was a strange choice for the Government's first part-privatisation project and that it was a mistake. We also thought that all sorts of good projects that the CDC had undertaken with considerable success in the past, in terms of humanitarian success rather than simple cash profit and returns, were now having the skids put under them, to put it bluntly, and that the CDC was becoming a much more commercially focused organisation.

I only wish that my hon. Friend's suggestion was a course that we could follow, but I am afraid that our concern is that the CDC is no longer a player in this field to anything like the same extent as it has been under successive Governments since it was set up by the first post-war Labour Government in the late 1940s.

My fifth question is to ask what the Government's policy is towards encouraging the African development fund to apply some of its resources as grants rather than interest-free loans as at present. Loans serve to swell the total of irredeemable debts. We are concerned that, in the medium to long term, the giving of loans even on favourable terms could be storing up trouble for the future.

Sixthly, what input will the Government have in terms of setting priorities for the ADF to apply? We heard that the time of replenishment is when we have an input into the setting of priorities. We would like to know whether that process is under way while the replenishment negotiations continue, or at least what

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input the Government have in assessing the priorities that the ADF has decided that it wants to apply.

Seventhly, what indications have there been in recent years of the ADF's fulfilment of its poverty reduction goals?

Eighthly, what part has good governance played in decisions made by the ADF to give interest-free loans?

Ninthly, what can the Minister tell us about the policy of the ADF in respect of Zimbabwe? It would be understandable if anyone trying to help in that area were not to be torn on the basis of good governance. One might say that we should do as little as possible to assist Zimbabwe on the basis of the terrible drought that has struck southern Africa, which has been exacerbated by the incompetence and the criminal neglect and misbehaviour of the Mugabe regime. Nevertheless, humanitarian considerations would lead us to say that we should still assist as much as we can. We are on the horns of a dilemma, and I would be grateful for the Minister's enlightenment as to how the Government intend to approach that problem in relation to their dealings with such bodies as the African development fund.

My tenth point is whether, South Africa having experienced its worst drought in half a century, the ADF has been able to give practical help to the other countries besides Zimbabwe that have been affected—Malawi, Mozambique, Swaziland, Zambia and Lesotho? My eleventh point is to ask what assistance the fund has given and what strategy has it developed in respect of the AIDS pandemic? I shall give a small selection of horrifying statistics. It is estimated that a quarter of the adult population in Zimbabwe carries the HIV virus, but that figure rises to 40 per cent. in urban areas and possibly to as much as 80 per cent. in the army. Life expectancy in that benighted country is now poised to fall to merely 38 years.

Finally, does the Minister view our contributions via the African development fund and the Caribbean Development Bank as a means of compensating for the bias—it has been referred to several times today—in the application of the EU aid budget, which the Secretary of State rightly denounced as disgraceful for its twisted priorities and its bias against helping the poorest countries.

The Minister will be relieved to know that I have only six questions on the Caribbean Development Bank. First, in a positive vein, I note that, according to DFID, the CDB's strengths lie in its close contact with its borrower member countries, which enables it to be in tune with their needs and to offer them good access to policy makers in the Caribbean. DFID describes the CDB as a specialist Caribbean institution, staffed by people from the region, and says that Caribbean countries have a high degree of ownership of, and commitment to, the bank. CDB's local knowledge and its location within the region, therefore, provide it with a comparative advantage in processing small and medium-sized loans that the larger multilateral development banks find too costly to administer.

Given the attitude that the Opposition have taken towards the Commonwealth Development Corporation and its over-commercialisation, it would

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be odd and totally inconsistent if we did not applaud the CDB for being able to make precisely the sort of loans, on precisely the sort of generous terms to precisely the same sort of people who need our help, that the CDC used to make but which it sadly no longer appears to be doing.

Our concerns are as follows. The first is whether the loans being made are adding to the cycle of unpayable debt. We would like to be given assurances by the Government that the Caribbean Development Bank does not and will not adopt irresponsible lending policies to poor countries, specifically from the concessional lending arm and special development fund, which is precisely the arm that will receive the £17.5 million that we are discussing.

In the past, some development banks have lent money to poor countries when there was very little chance of the loans being repaid, no matter how generous the repayment terms. That, combined with poverty levels in poor countries and with incompetent government, has led to unsustainable debt burdens.

At the moment, many of the poorest countries receive debt relief under the heavily indebted poor countries initiative, but debt relief is only part of the solution. Unsustainable debt can become a vicious circle, and the manner in which poor countries are lent money must be reformed. Poor countries will never exit unsustainable debt burdens unless development banks adopt more responsible lending policies.

Our second concern relates to encouraging diversification in the Caribbean economies. The countries that borrow from the Caribbean Development Bank are, for the most part, island communities, which generally depend on tourism and exporting one or two commodities, such as sugar and bananas. As such, they are exceptionally vulnerable to market forces. A downturn in prices for sugars and bananas is hitting Caribbean economies hard, and it is important that they are encouraged to diversify as far as possible into other industries and exports.

DFID appears to have some reservations about the capacity of the Caribbean Development Bank to encourage diversification in Caribbean economies. According to a DFID institutional strategy paper,

    ''the CDB's structure has limited capacity to react quickly to the changing needs of its borrowers''.

The paper also says that

    ''capacity constraints and the CDB's limited research and analytical capacity have not allowed the Bank to play a major role in policy dialogue with Caribbean governments, or on the wider social and economic challenges facing the region''.

What actions are the Government taking to improve the CDB's capacity to respond to the borrowing environment's changing requirements?

Thirdly, I come to the impact of trade liberalisation on developing countries. The Opposition support moves to liberalise trade as a means of promoting economic growth and poverty reduction in developing countries, but many countries will have to make preparations for the impact of such liberalisation. Many African producers produce commodities at lower costs than their Caribbean counterparts: sugar and bananas crop up yet again. What does the

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Caribbean Development Bank propose to do to assist Caribbean exporters whose livelihoods will suffer as a result of agricultural liberalisation?

My fourth point concerns accountability. What supervision does the Secretary of State—or, in this case, the Minister—envisage for the distribution of CDB funds? Will there be direct authorisation by DFID of decisions taken by the Caribbean Development Bank? As far as we know, there has been no real study of the effectiveness of the CDB's lending policies. Studies of the World Bank's concessional lending suggest that unscrupulous government diverted an unacceptable number of past loans for their own benefit. According to The Wall Street Journal of 26 July 2001, the World Bank's own evaluation is that less than one third of its projects in poor countries yield ''satisfactory and sustainable results''. Is the situation any better at the Caribbean Development Bank?

My fifth point is about duplication. The Caribbean Development Bank is not the only bank that lends to Caribbean countries. The World Bank, the Inter-American Development Bank and the European Investment Bank also lend to the region. In fact, the CDB accounts for only about 16 per cent. of multilateral development bank lending to CDB borrowing members. What links and partnerships are there between the CDB and those other regional development banks to prevent unnecessary duplication of resources and to ensure that funds are allocated more efficiently?

The way in which the World Bank competes with regional development banks causes some worry. Regional development banks compete with the World Bank for donor funds, clients and projects, and their local offices are often in the same cities. The regional banks repeat the World Bank's organisational structure, yet, in the year 2000, the World Bank expanded its field offices, increasing duplication and potential conflict in the regions. When the United States Government investigated, they received no reasonable explanation why such costly expansion was chosen over closer co-operation with the regional banks and reliance on their personnel. To what extent do the operations of the CDB and the World Bank overlap?

Finally, I refer again to the question of grants versus loans. Has there been any suggestion that the Caribbean Development Bank might turn some of its loans into grants? The World Bank recently decided to administer approximately 20 per cent. of its loans to the poorest countries in the form of grants, which are given on condition that the money is well spent and there is no corruption. The value of grants is that they do not have to be repaid, which avoids the prospect of the poorest countries accumulating unpayable debt burdens.

The decision by the World Bank to convert 20 per cent. of its loans into grants was highly controversial. The United States originally proposed that up to 50 per cent. of loans should be converted into grants, a figure that was reduced to 20 per cent. after a long period of

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negotiation. Our Secretary of State was strongly opposed to the US proposals, maintaining that if the World Bank did not expect the money to be repaid, its future funding would be cast into doubt.

That is a long series of questions, but I know that the Minister has a great deal of material at her fingertips.

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