Examination of Witnesses (Questions 1-19)
6 NOVEMBER 2003
THE RT
HON GORDON
BROWN, THE
RT HON
HILARY BENN,
JON CUNLIFFE,
SHRITI VADERA
AND PETER
GRANT
Q1 Chairman: Chancellor, welcome
to you and your team. Secretary of State, thank you very much
for coming. Chancellor, I think this is the first time you have
addressed the Select Committee since the birth of your baby son,
so many congratulations.
Mr Brown: Thank you very much.
Q2 Chairman: I understand that you
would like to make a statement, so why do you not do that and
then we will get on to some questions?
Mr Brown: Chairman, it is a great
privilege for both Hilary Benn and myself to be with you today.
I should perhaps introduce the people who are with us; Peter Grant
with Hilary Benn, Shriti Vadera from the Treasury, Jon Cunliffe,
the Head of Macroeconomic and International Policy. Firstly, let
me thank the Committee for the all-party commitment that has been
made to the developing world, for your role in dealing with the
problem of debt relief, for your support for the International
Finance Facility. What I would like to do, in very brief remarks,
is to report to you on what I believe are the repercussions from
the meeting of the International Monetary Committee that I chaired
in Dubai and the World Bank Development Committee chaired by Trevor
Manuel, the Finance Minister of South Africa. We met in Dubai
at a time when the world economic outlook is improving. We were
positive about the opportunities ahead for strengthening the global
economy, but if we are to ensure higher growth not only must each
continent live up to its responsibilities, but we must bring developing
countries fully into the development process. It is worth bearing
in mind that today developing countries account for 80% of the
world's population, 5 billion people, by 2050 it will be 90% of
the world's population, but they only account for 20% of the world's
GDP. The World Bank estimated that just to maintain the current
average rate of world economic growth demands faster growth rates
in developing countries, a doubling in the share of global GDP
to 40% by 2050. In other words, to sustain current world growth
rates the GDP of developing countries which is just $6 trillion
to date would need to rise to $56 trillion over the next 50 years.
So it is clear both for moral and social but also for economic
reasons why the whole world needs a new deal for the developing
countries. In return for developing countries pursuing anti-corruption,
pro-stability, pro-trade and pro-investment policies developed
countries should, in our view, make the necessary funds available
to tackle the long standing problems of ill health, illiteracy,
poverty and under-development. In the 1940s by transferring 1%
of national income every year for four years from America to Europe
the Marshall Plan was not only an act of charity but a frank recognition
that peace and prosperity throughout the world was indivisible
and that great international co-operation was required on a massive
scale. I believe that what we need now is nothing less than a
modern Marshall Plan for the developing world because we know
now that if we are to meet the Millennium Development Goals that
were agreed little more than two years ago, huge amounts of additional
resources will have to be made available. I think the Committee
knows that 115 million children are not in school today, half
of them in Africa. 30,000 children are dying every day from preventable
diseases. There are 30 million victims of HIV/AIDS in Africa alone.
There are one billion living in extreme poverty. But we would
not meet the millennium development targets on primary education
for Sub-Saharan Africa, given the current rate of progress, until
2129 and we would not meet the millennium development targets
on extreme poverty until 2147 and on child mortality until 2165.
So the need for extra resources is obvious. We believe that at
least $50 billion extra a year will be required and we think that
is a doubling of aid currently flowing to developing countries
that is needed as soon as possible. We remain committed to reaching
the target of 0.7% of GDP and have raised development aid, but
it is clear that internationally the scale of the resources required
to meet these Millennium Development Goals and make further progress
on debt relief can only be met by new financial means to deliver
the higher levels of support necessary. Development aid to sub-Saharan
Africa has fallen from $33 per head to $20 per head in the last
ten years, but yet the problems have got worse. We have subscribed
to the aim to get 3 million people on to anti-retrovirals by 2005
and health alone will need 10 to 20 billion dollars extra a year.
This is the thinking behind the International Finance Facility;
to double the amount of development aid from 50 billion dollars
to 100 billion dollars a year, partly by leveraging in private
finance. I am pleased to report that that proposal received wide
support from other countries at Dubai, in particular from our
European partners and from developing and emerging market countries.
The IMF and the World Bank have agreed to do further work on the
proposal. They will report back at our next meetings in 2004.
In parallel, we will be consulting widely with developing countries
and emerging market countries to develop this proposal further.
The IMF and World Bank report will come next year and with the
UK's presidency of the G7 in 2005 we have an opportunity to tackle
the great poverty challenges facing the developing world. Our
priority will be to resolve how we meet the 2015 commitments.
In health it will be to ensure the proper financing of health
care delivery systems, to abolish iniquitous health charges and
today, of course, we know that as little as 20 cents a week is
spent on the health care of the typical African citizen. Treasury
and DFID are meeting with representatives of the Global Alliance
for Vaccines and Immunisation, who are interested in applying
the principles of the International Finance Facility to health
to make an immediate difference in the provision of health care.
At the same time, of course, we will continue to attempt to make
progress, as you have discussed with Patricia Hewitt and Hilary,
on trade issues, including a deal to phase out agricultural protectionism.
With 2005 not only our G7 presidency, but the fifth anniversary
of Jubilee 2000 coming 20 years after Live Aid, I believe that
it is a proper time to redouble our efforts to complete debt relief,
provide a robust exit from unsustainable debt. Twenty-seven countries
are now part of the process, but we must now move in to a further
stage and we are prepared to consider radical means to ensure
that debt relief is properly provided. We must, in our view, seize
the chance to deliver on our promises to the poorest countries,
ensuring that we provide the finance that is urgently needed,
building on the progress we have already made to develop the International
Finance Facility for which we have all-party support in the United
Kingdom. The aim is to achieve the Millennium Development Goals
in all countries.
Q3 Chairman: Chancellor, thank you
very much. Firstly, you, Clare Short and everyone deserve credit
for having taken forward the International Finance Facility. Can
I just put three very brief questions? After 2015—accountability
and international support—as I understand it from the document
published by the Treasury, 80% of the International Financing
Facility will be generated through market borrowing. So the concept
of the IFF, if I understand it correctly, is to borrow significant
sums of money up to 2015 to meet the Millennium Development Goals
and I think the ODI have estimated that the IFF would therefore
accumulate a debt stock amounting at its maximum to over $800
billion. I may have misunderstood that and if I have, please correct
me, but I am just interested in how the debt is going to be serviced
after 2015. On accountability, to whom will the IFF disburse or
will they be accountable? On international support, when the Select
Committee was in Washington, I think it is fair to say that people
in the World Bank and elsewhere gave a cautiously neutral but
welcome approach to the IFF concept, but one's impression from
the US Government was that they were not so warm in their support.
Is that still the case and, if so, can the IFF function without
US support and what progress has been made on that?
Mr Brown: That is quite a number
of questions, Chairman, and I am grateful to you for your interest
in this and for the discussions that you and your Committee have
had with the World Bank and the IMF on this matter. Let us remember
the background to this, first of all. There have been a number
of proposals for raising additional money, the scale of money
that we need to finance the Millennium Development Goals. There
has been the Tobin Tax Proposal, there has been the Soros Proposal
on special drawing rights at the IMF, there has been discussion
of energy taxes and everything else. Each one of them comes down
to the central question; is there the political will on the part
of individual governments to make the additional resources available?
We believe that our proposal is the one that is likely to command
the most support over the period of time and the reason why we
are setting a pattern of higher investment based on private lending
until 2015 is principally, indeed entirely, to meet the Millennium
Development Goals. So it is the aim of the international community
to meet the Millennium Development Goals, so we have to have additional
resources between now and 2015. If we are to meet the Millennium
Development Goals, then another choice is available to the world.
It can either use the opportunity that has been provided by the
increased amount of aid that has been given by individual governments
of the period from now to 2015 to expand the amount of aid or
not, but that is a political choice that is made at that time.
I am not saying that after 2015 aid budgets are going to be raided
to pay interest payments on money that has been borrowed. I am
saying that is a choice then for governments to make as to how
much they wish to increase aid budgets after 2015. The problem,
however, which we are dealing with is how can we get the additional
resources that are necessary for our priority which is, of course,
to meet the Millennium Development Goals by 2015 and I would regard
the money we are raising now as an investment in the future to
prevent problems that would be worse after 2015 if the money was
not spent. So the IFF is an investment now to help future generations
and to avoid these problems, but in 2010, 2012 and 2014 I believe
you are in a better position to decide to spend more on aid, having
already made a decision a few years earlier that you want to increase
the levels of aid. I am very pleased that Hilary Benn has, in
his speech in New York, been such an active proponent of the IFF
and of this increased level of resources. As far as support is
concerned, we have, as you rightly identified, talked to a large
number of governments about this. We continue our discussions
with the American Government. You have got to remember that when
the World Bank and the IMF decided to do further work on this,
this was a decision made by all the member governments involved
in the IMF and the World Bank, including the United States of
America. So while there are particular issues about the annual
basis on which allocations of money are made in the United States
through their Congress, which have been rightly raised with us
and we have put forward proposals to solving that problem, there
is an interest in the United States of America, across the political
spectrum, from the churches and the NGO organisations, in what
we are proposing. I was pleased I was able to go to the IMF meetings
with support from the European Union. I am also pleased to say
that we have had regular meetings with the developing countries
and it is interesting that they are now pushing this very, very
hard. We will have a conference with the French and Mr Mer, the
French Finance Minister, has called a conference with developing
countries in Paris in February next year. We are having very active
support given to us from the G7 Presidency this year, which is
the French Government. I do not know if I have answered all your
individual questions on this, but I hope I have dealt with at
least some of them.
Q4 Mr Colman: Chancellor of the Exchequer,
I hope your statement and your explanation is carried on in Parliament
because it is a very important clarion call not only to us but
to all the NGOs and civil society in this country to campaign
and to pass that message around the world. My questions relate
to the Development Committee Communiqué that came out of
the meeting in Dubai[1]First
of all, at Cancun there was an initiative announced by the Bank
and the Fund to help the weakest and most vulnerable countries
adjust to trade liberalisation to help them cope with potential
negative impacts of reform such as preference erosion and loss
of tariff revenues. In paragraph 5 of the Communiqué it
seems to be rather muted in terms of the endorsement of that policy
and I was wondering whether you would like to say what actually
happened there. Was this endorsed? Is work going to take place
on this very important new initiative, particularly ahead of the
December 15 and 16 meeting of the WTO to take forward the Doha
Agenda?
Mr Brown: It may be that Hilary
wishes to add something to what I am saying, but I think you will
find that the Communiqué is actually quite strong and if
you take the IMFC Communiqué and the World Bank Communiqué
together, there was no doubt about the urgency that people attach
to the re-opening of the World Trade Organisation negotiations.
We had a report at the meetings from the Deputy Director of the
WTO about these very issues. We agreed it was urgent that action
be taken to resume the negotiations which had broken down over
one or two particular issues. I think there was a strong view
amongst many of us that the investment and competition issues
should be withdrawn from the negotiating table and there was also
a strong view that America and Europe together could do more to
help resume the negotiations. As far as the support of the World
Bank and the IMF are giving to countries that are affected, what
we are really talking about is how support can be given so that
you can sequence liberalisation and the opening up of capital
markets generally. I believe that is a responsibility of the international
institutions and one that they are willing to discharge.
Hilary Benn: Just to add to that,
if I may, notwithstanding the breakdown of the talks at Cancun,
for the reasons that the Chancellor has just outlined, it is very
important that this work continues because it is about practical
preparation for this process. It is something that we very strongly
support. In fact, we have got a conference that we are organising
with a number of other partners next month at which we are going
to be looking at this precisely because we welcome the initiative
and it is one that I think all of us want to see taken forward.
Mr Brown: Can I just add that
we also urged, the Communiqué said, continued efforts to
tailor bank lending activities to support country and trade initiatives
translating analysis and diagnostics into meaningful operations
and that is in the World Trade section.
Q5 Mr Colman: Can I take you to paragraph
11 of the same Communiqué and pick up two points there?
First of all, it says that "We recognise that Poverty Reduction
Strategy Programmes are charged with multiple and sometimes competing
objectives". What do you believe these multiple and competing
objectives are and what is being done to ensure that the objectives
are made compatible and that national ownership of development
strategies, including the macroeconomic policy component, is made
a reality?
Hilary Benn: We strongly support
the Poverty Reduction Strategy process. The thing that is most
important, and I think that is reflected in what the Communiqué
was saying, is that there should be country ownership of this
process. I think we are making reasonable progress. 32 countries
now have full PRSPs, a further 16 have got interim ones and I
think the progress report that was considered says "We are
making progress, but we need to get them more embedded within
the system". I think we need to recognise also that it is
leading to some institutional change. For example, a better focus
on managing public expenditure is helping to improve budgeting
systems. I think people are just learning as they are going and
if you look at countries like Uganda, Mozambique and Rwanda you
would see that happening. One of the other problems that has arisen
is reporting burdens. This is an issue about which the Committee
is rightly concerned. We are concerned. It is important that in
tailoring PRSPs and the linkage with the work that the Bank and
the Fund are doing, that we minimise the reporting burdens so
that we can maximise the chances that there is country ownership
and the support that the Bank and the Fund then give reflects
the work that has been contained in the PRSPs. That really is
a process where people are learning as they try and bring the
two things together.
Mr Brown: Because it is shared.
It is not in the World Bank Communiqué , but I just emphasise
that on the IMF side we set up a British initiative, the Independent
Evaluation Office, and one of the things that they are going to
do over the next year is to evaluate the funds programmes for
the poorest countries. I believe that that will answer or help
to elucidate some of the questions that you are raising and I
hope the Committee will take an interest in their findings.
Q6 Mr Colman: Indeed. Towards the
end of that same paragraph it talks about the Poverty and Social
Impact Analysis, PSIA, and I know that the UK Government has been
a strong proponent of this. Could I ask what would be the respective
roles of the Bank and the Fund in delivering progress on PSIA?
Hilary Benn: We are looking to
them to work closely together on this. As you say, we paid for
some of the pilot studies in DFID to get this going and we are
working, both with the Bank and the Fund, to ensure that the work
of the PSIAs is reflected both in the IMF's Poverty Reduction
and Growth Facility and the World Bank's Poverty Reduction and
Support Credit. We are also supporting pilots in six countries.
In fact, we are seconding two people to the World Bank to actually
help develop them. Eventually we would like this work ideally
to be done by the country governments themselves, but I think
what this is adding to the process is a further look at the impact
that change is going to have on poverty and broader society. I
think progress is slightly slower here, let us be perfectly honest
about this. I had discussions on this subject both with Jim Wolfensohn
and Horst Köhler in Washington last week. It is still relatively
early days. We think it is a very important tool to use to try
and understand better what the impact of programmes is going to
be, for that then to be reflected in the work that the Bank and
the Fund are doing and we need to get on with this and then see
them more widely used and better used and people paying more attention
to the results.
Q7 Mr Colman: Could I ask either
of you whether you support Oxfam's call for the establishment
of minimum standards for PSIA to ensure national governments and
civil society is involved and to make sure that PSIA is clearly
linked to the PRSP process?
Hilary Benn: I think there is
a tension here, in all honesty, between, on the one hand, if one
is saying, with both PRSPs and in due course PSIAs, that we want
there to be country ownership, it is important that there is not
a rigid template which does not allow people to take account of
the circumstances of their own particular country. On the other
hand, it is important that the work is done rigorously and looks
at all of the possible implications as far as poverty and the
social impact is concerned. I think that we need to reflect on
that because I would not want to have a straitjacket in doing
this work but on the other hand we want to make sure that all
of the things that need to be covered are covered in the process
of doing the work.
Q8 Hugh Bayley: To return briefly
to the IFF, nobody would want the train to move at the speed of
the slowest coach, so how many of the G8 members would you need
to agree to participate to be able to launch the IFF?
Mr Brown: There are a variety
of means by which an IFF could be formed. It could be where you
might say two or three are gathered together because an IFF could
be formed by a very small number of countries but, of course,
the most effective IFF would be if all the major donors were involved.
Why the IFF is possible at this stage in our history is because
of the Monterrey Consensus, because America agreed to increase
its aid programme by $5 billion and because the European Union
agreed to increase its aid to 0.39 by about $7 billion. The borrowing
is on the strength of the 12 billion additional dollars that are
being provided for aid and it is maximising, if you like, the
impact of a commitment to additional aid. So the more countries
that are involved, the more the IFF can be funded and the quicker
it can move, obviously, to deal with the funding of the Millennium
Development Goals. You may have noticed that the World Bank did
its own study of absorptive capacity for aid and showed that $30
billion could be deployed immediately and within a year or two
$50 billion a year, which is exactly the figure that we are talking
about. So obviously the more countries the better, the more money
there is available. You could, for example, have a European Finance
Facility, you could have a number of countries who are the big
donors who are increasing the rate fast coming together as a group,
but we still believe it is possible to persuade all the major
countries to come together. I should stress that this is not an
alternative to moving to 0.7. Both these processes go together.
The truth, however, is that if two or three countries did not
get to 0.7 immediately then even if every other of the major donor
countries did get to 0.7, you still would not raise the 50 billion
that we are talking about which can be raised immediately by the
IFF if all participate. So it is a way forward, not as an alternative
to 0.7 but as a complementary to the move towards 0.7.
Q9 Chris McCafferty: I have got several
inter-related questions. The Gender and Development Network, in
a submission to the Committee[2],have
suggested that Poverty Reduction Strategy papers have neglected
gender considerations and they are therefore not an accurate analysis
of poverty. I would like to know whether you agree with that.
I am aware that Christian Aid have made a study of strategy papers
on Tanzania, Bolivia, Yemen and Malawi and have identified that
none of those papers have a gender perspective. So I would like
to know what the Government is doing now to ensure that gender
is taken seriously in strategy papers and what are the lines of
responsibility within the DFID to ensure that gender analysis
is taking place.
Hilary Benn: I accept entirely
the argument that you put and it is very important, first of all,
if PRSPs are going to work that they should look at all of the
impacts. It seems very hard to me that you could comprehensively
look at the question of the reduction of poverty without looking
at the position of women in society and the impact that any changes
are going to have on them precisely because they are women. I
would also say that one of the reasons we are similarly keen on
the poverty and social impact analysis process to be taken forward
is that it seems to us that that gives you a further opportunity
to make an assessment which will look at the impact as far as
women are concerned. So we do need to see better monitoring. We
need to see better consultation. Certainly through the PSIAs we
need for there to be space to look at different policy options
to get people to think more about if you do this what would be
the consequence. I think one of the other lessons of the PRSP
process, if I may just talk about the issue of water sanitation
because it is an interesting indication of how the process may
help to deal with the problem, it is generally felt that in PRSPs
water and sanitation has not been given sufficiently high priority.
In some countries where, as part of that process, they have then
gone to community consultation and said "What do you think
of it so far?" people have said in that case "Actually
we think you should be doing more water and sanitation" and
so if the PRSP process is followed through and governments having
done them, then continue with consultation, go back and say "What
do you think of the effects of what we have decided to do so far?"
I hope that similarly the voice of women will be heard and will
say "Actually we do not think that you have taken sufficient
account of the impact on us". So this is a process that we
are very keen to encourage, but in the end, like all of these
things, it has to be embedded within the country systems to enable
it to happen. Our job is to support but in the end they have got
to be able to do it for themselves.
Mr Brown: I may just add, to complement
what Hilary said, that the first Millennium Development Goal that
has to be met is the 2005 goal for gender equality and that is
one that will be missed under present progress and clearly that
is one that we are giving a great deal of attention to in focussing
people's minds on the importance of raising more money.
Q10 Tony Worthington: This is a similar
question. Can I raise the role of parliamentarians and the political
process? In our travels we do not pick up a sense that parliamentarians
have been heavily involved in the PRSPs and you will know that
there is so much emphasis upon country ownership and so on. What
are we going to do about that or are we misperceiving things?
But that is the real sense that we pick up.
Hilary Benn: I think that that
is a very fair reflection. It is something that certainly I raise
in talking to developing country governments because it is something
that we are very keen to encourage. There are one or two places
where it is happening; Armenia and the Kyrgyz Republic is interesting.
We have got a programme in Nicaragua specifically to try and encourage
that kind of participation. Part of the answer is to do that,
part of the answer is to develop understanding amongst parliamentarians
of what the PRSP process is about and then, if I may say so, rely
on the natural inclination of parliamentarians, if there is a
process going on, to want to get involved, to question the people
who are doing the work to call them to account in exactly the
way that you are doing this afternoon because we think that this
objective of country ownership would be added to if parliamentarians
were more involved in the process. So we need to encourage, but
I think it is also down to parliamentarians to understand better
how the system works and then use the mechanisms that they have
got through their own equivalent select committees and so on to
call the people who are doing the work to account, ask them questions
and influence what the PRSP is going to look like. In other words,
so that people see it not as "This is a piece of paper you
have got to do to satisfy somebody else and this does not have
anything to do with all the issues that we are debating as parliamentarians
in our country", but seeing it as an integral part of decisions
that are going to be taken that will affect them, their constituents
and the areas that they represent.
Q11 Tony Worthington: Could I just
raise a separate issue? You will recall in the debate yesterday
I talked about the Publish What You Pay Initiative, which I know
has been to the G8 in the past. Did it come up this time and what
progress is being made on that?
Hilary Benn: In relation to the
meetings themselves, both the IMF and the World Bank are very
supportive of the principle. We are discussing it with them for
the very simple reason that greater transparency gives you greater
accountability. It is a simple argument and therefore people publishing
what they pay and publishing what they receive is, I think, a
very powerful way of generating questions because once the information
gets published your equivalent colleagues can start asking questions
about what is happening to the revenues and so on and so forth.
It really supports a number of other things that we are doing
on that front to promote greater corporate responsibility. A lot
of people are interested. A lot of people have expressed support.
What we now have to follow through is how this works in practice.
So following up the principles of the EITI with country governments
to say "If you are up for this, what are you now going to
do? What are going to be the structures and processes?" and
those are conversations that we are keen to have and which we
are having with a number of countries and in the process we have
to build up momentum because as more people sign up to the principles
of the EITI, as more countries begin to publish what they pay
and what they receive, then I hope it will make it more difficult
for those who are perhaps less inclined to do that to actually
maintain the position that they currently hold.
Mr Brown: Just to say about the
G8 process; it will be taken forward in the G8 over the next year
and I think it is true to say that all the countries involved,
including the United States, which was raised earlier, are supportive
of taking this forward over the next period of time.
Q12 Tony Worthington: Are you saying
that in the election year the American Government will be telling
the American oil companies that they have to publish what they
pay?
Mr Brown: It is voluntary, as
you know. It is a voluntary code but I think it is true to say
that the United States Government has expressed an interest in
moving this forward. They are President of the G7 and G8 next
year, so I hope we can make progress.
Mr Khabra: Rightly or wrongly the World
Bank believes that it can achieve the objectives of the PRSPs
by providing reduction support credits and also the budget support
lending, but only 9% of the World Bank's low income country lending
is currently provided in the form of poverty reduction support
credits. I do not believe that it will help in the reduction of
poverty because there are very serious problems in some of the
countries and I believe personally that globalisation is not going
to help in some countries in the reduction of poverty. On top
of that, the growing population in countries like India is another
problem. Can I ask you the question; why is the proportion of
low income country lending poverty reduction support credit still
only 9% and what does the UK Government propose to increase that?
Chairman: Order, order. Shall we adjourn
for a minute and then we will come back and answer Piara's question.
So if we are back at 25 past 4.
The Committee suspended from 16.04 pm
to 16.23 pm for a division in the House
Q13 Chairman: Chancellor, Piara had
asked you about why is the proportion of low income country lending
through poverty reduction support credits still only 9% and what
steps do the UK Government propose to increase this?
Mr Brown: Hilary was going to
answer that question when he came back. I shall happily leave
it to him and perhaps I can deal with the other questions on my
area.
Q14 Hugh Bayley: It is clear, Chancellor,
that we cannot meet the Millennium Development Goals without substantial
private sector investment. In evidence to us the Commonwealth
Business Council[3]say
that in order, for instance, to meet the Millennium Development
Goal of clean water, the rate of current expenditure on water
will need to rise from 70 billion per annum currently to 170 billion.
That will need private sector investment because the public sector
cannot do it alone and yet a lot of people, including NGOs, have
been critical of water privatisation in developing countries.
Has the Government considered establishing a multi-stakeholder
review of private sector participation in water and sanitation
in order to work out how you could encourage private sector investment
but ensure that it is invested in such a way to provide for the
needs of poor users of water?
Mr Brown: Can I deal with the
first two points of your question? The third point is actually
relevant to what Hilary has been doing. You may have seen the
Camdessus Report on water issues. It is interesting that he himself,
as a former managing director of the IMF, proposed an IFF type
of facility for dealing with the provision of water and the funding
of the infrastructure improvements. I agree with you that there
is a huge issue about charging. I mentioned in my initial remarks
that we hope to see the abolition of health user charges. Obviously
education user charges is a huge issue as well and the countries
that have abolished user charges recently have shown great increases
in the amount of people using schools and then when health user
charges have been removed there has been a great increase in the
number of people using health facilities. So these issues of charges
are being dealt with in the discussions in the World Bank and
the IMF on the specifics of the water initiative. Perhaps Hilary
may wish to deal with this and Piara's question.
Hilary Benn: Yes, if I may. I
mentioned, in answer to an earlier question, this issue of the
extent to which water and sanitation has or has not been figuring
in the PRSPs and described what I think is the way of trying to
deal with that. I think that we take a pragmatic view about what
is the best way to deal with this and, again, this is a matter
for developing country decision and developing country ownership.
Certainly the new World Development Report says that one should
be looking at a mix of ways of doing this; it may be public sector,
it may be private sector, it may be a mix, it may be a trust or
whatever. If you are going to get the investment in that you need
in order to improve the infrastructure, you have to find a way
of paying for that. In answer to Mr Khabra's question about the
PRSCs, I share your view about the very low take up. That is really
due to the time it has taken to shift from the previous lending
instruments, the due diligence requirements, and we would like
to see them more used. I think the real answer to your question
is that it is a matter of time. It is moving rather slowly, but
we would like to see that process continue for the reasons that
you identified in your question.
Q15 Mr Battle: Could I ask about
the Heavily Indebted Poor Countries Initiative? Chancellor, you
set out, at the beginning, the need for there to be a great growth
in GDP and that the chances of reaching the Millennium Development
Goals were somewhat slim. You gave dates ranging out to 2165 in
one case and I think the general consensus is that six out of
eight of the goals will not be met at all unless something happens.
While accepting that debt relief itself will never take countries
to meet those goals, I had a very helpful, may I say, fulsome
and thorough report in a Parliamentary question that I asked of
the Treasury from John Healey, the Economic Secretary, and in
his reply, which more than shows that not only was the Government
leading on this issue to press the debt redemption and reduction
but at present 27 countries have reached decision point and have
started to receive interim relief and of those eight have reached
completion point. I just wondered whether you felt that the debt
initiative had dried up and that we ought to ease back on it and
concentrate on other forces, or whether in fact we could still
keep the pressure up for debt reduction? That does obviously mean
ensuring that the countries have their poverty reduction strategies
in place.
Mr Brown: No, we have got to keep
up the pressure. I did mention in my initial remarks the importance
we attach to debt relief. Debt is the burden from the past that
is often preventing countries being able to develop for the present
and the future and we cannot have this unpayable burden of debt
holding back forever the development prospects of the poorer countries.
As far as the number of countries who could benefit from the HIPC
Initiative, when we started in 1997 on the HIPC 1 there was only
one country about to get in to it, so now that 27 are in I think
we do owe a debt of gratitude to the World Bank and the IMF for
moving this forward. But the biggest debt of gratitude is to people
all over the world who, in Jubilee 2000, in the churches and other
organisations, made this such a central issue that action had
to be taken. There are more countries who could get into the HIPC
Initiative and that is particularly conflict countries. We want
a post-conflict initiative that would actually help countries
restructure their economies and get debt relief quickly. But of
the countries eligible perhaps eight or nine are countries in
conflict or just out of conflict but for whom debt relief would
not be of great benefit at the moment because they are in conflict
or not able to benefit from the debt relief because they are ravaged
economies. We need a solution that helps them restructure as well
as helps them get debt relief. Then, as far as the initial group
of countries that are at either decision point or completion point,
it is true to say, and I think we should acknowledge this, that
the average amount of the revenue spent on debt servicing has
fallen from 27% to 11%. So there has been an achievement and we
must recognise that. Equally, the total figure of debt relief
at completion point will be 70 billion and it could rise to 100
billion. It is also true to say that 65% of the money that is
saved from debt payments is going to health and education. So
for all those people who have campaigned over the years this has
been a major achievement, but there is far more to be done, not
just for countries still to get in but for the 27 countries who
are part of the process who may not exit from unsustainable debt
unless we do other things. We are looking at the whole process
of topping up. We want to see changes in that. There are anomalies
in the process whereby countries that are getting 100% debt relief
are, in essence, subsidising countries only prepared to give 90%
relief. We are prepared to look at country by country solutions
over time where we see anomalies and difficulties that arise from
commodity price changes and everything else and that will have
to be moved forward, but of course the better way, as I have indicated,
of hoping to solve this problem not at the cost of money taken
from other countries given to countries with debt burdens is expanding
the amounts of money available and that is why I am interested
in the IFF as a means by which we can eventually resolve these
80s and 90s problems of debt and allow these countries to get
back to a position where they are both capable of going and borrowing
on the international markets where that becomes necessary. So
we are looking at a number of initiatives. We are prepared to
go further. We are not happy. HIPC 2 was always the best we could
get rather than the ideal and there is a lot more that we believe
can be done. So we are actively looking, over the next few months,
at what can actually be done and I think there is a World Bank
report on these matters jointly with the Fund on the topping up
and the sustainability question that will be coming in February
and perhaps you may wish to hold a hearing on that because I think
it is an important point which we have got to make decisions about
how much more resources we can put into debt relief and we will
be leading the way on that.
Q16 Mr Battle: That is very helpful
on the role of the Fund in helping low income countries deal with
external shocks. Could I just push you a bit further on that and
ask; as you gave us that graphic catalogue of numbers of the crisis
in meeting the Millennium Development Goals, what if we were to
take up suggestions by Christian Aid and others that perhaps Poverty
Reduction Strategies and perhaps the Poverty Reduction Growth
Facility documents that the World Bank and the IMF actually produce
should include estimates of the resources needed by each country
to reach the Millennium Development Goals? Do you think that would
be helpful?
Mr Brown: That is one way of looking
at it. Our aim to win worldwide support for further funds is essentially
to say here is the Monterrey deal that was agreed in Mexico, but
in return for countries offering to tackle the corruption problems,
the stability problems and dealing with issues associated with
trade and investment, we should be prepared to provide that money.
Almost every leader said that countries making these decisions
to modernise their economies, to get them sorted out, should not
be denied the resources for health and for education and development.
So I see no difficulty, in theory, in doing what you are doing.
The calculation, if I may say so, is that of the extra monies
that are needed, at least 10 to 12 billion is needed for education
spread across the countries we are talking about. 10 to 20 billion,
and I think if you include the latest AIDS estimates, which are
very serious indeed, is needed for health. Then other funds are
needed for the anti-poverty programmes that are being carried
out, including the removal of the burdens of debt. So the 50 billion
figure is, I think, borne out by the World Bank studies and spread
across the countries. You could reach a figure for each country,
but I think you have got to retain the conditionality that we
are talking about and if these reports simply say that "We
need X" without saying "We are going to do Y" I
do not think that that would be a best use of resources. The best
use of resources is reaching this understanding that, in return
for taking the measures that are going to bring economic strength
and economic development first and then strength later, we are
prepared to help finance the development of health, education
and anti-poverty programmes. I think that that is something that
the whole world is prepared now to sign up to and then, having
signed up to it, we must find a way of getting the resources.
Q17 Hugh Bayley: Can I move on to
the governance of the international financial institutions? The
EU is represented by nine executive directors on the IMF, eight
in the World Bank, and yet the 47 countries of sub-Saharan Africa
have only two representatives between them. My question is this;
how many countries can one representative reasonably represent?
Should there be change? If so, what? And should there be a change
in the voting strength as well to give a greater minimum vote
to all participating countries? Specifically, I know the UK Government
supports a change agenda, is there any hope that at the 2004 meetings
changes will be made or progress will be made?
Hilary Benn: As you have indicated
by your question, this is known as the Voice Agenda, but this
is extremely important to us. You are absolutely right to ask
the question in referring to the disparity in representation there
is in the current structures. I think the honest answer is that
we are going to need sustained effort in order to bring about
some change. One of the outcomes of the Autumn meetings was that
the Development Committee is going to be taking forward work on
this, Trevor Manuel from South Africa will be leading that and
there will be discussion in the Spring. Just to identify what
the key issues are, one is transparency because we are very strongly
in favour of greater transparency. For example, publishing the
minutes of Board meetings. Not all members of the Board currently
take that view, but it is something that we want to press on.
Secondly, we are pressing for a 25th seat for sub-Saharan Africa
on the Bank and the Fund's Boards, which will be a big step forward.
Others are not yet convinced that that is the right way to go.
We do also support an increase in basic votes as part of any revision
of the Articles. Then there is the question of the capacity to
represent a large number of people in a constituency, which you
referred to in asking the question. One of the things that we
have done is to support the Analytical Trust Fund that has been
set up, the UK is putting $500,000 into that, which is going to
try and help the developing country executive directors better
represent their constituents because it is a lot of countries
to look after, a lot of consideration to take into account when
you are trying to express a view on behalf of all of them. So
this continues to be a priority for us, but we have got to continue
to work at it and, in fact, frankly persuade others to attach
the same importance to it that we do.
Mr Brown: As far as the IMF is
concerned, there will be a discussion of quotas at the next meeting
in the Spring. The one cautionary note I would put in is that
you could at this point spend ages, years, months, discussing
these governance issues and it is right to want to get a better
system, but it is wrong to divert all the resources of the political
discussions to these issues when there are urgent issues of aid,
debt relief and the provision of funds to be dealt with as well.
So I think we have got to get this debate in its proper perspective.
It will take time to persuade some of the people that we are talking
to about the case for a 25th seat as well as some further changes.
These are important issues but we must get them in their proper
perspective as to the urgency of dealing with funding issues.
Q18 John Barrett: If I can move into
a slightly different area; a number of projects supported by the
World Bank raised concerns over environmental impact and impact
on indigenous people. Is the UK Government satisfied that there
are enough safeguards before the World Bank is making investment
decisions? Can you also answer about how DFID consulted with those
most directly affected by World Bank decisions as to how it will
affect them before the World Bank then moves on to make the decision?
Hilary Benn: Obviously a current
example of this issue is the BTC pipeline about which, in fact,
I have just written to all Members of the Select Committee. In
that case the IFC has a pretty rigorous process for trying to
assess a project like that. The truth with pipeline projects of
this sort, as I said in the letter that I sent to Members of the
Select Committee, is that there are benefits and there are risks
and the question is how do you manage those. Our view is that
having the involvement of—
Q19 Chairman: I am sorry, I know
the Chancellor is keen to get away. We are going to be asking
you other questions about the IGC, so just to maximise the Chancellor's
time, particularly as he is going to do nappy changing and stuff—so,
Chancellor, thank you very much and I am sure we are going to
continue on these issues. Thank you very much for sparing the
time for us this afternoon. It is a very positive report and I
think we have all been extremely grateful to you and your energy
for taking forward the IFF.
Mr Brown: Thank you. I shall send
you a note on the progress of the debt relief initiatives further
to the questions you have raised[4]Thank
you very much.
Hilary Benn: I think the involvement,
in the case of this project, of the IFC and the EBRD, in due course
if they decide to make a decision similarly to support it, increases
the chances that the concerns that you have expressed in asking
the question are going to be taken account of. It is partly a
question of having the right policies and as far as our approach
is concerned we cannot, with all of the decisions which these
institutions are taking, go through our own process because in
the end you have to trust the due diligence and assessment process
of the institutions themselves. Although, in the case of BTC,
as I indicated, we did ask consultants actually to review, because
of the scale of the project and the concerns that have been expressed
about it, to reassure ourselves that we felt that the process
had been gone through properly and that that was the case. Looking
at the concerns that have been raised, a lot of them are about
implementation of the policies and therefore, as far as the IFC
was concerned, in reaching a decision to support the loan in that
particular case, one of the things that we got the IFC to agree
to was that there would be a mechanism for bringing together round
the table the people who have these concerns so that one can try
and sort them out. I do believe very strongly, having thought
long and hard about this, that the involvement of those international
lending institutions increases the chances that you are going
to be able to address these problems, whereas if they step back
then it might be more difficult to do that.
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