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Session 2002 - 03
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Delegated Legislation Committee Debates

Draft International Development Association (Thirteenth Replenishment) Order 2002

Second Standing Committee on Delegated Legislation

Tuesday 3 December 2002

[Mr. John McWilliam in the Chair]

Draft International Development Association (Thirteenth Replenishment) Order 2002

10.30 am

The Parliamentary Under-Secretary of State for International Development (Ms Sally Keeble): I beg to move,

    That the Committee has considered the International Development Association (Thirteenth Replenishment) Order 2002.

It is a great pleasure to be here this morning under your chairmanship, Mr. McWilliam, and I am sure that we shall make speedy progress.

The International Development Association is the concessional lending arm of the World Bank Group. It is the largest source of concessional lending, with commitments of $8.1 billion in the fiscal year 2002.

Mr. Richard Page (South-West Hertfordshire): On a point of order, I cannot hear the Minister talk about this important subject. Will you ask her to speak up, Mr. McWilliam?

Ms Keeble: I shall try to speak up.

Mr. Robert Key (Salisbury): It is quite clear that the Committee's work is being disrupted by hammering and drilling, which is part of the works going on in the House. It is unreasonable to expect Members, who may not have perfect hearing, to take a constructive part in the proceedings of the Committee. It appears that the Serjeant at Arms has been unable to halt the work, so I suggest that the Committee adjourns.

The Chairman: That is not a matter for me, although I appreciate the difficulty caused by the noise and am attempting to get something done about it.

Ms Keeble: I shall try to speak up—I sometimes speak quietly—and I hope that that will improve the situation.

The IDA provides financial resources and policy advice to 79 of the poorest countries in which the vast majority of people live on less than $2 a day. Those countries are home to 2.5 billion people.

The IDA provides loans, known as credits, which are highly concessional. They have long maturities with a 10-year grace period and 40 years repayment; they are also interest-free, but carry a small service charge. Although the IDA is largely dependent on donor funding, 40 per cent. of its resources come from reflows, which are repayments from earlier credits. There is also a transfer from the net income of the International Bank for Reconstruction and Development, which is the non-concessional lending arm of the World Bank. In order to carry on lending,

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the IDA's resources have to be replenished approximately every three years.

Negotiations on the thirteenth replenishment of the IDA were concluded in July 2002. The package of support for IDA-13, agreed by donors, will allow the IDA to provide special drawing rights of £18 billion in a basket of currencies largely dominated by the US dollar to poor countries from 2002 to 2005. New contributions to that package from donor countries will provide special drawing rights of £10 billion, with the balance coming mainly from repayments of earlier IDA credits and contributions from the World Bank.

Completion of the negotiations on this latest replenishment was held up for some months because of the insistence of the United States—the largest donor—that a substantial proportion of IDA-13 resources should be provided on grant, instead of loan, terms. The UK, together with other European countries, considered that a much smaller proportion of IDA should be available on grant terms if the financial integrity of the institution was to be preserved, a point in which some hon. Members are especially interested. The IDA is principally a lending institution the role of which is to provide a bridge between grant finance and access to private credit. The ultimate goal must be to help developing countries graduate from aid so that they become full participants in the international system. Donors have finally agreed that 18 to 21 per cent. of IDA-13 resources should be made available as grants. The UK successfully pressed to ensure that grant categories were focused on the poorest countries, particularly those with debt sustainability problems. Poverty reduction continues to be IDA's overarching objective and all its activities must be a means to that end.

Donors reaffirmed the importance of putting borrower countries in the lead in their development processes, and endorsed the principles of country ownership and enhanced partnership underlying the poverty reduction strategy process. Together with others, the UK emphasises the centrality of the poverty reduction strategy process as a way of improving aid co-ordination and providing a common framework for all donors' assistance programmes to a country. We welcome efforts to facilitate harmonisation of policies and procedures across donors, in which the World Bank is playing a role.

It is also important that IDA intends to increase its selectivity within countries by concentrating on areas where it has a comparative advantage. That advantage lies at the strategic level—in helping countries to improve their economic management and implement structural reforms, and in sharing knowledge through economic and sector work. Crucial to that approach are IDA's programmes on governance and public strengthening, including capacity building.

IDA's performance-based allocation system, introduced in IDA-12, has resulted in increased selectivity in the allocation of resources at country level, based on assessments of the soundness of countries' policies and institutional arrangements. An enhanced system will remain in place for IDA-13.

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As the Department for International Development's institutional strategy paper on the World Bank—published in March 2000—recognises, the bank has huge strengths in terms of the scale of its lending, its operations across the globe, the degree of influence that it brings to bear on the policies and priorities of borrowing member countries and its capacity to exercise intellectual leadership on global issues. Among the multilateral development institutions, the World Bank plays a lead role in setting and pursuing the international development agenda, and is committed to contributing to multilateral development goals.

Under the leadership of President Wolfensohn, the bank continues to make strenuous efforts to become more developmentally effective. IDA's approach to poverty reduction has evolved and become more sharply focused over time. Evidence of the effectiveness of IDA was provided in a report published by the World Bank's operations evaluation department in May 2001, which reviewed IDA lending of $42 billion between 1994 and 2000. Given the time frame, it concentrated on compliance with IDA policies rather than making a full assessment of the developmental effectiveness of IDA programmes. However, it concluded that IDA's performance had improved markedly during the period under review.

Nevertheless, more needed to be done regarding mainstream gender and environmental issues, and to see that the development priorities identified in borrowers' poverty reduction strategies were reflected in the bank's country assistance strategies. Since publication of the review, increased efforts are being made in those areas. Following a recommendation in the operations evaluation department review, IDA-13 donors encouraged bank management to establish a results-based measurement system based on achievable targets in order to link IDA-financed programmes to countries' development outcomes and the millennium development goals.

Subject to parliamentary approval, the UK share of IDA-13 will be 10 per cent. of the total, making us the fourth largest donor to the IDA after the USA, Japan and Germany. The UK contribution will rise to £1 billion over three years—up from £511 million, a 7.3 per cent. share, in the last replenishment. Our new contribution will be divided into £900 million for the IDA-13 replenishment, plus up to an additional £100 million for grant compensation—that is, to make up the amount that is lost as a result of change in distribution between grants and loans. The latter is conditional on other IDA donors agreeing an acceptable mechanism for grant compensation at the IDA-13 mid-term review in autumn 2003. Payments will be made over three years, starting in 2002–03.

In conclusion, we are pleased to continue the support of successive British Governments for this important institution, which is dedicated to working for the elimination of poverty and for sustainable development, and which has achieved great successes. I commend the order to the Committee.

The Chairman: Order. Before I call the hon. Member for Salisbury (Mr. Key), I can report that we have succeeded in getting the drilling stopped. I am

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trying to get the seance that appears to be going on out there stopped, too.

10.40 am

Mr. Key: It is a pleasure to serve under your chairmanship again, Mr. McWilliam. I thank you for your efforts to allow us to concentrate more on the work in hand than on the refurbishment of the Palace of Westminster. Will you convey to the Speaker how difficult it is for Committees to operate in such circumstances? Perhaps the Serjeant at Arms can bring more influence to bear.

The Chairman: The Speaker's Panel is meeting next week, and I shall have the matter placed on the agenda.

Mr. Key: I am grateful, Mr. McWilliam.

Conservative Members support this replenishment—there is no doubt about that—but it is important to clarify several issues surrounding our overseas aid programme. Since long before I was a Member of Parliament, I have believed that it is in our nation's interest that we should ensure that the disparities between wealth and poverty in the world are minimised. Apart from anything else, that means that there can be more international trade, to our mutual benefit. I am therefore delighted that this year a consensus has emerged that trade is good thing, whereas for a quarter of a century that did not appear to be the case. I was heartened to hear the Chancellor of the Exchequer announce in his pre-Budget report that

    ''having already agreed $62 billion of debt relief for 26 countries, our aim is now $100 billion for the 38 countries in total that stand to benefit from the cancellation of debt.''

That is a great move forward. However, in the next paragraph the Chancellor said something very intriguing, and I should be grateful if the Minister could clarify it. I quote:

    ''I can inform the House that Britain is now proposing a new international development finance facility, with public finance leveraged up by long-term international commitments, so that we can raise the amount of development aid for the years to 2015, with a step change from $50 billion a year to $100 billion a year''.—[Official Report, 27 November 2002; Vol. 395, c. 326.]

On the face of it, that is good news, but it adds to the confusion. We have our own bilateral and multilateral development aid programmes, with replenishments such as that in the order. Will the Minister clarify whether the new finance facility will take the form of grants or loans? [Interruption.]


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