Examination of Witnesses (Questions 20-35)
MR JEFF
POWELL AND
MS OLIVIA
MCDONALD
19 OCTOBER 2006
Q20 Hugh Bayley: Would it not be
better if you developed arguments against the institution that
its policy is wrong rather than ad hominem? It sounds to
me as if you are creating an Aunt Sally because you have some
personal axe to grind.
Mr Powell: I am referring to a
study that was done in terms of perception by groups in the south
who want to see how this framework is developed, not my personal
views.
Q21 Hugh Bayley: Surely it is really
important for the Bank to deal with corruption. It needs corruption
policies; it needs to coordinate with other agencies. Why are
you knocking this?
Mr Powell: It absolutely is; it
is a question of how. It is really a question of how. What happened
is that it looks as if Wolfowitz decided that this was his personal
issue and so from the end of last year he started cancelling various
projects.
Q22 Hugh Bayley: Leave Wolfowitz
out of it; the Bank is an institution that is much bigger than
the individual. My Africa All Party Group has just produced a
report on corruption. I applaud the fact that this is going up
the political agenda as far as donors are concerned. I was very
pleased to see that the new DFID White Paper gave a much greater
focus on the importance of improving governance because we know
that with bad governance a lot of aid is misused. To be creating
the impression that it is wrong for the Bank to move in the same
direction seems to me that in a policy sense it is going to harm
development and therefore harm the poor rather than be helpful.
Ms McDonald: If that is the suggestion
that is coming out that is unfortunate because I do not think
any of us take corruption at all lightly. As far as I am concerned
it is a question of what is the best way of dealing with corruption.
We have substantial policy concerns with the approach the Bank
has used in the past and the approach that could be used in the
future. There have been successive changes of their anti-corruption
draft which is now improved but six months ago some of the stuff
that was said was quite alarming. It was basically saying that
they were going to do assessments at the outset and if a country
is corrupt they would not lend to it. We are seriously concerned
that that strategy would harm people in that country. We are not
saying that you just give money to that country, nor that the
Bank should not be looking at these things. What we are talking
about is how do you deal with corruption in that country. I think
what came out in the White Paper was really good in linking governance
and corruption. What I am worried about is that that link is not
being made very clearly in the Bank and it is quite a battle to
get that to be seen in the Bank. It really is a policy issue.
Q23 Mr Davies: Are you actually saying
to us that you think that Mr Wolfowitz is an unsuitable person
to be president of the Bank?
Mr Powell: Yes.
Q24 James Duddridge: I would like
to ask you about the Norwegian Government's recent decision to
cancel the debts of five countries, both in terms of their rationale
for doing that and what the policy implications are for other
countries.
Ms McDonald: I am not what we
call a debt-head but I will give it a try. Christian Aid have
been pushing for the issue of illegitimate debt to be raised and
discussed and potentially cancelled so we really welcome what
the Norwegian Government has done in deciding to cancel loans
to five different countries. What we would particularly like to
see is that the UK Government and the World Bank begin to look
at this issue in the same way that the Norwegian Government has.
Mr Powell: The Norwegians have
put forward some funds to look at this same issue from a multi-lateral
lens within the World Bank and we are looking forward to the results
of that research. We hope that the Government would take an active
role in supporting that research and following up on any recommendations
that do come out of it.
Q25 James Duddridge: Do you agree
with the current British Government's view that the HIPC[2]
initiative is a much more effective way to deal with sovereign
debt? Do you think there are lessons to be learned from the Norwegian
example or is the British Government still correct to stick with
HIPC?
Ms McDonald: From my understanding
the idea of illegitimate debt is that it has three different elements:
a debt that cannot be paid; debts that are unstable for human
development interests; and the issue of odious debts. HIPC only
really deals with the fact that a country cannot afford to service
its debts so how does that impact on development? It is not particularly
looking at the question of who the loan went to, and it does not
look at the question of whether the loan was something that was
overpriced and did not work, in which case the person giving the
loan was maybe somewhat complicit in that loan and should that
country still be shouldering that debt. The UK Government has
done a lot to get HIPC and the MDRI[3]
debt initiatives through. We are just saying it is time to look
at the broader picture of illegitimate debt.
Q26 Chairman: You are not a debt head
as you put it, but are there any circumstances in which HIPC would
not actually embrace odious or illegitimate debts? They are not
going to be able to pay it anyway. If it is odious and if it is
illegitimate that is probably true. Is there any evidence of what
is defined as odious or illegitimate debt not meeting the HIPC
criteria?
Mr Powell: There are two cases.
One is that many countries which might be HIPC eligible either
have not yet got into the process or have been very slow going
through the process. If part of those debts were so-called odious
debts they should have been cancelled immediately. There is an
issue of accumulation on those debts so that if loans were used
for purposes other than for which they were contracted, of course
they have been paying interest on those debts for anywhere from
five to 10 to 20 years and there is an issue about what to do
on those accumulated arrears as well. Then there is the question
of middle income countries which are not eligible for HIPC so
you do have countries in Latin America or Indonesia which are
never going to be eligible for HIPC and where odious debt is still
a key issue.
Q27 Mr Davies: Would you just take
the example of two countries with the same per capita income,
the same economic characteristics altogether, the same level of
external debt; the only difference is that over the last 10 years
one of them has had an entirely democratic regime and the other
one for most of the time has had a nasty totalitarian regime.
Under your proposals the debt of the second country would be cancelled
and the debt of the first country would not. Is that not a curious,
perverse incentive to create?
Ms McDonald: As I said when I
was talking about illegitimate debt and the fact that we are talking
about unpayable, unsustainable and odious debt—
Q28 Mr Davies: You were saying that
the odious debt gets cancelled right away because it is odious
before you even start getting involved with HIPC and so forth.
I have just given you the example of two countries which are totally
comparable except that one of them, because it has had the undesirable
experience of having a nasty totalitarian regime, all its debt
is characterised as odious, all of it is written off. So it gets
an enormous dividend and everybody's wealth in that country is
enhanced overnight for the simple reason that they had a nasty
totalitarian regime, whereas the other country in my example which
has been a perfect democracy all this time does not get any benefit
at all. Is that not an unfair and perverse incentive to create?
Ms McDonald: That is a really
good question.
Q29 Mr Davies: Had you not thought
of it?
Ms McDonald: No, I am not a debt
head.
Q30 Mr Davies: Then you should think
about it before you take this proposal any further, if I may say
so.
Ms McDonald: If you let me respond
I would argue that what we were saying earlier about the role
of having democratic scrutiny of loans, if you had that process
in the country where citizens and parliamentarians could say,
"Why are you agreeing this loan? Why are you agreeing this
loan, this loan, this loan? We do not need this factory. We do
not need this. We cannot afford to shoulder this. This is eating
into our budget" then actually you would not have a situation
where a country had built up that debt in the first place.
Mr Davies: You have not answered my question.
If you look at countries that have had nasty totalitarian regimes
and you say it is not the fault of the people that that debt has
been taken on and therefore it is odious debt, so you simply write
it off; it is no longer repayable, it is a free gift to that country.
So that country gets a free gift for having a totalitarian regime.
Do you see my point?
Hugh Bayley: Maybe it is a reward for
better governance.
Q31 Mr Davies: It is not a reward
for better governance because the country that has had the better
governance, that has been the ideal democracy all along, is not
getting any reward out of the system whatsoever. That is what
is perverse about it. I would like you to think about that before
you take this process any further.
Mr Powell: This is not an arbitrary
decision about what is odious debt. It is establishing some kind
of international mechanism which we do not have the answers for
of how it would be set up, but that is what needs to be investigated,
to make careful decisions about what is odious debt.
Mr Davies: The principle is that the
worse the government's record the more likely it is that the debt
is going to be written of. You have a king-sized perverse incentive
created, that is my point.
Q32 Chairman: Are you saying that
or are you saying that it would be the case if the country had
got rid of that regime?
Mr Powell: That is what we are
trying to get to. There is a whole question of how you would deliver
that benefit. If it is still an odious regime in power there are
different mechanisms you could explore about holding that money
back until such time as there is a change in power. That is the
point I was trying to get to and I think there is the whole question
of an odious regime you do not have the counter-factual of what
actually those funds might have gone towards to be invested in
economic growth. So that odious regime, even though growth may
have been reasonable, may have punished the citizens for decades.
Mr Davies: Odious regimes are not necessarily
economically ineffective. The Pinochet regime in Chile which might
be thought of as an odious regime was immensely successful economically.
My point stands.
Q33 Chairman: I do not want to go
down that route. This debate was there right at the beginning
of the whole HIPC process which is why, as you say, we need to
be reassured before we write off debt that things have changed
whereas some NGOs were saying write off all these debts unconditionally.
I think to some extent Mr Davies' point was being borne in mind,
namely that you cannot reward a people for irresponsibility on
corruption, at the same time there is no point in going on insisting
on the repayment of debts when you will never get the money back.
I think Mr Davies has made a fair point that there is a dilemma
there and if this definition is taken forward it would be helpful
to try to address that. We are getting towards the end of our
time but I would like to move onto energy and climate change because
one of the things that the Bank in particular has stated that
it is in favour of moving towards is low cost solutions, renewable
energy, alternative energy. As far as I understand from the briefing
we have is that in reality its funding is still going to things
like fossil fuels and nuclear power and large scale hydro-electric.
Is this an over-hang? Is change coming or are you concerned that
it is another case of rhetoric not matching the delivery?
Mr Powell: The language is improving
and we hope that there will be change. There has been some increase
in the renewables portfolio but yes, we are worried that it still
seems largely symbolic. Renewables are still less than 10% of
the Bank's public portfolio, less than 6% of its private portfolio
and largely they are made up by a few very large projects that
still involve clean coal and large hydropower. So far we have
not seen the evidence to really back up the encouraging change
in the language of what the Bank is doing. We are worried that
the definition of what is renewable energy really is not shifting.
We also have some concerns about the repeated reliance on carbon
markets as the only way that we are going to solve these problems
and seemingly a refusal to look at strengthening regulatory mechanisms.
Q34 Hugh Bayley: The Commission for
Africa called for a huge increase in spending on infrastructure,
an additional US$20 billion a year they called for in Africa.
The Bank is by far their largest single donor on infrastructure
projects and its funding for infrastructure is increasing, but
what is your view of the Bank's decision to champion high-risk/high-reward
projects, given the problems there have been with some large infrastructure
projects in the past?
Mr Powell: Again the language
we get from the Bank is that we have learned the lessons of the
past, from the white elephant projects that we had in the seventies
and eighties. However the reality on the ground is that in the
last five years—a little bit beyond five—the Baku-Ceyhan
pipeline, the Chad-Camaroon pipeline (the Chad-Camaroon is the
biggest investment in Africa; the Baku-Tbilisi-Ceyhan is the biggest
investment in Central Asian infrastructure), the Nam Thuen 2 dam
in Laos, it looks like there is going to be enormous investment
in large hydropower in Pakistan imminently, so it looks like these
lessons are not being learned. Small de-centralised energy provision
is better for the poor, it creates jobs and it avoids all the
enormous problems that we have encountered in terms of human rights
abuses in terms of not living up to the economic potential of
these large projects in the past. It is very much the case that
although we agree very much that there is the need for an increase
in investment for infrastructure, the question of what kind of
infrastructure does not seem to be changing.
Q35 Chairman: Thank you very much.
I am sorry this has been slightly curtailed because of the vote,
but thank you both for coming in. Our exchanges are always, I
think, robust but good natured and they do help us to formulate
our ideas about policy and there are conflicts within the development
of policy which governments and international agencies have to
struggle with as well. I very much appreciate the fact that you
have taken time and trouble not only to provide written submissions
but to come in and explain them and subject yourselves, as I say,
to friendly but robust questioning.
Mr Powell: Thank you very much
for the invitation to appear this afternoon.
2 Heavily Indebted Poor Countries. Back
3
Multilateral Debt Relief Initiative. Back
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