Examination of Witnesses (Questions 40-59)
RT HON
HILARY BENN
MP, MR MARK
LOWCOCK AND
MR MARK
BOWMAN
19 OCTOBER 2006
Q40 Chairman: The £50 million
is out of a total of £1.43 billion of aid that we have committed
last year to the Bank. This Committee, on a number of occasions,
have discussed an expanding aid budget which is continuing to
expand regardless of debt relief in absolute terms and in a sense
you have to work through international agencies because the capacity
of DFID to do more is limited—not totally limited but by
definition limited—so you are left with not much choice
other than to support the World Bank. The question always has
been: how do you deal with the World Bank if it is not doing the
right thing? Where else could you put the money if you did not
give it to the World Bank?
Hilary Benn: We are very strong
supporters of the World Bank and we give the World Bank a lot
of money and it does a lot of good work. In the end you have to
strike a balance. Some of the campaigning NGOs—Christian
Aid and others—have been urging us to withhold a very large
amount—if not all—except the funding for the debt
relief. After a clarification on their part I do not think that
would be the right thing to do. We have to recognise, as you say,
that we are one of a number of members of the Bank and we do not
wholly control it. I think it is fair to say that on this issue
of conditionality we and one or two other countries have taken
a particular interest, but it is not an interest that is shared
by everybody else. Having worked to get good principles drawn
up, what I now want to see is how they are being applied in practice
and the answer to your earlier question is that it depends on
what that report shows and in the end I am going to have to make
a judgment as to whether I think the Bank has made sufficient
progress—and in the end I will take responsibility for that—in
implementing those principles in practice. One of the benefits
of getting this further report is that the original retrospective
covered—I think I am right in saying—the period of
January to June. The Bank has now agreed to go back to October
of last year to October of this year so we will get a longer period
covered. I hope very much that we will get further and much more
detailed information that will allow us to make a judgment because
some of the campaigning NGOs, having made an attempt themselves
to do that kind of assessment, I think the best thing is for the
Bank to do it itself. I welcome the fact that in the run up to
the Singapore meetings the Bank decided that it would produce
that report which, as I say, was I think in response to some encouragement
from us.[5]
Q41 Chairman: We have asked this in the
past and it seems that, for reasons you have explained quite clearly,
you have upped the ante. Do you not think that given the significant
amount of British tax payers' money that is going in the World
Bank and given the debate that you have initiated and the fact
that you have to make a judgment about it, that it would be appropriate
for the Government to initiate a debate in the House to explain
what that policy is? This Committee is not generically opposed
to the World Bank at all; we meet with them regularly and deal
with them and appreciate the work that they do. At the end of
the day the point is that we are giving a significant amount of
our aid budget through that route and Parliament really ought
to have the opportunity for debating it. You have said in the
past that you would have a look at it and you think it is a good
idea, but do you not think, having made this stance, that it would
perhaps be appropriate timing to have a debate in the near future,
perhaps at the point at which you evaluate the decision?
Hilary Benn: I hope very much
that we are going to get an opportunity soon in the main chamber
to debate a number of things to do with development and no doubt
this is one of the issues that will come up because I hope we
are going to get the chance to debate the White Paper[6]
which is published in July and I have no doubt that this issue
which we are discussing now will figure in that debate when we
get it. There are real issues here to discuss about the choices
we make as to where we put our money within the multi-lateral
system and what effect we get for those choices. There is also
a real debate to be had about how we pursue the policy approach
that we now have on conditionality in multi-lateral institutions,
recognising that we are just one voice. I do think in the end
that it is about striking the right balance and that is what I
am seeking to do.
Q42 John Barrett: Secretary of State,
you mentioned campaigning NGOs in relation to the Singapore meeting
and you may be aware that some NGOs had major problems getting
into Singapore despite the Singapore Government having signed
a Memorandum of Understanding that accredited groups and organisations
would be allowed to attend. Has the Government carried out any
enquiries as to why the Singapore Government felt it necessary
to ban certain individuals, some of them British, from the annual
meetings of the World Bank and the IMF? Secondly, what will Her
Majesty's Government do to ensure that the hosts of future meetings
do not arbitrarily decide who to exclude from those meetings?
Hilary Benn: When we became aware
that there was a problem we and others made representations—as
did the World Bank—and I did discuss this with Paul Wolfowitz
when I arrived in Singapore. I know that as a result of those
representations from a number of people some of those who had
not been allowed in were allowed in, but I am also very conscious
that some could not change their plans when finally a decision
was taken to permit them to get into the country. I really do
regret what went on. I find it frankly pretty inexplicable and
I do not think it reflected terribly well on the Government of
Singapore, particularly because there was this Memorandum of Understanding.
What I think we do now need to reflect on—I hope the Bank
is doing so and I shall go away following this session to check
whether that is the case—is to try to ensure that in future
a Memorandum of Understanding between the Bank and the country
which has offered to host the meeting results in the spirit of
that memorandum being implemented, namely that people who are
properly accredited are able to come to the country.
Q43 John Barrett: Was there a feeling
at the time the because of the lack of attendance that something
was missing? Some of the forceful individuals and organisations
would have felt that they were being kicked out and it does not
benefit anybody, I would suggest, not to have the maximum amount
of participation.
Hilary Benn: I agree with that
completely because one of the features of the annual meetings
is that there are the formal meetings with the representatives
of the various countries, but there is also a lively fringe—to
put it absolutely bluntly—and I think it is important that
all of those voices are heard in the debates and discussions.
That is certainly the case outside of the formal meetings, the
annual and the spring meetings, and I really think it is highly
regrettably and honestly I do not understand it. Surely no-one
has anything to fear from listening to all of the voices about
these really, really important issues. I hope it does not happen
again.
Q44 Chairman: It is true that some
of the NGOs said in advance that they did not like the location
of Singapore because they feared this would happen. What steps
are taken to ensure that when a venue is selected you can ensure
that this does not happen?
Hilary Benn: I think in the light
of the experience there has been, I am sure the Bank will want
to make sure that there is not a repetition of this. As I say,
I only became aware relatively close—I cannot remember the
exact day—to the annual meetings that this was a problem.
It came out of the blue and as soon as we became aware then, as
I say, we and others made representations, but I do hope that
the Bank on reflection would now pick up exactly the point you
have made and ask countries that are hosting future meetings whether
we can be absolutely clear that what it says in the Memorandum
of Understanding is what is going to happen.
Q45 Mr Davies: Secretary of State,
do you accept that the World Bank is right to enforce conditionality
relating to economic policies to make sure that the economic policies
pursued by recipients of their loans and their aid packages are
not going to damage their economic development?
Hilary Benn: For me, as we have
discussed before Mr Davies, the debate about conditionality is
about the right kind of conditionality. I take a particular view
about certain types of economic policy conditionality and they
were set out clearly as far as our own policy is concerned in
the review Partnerships for Poverty Reduction: Rethinking Conditionality
which we published last year. There are other types of conditionality
where it is right and proper for donors—international institutions
like the World Bank—to link to lending and aid and it is
a question of judgment as to where you are going to do that, consistent
with the principles that have been laid out, and I welcome the
principles that the Bank adopted.
Q46 Mr Davies: We have discussed
this matter before and I know that you are perfectly happy with
conditionality applying to human rights, or for example monitoring
the expenditure of aid and we both agree about that. Do you not
agree that it makes no sense at all to give aid to a country if
they are pursuing policies which run quite counter to the economic
development which one is trying to encourage? For example, if
the country's regulatory and tax policy is such as to discourage
entrepreneurship there is absolutely no point in the tax payers
of this country or other countries providing a large amount of
aid because the domestic process of wealth creation has been stymied
by the policy of the government concerned. Equally I came across
a country the other day, for example, that has a rule that foreign
investors can only take out of the country the amount they put
in. In other words, any investment cannot achieve a return because
you can only take out what you put in. That, of course, as I said
to the president of the country concerned, is effectively putting
a large sign above the country saying that they do not want foreign
investment there. What is the point of providing aid packages,
whether through multi-lateral, multi-national agencies like the
World Bank or bi-lateral donors like ourselves if the country
is actually turning away FDI (Foreign Direct Investment) by perverse
policies? Surely it would be irresponsible for donors not to draw
the attention of recipient countries to perverse or damaging policies
of that sort and not to insist on occasion that those policies
be changed because otherwise what you are doing is stepping on
both the accelerator and the brake which can make no sense whatsoever.
Hilary Benn: I agree with you
completely that it is right and proper for all donors, including
the Bank, to raise the issue and you draw attention to two very
good examples in that particular case. However, I think it is
a matter of judgment as to whether, having done that, you are
going to encourage the government in question to make progress
or make it a condition of lending and it depends on what kind
of lending you are giving. If it were a programme for education
would it be sensible to link progress—albeit on a very important
issue that you have raised, Mr Davies—to a decision about
lending on an education project? I think there has to be a balance
in these things.
Q47 Mr Davies: You would not have
a quarrel with Mr Wolfowitz if the World Bank adopted conditionality
of the kind I have just set out where their own programmes are
concerned.
Hilary Benn: As long as it is
consistent with the principles that the Bank itself has adopted.
Q48 Mr Davies: Would that conditionality
that I have just described be consistent with those principles
in your view?
Hilary Benn: It depends. Since
the first of the principles is country ownership; to what extent
is there country ownership of action to deal with the problem
that you yourself have identified? That is what the Bank itself
has adopted. I know the debate about ownership is very fraught
because some people ask how do you demonstrate that it really
was the partner government that decided they were going to do
this? Were they leaned upon? Were they encouraged? Were they given
the impression that if they did not move on this they would not
get the money? That is why it is quite difficult to come up with
a hard and fast rule.
Q49 Mr Davies: That is really my
question. Would that make it unacceptable to you? Would that be
a breach of the principles? If the World Bank said that in order
to get this particular grant you must change this policy and then
the government said they would change the policy, would that mean
that there was no ownership? Would it mean that the whole principle
number one was breached? Would that mean the kind of conditionality
that was being imposed was unacceptable to you?
Hilary Benn: It would genuinely
depend on the circumstances, whether the country in the end had
decided that this is what it wanted to do and it is very, very
hard to define where the line is to be drawn between being required
and the country itself deciding that this is something that it
wanted to progress.
Q50 Mr Davies: So you are against
conditionality which actually influences policy?
Hilary Benn: No, I am not. As
I have said repeatedly, Mr Davies, that it is about the right
type of conditionality. Let me give you an example. In the case
of our own budget support for Sierra Leone we have an element
of that which is dependent on progress on a number of issues.
One that I was concerned about was the linkage of drugs that were
purchased by the central drugs purchasing agency and whether they
reached the regional and district health clinics. When I was in
Sierra Leone in July I learned that the problem is a combination
of inability to record whether the drugs have got there and some
speculation about whether some of the drugs had been diverted.
One of the measures that we are going to use to determine what
we do with the variable element of our budget support is going
to depend on progress on that. It so happens that the Government
of Sierra Leone is itself committed to making progress on that
so, if you like, it is a shared conditionality and the fact that
they have a public expenditure tracking system now allows them
much better to identify what proportion of the drugs bought centrally
actually get to the people for whom they are intended.
Q51 John Battle: The International
Monetary and Financial Committee of the IMF decided to have a
two-stage process of reform with the ad hoc increases in quotas.
Why did our Government back the two-stage reform process and agree
to delay the reform of the quota formula for two years? Do we
think that the loss of quota particularly by India is a satisfactory
outcome? As you will know, China, South Korea, Turkey and Mexico
saw their quotas increase; India's has decreased. Is that what
you were looking for?
Hilary Benn: As you know the Fund
voted 90.6% for these reforms and China, Korea, Mexico and Turkey—the
four most under-represented—are going to get quota increases.
That is the first thing. Secondly, we recognise that in particular
the low income countries—especially those in Africa—in
the run up to the meeting had concerns about the pace of progress
and we would definitely like to see an increase in the voting
share for low income countries and we are prepared to look at
seeing the share of basic votes tripling at least in order to
try to ensure that that is the case. In relation to the specific
point to do with India, since I was not at the meeting but Mark
Bowman was, he might be able to help the Committee.
Mr Bowman: The issue about doing
this in two stages is a very difficult debate, having a discussion
on the distribution of quotas. I think the important thing about
getting agreement to the first stage is that there is a very strong
commitment to following through on the two year process which
is a more fundamental review of the quota formula to simplify
the process, to make it more transparent and to have a system
which properly reflects the economic weight of countries in the
global economy. The other absolutely essential element for us
is increasing the basic vote, the number of votes that are given
to individual countries irrespective of their size. We have a
very clearly stated objective of increasing the voting share of
low income countries overall. It would have been nice to do this
in one process, but the absolutely essential thing about the agreement
in Singapore is the overall commitment to following through on
this two year process of overall reform.
Q52 John Battle: The Indian Finance
Minister did not think that the formula was right for India; do
you?
Mr Bowman: The current formula
is the product of successive negotiations over the past forty
years.
Q53 John Battle: The reform will
not make any difference.
Mr Bowman: There is a clear commitment
in the resolution that was agreed by the governors in Singapore
to simplify the formula—make it more transparent—and
that is a process and a debate that will go on over the next two
years.
Q54 James Duddridge: Secretary of
State, what steps is the Government prepared to take to ensure
that developing countries have a better representation on the
executive board and, will that greater representation mean a commensurate
reduction in European involvement and British influence?
Hilary Benn: In relation to the
Bank we are stuck on voice, which is the issue that we are discussing.
We want developing countries to have a greater voice on the Bank
but currently the various proposals that have been put forward
for changing the structures have not been able to command a majority
and we are going nowhere. That is a very blunt and rather gloomy
assessment of where we are at. Secondly I would say that it would
be nice if, even within the limited representation that developing
countries have on the Bank Board currently, we heard a little
bit more noise about voice. That is just an observation having
been to a number of meetings. The third point I would make—it
is one I have made to the Committee before—as I reflected
on the lack of progress (and it is not for want of trying but
for lack of consensus) it occurred to me that trying to make progress
on conditionality—coming back to the point that we have
just been discussing—was quite an effective way of giving
developing countries a greater voice in what happens because if
the principle of country ownership is encouraged and upheld then
that puts them in a stronger position to take decisions about
the future of their own countries in relation to support they
get from the Bank than has been the case in the past. We have
put a certain amount of energy—as the discussion we have
just had demonstrates—into trying to make progress on conditionality
because at the moment genuinely I do not see how this is going
to move forward in the Bank. There is no sign of it happening
and I regret that.
Q55 James Duddridge: Who is responsible
primarily for this resistance?
Hilary Benn: There is not a majority
in favour of making change. Also because there have been different
proposals as to how a change might be made and there has not been
a sufficient head of steam in support of any one of those to get
it through. It really has not been for the want of trying. The
sad thing is that in the last couple of meetings voice figured
less prominently in the discussions—certainly in the Spring
meetings; we did not discuss it in the autumn meetings—and
that was not the case when I first came onto the Bank Board; it
was quite a live issue but we have not been successful.
Mr Lowcock: I think the pressures
for change in the World Bank on this topic will grow if the second
stage of the reforms in the IMF are completed. At the Development
Committee the shareholders of the Bank did ask the Institution
to keep this issue under review with, from our perspective, the
hope that there will in due course be scope for some change. However,
as the Secretary of State has said, there needs to be a sufficient
number and proportion of the membership who want it to change
in order to set up a meaningful discussion.
Hilary Benn: One of the things
that we are currently doing through this trust fund is providing
support to the Sub-Saharan African executive directors to give
them greater capacity in order to represent their constituencies
on the Board itself. That is a small practical step that we have
taken to try to assist them in the absence of agreement on a bigger
way forward.
Q56 Chairman: Is there not inertia
in the fact that there is a deal between the IMF and the World
Bank that the managing director of the IMF will be European and
the World Bank will be an American and that suits the Europeans
and the Americans very well? Even though we were not terribly
happy with the Wolfowitz appointment we were not prepared to rock
the boat that far. To be blunt, are the big powers basically saying
it is okay but they do not have an interest in diluting their
power.
Hilary Benn: I honestly do not
think that the arrangement for appointing the heads of the two
institutions is the reason why there has not been progress on
voice. I genuinely think it is for the reasons that I have set
out; I wish it were otherwise.
Q57 Richard Burden: The Paris Declaration
commits donors to try to work more closely together. The White
Paper itself mentions the poor and the importance of trying to
develop an internationally agreed approach to tackling corruption.
How would you like to see the governance arrangements that you
are developing through the White Paper proceed? How would you
like to see that coordinated with other donors, with other players
in the game?
Hilary Benn: This goes right to
the heart of what I thought was an excellent discussion that we
had at the annual meetings on the governance and corruption paper.
In the run up to the annual meetings the issues that were at the
heart of that debate were not all terribly clearly reported in
some of our newspapers and I am sorry about that because it was
the most useful and genuine discussion at the Development Committee
that I have ever experienced. It is not always characteristic
of the Development Committee that there is a full, frank and free
exchange of views. The reason why there was a full, frank and
free exchange of views is that there are a number of things that
we are grappling with here. First of all, on the issue of being
tough on corruption so to speak everyone is at one on this; there
is no argument about that whatsoever. However, where there was
debate was where the Bank is investigating cases of alleged corruption
and how does its internal investigation procedures work?
Chairman: We will break now to vote and
resume as soon as possible.
The Committee suspended from 4.02 pm to
4.13 pm for a division in the House
Q58 Chairman: Secretary of State, are
you ready to carry on? You were in full flow.
Hilary Benn: I was, yes. I will
try to pick up where I left off. I think I was making a point
about the Bank's investigations. Obviously the Bank has to do
investigations where there are allegations, but concerns were
expressed at the meeting about the length of time some of those
investigations were taking, the extent to which others were being
informed of progress, the impact those investigations then had
on other Bank lending. These were all points made at the meeting.
One of the things we agreed was that the Bank said it was going
to undertake a review of INT[7].
That was the second issue that came up. The third issue—and
I think there is a consensus on this—even where there is
corruption we should not walk away from the country because it
is not the fault of the poor people that there is corruption going
on. Fourthly, as well as being tough on corruption as someone
might once have said, you need to be tough on the cause of corruption,
in particular tough on fixing the problem because corruption is
a manifestation of poor governance. Finally the issue that was
debated is what should be the division of responsible between
the Bank (which has particular expertise in public expenditure
management, for example) and other donors. We felt that the document
had come a really long way; we did not think it was quite there
and that is why we agreed what we did in the communique. It was
the best debate I have ever heard because it was a genuine debate
about how we deal with this really important but knotty problem.
Q59 Richard Burden: If we take an example
of where you took action—it is not purely on the issue of
corruption but where you took action and in one of our previous
meetings we had one or two suggestions to make about it—which
is the withholding of money from Ethiopia and Uganda, and if you
recall we said there that we understand the reasons but it would
be good on those sorts of issues if there was greater coordination.
If the process that was commenced at the Development Committee
actually went the way you would like, how would you have seen
that sequence of events to be different?
Hilary Benn: In the case of Ethiopia
it was not corruption that was the issue it was human rights and
governance as you will remember and all of the donors did the
same thing. All of us who were giving direct budget support said
that we were not going to give direct budget support any more.
In the case of Uganda where there were also concerns about governance,
as I recollect—but I would need to check—I think there
were one or two other countries that took the same approach in
terms of reallocating some of the money away from what they had
been giving in budget support to other forms of activity. In our
case I think it was £15 million this year that we put into
more humanitarian relief in the north because of the problems
of the LRA[8].
There are within each country donor coordination meetings and
when an issue like this arises not surprisingly the donors get
together and say, "Okay, folks, what are we going to do?"
Some countries will come with a very clear view of the process
they are going to take; others are not so sure and want to see
what others are doing. I think that provides the best mechanism
for trying to ensure that we do march in step when these problems
arise.
Mr Lowcock: I would like to add
that one of the reasons why we were so keen to encourage the Bank
to take forward a much more comprehensive programme of consultation
on its approach is exactly because it is really important that
if you are a recipient of these funds—the finance minister
in a low income country—you are getting a coherent message,
not different nuances across the piece. It is important to us
that as this consultation goes forward the Bank engages for example
with the EC who have their own governance profile instrument but
also with a lot of the other players as well as with civil society
and the private section and so on.
5 Note: Subsequent progress was made in this
issue: See Letter from Hilary Benn to the Chairman of the
Committee, 6 December 2006, Ev 39. Back
6
Eliminating World Poverty, making governance work for the
poor, DFID, 13 July 2006. Back
7
Department of Institutional Integrity, World Bank. Back
8
Lord's Resistance Army. Back
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