Examination of Witnesses (Questions 20-39)
RT HON
HILARY BENN
MP, MR STEPHEN
PICKFORD, MR
GAVIN MCGILLIVRAY
AND MR
GRAHAM STEGMANN
18 OCTOBER 2005
Q20 Chairman: Good morning, Secretary
of State. Thank you for coming once again before the Committee;
we will be meeting a few more times in the next few weeks. Perhaps
you could introduce your team.
Hilary Benn: On my left is Stephen
Pickford, who is Director of International Finance at the Treasury;
on my immediate right Gavin McGillivray, who is Head of International
Financial Institutions Department at DFID; and next to him Graham
Stegmann, Director of the 2005 Unit in DFID.
Q21 Chairman: Thank you very much.
Before you came in we were questioning a couple of NGOs on issues
relating specifically to the World Bank and on one particular
area we had a discussion about conditionality, about which clearly
you have views. Just to put you in the picture, I think the general
view is that conditions are necessary but there is a difference
of view as to exactly what the conditions are and how they should
apply. Perhaps, firstly, you could give us a view on how you feel
the debate has moved on conditionality, particularly from the
British Government's point of view?
Hilary Benn: Thank you very much
indeed. Yes, I have always felt the debate is about what is the
right type of conditionality; because, depending on who you talk
to, you get very different views about what is thought to be appropriate.
I think it is very important in the change of policy that I put
in place in March this year, which I have been seeking to persuade
the World Bank to follow, that people do not draw the conclusion
from that that we do not think there are responsibilities on those
who are receiving financial assistance. In the area of particular
policy choices, and it is focussed especially on privatisation,
trade liberalisation, the experience in the first instance is
the effectiveness of those policies has been pretty mixed; secondly,
to what extent can you really oblige people to do things that
they do not want to do? It is not to say that developing countries
do not have choices to make about are they going to pursue good
policies when it comes to managing the economy. What I think we
should be interested in is, first of all, what is the consequence
of the choices they make about individual polices for the reduction
of poverty? Because that is the basis on which as a department
and an aid organisation we want to have the relationship. Therefore,
for me, there are things like: are the education and health budgets
increasing; is that then feeding through in improved health for
children—fewer children dying before their fifth birthday—more
children in school and all of those kinds of things? There are,
on the other hand, certain areas where I think it is right and
proper to say if we are going to have an aid relationship, a partnership
relationship, these things really matter. The first is: is the
country demonstrating its commitment to poverty reduction? I have
given an example of how one can test that. Secondly, is it upholding
human rights and international obligations? Thirdly, is it committed
to good use of the money? Is it tackling corruption? The question
that people will rightly and legitimately ask is: how can we be
sure the money is going for the purpose for which it is intended?
I think you will find there is a very different conversation around
those issues from the one where you have about trying to force
countries to take specific policy decisions. That is why I changed
the policy in March, to say no longer would we tie our aid to
specific economic policy choices in essence, in particular privatisation
and trade liberalisation.
Q22 Chairman: You will be aware of
an article in The Guardian[1]
which says that your change of policy has caused confusion amongst
some of the aid agencies and inconsistency; for example, that
people are not actually sure what the conditions are. I am not
saying I agree with this by the way, but one example was quoted
that in Sierra Leone the British Government is providing support
to water privatisation, and one of the NGOs has said, "We
don't want conditions and we shouldn't support programmes which
have only been brought about by the conditions".
Hilary Benn: Water is a particularly
hot topic as my postbag demonstrates, and the World Development
Movement's postcard campaign is responsible for a large part of
that. It might be helpful if I just point out that about 95% of
the money we spend on water bilaterally goes to support public
or community-led provision of water—just to get a slight
sense of balance into the debate. I suppose the issue is: if a
developing country decides (and for me that is the key—is
this a decision that has come from within the country) that private
sector participation, for example, in the provision of water is
a road down which they want to go and they ask for our assistance,
would it be right for us to say, "No, actually we know better
and we're not going to help you do this".
Q23 Chairman: You would satisfy yourself
that that was freely arrived at, that decision?
Hilary Benn: Yes. We have changed
our policy; there is the question of the World Bank and its conditionality
review which you may want to come on to, but that is where I come
from. In the case of Sierra Leone they are looking at a range
of options and have actually taken no decisions at all; they have
asked for some help and we are giving that. In the case of Ghana,
which is another example that people sometimes draw attention
to, it is quite clear to me that the government there wants to
look at some private sector participation, not privatisation,
because they retain control of the assets; but what they are looking
at is, "Could we have a private management contract which
would help to fix the leaks in the system?" because getting
on for half the water drains away as it gets to the pipes and
the taps. If you could reduce the loss rate and add more connections
a lot more people in Ghana could buy their water at the lower
price you get through the leaking, creaking pipe supply system
than the price you pay from the private water sellers which, when
I was there two years ago, I was told was five to six times more
expensive than if you had access to the leaky, creaky pipes. It
seems to me if governments are taking those decisions and they
ask for our support, then it is not unreasonable that we should
give it, but the bulk of what we do actually is support public
and community-led provision.
Q24 Mr Hunt: Could I understand your
thinking on conditionality? Your change in policy has been widely
welcomed principally for reasons that the pressure to privatise
and liberalise trade has been mixed; but there are countries in
the developing world, Vietnam, Thailand and China, which are pursuing
very successful economic policies. Is DFID withdrawing from the
debate about a country's economic policies and saying, "That's
up to you"? Is it saying, "We don't want to use the
leverage of our aid to promote better economic policies?"
or is there a different way you want to promote a sound economic
policy?
Hilary Benn: We are not at all
withdrawing from any debate about the importance of good economic
policies in running a country; because collecting all your revenues,
making sure you have got proper public financial management, publishing
what you are spending, all of those things matter because it means
you have then as much revenue available to use to good effect
dealing with making sure that inflation does not let rip, because
inflation hits poor people more than anybody else. I think what
we are saying is if we believe in country ownership on that, it
is for developing countries themselves to take those decisions.
What we are just as interested in is the consequence of that for
the fight against poverty; and it is on that basis that we make
a judgment about the nature of our aid relationship. In order
to have an aid relationship with the government the three tests
in the policy are: commitment to poverty reduction: upholding
human rights, international obligations: good governance, good
financial management and tackling corruption. That is the basis
upon which we make the judgment. At one end of the spectrum there
are countries which are very badly governed and we do not provide
aid through the government—Zimbabwe being a very good example—but
we do have an AIDS programme and we do help to feed the population.
At the other end of the spectrum, looking at Tanzania for instance,
making real progress in reducing poverty; and we have a good,
strong relationship based on large part on budget support.
Q25 Chairman: Can I draw you back
to the World Bank? How satisfied are you that the World Bank's
review will lead to a change because there have been some concerns
about conditions and change to benchmarks, which most people regard
as conditions?
Hilary Benn: Just to answer the
second part of your original question, Chairman, we are just in
the process of finalising draft guidelines for staff in DFID about
implementation of the new policy we published in March. We are
going to consult on that, and we will send a copy to you and I
would be very grateful for views and comments from the select
committee because it is important that we get this right, given
that the policy has changed[2].
As far as the World Bank is concerned, last year I and one or
two others encouraged the World Bank to undertake a review and
they have done that during the course of the year. You will have
seen what the outcome of that was. I welcome what it says. It
expresses a commitment to country ownership. Indeed, I think it
actually says that programmes should be fully owned by governments
so it seems to me that that principle is being supported. They
have, however, said that they will only use conditionality on
privatisation and trade liberalisation in exceptional circumstances[3].
It is not entirely clear to me what those exceptional circumstances
are; I would have preferred it if they had said they would not
use it, but we are seeking clarification. The key—and that
is what I got agreement on with others this year at the meeting—was
to get a report subsequently on how it was implemented because
that is how we are going to be able to answer the question what
difference does it make. However, as you will have seen, the average
number of World Bank conditions has been reducing from, I think,
in the late 1980s an average of 35 to 12 now, and there has been
a shift towards governance and social sector indicators away from
short term economic ones. For me the difference between a condition
and a benchmark is that a condition is a condition and the release
of aid will depend on that. A benchmark is how you measure the
progress that a country is making.
Q26 John Battle: Secretary of State,
that is an encouraging answer but I wonder if I could press you
a little bit on the view of DFID that the World Bank should greatly
increase its use of Poverty and Social Impact Assessments (PSIAs).
I want to know a little bit more about that. Do you think that
the World Bank's use of the Poverty and Social Impact Assessment
should be extended, for example, to macro-economic policy conditions,
and should it range beyond the present policies?
Hilary Benn: The use of PSIA is
very important. It is about trying to answer the question: what
is going to be the impact of what the Bank is proposing to do
on poverty and people in the country? The more wide-ranging it
is and the more information that is taken into account in forming
a judgment about how conditions are going to be used is helpful.
It is obviously an important consideration as far as investment
lending is concerned. I also think it is important we understand
what the consequences are, including by working with developing
countries themselves, so that the decision can then be taken in
the light of understanding fully what the impact is going to be,
in essence.
Mr McGillivray: PSIA is less relevant
for development policy lending. Development policy lending is
based on the country's PRS, which is about how whole government
spending, macro-economic policy, will impact on poverty reduction,
so as a tool PSIA would be less relevant in that area.
Q27 John Battle: So what did DFID
mean by saying it should increase its use of the assessment? I
am at a loss now as to why DFID said that.
Hilary Benn: Because we would
like to see it used more. PSIA relates to a particular part of
the World Bank's operations. We think it is a good tool to use
but it is one of a number of tools and therefore we welcome it
being used more extensively, for the reasons I have tried to set
out.
Q28 John Battle: Who would assess
its better use? When you say "we" would you just put
in a team of people at the World Bank to look at the implementation
of it? Who would do it?
Hilary Benn: We form a view about
how well we think it is being used in relation to the World Bank.
Have they got a team? I do not know, is the short answer.
Mr McGillivray: We will have to
come back to you on that.[4]
Q29 John Barrett: Some NGOs in the past
have expressed concern that donors distort the systems of accountability
and obstruct the role of parliamentarians in other countries.
In an evidence session last year you said that DFID did not do
this. Could you give us some examples of what DFID and the World
Bank have done in the last year to promote active involvement
in parliaments in developing countries and what does DFID intend
to do in the coming year to promote the dialogue between parliamentarians
and to promote that system?
Hilary Benn: The first thing one
would say is that it is for parliaments in countries themselves
to determine how they are going to be involved in decisions which
their governments take. We can only debate that conditionality.
I do not think it is for us to seek to impose by conditions particular
forms of parliamentary participation. I think it is for parliamentarians
themselves to determine what it is they want to do. There is no
obstacle in any country. If parliamentarians want to be involved
more than the existing system allows them to be in decisions about
negotiations with the Bank and the Fund and donors there is nothing
to stop them doing that. I think it is a very important point.
Secondly, we are certainly committed to getting parliamentarians
more involved in the poverty reduction strategy process and we
have been working on that in Tanzania and Malawi over the last
year in supporting that. We are also about to commit £300,000
to help the Parliamentary Network on the World Bank, which I think
is a very important organisation, to extend their network to west
and southern Africa because that does bring together parliamentarians
to share experience, to talk about how they are doing and to learn
from each other. Those are two things we have done in relation
to Malawi and Tanzania and one thing we are about to do is form
a network to bring parliamentarians together to talk about how
they can be better involved.
Q30 Joan Ruddock: I think you have
just begun to answer the question that I was about to pose. I
was about to challenge you when you were saying they were okay,
they could do it themselves, because there is a real capacity
problem, is there not, in most parliaments, in terms of parliamentarians
beginning to address these complex issues? Many of us here have
difficulty understanding what the World Bank is up to most of
the time, and if you are on the receiving end and you do not have
resources that western parliamentarians have it is very difficult
to make an assessment of what is going on and to try to influence
and shape your part.
Hilary Benn: I do accept that.
I think there is a very clear distinction between trying to tell
them what to do and supporting their capacity to be able to do
it. That is what the work in Tanzania and Malawi is about. That
is why we have been giving them money. That is why the World Bank
Institute has over the last ten years trained 5,000 parliamentarians
and parliamentary staff so that they can perform their function
better. It is currently running, the committee might be interested
to know, capacity building programmes in Ghana, Nigeria, Sri Lanka
and Thailand and it is planning programmes in Kenya, Bangladesh,
Mexico and Pakistan, so that is another practical example of what
it is doing, but I take your point entirely.
Q31 Chairman: Our own Parliament
did indicate that it wished to have a debate on the World Bank.
Do you have any plans to do so? You have produced your own first
report and we understand you are working on a subsequent one.
Hilary Benn: Yes, we are, to publish
in December.
Q32 Chairman: So would it be appropriate
to have a debate on that report?
Hilary Benn: I will reflect upon
it.
Q33 Chairman: You did indicate that
you wanted to?
Hilary Benn: Yes. I always welcome
the opportunity to have a debate. I will go back and look at that.
Q34 John Bercow: Secretary of State,
you will be very conscious, I am sure, of the statements of President
Wolfowitz at the autumn meetings of the World Bank and specifically
his interesting observation that he felt that one could not talk
intelligently about development if one excluded everything and
anything that sounded political. In view both of the past track
record of the World Bank focusing on economic issues and tending,
understandably, to be dominated by economists on the one hand
and the past record of Paul Wolfowitz and his tendency to like
the idea of the imposition of "democracy" on the other
these are, it seems to me, interesting observations. I just wonder
what you think engaging with the politics of development might
mean for the role of donors and multilateral organisations. Will
engagement, to be credible, be in the form of withholding aid
from governments or be in the form of seeking to encourage the
emergence of democracy, or a beneficent combination of the two
perhaps?
Hilary Benn: In the end it is
a combination. I welcome what Paul Wolfowitz had to say because,
to be honest, the longer I have been in this job the more I have
come to understand the importance of good governance, the climate
that it has created for private sector investment, the extent
to which civil society and people are able to participate in decisions
about the future of a country on tackling poverty and dealing
with conflict, which is the worst expression of a failure of governance.
We have to be interested in this because a lot of poor people
live in countries where those things do not apply, states that
have failed and are failing. In so far as what he had to say will
represent a greater interest on the part of the Bank in this,
I do welcome that. To answer directly your question, in the end
it is a matter of judgment and in constructing the new framework
for conditionality that I put in place in DFID we are trying to
balance predictability, because this is really important if countries
are going to be able to rely on resources to train doctors and
probably teachers and buy drugs, with an element of variability
which can then be linked to particular conditions of the right
sort, going back to our original discussion. In the end you have
to make a judgment about whether a country is moving in the right
direction. If there has been a breach of human rights is this
a one-off, is this a consistent pattern, because if you turn the
tap off immediately when something goes wrong that might not be
the right thing to do. I think we need to design a system that
both combines clarity so that the donee country knows what the
rules of the game are but also gives us the opportunity to respond
to failures of governance, problems with corruption and so on,
in the way in which we give our support and the form in which
we give it, or whether we give it at all to the government.
Q35 John Bercow: I understand the
significance of the change in policy and your emphasis on benchmarks
perhaps as opposed to crude and explicit conditions. I can see
the logic of that. Can I put to you what in a sense is, for me
at least, at least as interesting a question and that is what
you do in a situation, Secretary of State, in which there is advancement,
whether in the form of following conditions or improving benchmarks,
in terms of economic policy, but there is no marked improvement
in terms of respect for human rights? If, for example, a developing
country is pursuing on the whole fiduciary duties, broadly sound
economic policies but is showing a fairly persistent disregard
for human rights, how, to come back to your question, do you make
the balance of judgment?
Hilary Benn: I think in the end
it is going to be a political judgment and that rests with the
person who occupies the job that I am currently doing and others
will tell me whether they think I have reached the right decision
or not. I think each case is going to be different. I genuinely
think it is very difficult to set hard and fast rules. That is
why I have tried to set out a reasonably clear framework which
gives us the opportunity in the end to make a judgment and then
to be held to account for it. As I have already indicated in relation
to Zimbabwe, such are the failures of governance in that country
that we do not provide development assistance direct to the government.
We have made a judgment in that case but we have found another
way of supporting the AIDS programme.
Q36 Chairman: On that particular
point, what you did in Ethiopia seems to be slightly inconsistent
with what you have said to the committee because you actually
did stop aid programmes there.
Hilary Benn: I did not actually
stop programmes. What I said was that we carry on with the existing
level of support in Ethiopia. The aid framework for the forthcoming
year was looking at an increase and what I said in Ethiopia was,
given the current difficulties—at the time 26 people had
been shot dead on the streets of Addis, there was turmoil and
dispute over the elections—that I was holding on a decision
about putting that into operation until I saw how things developed.
We did not cut any of the existing programmes. I just said I was
holding on a decision about increasing our support this year until
I could see the outcome of the discussions that are still taking
place between the government and the opposition parties. In the
end that was my judgment and people may agree or disagree with
it but that is what I did and that is why I did it.
Q37 John Bercow: In the statement
of objectives of DFID for the autumn meetings of the World Bank
it was explicitly said that DFID wanted to see specific action
on macro-economic dialogue. What does that mean?
Hilary Benn: Is this in the statement
that has been put out?
Q38 John Bercow: Yes, it was, before
the first of the autumn meetings. In its objectives for the meetings
the government said, "The UK will also use the annual meetings
to press the Bank and the Fund to explain how they plan to develop
their programmes in the light of the 2005 Review of the Poverty
Reduction Strategy Approach. We will be looking for specific action
on macro-economic dialogue." I wondered what the specificity
of the action might be, Secretary of State.
Hilary Benn: A very good question,
as you can tell, and I am hoping that I shall receive assistance
on that particular point because it is not something we specifically
discussed when we got to the annual meetings. It looks as I am
going to have to come back to you on that. My apologies.
John Bercow: That is fine.
Hilary Benn: Ah—Stephen
is going to say something.
Chairman: The Treasury intervenes!
Hilary Benn: The Treasury comes
to our rescue!
Mr Pickford: Thank you, Chairman.
This is in the section on aid effectiveness. This I think is a
reference to how the poverty reduction strategy process can be
improved. One of the elements of the dialogue that takes place
in the country which we felt could be usefully enhanced was that
on macro-economics, which comes back to the earlier question on
PSIAs on macro policies. It was really just saying that this is
an area where dialogue could be improved in-country in terms of
developing the poverty reduction strategies for countries.
Q39 John Battle: But do you have
a framework of macro-economic policy that you think is more suitable
than others?
Mr Pickford: I think, as the Secretary
of State said earlier, it is essentially up to the country itself
to design and devise its own economic policies. I think that includes
macro-economic policies but, just as we, the UK, would have views
about the effectiveness of certain economic policies in terms
of structural reforms or whatever, so we would also have views
on whether macro-economic policies were good or not so good.
1 "Developing world confused by UK aid guidelines:
Officials complain of new policy's lack of clarity: Free-marker
rules still imposed in some countries", The Guardian,
24 September 2005 Back
2
Ev 44 Back
3
Note by witness: This is incorrect. DFID had pressed the
World Bank to give this commitment, including in the Secretary
of State's statement on the Bank's review of conditionality, but
the Bank has so far not agreed. The World Bank has accepted that
some areas of policy are "sensitive" and has reaffirmed
the importance of ensuring ownership of the reform agenda and
including only conditions that are "critical" for achieving
results. However, it has not given this specific commitment. DFID
will continue to press the World Bank to provide guidance to their
own staff on the circumstances when such conditions might be appropriate.
DFID is also seeking more detailed guidance on how Bank staff
can better assess and promote government ownership of policy choices. Back
4
Ev 43 Back
| 
