Examination of Witnesses (Questions 220-230)|
11 MAY 2006
Q220 Angela Eagle: There are some
NGOs that say that the move to independence, which Britain has
led and I can accept the technical reasons for it in surveillance,
actually make the institution even more remote and decrease its
legitimacy. What would be your comment on that?
Mr Brown: I just give you the
example of monetary policy in Britain. Because monetary policy
is operated technically by the Bank of England that administers
our monetary policywe set the inflation target but the
Bank of England administers itI do not think that monetary
policy is seen as more remote or that interest rate decisions
are seen as more remote. I think they are seen as more credible
and legitimate as a result of the changes we made. Equally, I
think that would happen with the IMF, that people would see a
coherent and comprehensive system of transparency arising from
surveillance and it would be credible and more legitimate to people
because of that. Remember also that the IMFC, which is the committee
of the stakeholders that I have the privilege of chairing, will
guide this process, so there is political representation. It is
not, if you like, moving out of the ambit of representative government
at all. In fact, under our proposals and the agreement that we
had in April the IMFC, which is the representative committee,
would have a bigger role in shaping the agenda for the surveillance
work of the IMF.
Q221 Mr Gauke: Can we briefly return
to the issue of lending conditionality? One area that has been
controversial has been when the IMF has imposed cost recovery
programmes on borrowing governments that have required schools
and hospitals to charge fees. As far as you are aware has the
UK representative at the IMF ever supported such conditions in
the period that you have been Chancellor?
Mr Brown: I shall ask the representative
because he makes the rules.
Mr Scholar: On the one hand the
IMF has a responsibility to give its best advice on fiscal sustainability,
but on the other hand it has a responsibility to respect country
sovereignty over choices as to how it achieves that. One thing
we have been very much at the forefront of stressing in these
last few years is that it is very important for the Fund not to
get too much into, but the detail of micro-managing countries'
choices rather try to explain to them what the choices are, and
also wherever possible to respect attempts to preserve fiscal
space for public services, whether it is education or health or
social safety nets. That was one of the lessons of the Asian crisis,
that if the social safety nets are abandoned in an attempt to
reach a fiscal target it is not a sustainable solution. We of
course support best advice on sustainable solutions but we also
think it is very important that the IMF recognises the right of
countries to choose themselves how they do that.
Mr Brown: Specifically on fees,
on education, which is primarily the work of the World Bank, there
is an agreement now that we support this (and the World Bank advocates
this), that we should provide support for education so that for
primary schooling there should be no fees. I think that is generally
the view of most countries that are donor countries around the
world. On the general issue of conditionality and how the IMF
should proceed in the future, and this affects the World Bank
and the IMF, the UK policy paper that was produced in March last
year, Partnerships for Poverty Reduction, Rethinking Conditionality,
I would recommend to the committee. Here the emphasis is on less
conditionality from the IMF and more on accountability of governments
to their own people so that they have to answer to their own people
for how they are spending the money.
Q222 Mr Gauke: I am grateful for
those answers but I am not sure I have got an answer to my specific
question as to whether we have ever supported those conditions.
I accept the position as to where we stand now but historically
have we ever supported imposing fee-charging conditions?
Mr Brown: I do not think we are
supporting fees in education in votes on the IMF board but I do
say that these are fees that primarily come up in the discussions
of the World Bank, and health charges are a much more controversial
issue, but I have just seen in the last few days that Zambia,
as a result of our debt relief package of about six billion, has
been able to abolish health charges, so the debt relief that has
been provided is enabling countries to move forward on these issues.
Q223 Ms Keeble: I just want some
clarification, Chancellor, of something I thought you said earlier,
which was, do you not accept the assumed IMF convention that there
is a ceiling on the amount of development assistance that developing
countries can absorb because of the impact that the inflow of
hard currency has on local currency and exchange rates? Are you
specifically rejecting the notion that there should be a ceiling?
Mr Brown: That is part of the
strategic review. I think I was answering a rather different question
about a fiscal
Q224 Ms Keeble: That is why I was
asking for clarification as to whether that was what you were
Mr Brown: What you are asking
about now is part of the strategic review in which there will
be conclusions drawn soon. The fiscal ceilings, so to speak, that
had prevented countries investing in education are a matter that
I think our proposals on education for long term finance can deal
with. If the IMF can see that the guarantees are there anyway,
that money will be provided over the next 10 years for education,
it removes much of the problem.
Mr Scholar: There has been some
criticism of the Fund in recent years, that it has not paid sufficient
attention to the achievement of the Millennium Development Goals
Q225 Ms Keeble: I do not want to
interrupt but it was just a specific point about the ceilings
on development assistance because of the impact on exchange rates.
Mr Scholar: It is precisely on
that point. They will now in each and every country look at the
macro implications of increased aid flows and they have done a
research programme on that which we have been very much pushing.
Q226 Mr Newmark: I want to touch
briefly on debt restructuring just to get a better understanding
of where the Chancellor's thoughts are on this. None of us likes
to see particularly the poorest of developing countries having
bad debt and we want to try and resolve that by coming up with
solutions up front and resolving those problems. Therefore, I
am curious to hear: do you see any role for the IMF in the area
of debt restructuring and should it be promoting either collective
action clauses or resurrecting sovereign debt restructuring mechanisms?
Mr Brown: I probably should send
you a note on this. We have been debating these issues since 1997
and, particularly as a result of the Asian crisis, we did make
some progress, but remember this has got to involve the private
sector as well as the international institutions. A private sector
advisory forum was created by the last Managing Director, Mr Kohler.
I note that those new proposals have come from the IIF, from Charles
Dallara, and we would be very happy to look at it, but this is
a long-running issue and progress is going to be gradual rather
Q227 Mr Newmark: So effectively the
whole Chapter 11 process bringing best practice from the private
sector studio you would be supporting?
Mr Brown: We have been very supportive
of the changes. Perhaps I should send the detailed proposals that
we have made.
Q228 Mr Newmark: I would love to receive
Mr Brown: I may say they were
made six or seven years ago.
Mr Cunliffe: The IMF is supporting
collecting collective action clauses, particularly in the US markets.
It is also supporting the private sector and emerging market governments'
voluntary code on debt restructuring.
Chairman: We look forward to that, Chancellor,
as well as the one on IMF funding.
Q229 Mr Love: A lot of the media
comment following the spring meeting of the IMF in relation to
multilateral surveillance was about how implementation of the
recommendations that were made for those meetings would occur.
The Governor of the Bank of England has got a whole series of
issues relating to greater independence and transparency. What
is the Treasury take on how we ensure that when these multilateral
meetings take place any agreements are actually implemented?
Mr Brown: That is going to be
an increasing role of the IMFC as well. Basically you are going
to have to persuade countries. There are certain sanctions you
have, there are certain incentives you have. Part of the power
of this comes from the power of information, people seeing the
consequences of their actions, but in the end you are going to
have a far more cohesive international community so that they
recognise that what affects one continent also affects another
and therefore reciprocal actions or sometimes joint actions are
Q230 Chairman: Chancellor, this is
the initial phase of a wider inquiry into globalisation and we
hope that when we come back in the autumn you can give us evidence
on that. Ahead of that are there any issues that we should focus
on that merit particular scrutiny in the wider issue of globalisation?
Mr Brown: I think particularly
the inter-relationship between all the institutions is an important
issue, and that includes the United Nations and the World Trade
Organisation, and where there are gaps I think we should look
at that, but also where there are overlaps and the unfortunate
resulting waste of resources we should be pretty keen to look
at that as well. If the committee wishes to follow that through
we could have some private discussions on it where we could provide
papers for you. On the overall question of globalisation I would
just say this: unless there is a debate about the impact of globalisation
the natural result in some countries is going to be more protectionism,
because people can see what is happening to an individual manufacturing
company and whether it is going to, or it is losing jobs. People
cannot so easily see the general benefits that are flowing either
to the consumer or indeed to potential or actual employees as
a result of global changes, so unless you have a debate explaining
what is happening the danger is that people see the down side
and they do not see much of the up side. The danger then is that
protectionist ideasand sometimes it is called economic
patriotism but certainly xenophobic ideasdevelop and these
are prejudices that can mean that people see globalisation as
a threat when it is also clearly an opportunity as well as something
that we have got to beat rather than think it can be wished away.
Chairman: Chancellor, we hope to produce
our report ahead of the Singapore meeting and it would be helpful
if we could. We are grateful to the Governor of the Bank and yourself
for giving us evidence on this and we look forward in the autumn
to coming back on that. Thank you very much.
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