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Standing Committee Debates

Draft African Development Fund (Multilateral Debt Relief Initiative) Order 2006



The Committee consisted of the following Members:

Chairman: Ann Winterton
Austin, Mr. Ian (Dudley, North) (Lab)
Blackman, Liz (Erewash) (Lab)
Burns, Mr. Simon (West Chelmsford) (Con)
Efford, Clive (Eltham) (Lab)
Horam, Mr. John (Orpington) (Con)
Khabra, Mr. Piara S. (Ealing, Southall) (Lab)
Kramer, Susan (Richmond Park) (LD)
Levitt, Tom (High Peak) (Lab)
McCartney, Mr. Ian (Minister for Trade)
Maples, Mr. John (Stratford-on-Avon) (Con)
Milburn, Mr. Alan (Darlington) (Lab)
Sheridan, Jim (Paisley and Renfrewshire, North) (Lab)
Simmonds, Mark (Boston and Skegness) (Con)
Simpson, Alan (Nottingham, South) (Lab)
Skinner, Mr. Dennis (Bolsover) (Lab)
Smith, Sir Robert (West Aberdeenshire and Kincardine) (LD)
Stanley, Sir John (Tonbridge and Malling) (Con)
Mark Oxborough, Committee Clerk
† attended the Committee

Second Standing Committee on Delegated Legislation

Tuesday 27 June 2006

[Ann Winterton in the Chair]

Draft African Development Fund (Multilateral Debt Relief Initiative) Order 2006

10.30 am
The Minister for Trade (Mr. Ian McCartney): I beg to move,
That the Committee has considered the draft African Development Fund (Multilateral Debt Relief Initiative) Order 2006.
Good morning, Lady Winterton, and thank you for chairing the Committee. Not many hon. Members are present, but when we discuss the order we will see its importance. It is one of those measures that seems bureaucratic but in reality will help to change the lives of many people—we will never meet them, but we can help them.
In the past two months, the International Development Association (Multilateral Debt Relief Initiative) Order 2006 has been agreed in Committee, as well as the orders covering the UK’s most recent replenishment to the International Development Association, the African development fund, the Asian development fund and the special development fund of the Caribbean Development Bank. This order is the final one of the group, authorising the UK’s additional contributions to the African development fund as part of our share of the financing for the multilateral debt relief initiative. It would normally be moved by the International Development Minister, my hon. Friend the Member for Harrow, West (Mr. Thomas), who is on United Nations duty today. I hope that I can do him proud in our discussions today.
As my hon. Friend explained in Committee last month, 19 countries have now received irrevocable debt relief under the heavily indebted poor countries initiative, 10 more are receiving interim relief, and a further 14 remain eligible when they reach the required standards. That debt relief is already making a difference: for example, Uganda was able to increase the amount that it spends on poverty reduction from $403 million a year in 2000 to $719 million by 2003. Access to health services there increased from 49 per cent. of the population in 1995 to 80 per cent. in 2003 as a result.
However, there remains an urgent need for more financing to enable the millennium development goals to be reached. Too many countries are still forced to choose between paying their debt service and investments in health, education and infrastructure. That is why the Government have led international efforts to agree more debt cancellation, and we used our presidencies last year to secure international agreement. We have been strongly supported in this by the debt campaigners who worked tirelessly in 2005 to make poverty history.
Under the multilateral debt relief initiative, 100 per cent. of the remaining debts owed by qualifying countries to the International Monetary Fund, the International Development Association of the World Bank and the African development fund of the African Development Bank will be cancelled. Donor countries will meet in full the costs of the debt stock cancellation at the African development fund so that the debt relief will be additional to existing resources and the African development fund can continue to provide new financing to poor countries.
When the multilateral debt relief initiative is fully implemented, more than $50 billion in debt stock will be cancelled for 43 countries. In total, about $1 billion a year will be freed up for spending on poverty reduction in 2007, rising to $1.7 billion by 2010. As this is guaranteed long-term financing, countries will be able to plan to use it effectively, for example, being able to engage new teachers or health workers, confident that they can pay their wages.
Zambia has said that it will abolish fees for health care in rural areas with part of its debt relief savings. Thousands of poor people will gain access to free health care as a result. Ghana has announced that it will use its savings from the International Monetary Fund component to repair and build new roads in rural areas. It will use the savings from the World Bank and African development fund components of the multilateral debt relief initiative for better health and education, with more teachers and more hospitals, which will make a huge difference to thousands of lives.
I will now listen to the debate and answer questions. I hope that at the end of our discussion, hon. Members will approve the order, which will help millions of people over the next few years.
10.34 am
Mark Simmonds (Boston and Skegness) (Con): May I say what a pleasure it is to serve under your guidance once again, Lady Winterton? May I also welcome the Minister for Trade to his position and say how pleased I am to see him in the Committee? I understand that the International Development Minister is at the United Nations on official Government duty, and we wish him well there. As the Minister for Trade is also a Foreign Office Minister, it gives us an opportunity to explore some other issues: for example, despite the Prime Minister’s raising Africa to a fundamental core of his foreign policy, quite rightly, the Foreign Office has deemed it appropriate in the past year to downgrade by 20 per cent. the presence in Africa, closing several missions and also merging and downgrading posts. Does the Minister have an explanation as to how those two elements fit comfortably together?
The order, as the Minister says, permits the payment of an additional almost £80 million to the African development fund of the African Development Bank between 2006 and 2015. The Committee should be aware that that is in addition to the £206 million that we have already allocated to the African Development Bank, which was discussed in Committee on 24 May.
It is worth while for the Committee to understand what the African Development Bank—of which the African development fund is an integral part—was originally for. It was originally designed
“to foster economic growth and co-operation in Africa and to contribute to the acceleration of the process of economic development of its regional members, both collectively and individually”.
There are approximately 50 countries on the African continent, of which only two have a significantly better economic position and prospects today than they did under colonial rule 40 years ago. Despite the fact that the African economies are generically growing at roughly 5 per cent., led by Angola at 15 per cent., that is purely driven by the export of commodities, particularly oil, rather than by foreign inward investment, which is the main driver as we have seen in Asia for job creation and the alleviation of poverty.
It is important that the Committee understands the Conservative party position on debt relief and the regional development banks. We are supportive of the work of the regional development banks, which have been in existence since the early 1970s, in providing loans and grants for investment, as the Minister rightly highlighted, in health, education, agriculture, sanitation and infrastructure projects, which are essential building blocks for poverty alleviation as well as for promoting economic growth and the institutional reforms needed for sustainable economic growth and development.
We support the heavily indebted poor countries initiative and the principle of 100 per cent. cancellation of debts to multilateral institutions, which, if properly managed, will make a significant contribution to alleviating poverty. I am sure that the Minister will acknowledge that it was John Major’s Government that introduced the HIPC initiative in the early to mid-1990s.
We welcome the G8 agreement on debt, which resulted in 100 per cent. cancellation of debt owed by the 18 countries, and further HIPC initiatives are currently being developed and followed on by both the International Development Association and the African development fund of the African Development Bank. Prior to the HIPC initiative, it is worth saying, many heavily indebted countries were spending more on debt than they were on providing health and education. There is no question but that debt inhibits economic growth and wealth generation and hinders investment in public services that are vital for the well-being of the people who live in developing nations.
I have some questions for the Minister. Oxfam has recently stated that its analysis has shown that, excluding debt cancellation, spending on aid for Africa in the past year went down by 2 per cent. In France it went down by 2 per cent. and in Germany by 9 per cent. The Prime Minister last night announced that he was setting up a monitoring group chaired by the United Nations Secretary-General to ensure that the promises made at the G8 and elsewhere are fulfilled. I want the Minister to confirm today that that will not just monitor foreign Government and multilateral institutions but will follow the progress of the UK Government in delivering on the promises made in the past.
The second area concerns the G8 countries contributing to the replenishment for funds and how that is used for debt relief. How is each country’s debt contribution calculated, and will any of the non-G8 countries contribute to the African development fund’s replenishment? Does the total amount contributed exactly match the debt that has been cancelled? These are immensely complicated calculations, because many of the credits and loans are for a duration of sometimes up to 50 years. It would be helpful if the Minister could either estimate today or perhaps tell me in writing subsequently whether the calculations are based in perpetuity; or will there be a necessity for further replenishment after 2016, because many of the loans will have gone beyond the date of 2016 in their original context? Will that mean that further replenishment discussions are required as further HIPC initiatives come round for agreement and discussion?
One of the main areas of concern for Opposition Members is that while we welcome the HIPC initiatives and the extra funds that will be created and the additional resources for developing countries to accelerate their progress towards the millennium development goals—the Minister along with all members of the Committee will be aware that sub-Saharan Africa in particular is off track on most of those—we must ensure that British taxpayers’ money, our constituents’ money, is being spent appropriately for the purposes for which it was originally intended.
The Minister was right in his introductory remarks to highlight the progress that has been made in Zambia and Ghana, where there is a direct correlation between debt relief and reduction and Governments’ ability to spend in the important areas of the provision of basic free health care in rural areas, with additional hospitals and infrastructure. What mechanisms are in place to ensure that the money saved through debt relief is specifically used to accelerate progress towards meeting millennium development goals and alleviating poverty? In the 1990s there was some concern about the African Development Bank and some criticism of its effectiveness and focus. The president of the development bank, which controls the development fund, stated that a fully fledged, credible independent evaluation entity is required to improve the credibility of the bank’s efforts. What progress is being made to monitor independently the expenditure of the particular fund?
The African development fund could use that information to ensure that countries with large debts will only receive grants rather than loans. At what point is a country regarded as too deeply indebted to receive those concessional loans, which the African development fund is specifically for? What mechanisms exist to ensure that the African development fund loans are given responsibly, so that the international credit standing of recipient countries is not compromised, thereby ensuring that we do not have a cycle of borrowing and debt cancellation, which has been the issue before?
I would like to draw the Minister’s attention to paragraph 7.7 of the explanatory notes for the order, which says:
“Countries that have already completed the HIPC Initiative will need to demonstrate that they have maintained their commitment to poverty reduction and good macro-economic and public expenditure management ”.
The Minister and the relevant team of civil servants have given consideration to the consequences for the African development fund if the countries do not demonstrate that commitment and therefore do not qualify for the further concessional loans. Will the loans be stopped—cancelled—and will they be made to pay them back? In that case, all the knock-on impact of those issues will come to the fore.
We support the HIPC initiative and the work of the African Development Bank, and the further contributions set out in the order, but we are concerned that there seem to be insufficient and ineffective monitoring structures in place to ensure that the additional resources made available by the HIPC initiative are used to make progress towards the millennium development goals and to alleviate poverty in Africa.
We wish to see the money freed up by the HIPC initiative, thereby allowing the African development fund to provide further concessional loans, to be spent wisely by responsible Governments for the purposes for which it was originally intended. If the Government put issues and structures in place to ensure that the money is spent properly, they will have the support of the Opposition.
10.44 am
Susan Kramer (Richmond Park) (LD): As you will know, Lady Winterton, the order authorises UK funding for the multilateral debt relief under the MDRI initiative. This is the African Development Bank portion, but the World Bank and the International Monetary Fund are also part of the overall framework. Liberal Democrats support multilateral aid strategies and programmes. We also support debt cancellation for the world’s poorest countries, so it will come as no surprise that we support the order.
Debt cancellation is a key area in which some progress has been made since Gleneagles, and we welcome that. The opportunity to debate the order forces us also to raise some issues where debt cancellation is falling short. To qualify for debt cancellation, which is the heart of the HIPC programme, a country must meet the conditions attached to it. No one would argue that conditions such as transparency, accountability and monitoring of the way in which funds are used should always be part of any programme in which the Government are involved, whether bilaterally or through multilateral organisations, because the proper oversight of money is crucial. However, while the Government have stepped away from conditions involving economic policy when they provide aid, they have remained part of a multilateral system that continues to put conditions on economic policy in their strategies for debt cancellation. I would very much like the Minister to address the extent to which the Government are pressing the multilateral agencies to reconsider those aspects of conditionality.
The language has sometimes changed. The International Monetary Fund now uses a language of benchmarking rather than conditions, but it is clear from speaking to anyone on the ground that the situation has not changed radically. Burundi is the latest country to step into the HIPC process and the conditions on Burundi look very little different from any of those previously imposed on other countries. Progress is claimed, but those on the ground say that progress in changing the approach of conditionality is not being made.
The Minister gave examples of the way in which debt cancellation has benefited Zambia. If he had listened yesterday to the high commissioner for Zambia and his deputy he would be aware that there is another side to the story. Meeting the economic conditions associated with achieving something satisfactory through the HIPC process put such budgetary constraints on Zambia that its high commission says that most professionals decided to leave the country because they could no longer be employed by the Government, and commerce was constrained by the restrictions on Government initiatives to promote infrastructure and other mechanisms to promote commerce. Consequently, Zambia’s skilled professionals fled the country and, having now come through the process and finally achieved debt cancellation, it is being very slow to take advantage of the new environment, because the skills base—the entrepreneurial, middle-class skills set—is no longer resident in the country. Capacity building is crucial and if we allow a process to diminish capacity so that when debt relief finally arrives a country cannot take full advantage of its new potential, we have done a disservice rather than a service.
Indeed, people in Zambia tell us that the standards that it had to meet in privatising much of its industry, including the copper industry, which core to its economy, have put the country in the ironic situation that, with rising copper prices, which one would have thought would provide real buoyancy to the Zambian economy, the benefits flow less to the country and more to those who purchased the companies on favourable terms. Zambia is now seeking to renegotiate some of those arrangements, but it is not in a strong position to do so.
There is nothing wrong with the involvement of the private sector, and I certainly do not oppose privatisation, but imposing it from outside, rather than allowing Governments to develop appropriate strategies, puts us in difficult circumstances. One need only look at some of the privatisations that have taken place in this country—I was very much involved with Transport for London and the public-private partnership process—to see the inadequacies of the British Government, with all the expertise that they have, in negotiating effectively with the private sector, so countries such as Zambia are in a very difficult situation.
The Government of Rwanda, which is in the HIPC process, are widely acknowledged to be committed to making progress, but they have been faced with a set of take-it-or-leave-it conditions that in no way recognise the fact that the country went through a period of genocide, in which 1 million people were lost. Indeed, Rwanda is being asked to meet the same conditions as a country that has not gone through that experience and that disruption. Only when it gets through the HIPC process will it be able to qualify for the debt relief that, as the Minister has shown, can offer so much opportunity.
Malawi has spent six years in the HIPC process, attempting to achieve debt cancellation. It paid £130 million in debt service between 2001 and 2006, and debt service is taking all its foreign exchange, to the point that students seeking international accounting qualifications last year were unable to raise the foreign exchange necessary to pay for the exams that would have given them that accreditation. That is a small but significant example.
Small, poor countries cannot spend 10 years negotiating debt relief. The way in which the process arrives at the point of debt cancellation also means that no country knows exactly what its position will be year on year, and that takes away the opportunity to plan. Indeed, the Government of Rwanda said yesterday that it would have been better to be told that they would not get the money rather than to have had the carrot dangled in front of them and to have started planning around it, only to find that the funds would not actually be delivered. There is no point building a school if one cannot equip it with books or train and supply the teachers. To be able to plan, people need to be able to look well ahead, but that is not how HIPC works in terms of debt cancellation.
None of the HIPC strategies on debt cancellation recognises that some debt could be reasonably classified as illegitimate, having been imposed on a country by a set of dictators using the funds for corrupt purposes. Surely, we should put such debt into a separate category when considering measures such as the order.
Although Nigeria, as the Minister said, has just achieved the largest debt cancellation ever, we should note that the UK last year received £1.7 billion in debt service from Nigeria, which was more than the total UK aid budget to sub-Saharan Africa.
I submit to the Minister that it is crucial that, in determining HIPC conditions for debt cancellations, we move towards a process that gives the beneficiary country a far greater say. It should be a negotiated process, in which all parties are around the table, rather than the take-it-or-leave-it structures that we have today. We need an adjustment to the international mechanism.
As the Minister said, 21 countries will benefit immediately from the multilateral debt relief initiative, of which the ADF is a part, and another 21 could benefit, but that still leaves many countries outside the process altogether. The New Economics Foundation published a report yesterday identifying 50 countries that are so poor that they need total debt cancellation, and 107 countries that need at least partial debt cancellation if they are ever to achieve the millennium development goals. We can argue over the numbers, but I think that we can all agree that many countries outside the HIPC process are still unable to achieve debt cancellation. Without it, the MDGs will remain a faint aspiration for them.
Perhaps one of the worst aspects of this entire process, with its conditionality and the difficulties in achieving the goal of bringing countries to the point of debt cancellation, is that we undermine Governments in the nations that we seek to help. We make announcements that debt cancellation is on the agenda, that aid is to be forthcoming and that trade is to be opened up to enable developing countries to expand their exports and support their underlying agricultural economies, but every time we fail to deliver on the ground within a reasonable time, people become suspicious that their Government are letting them down and that debt cancellation is not turning into a reality for them in their daily lives because the funds have been diverted elsewhere. That frustration alone undermines the capacity building that is at the heart of reducing poverty and achieving development. We talk so much about capacity building, but then we take steps that undermine capacity.
As I said at the beginning, the Liberal Democrats will obviously support the order, but we hope that all the discussion of the benefits that come from debt cancellation will push the Government to increase pressure on the various multilateral agencies to look again at the process by which they cancel debts and to recognise that debt cancellation will be vital for many countries if they are genuinely to make poverty history and achieve the millennium development goals.
Of course, there are other strands to the MDGs, of which trade is perhaps the most important, but debt cancellation is often the first opening of the door. For that reason, it is crucial, and we hope that the Government will pay attention to the needs of the many countries that have been not been included in the benefits that will flow today.
10.57 am
Sir Robert Smith (West Aberdeenshire and Kincardine) (LD): On a technical point, perhaps the Minister could clarify the status of the explanatory memorandum and especially the undertaking in paragraph 3.3 that the order will not be made until the Government are bound to make the payment? The Committee is considering the provisions before the Government are under a duty to make the order, and I wondered whether the Minister should clarify the position formally on the record.
 
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