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20 Jun 2007 : Column 464WH—continued

It is welcome news that the G8 Finance Ministers have recently announced their intention to support the development of a charter of responsible lending. However, as I am sure my hon. Friend will agree, it will require further work to ensure that any high-level voluntary charter is given substance and force through the adoption of detailed guidelines by multilateral, bilateral and commercial lenders. I believe that the UK and other Organisation for Economic Co-operation and Development Governments can take a lead and show their intention that they expect the charter to be the industry standard, by making ratification of such a charter a condition of eligibility for an export credit guarantee. I hope that my
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hon. Friend can give me some reassurance about the Treasury’s intentions for progressing with such a charter.

Finally, there needs to be acceptance by creditors of their shared responsibility for some of the old debts that are still being serviced by low and lower-middle income countries, at the expense of spending on essential services. Many of those debts arose from the self-interested or irresponsible decisions of the creditors in relation to oppressive former regimes; for purposes that would not benefit the people of the recipient country; on extortionate terms; or for projects that failed because of bad lender advice.

The HIPC initiative could be interpreted as an acceptance, to some extent, of the unsustainability of some debts, but there has still been no systematic attempt to investigate how those problems arose and what steps should be taken to prevent similar problems in the future. I encourage the Treasury, following the recent example of the Norwegian Government, to initiate a system of debt audits, particularly for loans that are still being repaid to this country by Kenya and Indonesia, and to consider whether cancellation is warranted where the UK has been responsible in the past for poor or harmful lending—so-called odious debts.

I am the first to acknowledge that the issue is very complex and that changes will never be easy; but then neither were the debt cancellation deals that the Government have fought so hard for over the past decade. Our constituents rightly demand that our aid commitments reach the world’s poorest, and the Government need to tackle the problems with action as well as words. I hope that my hon. Friend can today provide us with some reassurance on those points.

11.13 am

The Economic Secretary to the Treasury (Ed Balls): It is an honour to serve—for the first time, I think—under your chairmanship, Mrs. Dean. I congratulate my hon. Friend the Member for Glasgow, North (Ann McKechin) both on securing today’s debate, on such an important and topical subject, and on her commitment to the cause of social justice around the world and her work in driving forward progress by Governments on the millennium development goals. It is because of the campaigning work of my hon. Friend and other parliamentary colleagues, and campaigners in her constituency and throughout the country, that we can make progress on many of these issues in international discussions. I commend her for all of the effort that she has made.

My hon. Friend is right to say that the progress that we have made on debt relief and on securing not only the millennium development goals but a substantial increase in the global resources devoted to tackling the issues in question is one of the great achievements of the past 10 years. Together, the work that we have done on multilateral debt relief and for heavily indebted poor countries will, over time, reduce the debt burden of the world’s poorest countries by some $110 billion, allowing the savings from debt relief to fund country-owned strategies for poverty reduction. That has been a very important part of the wider leadership shown by the UK—through both the Prime Minister and the Chancellor
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of the Exchequer—in taking such matters forward in international discussions, so I agree with my hon. Friend’s starting point.

My hon. Friend is also right that it is important to ensure that debt relief should help recipient countries to increase poverty-reducing spending in such areas as health, education and rural agriculture. As a group, the HIPCs have made great improvements in sanitation, child mortality rates, gender equality, the encouragement of primary education and environmental sustainability. Those are the positive benefits that flow, in pursuit of the millennium development goals, from the debt relief that my hon. Friend rightly highlights.

We need to remain vigilant, because of both the progress that we have made and the dangers identified by my hon. Friend. If we are to continue to tackle poverty and to ensure that the full benefits of debt relief will be realised, we need to continue with several actions. We need to ensure full implementation and financing of the HIPC and multilateral debt relief initiatives, with all countries delivering on their commitments; we need to see to it that HIPCs and other countries that receive debt relief ensure that the savings from debt relief are spent well, for poverty reduction; and we need, together, to ensure that new borrowing is appropriately concessional, well targeted and used for productive purposes, so that countries can achieve their development goals without running into new debt problems in the future. The UK is, in particular, committed to tackling the threat, described by my hon. Friend, posed by so-called vulture funds. They threaten to divert the benefit of debt relief away from those for whom it was intended and who need it most.

Recent events have highlighted the problem of so-called vulture funds, companies that buy debt from heavily indebted poor countries at a discount and seek to enforce the debt in full after debt relief has increased the countries’ ability to pay. Those companies seek to profit from the world’s most vulnerable countries, diverting much needed resources away from the fight against poverty. In doing so, they threaten to undermine the efforts that the international community has made to ensure that those countries receive debt relief under the relevant initiatives.

I am sure that my hon. Friend will agree that it is important to emphasise the scale of the problem. A study published in August 2006 by the World Bank and the International Monetary Fund noted that a growing number of commercial creditors and distressed debt funds are engaging in litigation against HIPCs. The last survey of participation in the HIPC initiative found that 11 of the 24 post-decision point respondent countries had been targeted with law suits by 44 litigating creditors. The total reported claims under litigation amount to about £2 billion, including principal, arrears, interest and penalties. The total claims were about 22 per cent. higher than total HIPC debt relief to be provided by commercial creditors, and for some countries they are very large relative to gross domestic product, so my hon. Friend is right to emphasise the scale of the potential threat.

My hon. Friend set out the case of Zambia, against whose Government a vulture fund brought a case in the UK High Court in 2007. We congratulate the Government of Zambia on the strong defence that they mounted in their recent legal case. It was the first defence in a case
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of the kind that has ever been even partially successful. The claim by the vulture fund, Donegal, was for $55 million in respect of Zambian debt that it had purchased from the Government of Romania. The judge ruled that Zambia should pay only $15.5 million, plus £600,000 of defence legal costs. That was a partial but important success, and its impact will be felt across the world. Vulture funds cannot continue to expect to profit from the world’s poorest countries. We are determined to limit the damage that vulture funds cause.

We are working to tackle the problem in two ways: first, by preventing vulture funds from being able to buy and aggressively pursue debts in the first place, and secondly by limiting the damage done by cases that are already under way. To prevent the problem, we are working with the World Bank to help poor countries to buy off their commercial debts at the earliest possible opportunity. Under those deals, for which the UK and others provide funding, countries buy off their debts at a huge discount. The debts are then gone forever and the matter cannot be taken to court. More than $8 billion worth of debts have already been cancelled in that way, and we are working to make the system more effective. As I have highlighted, however, in some cases, debts are already in the hands of vulture funds, so we are working with the African Development Bank and others to ensure that countries have access to the best possible legal support to fight those cases. For example, the strong defence that Zambia recently put up reduced its costs by $40 million.

We are also working with countries to improve their debt management and to develop a charter on responsible lending to reduce the risk of debts being sold to vulture funds. The details of those measures were set out in a written statement to the House on 10 May. I would like to reassure my hon. Friend that that statement makes it clear that we support proposals at the African Development Bank to develop a legal assistance facility to help countries that are facing legal action to gain access to technical and legal support.

We continue to raise this issue in international forums. When the Chancellor raised the problem at the meeting of G8 Finance Ministers on 18 May, G8 Ministers expressed concerns about the actions of some litigating creditors against heavily indebted poor countries, and agreed to work together to identify measures to tackle the problem, based on the work of the Paris Club. We continue to work with our international partners on that, and I hope that my hon. Friend is reassured that that is very much a priority for us.

My hon. Friend raised several other issues on which we must keep moving forward. We must ensure that future lending is more responsible. The experience of the past 20 years has shown how damaging excessive debt burdens can be. A number of studies have concluded that developing countries with high debt ratios have suffered lower growth rates—possibly as much as a percentage point of gross domestic product per year, which might sound like a small amount, but is huge. That problem is a result of the debt overhang problem, whereby private investors are deterred from making growth-enhancing investments because of concerns that future profits will be taxed away to pay for debt service.

Our debt relief efforts are freeing money to support poverty reduction strategies, and have introduced significant headroom for new borrowing. As my hon. Friend pointed
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out, it is essential that we work together to ensure that new borrowing works to support development. Appropriate concessional lending can fill a market gap and help to establish a track record of good debt management, which is essential to creditworthiness. Excess or inappropriate borrowing puts that process into reverse, and can take former HIPCs back into the problems from which we have helped them to escape. That is why we must be responsible about future lending. It is right that the international community should consider carefully the issues that my hon. Friend has raised.

Partnership lies at the heart of our work on debt sustainability and responsible lending. Both creditors and borrowing countries must share the responsibility of ensuring than any new lending is appropriately concessional and is used for productive purposes.

Ann McKechin: What discussions has my hon. Friend had with the banking community in the UK about the charter and whether it is prepared to adopt it as part of its future lending criteria?

Ed Balls: May I provide a little more context before coming to that point? We believe that Governments should work together to improve co-ordination and transparency, take account of debt sustainability when making decisions on lending, and ensure that their lending supports economic development and good governance. We also believe that all new lending to low-income countries should take account of the World Bank and International Monetary Fund debt sustainability framework, should be appropriately concessional and targeted, should be used for productive purposes, and should be in line with the economic and development priorities set out in IMF-World Bank programmes. When G7 Finance Ministers met in February, they highlighted the importance of developing a charter on responsible lending. Our intention is that that charter should highlight the role that all Governments must play to ensure that their lending to low-income countries is sustainable, and we are keen to ensure that a wide range of countries sign up to those principles.

We hope to build on all that by working with leading commercial creditors on having their own voluntary charter for lending to low-income countries. I have raised that issue informally in my discussions with the London banking community, and I shall continue to do so in the coming months, as well as starting formal discussions of those issues. It is important that we focus not only on Government responsibility and lending, but commercial creditor responsibility, so we are keen that a voluntary charter should be drawn up. I am happy to keep my hon. Friend informed about those discussions as we formalise them and take them forward.

As part of our commitment to debt sustainability, the UK has supported the development of the debt sustainability framework by the World Bank and the IMF, which is an important tool that debtors and creditors can use to inform their lending decisions. The framework has a key role to play in preserving and supporting debt sustainability. The commitment to ensure that all lending is guided by and fully consistent with the framework should underpin work on the charter for responsible lending and the voluntary charter for commercial creditors, which I have mentioned.

My hon. Friend also asked about export credit agencies. I am pleased to report that the UK has led a successful
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international initiative to regulate lending to developing countries. By way of background, it is important to note that Government-sponsored export credit agencies have played a significant and important role in lending to developing nations. Those agencies help domestic companies to export goods and services, including to developing countries, by providing insurance and guarantees to protect exporters from non-payment and political risks. However, loans from export credit agencies have added to the external debt problems of developing countries in the past. Before the recent debt relief programmes, 30 to 40 per cent. of developing countries’ debt was owed to ECAs, but most of that debt has been forgiven, thanks to the large-scale debt relief provided under our debt relief initiatives.

New borrowing can play an important role in meeting the millennium development goals, but it needs to be properly managed, especially on commercial terms. To avoid a repeat of the “lend and forgive” cycle, the UK has been leading international efforts on responsible lending by ECAs. The Treasury has been working in an effective partnership with the Department for International Development and our Export Credits Guarantee Department, as well as working through the EU and the Organisation for Economic Co-operation and Development to establish a framework for ECA-supported lending to the countries that are most at risk of debt distress. Those countries include HIPCs and countries for which the International Development Association will give only grants, not loans—the so-called IDA-only countries.

The UK’s Export Credits Guarantee Department has always operated to higher standards than those in many other countries when assessing the suitability of supporting exports to poor countries. For example, any requests for ECGD support for projects in HIPC and IDA-only countries have to be approved by both DFID and the Treasury. DFID assesses those requests against several criteria to check whether the lending is affordable and whether the project will add to the social and economic well-being of the country.

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One reason why the UK sought certain changes to the OECD statement of principles was to bring the world up to our high standards. There is an OECD statement of principles on unproductive expenditure, which governs ECA-supported lending to poor countries. We are working closely with the IMF, the World Bank, and Finance Ministries of the Netherlands, Sweden and Italy to promote an extension of the OECD statement to all low-income countries, as well as taking various other steps to make lending more responsible.

Positive steps were taken at the OECD export credit group meeting in April 2007. The meeting agreed two key developments, the first of which was to extend the scope of the OECD statement of principles beyond HIPCs to cover all IDA-only countries, in line with the policy of the UK’s ECGD. As a result, at least 26 more countries will be covered by the agreement, including Afghanistan, Angola, Bangladesh, Kenya, Nigeria, Sri Lanka, Sudan, and Vietnam.

The second key development was a move to improve information sharing with the IMF-World Bank on the volume and terms of ECAs’ new financial commitments. That will allow the IMF-World Bank to cross-check data that they receive from borrowing countries and thereby ensure that there is debt sustainability. The agreement will help the OECD’s efforts to encourage new, emerging lenders to improve data sharing and reporting. The IMF and World Bank have also announced that they will set up dedicated electronic mailboxes to respond to questions from ECAs on certain issues.

We have made good progress, but we will not stop there. We are working with international institutions and other countries to develop the initiative by making proposals at the next OECD export credit group meeting in November. We will propose further enhancements to the OECD statement of principles to give clearer guidance. Those important steps show that we are taking forward the agenda, which my hon. Friend rightly says is important.

11.30 am

Sitting suspended until half-past Two o’clock.

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Gypsies and Travellers (Hertfordshire)

2.30 pm

Anne Main (St. Albans) (Con): In debates earlier this year, I drew the Minister’s attention to our concern about regional housing allocation in Hertfordshire. I can honestly say that I am against unsustainable, inappropriate or unjustifiable development, whatever its purpose. As she knows, I have major concerns about the proposed additional Gypsy and Traveller pitch allocation for my constituency and for Hertfordshire as a whole. I have sent her the figures for Hertfordshire so that she can give us a detailed response.

This Government have attempted to tackle Gypsy and Traveller site provision through the circular on planning for Gypsy and Traveller caravan sites, which tries to address health and education outcomes for Gypsies and Travellers by proposing a large increase in site provision. It asserts:

That situation has resulted in the East of England regional assembly—EERA—conducting a skewed consultation in an effort to deliver the Government’s objectives. I shall not become distracted, but it is worth noting that only the Conservative party has pledged to scrap these undemocratic regional assemblies. They are the instrument of the Government and are fully endorsed by the Liberal Democrats.

The new planning policy issued by the Government in 2006 said that one of the main intentions was

Another aim was

I want to set out for the Minister why we in St. Albans believe that the whole community, both settled and travelling, is disadvantaged by that consultation, which was undertaken to achieve, via our regional assembly, the Government’s aims. Rather than having a key role in the consultation process, we in St. Albans, are being dictated to. That will do little to improve community relationships and could have a destabilising effect on relationships with our Traveller communities. In the EERA consultation, our current pitch provision was not acknowledged in the calculation process. Does the Minister agree that that is not acceptable? We would argue that the flawed consultation in which we have been asked to participate would require us to over-provide pitches via EERA. It has determined an unfair allocation of new and additional pitches in the St. Albans district. I wish to make it clear that no one wants to discriminate against a minority group. However, it is only fair that all those who live in a community should abide by its laws and regulations, otherwise it is the majority who are discriminated against. We need to have recognised, well-supported, authorised sites and we need to clamp down hard on costly and often unsightly incursions into fields and public open spaces.

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