Examination of Witnesses (Questions 27-39)
RT HON
DOUGLAS ALEXANDER
MP, MR MARTIN
DINHAM AND
MS SUSANNA
MOOREHEAD
12 NOVEMBER 2008
Q27 Chairman: Good afternoon, Secretary
of State, and thank you very much for coming in again to give
evidence to us. I am advised that there is a series of votes at
4.17, so that is our time constraint and we will end at that point.
I wonder if you could just introduce your team for the record?
Mr Alexander: Martin Dinham, who
was with me last week, Director General International, and Susanna
Moorehead, who is our new Executive Director, a full-time Executive
Director, at the World Bank based in Washington.
Q28 Chairman: Thank you very much.
Obviously the prime purpose of this evidence session is to discuss
the annual general meetings of the IMF and the World Bank and
your Department's engagement. I wonder—and we have given
you notice of this—given the topicality if we could just
briefly get an update from you about the situation in Goma and
eastern DRC.[8]
First of all, if I could just ask you a straightforward question,
what is your understanding of where the situation is at the moment
and obviously in terms of your own Department?
Mr Alexander: The situation remains
dire, I am afraid. Sporadic fighting continues to cause displacement
and to hamper the humanitarian effort which we and others are
making. The estimates of IDPs[9]
that we have received this week vary considerably, but OCHA[10]
believe between 50 and 100,000 are displaced as a consequence
of fighting over the last two weeks, and that obviously comes
on top of the very significant numbers who have been displaced
since the beginning of the rainy season in August. Access remains
a problem around the front lines of the fighting, although in
other areas agencies are active. For ourselves, DFID is responding
with food aid through the World Food Programme and other humanitarian
supplies through UNICEF.[11]
Our critical priority, along with the rest of the Government,
is to try and secure the end of the fighting so that relief agencies
can actually get the supplies to those who need it and the IDPs
can in turn return home.
Q29 Chairman: Thank you for that. When
we did our report into the World Food Programme those of us who
were in Ghana visited the crisis station there and they told us
they could reach any crisis point in the world within 48 hours
and yet they do not seem to have been able to do that here in
eastern Congo. We have seen on our television screens indications
of people being without any food or support for more than two
days. What accounts for that? There was some sort of comment about
having to assess the need, which was pretty visible for anybody
to see.
Mr Alexander: I think the single
biggest contributor is the conflict rather than the geographic
location in terms of the constraints at the moment. On Friday,
as you are probably aware, we announced £2 million for WFP
for food needs and on Sunday, the first two of six flights from
Entebbe in Uganda to Goma arrived carrying water purification
tablets, plastic sheeting and water containers for UNICEF. The
last of these flights we anticipate will arrive this afternoon,
and we expect to allocate the remainder of the £5 million
which I announced by the end of this week once proposals and needs
assessments come in. Two DFID humanitarian advisers are on the
ground in Goma as we speak to assess the situation and coordinate
with implementing agencies. So there are flights landing this
afternoon. Two of six have already landed and we anticipate the
others will arrive shortly.
Q30 Chairman: Those of us who visited
eastern Congo two years ago, which I think included certainly
Hugh Bayley and myself—and we were not in Goma but we were
in Bukava, which is the other end of the lake—what came
across to us was the lack of functionality of the Congolese state,
and in particular the lack of an effective army, the lack of an
effective police force. Right now obviously in an international
crisis you just have to provide first-aid and try to stop the
fighting, but in the longer term, given the UK's contribution
to the DRC—which I have to say looks as if it is lower than
it was and you might explain if that is the case, and if so why—what
is being done to try and ensure that there is a government effectively
in Congo which has the capacity to create order and space because
ultimately it seems to us that without that these kind of crises
are just going to flare up all the time?
Mr Alexander: Again, I think one
has to start with an analysis of the circumstances in eastern
DRC. It is impossible to clearly envisage a security solution
to what we are witnessing without a political resolution, and
in that sense the particular conflict involving General Nkunda
that we are witnessing at the moment has deep political roots
reflecting ethnic tension. Those have been exacerbated by both
the availability of arms within the region and also the expectation
and discovery of significant natural resources, which have contributed
to the problems. So while there are issues in relation to capacity
building, I would also not want to underestimate the centrality
of finding a political resolution. That is in part why our Foreign
Secretary, David Miliband, travelled to the region with Bernard
Kouchner the week before last. It is why Lord Malloch-Brown, if
I recollect correctly from the discussion we held in Cabinet on
this on Tuesday, will be travelling back to Kinshasa either later
this week or early next week, and it is why we are strongly supportive
of the efforts which are being made within the African Union and
elsewhere to try and find a way forward because I think while
it is true that there are considerable challenges facing the government
in the DRC, it is the endemic nature of the conflict which is
the biggest single factor explaining the difficulties in terms
of the eastern DRC in particular. So in that sense it is not for
us an either/or between development support or political efforts.
The difficulty is we need to see political leadership being exercised,
not simply within DRC but also in Rwanda as well, to try and find
a political way forward from the conflict.
Q31 Chairman: I think we understand
that. Hugh Bayley might want to come in on this, but when we visited
the DRC my recollection is that DFID's aid budget was in excess
of £70 million and in fact I and the foreign minister at
the time turned the turf for the new DFID offices and we were
the biggest single donor. The current contribution is £42
million, which suggests that we have reduced the amount of funding.
Was that projected or is that because we have actually difficulty
in spending it because of the constraints of operating within
the DRC?
Mr Alexander: Forgive me, I do
not have the figures but I will happily provide them to the Committee,
but I suppose I would add the important caveat that the only measure
of our commitment to a country is not the quantum of resources
but it is for the reasons you have said, and it may be that there
are exactly the capacity constraints of which you speak, but I
will be very happy to set that out in writing for the Committee.[12]
Chairman: Thank you for that. If we could
now move on to the main session.
Q32 John Battle: I just want to ask
as a starter, what assessment now has the Department made of the
countries most vulnerable to the financial crisis, after the shocks
which have gone on in the last few months?
Mr Alexander: This is a conversation
we last had a couple of weeks ago. We have been continuing to
work on a grid of essentially the metric vulnerability for all
of our PSA[13]
countries. I think, if we have not already, we should be able
to facilitate the provision of that to the Committee. Essentially,
the first wave of this crisis, both rising fuel prices and rising
food prices, is at the moment impacting more severely on low income
countries than the impact of the financial crisis, but we are
already seeing the reach of the financial crisis moving beyond
the core of the financial system now to the middle income countries,
and in that sense the response which has been put in place both
by ourselves and by others reflects the fact that we need to in
particular maintain our Productive Safety Nets commitment because
of the vulnerability of many of these countries. You may have
seen the statement in The Guardian and in other
UK newspapers this morning of the latest assessment by the World
Bank. The estimate was originally that about 100 million more
people had been pushed into vulnerability to hunger and poverty
as a result of the food and fuel price rises, if I recollect,
taking the numbers vulnerable globally up to 967 million. In addition
to that now in light of the anticipated global downturn, they
are estimating along with the IMF broadly a 2% drop in global
output with the effect, they judge, of an additional 20 million
people being pushed into poverty for every 1% reduction in global
growth. So that would mean in addition to the 100 million which
took the number up to 967 million, as of yesterday the Bank was
estimating that a further 40 million people are now vulnerable
to poverty.
Q33 John Battle: If I may say, DFID is
quickly developing a good reputation internationally for developing
rather sophisticated, if I may call them, tools of analysis. So
I was rather attracted to the idea that you mentioned in your
last evidence—the matrix of vulnerability. But is it developed
across Whitehall? Do you involve the Treasury in it? I am almost
tempted to ask could we apply it here as well. What is its reach,
or is it just to do with finance? The answer you have given me
suggests it is wider than financial, it takes the food prices
as well into account. How useful is that matrix and how good is
it across Whitehall, and are other departments involved in that
research work which your Department is developing?
Mr Alexander: Clearly, we work
very closely with the Treasury in terms of their leadership in
relation to the IMF. I would also emphasise that there has been
significant joint working, not least anticipating this weekend's
meeting on 15 November, with the Cabinet Office fulfilling its
traditional role of coordination. There is a whole web of relationships
now which are operating, broadly to better understand the impact
of the global crisis, not simply globally but, as your question
anticipates, here at home as well. The Prime Minister has spoken
about this both publicly and privately. He is seized of the fact
that in many ways many of our challenges over the last decade
have been internal to the United Kingdom. The nature of these
global challenges demands that we are able to respond in different
and more flexible ways as a government. Now, I would not claim
that we have had the final word on that but, for example, the
establishment of the Department of Energy and Climate Change was
a reflection of the concern to ensure that we had a government
which was reflective of the new emerging challenges we were seeing
and we have worked extremely closely with Number 10, the Cabinet
Office and the Treasury, anticipating this weekend's events, to
ensure that albeit the primary focus of the meeting which will
take place in Washington will be on the IMF and on financial stability,
we seize the opportunity of the G20 meeting in Washington to set
a framework for a positive outcome to the Financing for Development
Conference a fortnight later in Doha, and that we anticipate the
potential for further discussions, not least around reform of
the Bank, to ensure that development features prominently. In
that effort, I have to say, I would pay tribute to the American
administration, who in the letter of invitation to this weekend's
meeting very helpfully, from our point of view, specifically identified
the impact of the global financial crisis on developing countries
and that gave us a locus and an opportunity to argue strongly
both in discussions which have taken place between governments
ahead of the meeting and in our internal discussions that there
needed to be a clear recognition of the needs of developing countries
even at the stage of this preliminary conversation in Washington
this weekend.
Q34 Chairman: Is the matrix which
you referred to something you can share with us?
Mr Alexander: I do not see why
not.[14]
Martin, do you want to say a word or two in terms of this development?
Mr Dinham: Yes. Just to pick up,
we have been working, as the Secretary of State said, extremely
closely with the Treasury, Number 10 and the Cabinet Office on
this, both in terms of sharing our analysis and vulnerability
matrix with them and also ensuring that we feed in—there
has been no push back about this at all—the interests of
the developing countries being taken fully into account in any
movement on the financial systems.
Q35 John Battle: So your 22 Public
Service Agreement countries have had some say in the drawing up
of the matrix, have they, and in the analysis?
Mr Dinham: Where we have had feed
in on this is from our country offices, which are obviously very
close to the situation in the country, feeding in as part of the
overall analysis. So it is not just people in the centre doing
this, it is getting information from the field.
Mr Alexander: Essentially, it
itemises the countries down the side and then runs across external
and reversible flows to give us a sense as to the openness of
the economy and vulnerability, particularly in terms of liquidity.
Secondly, macro-fundamentals, the degree of fiscal vulnerability,
levels of inflation, current account balance. Then trade, to give
us a sense in terms of where they are on trade, oil export dependency,
given the centrality of oil, and in particular vulnerability to
food price hikes, how much do they generate their food internally
or are they importing in terms of food. That gives us a sense
as to where each country is.
Q36 John Battle: If I may say as
well, that macro-analysis, let us call it that, is most welcome,
and going to the global meeting, excellent. Someone said to me
recently the effect on remittances alone is going to sink some
economies, so as well as trade flows, capital flows, domestic
investment and remittances, having a grid of all that lot together.
But then if I was looking from the micro end of the telescope
and I was in one of the countries—take Ethiopia—I
might be asking the question, how specifically will the matrix
be used to deliver me bankable goods? What can I bank on as a
result of the matrix and will it just be short-term or is it a
long-term restructuring of the financial arrangements and development
assistance?
Mr Alexander: I would not want
to over-emphasise the matrix and under-estimate the enduring relationships
we have with these countries. If you take the example of Ethiopia,
as I mentioned to the Committee during my last appearance, I had
just had two and a half hours with the Prime Minister, at which
a significant portion of our time was spent not only dealing with
the domestic issues I have spoken about to the Committee before
in terms of the need for a nutrition study in the Somali region
and the approach of the Government there, and indeed the issue
of the NGO law, but also a broader discussion in terms of the
level of vulnerability in Ethiopia given the progress which has
been made in a country which has had 7-8% growth for more than
five years. In that sense, while this is a useful tool, it does
not take the place of that iterative dialogue which we sustain
with the countries in which we work on an ongoing basis. If you
look, for example, at the additional money which has gone in,
the money we have put into the whole of Africa, the support that
is going into Productive Safety Nets within Ethiopia, I think
that is a very good example of where we have been able to act
flexibly and quickly, not least in a country like Ethiopia where
it is not simply that in certain parts of the country there is
already significant vulnerability to hunger, but actually over
a sustained period of three years of drought, much of the asset
wealth has been hollowed out of other sectors of the country as
well, which means the resilience within the economy is much lower,
which is why we need to ensure that the Productive Safety Net
continues to operate.
Mr Dinham: Just to add, as the
Secretary of State has said, we are engaging with partner governments
specifically on the crisis as we speak, particularly countries
in Africa, so working with Rwanda, Uganda, Sierra Leone, and indeed
Ethiopia on the analysis of the constraints to growth and how
they might develop growth strategies. As part of the response
to the food prices, which has obviously now moved into this wider
situation, we have provided £15 million as social protection
for Ethiopia. We have brought forward budget support, which we
are going to provide to Malawi specifically to help deal with
-
Q37 John Battle: So to extend my
telescope analogy, the matrix is really quite focused, sharply
focused you would say, country-specific?
Mr Dinham: It is, but it provides
us with a backdrop for the actual detailed case by case discussion,
because this has got to be country owned really, how we go about
it.
Mr Alexander: I would make two
points. One is that we, like every other government, are working
hard to understand the global character of what is a global crisis,
and in that sense the matrix is a useful tool. It is not the last
word, but it is a useful tool in giving you the capacity to see
how this is impacting. But that is supplemental to the individual
dialogue we are having, to ensure a country-led approach which
reflects the particular circumstances in each individual country.
John Battle: Good.
Q38 Hugh Bayley: Just to follow up,
I am impressed with the way the Government is responding in producing
this matrix, but it is not just a matter of the vulnerability,
country by country, of the economy. The economic downturn is going
to have impacts, as John Battle describes, on trade, on remittances,
on migration, and if we are to have a pro-development response
we need a cross-government response. I noticed Martin Dinham said
that you were working on the matrix with Number 10, the Cabinet
Office and the Treasury, but in terms of a full policy response
are you working with the Home Office on immigration, for instance,
with BERR on trade? Is it really going to be a whole government
response?
Mr Alexander: The last time I
spoke about trade and investment issues with the Secretary of
State was at BERR yesterday. The last time I spoke with the Foreign
Office and with David Miliband on issues relating to development
was yesterday. I chair the National Security and International
Development Cabinet Sub-Committee on Africa, which is a forum
which brings together the Home Office, the MoD, the Foreign Office
and ourselves along with the Cabinet Office. In that sense there
is a web of relationships which admittedly are working in a changing,
and fast changing, set of conditions and circumstances, but I
can assure you that we are working very closely with every other
relevant government department to make sure that we, in the first
instance, understand the nature of the changing global backdrop
in which we do our work but in which other government departments
do the same. Frankly, if many of us have made speeches for many
years saying the distinction between foreign and domestic policy
is a false one, we have all had an object lesson in that truth
in the last four to six months and I think the way we are working
as a government and between departments reflects that recognition.
We are actually working very closely together.
Q39 Mr Singh: Secretary of State,
our Prime Minister has emphasised that in terms of the global
crisis, one nation cannot follow its own path but we have to have
concerted global action, which brings me to the IMF, which has
now brought out its emergency lending facility and at the same
time it is operating its traditional standby facility, and the
impact of the traditional standby facility on Iceland, for example,
is that interest rates have gone up to 6%, while in this country
and across the world we want interest rates to go down. Is the
IMF pulling in the same direction in terms of concerted global
action, or is it pulling in a completely different direction?
Mr Alexander: I think it is difficult
to be prescriptive as to the effect of the intervention and response
of the Fund in different countries because in fact it varies depending
on the particular circumstances, which may cause individual countries
to make an approach to the Fund in circumstances of severe financial
difficulty. In that sense I am not sure that in every circumstance
the response which was taken, say for example in the United Kingdom
with the financial credibility that we continue to hold in the
international marketplace, is directly analogous with other countries
who find themselves speaking to the Fund and asking for those
resources. The new facility which has been created in terms of
the Special Liquidity Facility does not attach conditions and
in that sense is available without conditions to those who require
it. There is a very limited number of conditions in relation to
other forms of lending which are available from the Fund, principally
in relation to macro-economic stability, because whilst we can
get into a theological discussion about conditionality, it is
important to recognise that if the Fund is making funds available
we do need to ensure that there are other policies in place within
that country which do not themselves ensure that good money is
not going to yield the result in terms of stability that we would
want to see.
8 Democratic Republic of Congo Back
9
Internally displaced persons Back
10
UN office for the Coordination of Humanitarian Affairs Back
11
UN Children's Fund Back
12
Ev 22 Back
13
Public Service Agreement Back
14
Ev 22 Back
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