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Session 2008 - 09
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Public Bill Committee Debates

The Committee consisted of the following Members:

Chairman: Mr. Clive Betts
Austin, Mr. Ian (Minister for the West Midlands)
Barrett, John (Edinburgh, West) (LD)
Bone, Mr. Peter (Wellingborough) (Con)
Clwyd, Ann (Cynon Valley) (Lab)
Dhanda, Mr. Parmjit (Gloucester) (Lab)
Dunne, Mr. Philip (Ludlow) (Con)
Field, Mr. Mark (Cities of London and Westminster) (Con)
Hoey, Kate (Vauxhall) (Lab)
Lancaster, Mr. Mark (North-East Milton Keynes) (Con)
Lewis, Mr. Ivan (Parliamentary Under-Secretary of State for International Development)
McCarthy, Kerry (Bristol, East) (Lab)
Moore, Mr. Michael (Berwickshire, Roxburgh and Selkirk) (LD)
Murphy, Mr. Denis (Wansbeck) (Lab)
Touhig, Mr. Don (Islwyn) (Lab/Co-op)
Whittingdale, Mr. John (Maldon and East Chelmsford) (Con)
Wright, David (Telford) (Lab)
Mark Oxborough, Committee Clerk
† attended the Committee

First Delegated Legislation Committee

Tuesday 21 April 2009

[Mr. Clive Betts in the Chair]

Draft Asian Development Bank (Ninth Replenishment of the Asian Development Fund) Order 2009
4.30 pm
The Parliamentary Under-Secretary of State for International Development (Mr. Ivan Lewis): I beg to move,
That the Committee has considered the draft Asian Development Bank (Ninth Replenishment of the Asian Development Fund) Order 2009.
It is a pleasure to serve under your chairmanship, Mr. Betts. The draft order covers the UK’s proposed contribution to the ninth replenishment of the Asian development fund of the Asian Development Bank. Like the rest of the world, the Asia-Pacific region is suffering the effects of the most serious global financial crisis for generations. The region is changing fast and some of its countries have experienced rapid economic growth in recent years, but it is still home to two thirds of the world’s poorest and most vulnerable people. They suffer most in these crises.
As the region’s second largest donor after the World Bank, the ADB will play a crucial role in the response. Swift, targeted action is needed, with a clear focus on poverty reduction in the longer term. This funding is crucial to the Government’s overall efforts to help developing countries to lift themselves out of poverty. Why should that matter to us? As well as being morally right, it is in our own strategic national interest. In an increasingly interdependent world, we are closer than ever to those in less developed countries. Trade is global. The rise and fall of energy and food prices and unstable financial markets affect us all. The effects of poverty and lack of opportunities, such as people trafficking and drug trafficking, conflict and the spread of disease, are reaching our own doorsteps. Poverty reduction, including in Asia, is an important part of securing our own economic and social well-being.
Although modelled in many respects on the World Bank, the ADB has a unique regional focus. A major strength of the ADB is its presence in almost all countries in the Asia-Pacific region. With its close ties with borrowing member Governments, the bank has acquired deep and wide knowledge and expertise in those countries. The ADB has two lending windows: the bank, which lends at near-market rates of interest to creditworthy countries and the private sector; and the fund, which provides grants and lending on highly concessional terms to the less developed regional members of the bank.
Mr. Peter Bone (Wellingborough) (Con): The Minister is talking of the funding being in US dollars and our contribution being in pounds sterling. With the huge variation in the exchange rate, will that still be fixed in pounds, or will it adjust because of the exchange rate?
Mr. Lewis: I think that our contribution will continue to be in pounds—I shall go on to talk about this—so it will not be affected by that, although the hon. Gentleman raises an important issue.
I was talking about the institutional reforms that we said we wanted to see happen in 2001. Those reforms were better management for results, a focus on areas of strength such as infrastructure, and institutional changes in evaluation and human resource management. The president of the bank at that time committed the bank to the reforms, but by 2007 we felt that progress had been too slow and we decided not to proceed with our supplementary payment. The UK therefore provided only the 6 per cent. share of the replenishment.
For this replenishment, we chose to revert to the core funding at 4.8 per cent., but there has been significant reform progress since then, so we are also offering a supplementary contribution based on specific progress on the important issue of gender equality. Senior management in the ADB have welcomed that approach. The Department for International Development’s contribution will ensure a higher profile for gender equality in the bank’s work.
We set out clear objectives for negotiations during this replenishment, including the agreement of a framework for results and greater focus on regional co-operation. Our objectives were achieved and, in addition, the bank will transfer $1.7 billion from its capital resources to the fund. That will help to provide more support for the poorest countries in the region.
Another priority objective was the agreement to set aside $1 billion for an infrastructure programme for Afghanistan, which I am sure will be welcomed by members of the Committee from all parties. The fund is co-ordinating well with the Afghanistan national development strategy, which focuses on infrastructure that is vital to economic growth and is also a major driver of poverty reduction. DFID is working with the fund to make good use of these resources and we are co-financing two infrastructure projects in Helmand province.
A total of £6 million of our contribution will be a supplementary payment based on good performance by the bank on gender equality. Gender equality is a priority for both DFID and the bank, but a lot more work is needed to bring tangible progress. Empowering women and girls in the Asia and Pacific region is vital for sustained poverty reduction and also for the achievement of the millennium development goals. Women have less access to education, health care and economic and political participation. Female child mortality is higher. If action is not taken soon, the future economic growth of the region will undoubtedly be threatened. It is estimated that up to $77 billion a year is lost through the gaps in education and women’s access to employment opportunities.
So we have agreed with the bank that £6 million of our contribution will be contingent on progress being made on gender equality. We will use two indicators to judge that progress. First, there will be annual performance reviews on progress against action plan targets, which will be designed to demonstrate real impact at the sharp end on the ground. Secondly, we will look at the number and skills of gender specialists, particularly those based in country offices. That will provide evidence that the ADB is extending the reach of gender work institutionally within the bank.
To conclude, we want the bank to remain a vital part of the development effort in the region and we believe that it is taking the right reform steps towards making itself an integral part of that regional development.
I commend the order to the Committee.
4.37 pm
Mr. Mark Lancaster (North-East Milton Keynes) (Con): It is a pleasure to be able to contribute to the debate, Mr. Betts. The draft order is the third such instrument, with the House having debated the replenishments for the African Development Bank and the World Bank shortly before Christmas last year. In one respect, however, there is a stark contrast between the previous two orders and the one before us today. Given that it would appear to be a strategy of the Department for International Development to increase the funding via regional development banks and indeed the World Bank, when we look at the order it is interesting to see almost no increase in funding for the Asian Development Bank, and I want gently to explore the reasons for that.
The draft order stands in marked contrast to a press release on 27 November 2007, in which the Secretary of State was keen to announce a doubling of UK funding support for the African Development Bank, up to a total of £417 million; and to the announcement on 31 March of the increase in the contribution to the World Bank, which would go up to a total of about £1,330 million, representing a 59 per cent. increase on the previous replenishment round. To see that the contribution to the Asian Development Bank is to increase by just a couple of million pounds, I believe, in real terms over four years—it is almost a decrease in funding—therefore prompts some questions. So, as I said, I would like to explore why some development banks seem to be eligible for a doubling of funds while the contribution to the Asian Development Bank seems to be pretty static.
Given our commitment to increase our funding to 0.7 per cent. of gross national income by 2013, why has the Asian Development Bank apparently done so poorly compared with the other regional banks? This does not really demonstrate that we have the same degree of confidence in the Asian Development Bank as we have in the other regional banks. As well as responding to that point, will the Minister confirm to what percentage of DFID’s budget the ninth replenishment equates? Has that percentage increased or decreased since the eighth replenishment? I am really trying to underline the fact that our overall commitment from the Department to the Asian Development Bank is decreasing and not increasing.
With the replenishment of the African Development Bank, the Government were keen to trumpet the fact that they were doubling the contribution. Why have we heard so little about the Asian Development Bank replenishment? Is it because we are less keen to encourage others to increase funding? Why is this package less than generous, compared with our approach to other banks? How will the contribution be payable? Will it be annually? When I was at the World Bank recently for a week, the Bank confirmed that it offers discounts to donor nations if they pay up front. Have we considered paying up front, or will the Treasury not allow it?
This might be a small technical point, but the explanatory notes clearly state that no impact assessment has been produced for the instrument, as there is no impact on the private or voluntary sectors. I am sure that many NGOs would disagree: the funding that is being allocated to the Asian Development Bank from the budget has an indirect impact on funding that may or may not go to NGOs. Was an impact assessment done for the last replenishment, the eighth one?
Looking at the breakdown of the replenishment, will the Minister tell us what the breakdown of core and supplementary funding was in the eighth replenishment? He said in his statement that not all the supplementary funds for the last round were paid because some of the criteria were not met. Did we not learn any lessons from that? Surely a higher percentage of the funding provided by the draft order should depend on conditions being met, rather than the bulk of it being core funding. Given that the Asian Development Bank has a history of failing to meet some of our terms and conditions, why did we not adjust the terms this time to ensure that they were conditional? Is there any monitoring of the core contribution of £109,845,000, or do we concern ourselves with conditions only for the supplementary contribution?
The Minister said that the supplementary contribution will depend on the bank’s gender action plan, yet, interestingly, the message from the president and chairman of the board of directors, towards the front of the Asian Development Bank’s 2008 annual report, states that
“the launch of ADB’s long-term strategic framework 2008-2020 (Strategy 2020), clarified our priorities. Strategy 2020 sets a strategic direction for ADB, with a clearer focus on poverty reduction through inclusive growth, environmentally sustainable growth, and regional integration. Strategy 2020 further focuses our operations in the five core areas of infrastructure, environment, regional cooperation and integration, finance sector development, and education.”
There is no mention of the bank’s gender action plan as a priority. Why has the Minister’s Department decided to focus on that, when it is not part of the bank’s priorities?
On strategy, what assessment has the Minister made of the bank’s ability to deal with the current economic crisis in Asia? As I said, about three weeks ago I spent a week at the World Bank. I learned that it was very concerned that it would be overwhelmed by some developing countries and recipients which had not fully recognised the impact the economic crisis would have on them. Is the Asian Development Bank in a similar position, and if so, how will we accommodate that?
The Minister mentioned the work in Afghanistan, where DFID spends lots of money via the World Bank and through trust funds. How is the Asian Development Bank co-ordinating its work with the World Bank? When we give funds to both organisations, we like to think that their work is being co-ordinated and that British taxpayers’ pounds are not being spent in both places at the same time, which may not be their best use.
Finally, I wish to ask about bank reform. We are a relatively small stakeholder in the Asian Development Bank, with 1.93 per cent. of capital, but, as there are with other development banks, such as the African Development Bank and the World Bank, there are concerns about bank management and structure—for example, the role of the executive board. We form part of a constituency with Austria, Germany, Luxembourg and Turkey, but when we look at the make-up of the board, we see that donors dominate it: seven of the 12 seats are occupied by donors and five by recipients. There have been moves in the African Development Bank to ensure greater representation by African nations. Are there similar plans within the Asian Development Bank to ensure that recipient nations have a greater say on the board?
Finally, I note that the Secretary of State for International Development is the governor, and that the alternative governor is the other Under-Secretary of State at the Department, the hon. Member for Worcester (Mr. Foster), not the hon. Member for Bury, South. Given that we are giving such a large replenishment in this round, may I ask when the governor or the alternative governor last attended a bank meeting?
4.46 pm
Mr. Michael Moore (Berwickshire, Roxburgh and Selkirk) (LD): I share the Minister’s analysis of how difficult things are in the developing world. He was right to highlight the pressing problems faced by so many countries, not only those on which the order focuses, but right across his brief. Recognising that fact, I hope that we might before too long have a debate on the Floor of the House on all the issues in the round and on how the Government are responding to them, not least because we are in the aftermath of the G20 summit, where many pledges were made and issues raised that the House has not yet had a chance to debate fully, other than through occasional questions at departmental questions every five weeks or so.
The scale of the collapse of private capital flows is absolutely staggering, and the Institute of International Finance has recently estimated that the full amount of flow this year will be around $165 billion, down from its peak of $929 billion in 2007. Any collection of economies would be doing very well indeed to cope with that scale of retrenchment, over which they have little control, whether through direct private investment, trade flows or, particularly, remittances, which are of huge importance to many countries in the region and elsewhere in the developing world.
“The Asian Development Bank should immediately proceed with a substantial general capital increase of 200 percent or $100 billion”.
Can the Minister state how that pledge, which we are presumably signed up to, fits with the order, what he estimates our share of the replenishment will be, and what the time scale will be for the contribution? That clearly stands to dwarf the £116 million that we are talking about, and it would be useful to understand what is involved.
When we last debated the issue on the Floor of the House, the Government quite properly focused on transparency. I recognise, as does the Minister, the need to ensure that British taxpayers’ money, when spent overseas, is spent in a transparent and accountable manner. I also share his analysis that international development is about not only our duties but our self-interest. We need collectively to make that argument as strongly as possible.
The Minister also highlighted some of the Government’s concerns about how the bank has acted in previous years, and the hon. Member for North-East Milton Keynes asked some important questions about the reassurances that the Government have received. How is the situation going to be monitored on an ongoing basis? In recent years, the Department has had to come to terms with an expanding budget and a decreasing and extremely stretched work force.
The answer to the question about how often the governor and his alternate have attended board meetings will be interesting. In their absence, there is presumably a squad of people doing many different things in the Department for International Development, but they also have to work on the issue under discussion. How many people does that involve and what is their seniority? Furthermore, how actively are they able to engage in the oversight of this particular public investment? Writing big cheques to international institutions may salve our obligations, but it does not necessarily deal with the core issue, and it certainly does not tie in with the Minister’s important points about conditionality, which I endorse. The issue is difficult and complex, but I hope that, despite the ever-growing sums of money involved, we are not losing sight of the need to ensure that the money is being put to the right purposes.
4.51 pm
Kate Hoey (Vauxhall) (Lab): When one hears other Members’ questions, one starts to think about one’s own. I look forward to the Minister’s response to the contributions made by the hon. Members for North-East Milton Keynes and for Berwickshire, Roxburgh and Selkirk, but I also wish to make a couple of points.
The Asian development fund is a bit technical, and the explanatory memorandum notes that the purpose of the Asian Development Bank is
“to foster economic growth and co-operation in the region of Asia and the Pacific”.
Will the Minister clarify exactly which countries are covered by that? In other words—other members of the Committee may know this—how many countries are there in Asia?
Furthermore, is any of the money linked to good governance, and is the UK absolutely clear that money is not going to countries where human rights abuses take place? Abuses in countries such as China, for example, are so appalling that most of my constituents would not want to give such countries a penny. I will be interested to hear the response to the last point made by the hon. Member for Berwickshire, Roxburgh and Selkirk about whether we are clear as to how the money is being spent and monitored, and whether we are absolutely sure in this time of economic recession that this is the best way to give a substantial amount of money to one region of the world.
4.53 pm
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