The Parliamentary Under-Secretary of State for International Development (Mr. Michael Foster): I beg to move,

It is a pleasure to serve under your chairmanship, Mr. Brady. I understand that this is your first Statutory Instrument Committee in this capacity, so I am delighted that you are chairing the proceedings. From our side, I promise that we will be orderly in our behaviour this afternoon.

Today I ask the Committee to consider a draft order covering the United Kingdom’s proposed contribution to the fifth general capital increase of the Asian Development Bank. The Asia-Pacific region has achieved rapid economic growth in recent years, but as the Asian Development Bank’s figures show, it is still home to some 64 per cent. of the world’s population who live on less than the international poverty line indicator of $1.25 a day. Many countries in the region still lag behind in key millennium development goal sectors, such as health and education. In addition, the global economic crisis has undermined the trend of poverty reduction in the region. Over 60 million people have been kept in poverty because of the crisis. While there are already some positive signs of revival, it will take some time to recover, which has major consequences for the poor and vulnerable.

The Asian Development Bank has made a significant contribution to tackling poverty. At the end of the last decade, the bank adopted poverty reduction as a key goal and put the millennium development goal at the centre of its work. The bank’s “Strategy 2020”, launched in 2008, recognised the huge gains from the economic growth of the last few years and refocused efforts on continuing development challenges and poverty reduction. It identified equitable and sustainable economic growth, climate change, fragile states, regional integration and gender as its priorities. It also clearly set out internal policies and management changes needed to address them.

Last year, Parliament approved the United Kingdom’s contribution to the replenishment of the Asian development fund, which provides grants and concessionary lending to the poorest countries. Today, we debate our contribution to the bank’s ordinary capital resource, which is used to provide lending at near-market rates to both lower and middle-income countries and for poverty-focused private sector operations. The general capital increase strengthens the bank’s ability to finance such developments, and this is the first capital increase in 15 years.

Ordinary capital resource lending is one way to reach the poorest in many countries across Asia and the Pacific. Countries such as India, Bangladesh and Vietnam are major OCR borrowers. The key to regional and global development over the medium to longer term will be how quickly and how well those countries manage challenges such as poverty reduction, inclusive growth, clean energy production and productive employment.

The need for a capital increase to respond to the growing demand for investment and development in borrowing countries was evident well before the economic crisis. The capital investments needed to meet the economic, social, environmental and climate change challenges remain huge. That said, the bank has responded well to the crisis, but it has required additional and immediate financial support, and has used up its existing ordinary capital resource more quickly. The bank is lending an additional $15 billion in 2009-10 as a response to the crisis.

In March 2009, the G20 Finance Ministers supported the proposal for the Asian Development Bank to triple its capital base from $55 billion to $165 billion. The UK has a shareholding of just over 2 per cent., and the UK’s additional shares will involve a payment of $69.7 million and a contingent liability of $1.67 billion. The paid-in amount is covered by the order, and the contingent liability was covered by a separate departmental minute to Parliament laid last November. The general capital increase will give the bank much needed resources to respond to the global economic crisis and to the longer term development needs of Asia and the Pacific. With new finance in place, the bank will be able to make further progress on implementing “Strategy 2020” and increase its role and capacity to serve as a key development partner in the region.

As well as achieving a sounder financial footing for the future, the bank needs to be an even more effective development institution. We are supporting internal reform programmes, and we have worked with other shareholders to help the bank improve its focus, especially on infrastructure, regional integration and climate change. Above all, we want the Asian Development Bank to focus increasingly on poverty in both the poorest countries in Asia and the Pacific, and in middle-income countries. We want to ensure that its private sector investments will lead to poverty reduction.

In conclusion, we want the bank to increase its contribution to the development effort in the region and we believe that the general capital increase will enable it to take steps towards achieving that. I commend the order to the Committee.

Mr. Mark Lancaster (North-East Milton Keynes) (Con): It is a pleasure to serve under your chairmanship, Mr. Brady. I am sure that I will be easy to keep in order.

The order is the latest in a series of statutory instruments regarding our regional banks. As the Minister highlighted, it is, of course, slightly different because, rather than simply replenishing the concessionary fund for the bank, we are actively looking at increasing the capital share. We support many of the principles that he outlined, not least because of the bank’s work in the region, but it was late on in his comments that he actually highlighted the incredibly large sum for which the United Kingdom would potentially be liable—some $1,673,726,180.50. That deserves a small amount of scrutiny rather than simply glossing over it.

Yes, initially the 4 per cent. that would be required to be paid is some $70 million, but potentially the liability is massive, and I would like to have confidence that plans have been put in place should that liability be called. Indeed, I was slightly concerned that the Government, in paragraph 7.8 of the explanatory memorandum, almost dismissed the potential of the liability by saying,

May I draw the attention of members of the Committee to what has actually happened in the world and in the UK during recent months? About how many banks would a similar statement have been made three or four years ago, offering no potential concerns about having to call in such an amount? Yet, despite what has happened in recent months, we have such a statement. I am concerned about that, and I hope that when the Minister comes to reply to my questions he will explain in some detail what will happen should the money be required. I am sure that all members of the Committee agree that we need to have such answers.

How confident is the Minister that such an outcome will not happen? Does he really agree with his statement, given what has happened in the UK and elsewhere over the past few years? Has the Department put in place a contingency plan in case the bank calls in the remaining $1.6 billion? If so, will the hon. Gentleman outline the plan? Will some areas of the current spending plan face reductions if we had to make the payment? From where would the money come? Would it come from the Treasury? Would the Treasury expect the Department to find the money? What negotiations have taken place? What is the plan? The Minister put absolutely no meat on the bone in his opening statement.

If the bank were to call in the remaining $1.67 billion, the payment would have to be passed by the House. What legal requirements are the British Government under to pay the remaining money if, for example, a future vote in the House was no? What will happen then? At the G20 London summit in April last year, it was agreed that all stakeholders would double their shares as, indeed, the UK is planning to do. Can the hon. Gentleman confirm that that is still the case, and that all countries have passed similar statutory instruments to the one that we are discussing or whatever they have to do in their Parliaments? If they have not, how will the extra money be found?

Is the decision to pay 4 per cent. now and to hold 96 per cent. on a callable binding the same for all those nations that are increasing their shares? If not, how does the procedure vary between countries? What percentage of the OCR lending is directed towards the middle-income countries, perhaps in line with the ’09-10 priority of the Department for International Development? What percentage of the capital raised by selling the additional shares will be spent on environmental projects in line with the bank’s updated energy policy? Will the Minister confirm that no new money will be spent on fossil fuel projects? Finally, what evaluation mechanisms are in place to guarantee that the private companies benefiting from OCR lending will actually benefit the poorest people, in line with DFID’s policy?

Jo Swinson (East Dunbartonshire) (LD): I am delighted to serve under your first chairmanship of a Statutory Instrument Committee, Mr. Brady, which I am sure will be the first of many such happy occasions.

I welcome the Minister setting out the reasons for the order. Clearly, the global recession has had a huge impact here in the UK. However, the effect in developing countries has been even more severe, with 100 million people forced back into extreme poverty which, as the Minister mentioned, is less than $1.25 a day. Even before the global recession, the international community, particularly the G8, had failed to deliver on its promises to developing countries about AIDS. I would be grateful if the Minister set out what work his Department is doing to ensure that the G8 fulfil its pledge of an increase in international aid.

In the follow up to the G20 last September, the Prime Minister identified both the strengths and weaknesses of development banks. He pointed out that the banks have only very limited flexibility to respond to a shock. My hon. Friend the Member for Berwickshire, Roxburgh and Selkirk has previously argued that the four-yearly replenishment rate, which forms the basis of how development banks are run, is not swift enough to deal with the sorts of problems that we have seen emerging from these crises and might see again. For that reason, we welcome this kind of flexible payment beyond the initial subscription in this case. However, I would be interested to hear the Minister’s response to the questions from the hon. Member for North-East Milton Keynes, because clearly the liability that the UK could be under—unlikely as it may be—deserves scrutiny and proper answers in this House.

Finally, as with all measures of this type, I would very much like to hear the Minister’s comments on how his Department will work with the bank to ensure that the money is spent in an accountable and effective manner. Our constituents are being asked to see their tax money spent overseas at a time of economic hardship at home. Although we all recognise the importance of assistance to poorer parts of the world, especially in times of economic hardship, it is of course much easier to justify such payments when there is clear accountability and transparency in the provision of the assistance. However, with some reassurance from the Minister on those matters, I am very pleased to say that we would be happy to support the order.

Harry Cohen (Leyton and Wanstead) (Lab): May I ask the Minister as couple of very brief questions? In the explanatory memorandum it says:

Why are they at near-market rates? Why are they not at preferential rates, particularly for poorer countries? Is the increase in funds going to those middle-income countries, with less actually going to the poorer countries? I am reminded—I should have more knowledge of this—that there was a Nobel prize winner, I think from Bangladesh, who came up with projects for small capital programmes going to people. Will the bank invest in those sorts of projects in that way, because they seem to be important? Will it have the expertise to manage such a wide variety of different programmes? The EU had a programme on development aid at one point, which was about everything but arms. Should not something similar apply here? There should be a boost from the bank to all sorts of development of a peaceful nature that should not really go to arms manufacturers.

Mr. Bruce George (Walsall, South) (Lab): I am not going to cause a great deal of trouble, but I have some questions. It would be a waste of an afternoon if we did not find something. I do not have any ideological reason to be critical, although I suspect a little hint of dislike of the fact, although perhaps I am being unfair to the hon. Member for North-East Milton Keynes, that we are participating as a country that is indebted—as he might say, but did not say. Through our aid programme and other programmes, we are helping countries that did not start the crisis, and we are helping them, to an extent, to overcome problems in a way that they may not have the capacity to do. We are maintaining our aid budget, and in many ways increasing it. I hope that the opinion of the Committee is consensual—I suspect it will be. We will have to face down some of our constituents who may not see international relations in the same way. I have no guilt whatever; we are doing a good job, and DFID is doing a very good job.

I have a couple of questions, following on from something that the hon. Member for East Dunbartonshire said. Anybody observing the scene would say that some of the countries that we are assisting—lending to—have dodgy records when it comes to dealing with their own money, and worse, as far as we are concerned, with money that goes to them from a whole variety of legal and illegal sources. Perhaps the Minister will give me a fuller answer later, or direct me to a fuller answer, to this question. There is a committee inside the ADB that considers integrity issues, but we know that international organisations are not too good when it comes to ensuring that the money that comes from European Union taxpayers’ incomes is spent as anticipated and as wished, and that the choice to give the money has been the result of serious examination. I cite but two of those organisations: the United Nations and, running a close second, the European Union. When it comes to the Asian Development Bank we are one cog in a large wheel and therefore do not run the show. Although we are a significant contributor, we are not one of the absolutely major ones, and we are not a substantial power in Asia any more. My first question, therefore, for eventual answer, is how good are the Minister’s Department and Her Majesty’s Government, as one of a number of players in a large structure, at ensuring that the choice of loan is correct, and that the money is paid back, if that is demanded? How good are the British Government and the Asian Development Bank at ensuring that the choice is right and, importantly, that the money does not drift away from projects, which is possible?

Closely linked to that is the fact that the report of the wonderful International Development Committee talks about conditionality in relation to the World Bank. DFID is good at ensuring conditionality in its own lending and aid programmes. Perhaps I shall introduce the Minister to a word he does not read much about in his own publications: democracy. He may not know—I remind any Minister from DFID that I come across—that the only reference to democracy in the very large book published by his Department every year is “Democratic Republic of Congo”. Minutes ago, I met a delegation from the Democratic Republic of Congo, and one of the other DFID Ministers is now going through the same process. Is DFID good at ensuring high standards of ethics in its internal and external budgetary process? It was stated in an International Development Committee report that ActionAid—a reputable organisation—said:

Is that right? If it is not right, what standards do we impose on the ADB to ensure that our scarce money is properly spent?

My next question is about conditionality. I do not argue that I am the finest exponent of women’s rights but I am pretty good, for a man. The World Bank’s gender action plan is entitled “Gender Equality as Smart Economics”. Are any standards imposed? I know that if everybody imposes their own standards on any international organisation, decision making becomes really complicated. We know what the ADB says its standards are when making a decision, but does it stick to them?

Lastly and very quickly: how good is aid effectiveness? I have read the annual report of the Asian Development Bank saying how effective it is. Does the Minister’s Department believe it? Does the bank have enough people working to ensure that the rhetoric extends into the reality of aid effectiveness? If standards are not met, will the Minister let me know on what occasions?

Article 41 of the Asian Development Bank’s founding document is entitled “Withdrawal and suspension of members, temporary suspension and termination of operations of the bank.” My next question might be a googly or a fast one down towards middle wicket, and if the Minister cannot tell me straight away, that is fine. Can he or his civil servants recall any occasions when the ADB has withdrawn funding, or wiped off the slate the right of a country to request and receive assistance on the basis of some misdemeanours? Those might be little things such as corruption or the kind of things that people who may not be too keen on overseas development would look at very carefully. They may tolerate the process—there is pretty substantial support for the process of development—but some people may say, “I will tolerate it if you will guarantee that at least the money we are putting into the Government and DFID through taxation is wisely spent.” It is not spent by us in this case—although it is in a way, as we are providing the initial money. But are those receiving it—the ADB—spending it properly and efficiently?

Dr. Brian Iddon (Bolton, South-East) (Lab): I have a quick question. The order mentions £1.67 billion-worth of callable shares. Do we have any outstanding callable shares from previous transactions with the bank? If so, to what extent does that call on the British Government, should the bank default? A possible rider to that question is: have we had a call on callable shares in the past or is that a pretty extreme measure?