The
Committee consisted of the following
Members:
Chair:
Jim
Dobbin
†
Adams,
Nigel (Selby and Ainsty)
(Con)
†
Birtwistle,
Gordon (Burnley)
(LD)
†
Chishti,
Rehman (Gillingham and Rainham)
(Con)
Clappison,
Mr James (Hertsmere)
(Con)
†
Collins,
Damian (Folkestone and Hythe)
(Con)
†
Fallon,
Michael (Sevenoaks)
(Con)
†
Goodwill,
Mr Robert (Scarborough and Whitby)
(Con)
†
Hoban,
Mr Mark (Financial Secretary to the
Treasury)
†
Hopkins,
Kelvin (Luton North)
(Lab)
†
McGovern,
Alison (Wirral South)
(Lab)
†
McGovern,
Jim (Dundee West)
(Lab)
†
Mordaunt,
Penny (Portsmouth North)
(Con)
†
Mudie,
Mr George (Leeds East)
(Lab)
†
Smith,
Angela (Penistone and Stocksbridge)
(Lab)
Stringer,
Graham (Blackley and Broughton)
(Lab)
†
Thomas,
Mr Gareth (Harrow West)
(Lab/Co-op)
†
Williams,
Stephen (Bristol West)
(LD)
Wilson,
Sammy (East Antrim)
(DUP)
Alison Groves, Sara Howe,
Committee Clerks
† attended
the Committee
The
following also attended (
Standing Order No.
118(2)
)
:
†Cash,
Mr William (Stone) (Con)
Second
Delegated Legislation
Committee
Monday 19 July
2010
[Jim
Dobbin
in the
Chair]
Draft
International Monetary Fund (Limit on Lending) Order
2010
4.30
pm
The
Chair:
Before I call the Minister, I should say that it is
a bit stuffy in here, so if hon. Members wish to remove their jackets,
they are free to do
so.
The
Financial Secretary to the Treasury (Mr Mark Hoban):
I beg
to
move,
That
the Committee has considered the draft International Monetary Fund
(Limit on Lending) Order
2010.
It
is a pleasure to serve under you chairmanship, Mr Dobbin.
Like a number of Labour Members, I found it difficult to work out on
which side of the Committee I was meant to be. This is the first
statutory instrument I have done as a Minister, but it is a relatively
straightforward one to open with, because it increases the limit on the
amount that the International Monetary Fund can borrow from the UK.
Last April, the G20 reached an agreement to increase the IMF’s
resources by $500 billion, and around half of that has been provided.
It is now crucial that all countries take the necessary steps to
finalise their full commitments. As the Committee will know, the IMF
has been at the centre of the international response to the economic
crisis, and demands for assistance from the IMF remain at record
levels, with almost $200 million currently being provided to 27
countries through IMF programmes. Recent events in Europe have
underscored the need to ensure that the IMF is adequately equipped to
fulfil its core role of promoting financial stability and economic
growth.
The G20
agreement substantially to increase the IMF’s lending capacity
was envisaged as a two-step process. As a first step, countries have
made additional resources available to the IMF through bilateral loan
arrangements. That was the quickest way to mobilise the additional
resources needed by the IMF. As part of that effort, the previous
Government signed a $15 billion contingent bilateral loan to the IMF in
September last year. However, the bilateral arrangements are only
temporary measures. The G20 agreed to deliver its full commitment to an
established framework for lending to the IMF. That
framework—known as new arrangements to borrow, or NAB—has
been reformed and made more flexible. Bilateral loan arrangements must
now be incorporated into the reformed NAB framework, together with the
additional resources that the G20 has pledged.
During
international negotiations last year, the UK agreed to provide up to an
additional $11 billion on top of existing commitments to the NAB, which
brings the UK’s total commitment to about $28
billion.
Mr
Gareth Thomas (Harrow West) (Lab/Co-op):
The Minister is
right when he says that the order is relatively straightforward.
However, a series of issues on the
reform of the IMF are kicking around, particularly in relation to its
mandate and governance issues. Those issues have implications for the
role of special drawing rights, which are pertinent to the debate. On
the question of the mandate, can he indicate to the Committee what the
Government’s view is of the role of special drawing rights going
forward and whether they might become a principal reserve asset in the
international monetary system, as has been suggested by some of those
who are considering the future role of the
IMF?
Mr
Hoban:
The hon. Gentleman raises quite a broad issue that
falls outside the scope of the order we are considering. Clearly, as
with other international bodies, the IMF keeps its role and mandate
under review. The Chancellor, as governor of the IMF, will participate
in those debates as appropriate. If that leads to any need for
legislative reform, the matter will be brought before the
House.
Mr
Thomas:
Surely the Government have a
view.
Mr
Hoban:
The UK will respond to those changes. One of the
challenges for the IMF is, as the global economy develops and
developing countries increase their economic importance, there will be
a view about who should be a governor of the IMF and what the
contribution of quota shares will be. The UK is strongly committed to
playing its part in strengthening the accountability, governance and
legitimacy of the IMF. We will take part in international debates to
achieve that
goal.
Returning
to the subject before us, the order does not represent an up-front
financing commitment for the UK. The NAB has always served, and will
continue to serve, as a backstop to the IMF’s normal source of
finance. The NAB can be called upon only if the IMF needs additional
resources to deal with exceptional circumstances, for example, if there
were a systemic crisis that threatened economic stability at a regional
or global level.
If the IMF
should call upon the UK, any loan will be repaid in full and with
interest and it will be financed from the UK’s foreign exchange
reserves. As a claim on the IMF is itself held as an asset of the
UK’s reserves, resources provided through the NAB do not
increase public sector net
debt.
Mr
Thomas:
The Minister may be familiar with the debate about
the future size of the IMF board and whether Britain will retain its
seat on that board, which clearly is important for our ability to track
how the special drawing rights will be used in practice. What is the
Government’s position on whether Britain should retain its seat
on the IMF
board?
Mr
Hoban:
The UK is one of five countries that have permanent
representatives on the IMF board, and that is driven in part by size.
The IMF was a creature of the post-war settlement and the Bretton Woods
arrangements, but as the global economy changes there will clearly be
debates and we will need to look at the IMF’s governance
arrangements. If the UK continues to be a major contributor through its
quota share arrangements, we would expect to retain a seat on the
board. It is important
that we are able to continue to track the UK’s commitments, how
money we pledge to the IMF is spent and the conditions attached to the
loans to other
countries.
Mr
Thomas:
The Minister is generous in giving way, and I am
encouraged that he is determined to fight to retain Britain’s
seat on the IMF board. The review of the quotas under the IMF is fast
approaching—it is due to be completed by January
2011—which has potential implications, as he will be aware,
because of how the new arrangements for borrowing have been amended for
the retirement of lending capacity under the special drawing rights.
What is the coalition Government’s position on the next review
of the
quotas?
Mr
Hoban:
The hon. Gentleman has served as a Minister in the
Department for International Development, so he will know those
arrangements well and will understand that several emerging and
developing countries are currently under-represented, in terms of quota
shares. Those countries will be the principal beneficiaries of that
realignment. Alongside the quota review to which he referred, the UK
also expects that a broader package of reforms will be agreed,
including reforms to increase ministerial engagement with the fund. It
is important to reflect the changing dynamics of the global economy. I
understand that some of those shares under the NAB have already been
adjusted to reflect the change in the distribution of wealth around the
globe.
The
expended participation in the NAB will also ensure that the
responsibility for providing those resources will be shared more fairly
across IMF members. Contributions from other countries are in line with
their economic weight in the world. The US contribution will be the
largest, at $110 billion. Key emerging markets will also participate:
China with $50 billion; and Brazil, Russia and India with $14 billion
each. If the IMF needs to call upon NAB resources, it will spread the
burden equally across those commitments.
All countries
that have made commitments to the NAB have completed or are in the
process of finalising their own domestic legislative requirements. That
is why the Government are seeking to increase the limit that the IMF
can borrow under the International Monetary Fund Act 1979. The limit is
denominated in the IMF’s unit of account—the special
drawing right—and currently stands at 12.47 billion SDRs, which
is approximately $18.7 billion or £12.2 billion at
today’s exchange rate. The order will raise the limit to 18.66
billion SDRs, which is equivalent to about $28 billion, or just over
£18 billion. That increase will accommodate the
UK’s existing commitments to the IMF and allow the UK to
finalise the additional commitment to the NAB of up to $11 billion that
was announced last
year.
All
hon. Members will appreciate the importance of the measure as the UK
must play its full part in ensuring that the IMF remains at the centre
of the economic recovery and that it is equipped to fulfil its role in
promoting strong, sustainable and balanced economic growth. I hope that
hon. Members will support the statutory instrument that is before us
today.
4.40
pm
Mr
Thomas
:
I am grateful for the opportunity to serve
under you, Mr Dobbin, on what I understand is your first statutory
instrument, and for your relaxed
attitude to what we wear in the Committee Room. Let me say at the outset
that I do not expect to encourage my colleagues to divide on this
order. Indeed, we warmly welcome it. As the Financial Secretary said,
it is one of the outcomes of the G20 London summit, which was held in
April 2009, and of the subsequent discussions that took place after the
G20 summit in late April and November on how to expand the NAB. Indeed,
the order is a reminder of the extraordinary challenges that the G20
and many other nations had to confront as a result of the global
financial crisis.
Let
me say gently that the coalition Government have sought to paint a
picture for the British public that somehow our economic position is
unique, that our deficit is the only one that needs reducing and that
our challenges are worse than any other nation the world over. In the
communiqué from the G20 summit, the world’s most powerful
nations agreed that we were facing the deepest challenge to the world
economy in modern times, which is affecting the lives of women, men and
children in every country. They specifically noted that it was a global
crisis, not a British one, that required a global solution. The
agreements, an element of which we are now discussing, went some
considerable way towards helping to maintain stability and to increase
confidence across the global
economy.
Kelvin
Hopkins (Luton North) (Lab):
I agree entirely with my hon.
Friend. Given the Government’s present policies, does he not
agree that if we were driven back into recession our esteem in the
world might not be quite as high as it is
now?
Mr
Thomas:
My hon. Friend makes a very good point. It was
salutary for the coalition Government to have the IMF downgrading our
growth prospects so soon after the Budget. My hon. Friend alludes to
our standing in the G20. One fundamental element of the package that
was agreed last April was an agreement to increase the resources
available to the IMF. I join the Financial Secretary, and no doubt many
others, in welcoming the process of completing the granting of that
lending capacity to the IMF. None the less, I have a number of
questions. Will the Minister give us an update on the progress that
other members of the G20 are making to agree their share of this
increase in the IMF’s lending
capability?
The
Financial Secretary said that some 27 countries were receiving help
from the IMF. Has he or his colleagues in the Treasury had any
indication that the IMF will want to draw down access to further UK
resources this year? Perhaps he can tell us how the IMF is involved in
monitoring the impact on European and global financial markets of the
stress tests of European banks that are taking place at the moment.
There are worries that those stress tests may throw up further concerns
about levels of liquidity in the world’s capital
markets.
As
I alluded to earlier, the IMF is seeking to amend the framework under
which the new arrangements to borrow are organised. One issue that is
flagged up in the document is the suggestion that there remains an
issue for the IMF as to whether or not it will be appropriate to use
some part of the increased quota resources to retire borrowing from the
NAB in full or in part. The Minister began to give me an answer to that
question, but could he give us further detail of the
Government’s position, given the proximity of the January quota
deadline? That would be helpful. Is the IMF seeking a
significant increase in its funding from the UK as a result of the
quota
review?
The
agreement to expand the IMF’s new arrangements to borrow was
part of a package of measures agreed last April, not only to modernise
the IMF but to boost the capacity generally of multilateral financial
institutions. As the Minister alluded to, that meant extra money being
immediately available to the international financial institutions;
additional longer-term lending capacity, which is part of
today’s discussion; and reform. He must recognise, as I am sure
the rest of the Committee does, that the IMF has a crucial role in
supporting the stability of the international monetary system, with
core responsibilities of economic surveillance and providing financial
assistance.
Given
the Financial Secretary’s experience in the brief, I suspect
that he also recognises that the question of how to reinvigorate,
revitalise and further legitimise the role of the IMF has been the
subject of some discussion internationally, for some time. Intertwined
in the G20 deal last April, and confirmed as recently as in Toronto,
was a commitment by all those nations to complete a series of reforms
on quota and voice issues, and a call for the acceleration of the
substantial work still needed on other IMF governance and mandate
reforms.
The
first set of reforms was agreed back in April 2008, including proposals
for a new quota formula, ad hoc quota increases and an increase in the
voice of low-income countries. To become effective, the package of
reforms on voice and participation needed the backing of 112 member
countries—some 85% of total voting power. How close are we to
getting that
85%?
A
further commitment was to end the existing convention whereby the
president of the World Bank always has to be from the United States and
the managing director of the IMF always from Europe. Does the Minister
support an end to that convention? What steps are he and his colleagues
in the Treasury and in the Department for International Development
taking to realise that commitment? In short, when can we expect a
genuinely open, transparent and merit-based selection process for those
two key
appointments?
As
I said in an intervention, how the IMF’s governance could change
has been debated for some time. The Financial Secretary is, I am sure,
aware of the eminent persons group headed by Trevor Manuel. I am sure,
too, that he is aware of the work of the Stiglitz commission and,
indeed, of the various G20 working groups that looked at such
issues.
On
mandate, I mentioned the role of special drawing rights as principal
reserve assets. Secondly, some argue that the fund lacks an explicit
global mandate to oversee financial stability in all its dimensions
going forward. Where do the Financial Secretary and his colleagues
stand on that question? Thirdly on the mandate, where does he stand on
the suggestion that the IMF should be able to advise nations on the
pace of financial
liberalisation?
Lastly,
the Financial Secretary touched on political oversight of the
IMF’s work in his answer to one of my interventions. Ideas
include the possibility of creating a ministerial council with
decision-making powers; a smaller board with chairs for more emerging
and developing
country; the modification of voting rules; deputy managing director
posts being opened up not only to geographical appointments but to much
more merit-based processes. Can he give the Committee some indication
of where the Government stand on those questions? What steps are they
taking to deliver change in that
area?
4.49
pm
Michael
Fallon (Sevenoaks) (Con):
I shall be brief. I will not
follow the hon. Member for Harrow West in some of his initial remarks
and his attempt to portray our own financial mismanagement over recent
years as somehow being on a par with the financial mismanagement of
other countries. I understand the sensitivities on that point, and I
shall not pursue it.
However, the
hon. Gentleman is right about one thing: this is a big increase in the
special drawing rights, which, as I understood it, was always meant to
be accompanied by structural reform, not just reform of the lending
framework. He is right about that, and I look forward to hearing from
my hon. Friend the Financial Secretary where we are on some of the
structural reform
issues.
My
second point may assist my hon. Friend in answering the first. The
previous Government introduced, but then lost enthusiasm for, a way of
keeping Parliament more informed about progress in the IMF. They used
to produce an annual report on the United Kingdom Government’s
role and decision making inside the IMF, including, where necessary, a
report on the various votes that had taken place. Later, they lost
interest in it, and the report appeared intermittently. Does my hon.
Friend see any merit in reviving some better mechanism whereby
Parliament can be kept properly informed about what our representative,
Ministers and Chancellor are doing on our behalf in the IMF, and where
we are on
reform?
Finally,
we had a fleeting glimpse of my hon. Friend the Member for Stone (Mr
Cash). Even if he is not with us in person, he is almost always with us
in spirit. I would like to ask how much of the £18 billion is
actually available should further crises develop within the eurozone.
It has been suggested that some of the eurozone crises could be tackled
by a combination of European Central Bank action or some new European
monetary fund, but when problems approach and firm up, and action has
to be taken, the expertise and facilities of the IMF are almost always
brought more rapidly into play. I would like to know how this big
increase in the drawing rights extends our liability should future IMF
loans be required if the balance sheets of some of the larger eurozone
countries deteriorate
further.
Kelvin
Hopkins:
It is a pleasure to serve under your
chairmanship, Mr Dobbin. I did not intend to speak, but I was tempted
to do so by the previous
presentation.
Special
drawing rights and the IMF were part of a package created by Keynes and
others at Bretton Woods, but also part of the package was a world where
there was the possibility of flexible exchange rates. If countries are
locked into an exchange rate not of their own choosing, and which they
cannot sustain, simply throwing good money after bad is not
sensible.
I
would suggest to my hon. Friend the Member for Harrow West and to the
Financial Secretary that they should perhaps argue for some of the
eurozone countries
re-creating their own currencies and using currency depreciation as part
of the measures to overcome their problem. They should not simply rely
on endless bail-outs which, in the end, will not
work.
4.53
pm
Mr
Hoban:
I thank hon. Members for their contributions to the
debate, and I shall deal with the questions that have been
raised.
The
hon. Member for Luton North and my hon. Friend the Member for Sevenoaks
asked about bail-outs to eurozone countries, and the hon. Member for
Harrow West referred to the stress testing that is occurring at
present. We want to be careful about linking those issues. The stress
testing is meant to assess the stability of the European banking
system. If banks fail the tests, it is the responsibility of national
Governments, along with their regulators and the banks themselves, to
determine how best to respond to the issues thrown up by the tests, and
that may require public or private intervention to strengthen the
banks.
The
stress tests do not necessarily relate to the IMF, although, in
connection with Greece, there is clearly an issue about whether the IMF
would lend money to Greece—that is where the interaction comes.
It is important that the stress tests are transparent and credible;
frankly, if they are not, the whole exercise will be a waste of time.
It is important that they are seen to be credible, and that a plan is
in place should banks fail those stress tests.
In terms of
progress from others, countries are at various stages in implementing
measures through domestic legislation. However, the expanded NAB will
become effective only once all countries have completed their domestic
legislative procedures. It is not a case of one country going first and
being exposed; all countries need to go through the process. If the NAB
is activated, the IMF would draw evenly across all participating
countries to ensure that the burden is shared.
A number of
questions have been asked about the governance of the IMF. That is an
ongoing issue; it is not related to the NAB, but it will be related to
the review of quota shares. Alongside the quota review, the UK expects
a broader package of reforms to be agreed, including reforms to
increase ministerial engagement within the fund. There is
also—this reflects a point raised by the hon. Member for Harrow
West—the need for an open, transparent and merit-based selection
process in all international financial institutions, as well as further
work on reforming IMF surveillance and lending instruments. The
Government are committed to ensuring that we look carefully at how the
IMF is governed. With all international bodies, it is important to have
a sense that people are selected on their merits rather than on where
they come
from.
The
hon. Gentleman raised the issue of the role of the IMF and the
oversight of the financial system, and he asked a question about the
banking crisis and the eurozone banking system. There is an urgent need
for a better understanding of the links between the financial sector
and the real economy, and of the cross-border spill-over effects. Work
was done at the G20 conference and through the Financial Stability
Board to address those issues, but the IMF should lead the
international community’s approach to that challenge, and must
shift some of its focus on surveillance to look at the financial
sector and macro-financial stability. Action has been taken at an UK and
European level to look more closely at the stability of the macro
economy, and that needs to be done at an international level. It is
vital to do that at a global level so that we have a common
understanding of global vulnerabilities and can ensure the underpinning
of effective global co-operation. We are placing our trust in a series
of interlocking bodies.
My hon. Friend
the Member for Sevenoaks raised the prospect of the UK lending to
eurozone countries through the IMF. In that situation, the UK
will assess and vote on any programme put to the executive
board on the basis of its own merits. In assessing the programme, the
executive board will focus mainly on three things: the appropriateness
of reform plans and political commitment to the authorities; the impact
on debt sustainability; and whether the programme is fully financed.
That potentially relates to the suggestion that any bail-out of the
eurozone would be jointly financed by the eurozone countries and the
IMF. A rigorous process is in place to check that where IMF money is
deployed, good reform plans are in place and there is a political
commitment to deliver.
Mr
Thomas:
The hon. Member for Sevenoaks asked an interesting
question about the opportunity for further parliamentary discussion on
the work of the IMF. I do not recognise his description of the final
part of the last Government’s approach to that issue, but he
raises an important point about the opportunity for a more ongoing
discussion between Ministers and Parliament about ministerial
engagement in the work of the IMF and the IMF’s work more
generally. What opportunities does the Minister think will be made
available to Parliament to provide the opportunity for such a
discussion?
Mr
Hoban:
Unlike the hon. Gentleman and my hon. Friend
the Member for Sevenoaks, I have not looked at what engagement the
previous Government had with Parliament on the IMF, other than the
debate that took place on the topic last year. I will look into that
matter, and see how best we can engage Parliament in further debate on
the role of the IMF. The International Development Committee, the
Treasury Committee or the Back-Bench business committee could also
consider the issue as a topic for debate. There is no shortage of
parliamentary opportunities these days to raise such issues and engage
in that discussion about the future role of the IMF.
The hon.
Gentleman referred to the conclusion of the G20 summit in April last
year. The G20 recently concluded that countries such as the UK with
significant deficits should take action to curb those deficits and
reduce them, and was very positive about the work done by this
Government to tackle the issue and deal with the inheritance left us by
the hon. Gentleman and his colleagues. I hope that the Committee will
support the statutory instrument.
Question
put and agreed to.
Resolved,
That the
Committee has considered the draft International Monetary Fund (Limit
on Lending) Order
2010.
5.1
pm
Committee
rose.