Draft Inter-American Development Bank (Further Payments to Capital Stock) Order 2011
Draft Inter-American Development Bank (Contribution to the Fund for Special Operations) Order 2011
Draft Caribbean Development Bank (Further Payments to Capital Stock) Order 2011


The Committee consisted of the following Members:

Chair: Mr David Crausby 

Binley, Mr Brian (Northampton South) (Con) 

Campbell, Mr Gregory (East Londonderry) (DUP) 

Colvile, Oliver (Plymouth, Sutton and Devonport) (Con) 

Cooper, Rosie (West Lancashire) (Lab) 

Corbyn, Jeremy (Islington North) (Lab) 

Cunningham, Tony (Workington) (Lab) 

Dobson, Frank (Holborn and St Pancras) (Lab) 

Duncan, Mr Alan (Minister of State, Department for International Development)  

Elphicke, Charlie (Dover) (Con) 

Gilbert, Stephen (St Austell and Newquay) (LD) 

Heyes, David (Ashton-under-Lyne) (Lab) 

Lancaster, Mark (Milton Keynes North) (Con) 

Lazarowicz, Mark (Edinburgh North and Leith) (Lab/Co-op) 

Morris, James (Halesowen and Rowley Regis) (Con) 

Spencer, Mr Mark (Sherwood) (Con) 

Swinson, Jo (East Dunbartonshire) (LD) 

Vaz, Valerie (Walsall South) (Lab) 

Watkinson, Angela ( Lord Commissioner of Her Majesty’s Treasury)  

Mark Oxborough, Committee Clerk

† attended the Committee

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Third Delegated Legislation Committee 

Tuesday 5 July 2011  

[Mr David Crausby in the Chair] 

Draft Inter-American Development Bank (Further Payments to Capital Stock) Order 2011 

4.30 pm 

The Minister of State, Department for International Development (Mr Alan Duncan):  I beg to move, 

That the Committee has considered the draft Inter-American Development Bank (Further Payments to Capital Stock) Order 2011. 

The Chair:  With this it will be convenient to discuss the draft Inter-American Development Bank (Contribution to the Fund for Special Operations) Order 2011 and the draft Caribbean Development Bank (Further Payments to Capital Stock) Order 2011. 

Mr Duncan:  It is a pleasure to serve under your chairmanship, Mr Crausby, in my first appearance in the Committee. Today, I ask the Committee to consider three draft orders on the UK’s proposed contribution to the general capital increase of the Caribbean Development Bank, which is also known as the CDB, the proposed contribution to the ninth general capital increase of the Inter-American Development Bank or the IDB, as it is also known, and the proposed contribution to the replenishment of the IDB’s fund for special operations. 

Despite the tough economic times, I am proud of the Government’s commitment to provide 0.7% of our gross national income as aid from 2013, which is absolutely vital to the fight against global poverty. I am equally proud of our determination that that precious development budget delivers the maximum results in lifting millions of the world’s poorest people out of poverty. 

We have high expectations of the organisations, including the multilateral development banks, that we help to fund. Our multilateral aid review cast a keen eye over the performance of 43 international agencies, including the CDB and the IDB. It assessed issues such as effectiveness, impact on the ground, cost control and financial management systems. I am pleased to say that both the CDB and the IDB passed our rigorous assessments. Both banks are doing vital work across the Caribbean and Latin America, but there is still much to do and we expect them to improve and innovate continually. 

The CDB fights poverty in the Caribbean, a region that is highly vulnerable to threats from violent organised crime, economic shocks, natural disasters and climate change. With the exception of Haiti, the bank’s 18 borrowing members are all middle-income English-speaking countries and members of the Commonwealth. High levels of inequality mean that there is still significant poverty in those countries. The CDB also fills a critical funding gap for our five UK overseas territories in the region,

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which have no access to other sources of funding from international financial institutions. For its relatively small size, it packs a significant punch, and it plays a major role in bringing its members together in regional economic co-operation. 

The general capital increase—GCI—will raise the CDB’s capital base from $657 million to $1.64 billion, and allow it to increase non-concessional lending from $100 million to $200 million a year. The expansion will enable the bank to help compensate for the reduction in the availability in lending from commercial lenders as a result of the global financial crisis. The UK has been allotted 9.56% of the newly issued shares, in line with our current shareholding in the bank, and will pay in 22% of the shares allocated at a value of $20.7 million over five years, which is equivalent to about $3.5 million a year. The CDB is also going through a period of reform to improve its impact, effectiveness and efficiency. President Warren Smith, who assumed office in May, has committed the bank to focusing much more on results, improving transparency and concentrating on better value for money. 

Jo Swinson (East Dunbartonshire) (LD):  I welcome the Minister’s proposal on the new shareholdings, and I generally support the orders. As the Department for International Development’s multilateral aid review found that the CDB had limited expertise in areas such as climate change and as there is a clear link between poverty and climate change, particularly for island states, will the CDB, as part of its reform, improve its expertise and be involved in more development projects that address the impact of climate change on poor countries? 

Mr Duncan:  I am grateful to my hon. Friend, because she has put her finger on the exact point of our regional Caribbean aid plans for the next four years. In addition to addressing things such as law and order in Jamaica, they have a strong emphasis on climate change. One of the advantages of the rigour of our multilateral aid review is that many multilateral institutions are now looking to us for guidance on how they should conduct their affairs in the future. Not only has it improved our value for money and effectiveness, it has enhanced our influence over those institutions to concentrate on the exact areas that we think are best for the world’s poor. The answer to my hon. Friend’s question, therefore, is a broad yes. 

Mr Brian Binley (Northampton South) (Con):  I do not think that the British people are opposed to the Government’s wish to be perhaps the leading nation in reaching the target of 0.7% of support for less well-off countries. They are concerned, however, about how the money is spent. Will the Minister touch on that issue? It is not directly related to the orders, but it is related to the general debate. How is he monitoring on the ground to make sure that money is spent effectively and well, and that it is not siphoned off in undesirable directions, as has been the case with other aid on occasion? 

Mr Duncan:  Within the context of the specific orders, perhaps I can be steered towards looking at the general principles behind our support for them, as outlined by my hon. Friend. We do not go through a day in the Department without being concerned about how our

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money is spent. We want to ensure that we get value for money and that none of it goes astray through corruption or poor auditing. Because we have had a series of bilateral and multilateral reviews, I think we are the paramount aid Department in the world, due to the rigour with which we assess value for money and follow the money we spend. On the orders, I am confident that our assessment of the multilateral banks is rigorous and will uphold the standards we have set in all corners of our activity. 

The IDB operates in both the Caribbean and Latin America. It has also recently faced challenges similar to those faced by the CDB, and shareholders have agreed a financing and reform package in response. The first part is a general capital increase, which will increase the IDB’s capital base by $70 billion and increase its annual lending from $6 billion to $12 billion. The GCI includes a number of policy and management reforms aimed at increasing the IDB’s poverty focus and development effectiveness, and at improving its financial management. The UK will take 0.964% of the newly issued shares—less than 1%—and 2.43% of those will be paid at a value of $16.4 million over six years, equivalent to about $3.3 million a year. 

The remainder of the package is aimed at providing special help to Haiti. After the devastating earthquake of January 2010, the UK, along with the rest of the G20, agreed to stand united with the people of Haiti to provide much-needed reconstruction assistance. That included the full cancellation of all of Haiti’s debt to international finance institutions, and as part of this effort, IDB shareholders have agreed a replenishment of the bank’s concessional lending arm—the fund for special operations—which is specifically aimed at providing additional help to Haiti. That will allow the IDB to write off all of Haiti’s debts by 2012 and to agree $200 million a year for new projects. Donors will pay additional contributions to the FSO in proportion to their previous contributions. For the UK, that amounts to 1.796% of the total fund and will involve an additional contribution of $9.3 million to be paid over six years, equivalent to about $1.9 million a year. 

In summary, the CDB and IDB need to expand their operations and further improve their performance. The capital increases, linked to internal reforms, will help achieve that. We in the UK must do our part to tackle poverty across Latin America and the Caribbean. Supporting those banks is one of the most effective and appropriate ways to do so, and I commend the orders to the Committee. 

4.40 pm 

Mark Lazarowicz (Edinburgh North and Leith) (Lab/Co-op):  It is a pleasure to serve under your chairmanship today, Mr Crausby. 

The Labour party supports the proposals. Both institutions play a valuable role in supporting development in their respective areas of operation. In particular, we welcome the contribution to the Inter-American Development Bank fund for special operations and the ability that it will give the IDB to increase support to Haiti in its efforts to reconstruct itself after its terrible experience in recent years. However, we have a number of questions that I hope the Minister will be able to answer or write to members about in due course. 

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First, is the funding from the fund for special operations, which is to be provided for Haiti, purely for debt relief and additional grants to Haiti, or will any of the support be provided in the form of loans? If so, are the Government sure that Haiti will have the capacity to repay them? It will be in no one’s interests to drive poor countries back into indebtedness, which will simply create a new debt crisis down the line. 

Secondly, I see from the relevant explanatory memorandum that the general increase in capital stock for the IDB is designed to increase its capital base to make loans to middle-income countries, which, by definition, do not include the poorer countries. I appreciate that the loans that will come from that increase are for development purposes, not to resolve any immediate financial crises, but again, what steps are being taken to ensure that the countries to which loans are being made have the capacity to repay them? 

My third question regards the Caribbean Development Bank, which I understand will be receiving additional funding to make loans to middle-income countries and loans and equity investments to “private sector organisations”. Are they direct investments in companies, or does the term “organisation” imply some form of umbrella-type body that then provides support to particular companies? I appreciate that the bank has a triple A rating, but if it is making direct investments, what measures does it take to ensure the capacity of business to repay loans? 

What steps will be to taken to ensure that support and investment from the banks are prioritised towards poverty reduction? I am sure that the Minister will agree that that priority should not be something to which only lip service is paid, but be fundamental to the activities of both banks. Will the UK Government give a commitment that its representative on the board is instructed to try to ensure that the board gives such a priority to poverty reduction? What would happen if there was a disagreement on objectives with the other five countries with which we share a seat on the board? I understand that we share our seat with Croatia, Japan, Portugal, Slovenia and South Korea, which is interesting, to say the least. More importantly, who will represent UK at the board meetings? Will it be civil servants or Ministers? That is particularly relevant for the CDB where, as the Minister has already pointed out, we have a significant role, holding almost 10% of its shares. 

Mr Duncan:  Forgive me for interrupting the hon. Gentleman. Was he asking about the governance structure of the CDB or the IDB? 

Mark Lazarowicz:  I was asking about both, regarding representation at board meetings. I am especially concerned about the CDB, in which we have a particularly significant role. 

I was interested in the issue raised by the hon. Member for East Dunbartonshire. It is certainly important that the banks operate in a way that is consistent with our wider climate objectives, and I welcome what the Minister said on that. Will he say more on how we are trying to ensure that the banks act consistently with climate policy? He will be aware of recent concerns about the activities of the World Bank, which were highlighted by the Environmental Audit Committee. I am interested in

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knowing, at some stage, about the banks’ policies on deforestation. Is there a commitment to ensure, for example, that loans and equity investments do not support action that causes loss or degradation of forest? 

What steps are the banks taking to ensure that grants and loans support women, whose role in development is often crucial? What steps are they taking to encourage women entrepreneurs, both individually and through community organisations? What are they doing to promote gender balance within their own organisations, at all levels, to ensure that such policies are prioritised? 

Finally, can I ask how many other countries have so far agreed to approve resolutions for the increases in ordinary capital and funds for special operations for the IDB? In particular, are the Government confident that other countries will approve resolutions by the relevant deadline at the end of October? Will the Minister give an update on the situation as far as the USA is concerned, where there are suggestions that the US Congress is showing some unwillingness in helping replenish the IDB, although that may have changed recently? As he knows, if the US does not contribute, no other member can, thus denying IDB any new funding. I emphasise that we support both organisations and the proposals for additional funding. I ask the questions not out of scepticism about the funding, but to ensure that these additional funds provided by the UK support, in the most effective way, sustainable development focused on poverty reduction. 

4.46 pm 

Mr Duncan:  I thank the hon. Gentleman for giving me such a rapid-fire series of questions. I will have to do a lot of paper juggling, but I will endeavour to answer his questions as well as I can in the time available. I undertake to write to him on any that I miss. 

On FSO funding, the FSO contribution will be used only for debt relief and grants. There will be no loans made to Haiti, so the issue of the ability to repay loans does not arise. 

Multilateral development banks determine whether they provide loans or grants on the basis of the debt sustainability analysis undertaken by the World Bank and the International Monetary Fund. For lower-income countries that are in debt, distress assistance is only in the form of grants. 

On governorship, I will take him through the structure of the CDB. The largest shareholders are Jamaica and Trinidad and Tobago, both of which hold 17.77%. The UK and Canada both hold just under 10% at 9.56%. China, Germany and Italy all hold 5.73%. In terms of the board structure, the UK governor is the Secretary of State. The UK alternate governor is me. When it comes to any discussions on the board, where we will send senior officials, we will always try to resolve them in the context of all the poverty criteria that we hold dear. 

Mark Lazarowicz:  The Minister will be aware from an informal discussion that we both happened to have with one of his predecessors that it was suggested that it

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would make sense for the Minister or the Secretary of State to attend some of these meetings from time to time—not on a regular basis—to ensure that the message of the importance of these institutions is given to the banks. Does the Minister have any intention of following that suggestion? 

Mr Duncan:  I have no objection whatsoever to attending, but diaries are crushed. Although I intend to visit the Caribbean in the autumn, the low prospect of visits coinciding with the exact dates chosen by the board means that they are not always easy to arrange. I endeavour to do what I can. 

The CDB provides only a limited amount of loans to the private sector, to answer one of the hon. Gentleman’s other questions. It does, however, support Governments in the Caribbean to ensure that there is an appropriate and positive climate for the private sector to flourish. The private sector is an essential engine of growth and we are, in DFID, trying to enhance the private sector development side of our efforts. 

Poverty reduction is always an essential focus for us, as is climate change. We have the dilemma that some things are readily countable and others are not. In our search for clear and defensible results, I can assure the Committee that we do not sacrifice the calls of climate change simply because the results in that sphere are sometimes more difficult to quantify. 

Likewise, support for women is an essential part of our amendments. We will never hit millennium development goal 5 if we do not recognise the importance of development on issues to do with women and girls. This week, the representatives of UN Women are here in the UK and we look forward to announcing our support for UN Women this week, as soon as possible. 

I want to ensure that I give absolutely accurate answers. I think that I have answered most of the questions that the hon. Gentleman has asked me, but I undertake to conduct a thorough trawl of what was asked and I will write to him to ensure that any gaps are fully explained by letter as soon as possible after this Committee. 

Question put and agreed to.  

DRAFT INTER-AMERICAN DEVELOPMENT BANK (CONTRIBUTION TO THE FUND FOR SPECIAL OPERATIONS) ORDER 2011

Resolved,  

That the Committee has considered the draft Inter-American Development Bank (Contribution to the Fund for Special Operations) Order 2011.—(Mr Duncan.)  

DRAFT CARIBBEAN DEVELOPMENT BANK (FURTHER PAYMENTS TO CAPITAL STOCK) ORDER 2011

Resolved,  

That the Committee has considered the draft Caribbean Development Bank (Further Payments to Capital Stock) Order 2011.—(Mr Duncan.)  

4.51 pm 

Committee rose.  

Prepared 6th July 2011