World Bank

HC Deb 17 March 1994 vol 239 cc1196-215 3.51 am

Mr. John Denham (Southampton, Itchen)

I am grateful for the opportunity to raise the subject of the World bank, even in the middle of the night. I hope that the debate will be about how the World bank and its operations can be improved. I hope that we will consider how improved accountability to this Parliament and to Parliaments and peoples in other northern countries can play a role in improving the World bank's effectiveness.

I want to outline why the role of the World bank in the world today is so important, much more important than the time spent discussing it in the House would suggest. I want to show why the United Kingdom is important to the operation of the World bank and why what that bank does is of direct importance to the UK, in terms of its development policy, our foreign policy and our international economic policy. I shall argue that the secrecy, and the lack of openness and scrutiny that characterise the UK's involvement in the World bank, must be challenged.

I am not speaking against the existence of the World bank, but we must recognise that the background to the debate is one of growing demands and criticisms from popular organisations in the south and many of their allies in the north about the bank's role. Increasingly, popular and representative organisations in the south say that they have suffered too much at the hands of that institution, from failed projects that have harmed them, not helped the poorest and left them with unpayable debts. They have suffered too much from structural adjustment programmes that have failed to deliver what was promised and, in many cases, left the poorest people worse off than they were before. They have suffered too much from the bank's promotion of micro and macro-economic policies which do not take into account the problems of poor people in poor countries.

It is not surprising that, around the world, increasing numbers of people are arguing that we would all be better off without the World bank. That is not the best starting point for the debate. The world needs a mechanism for transferring capital from richer countries to poorer ones. There is a need beyond bilateral assistance for a multilateral organisation that is able to raise, organise and co-ordinate the transfer of funds from the north to the south, whether in the form of aid loans, highly concessional loans through the International Development Association of the World bank or in the International Bank for Reconstruction and Development, through raising funds from money markets at low margins that would not be available from developing countries. That function needs to be carried out in the global economy. There is also a case for an agency that can pool and bring together the best knowledge of the best development practice and propagate that knowledge. In other words, if no institution similar to the World bank existed, many people, including many of its fiercest critics, would be calling for something like it to be established. The problem is not the idea of the World bank but the way in which it fulfils its role, and its freedom from adequate scrutiny and adequate accountability for its activities. The question is not whether we need the bank but how it can be changed.

I hope to outline some of the major concerns about the activities and the role of the World bank, but I would say at this point that it is central to my belief that the bank cannot be successful in its role unless it is an open, transparent, intellectually honest and accountable institution. Today, although some improvements have been made, it still lacks those characteristics. Above all, the bank should be open, transparent, honest and accountable to the people, the civil organisations and the Governments of borrowing countries.

Although much of what I shall say will be about the accountability of the World bank to this Parliament in a northern country, the major impact of the World bank's activities is in the developing countries, which are borrowing countries, and a much bigger—indeed, more important in many ways—debate would be about the way in which the bank's operations in developing countries should be held genuinely accountable to the peoples and Governments of those countries. I want to put that point on the record.

I believe, however, that a significant part in changing the bank can be achieved by improving its accountability to northern Governments, which in effect control the voting power of the bank. Although the bank has more than 100 member countries, a relatively small number of northern countries hold the vast majority of the shares in the World bank and, therefore, the vast majority of the voting power. I believe that improving accountability of the bank to its member Governments, and of those Governments to their Parliaments, could play an important role in improving the effectiveness of the bank and its operation.

The United Kingdom has an especially significant role in the World bank. It is the fifth largest shareholder in the World bank group and, as such, is one of only five countries entitled to appoint its own executive director of the bank representing that country alone, rather than, as is the normal practice for the vast majority of member Governments of the World bank, having an executive director who is required to represent a large and sometimes bizarre coalition of member Governments. So this country is still one of the most significant players in the World bank group. The scrutiny of the role played by the United Kingdom in the World bank group is therefore of special importance.

Our role is also important financially and should be of concern to taxpayers in this country. Christian Aid calculates that about 10 per cent. of aid spending in this country goes to the World bank group. Contributions to the International Development Association, the soft loan arm of the World bank, totalled £1.6 billion between 1982 and 1991. Since then, a further increase in payments into the IDA has been agreed by the House. That is a very substantial contribution to the IDA.

Over a similar 10-year period, another £120 million was paid by this country into the International Bank for Reconstruction and Development, the main market-lending window of the World bank. The total capital committed by this country to the IBRD is $3.67 billion, of which more than $110 million has been paid in. A further $30 million has been paid into the International Finance Corporation and we have committed about $50 million to the Multilateral Investment Guarantee Agency. That is a heavy financial commitment by this country to the operations of the World bank group. One striking point is that the scrutiny of the use of that money and of whether it is being used to achieve the aims and objectives set by the Overseas Development Administration is very poor.

Before touching on the main concerns about the activities of the World bank, I shall set out the outlines of my argument that the accountability of our Government's role in the World bank to this Parliament is far too weak. Both in practice and in theory, the accountability to this House of the British Government's role in the World bank is strictly limited. We do not know, for example, how the United Kingdom executive director in the World bank votes. It is true—we are always told this—that often there are no votes among executive directors, but there are votes on occasion. On only one occasion have the Government ever revealed the position taken in a vote by the UK executive director. That is utterly unjustifiable. Certainly after the event, there would appear to be no reason not to disclose the position taken by the UK executive director.

As votes are a relatively rare occurrence in the World bank, we also need to know what positions are taken by the UK executive director on individual projects, on individual structural adjustment loans or in the major debates that take place within the World bank about development strategy and about the role of the bank. We have little information in the House about the role played by the UK executive director.

It is almost impossible to find out when, if ever, the United Kingdom, takes a policy initiative within the World bank. There is rarely an announcement that the United Kingdom would like this or that change in policy within the World bank group, and there is rarely an evaluation of whether our Government have been successful in achieving such a change of policy. That is another sector in which we should have information.

There have been major reports, to which I shall refer in due course, which have highlighted failures of the management of the bank and failures of the practice of the bank—failures to appraise, evaluate and implement projects effectively. We know from the press that there are major internal debates within the bank about how to address those shortcomings. The House has no information about any initiatives taken by the executive director or the British Government to address those shortcomings.

Members of Parliament have no access to the key internal discussion documents in which the debates take place. We do not have those documents, even though they are freely available to any citizen of other Governments within the World bank who have executive directors. The ludicrous position in which I have found myself several times in the past year is that I have been unable to obtain a document by tabling a question for the Minister, yet I have been able to obtain the same document by ringing up a two-man non-governmental organisation based in Washington which will send it to me by return post. There can be no justification for obstructing Members of Parliament trying to follow an interest.

Scrutiny of our financial contributions to the World bank is highly limited, despite the fact that nearly £2 billion has been paid out of our aid budget to the World bank group in recent years. The National Audit Office has hardly looked at the effectiveness of the money that we contribute to the World bank group or whether it is achieving the objectives of the British aid programme.

In a letter that I received on 16 March 1993, Sir John Bourn, the Comptroller and Auditor General, referred to a number of sujects of interest to the National Audit Office, but said that any examination would be to the extent, of course, that our examination of Overseas Development Administration projects allows. The mechanisms for scrutinising where our money goes and how effectively it is used are extremely limited and circumscribed to the areas of operation where the Overseas Development Administration is directly involved.

The scrutiny of the World bank group by the Select Committee system has also been extremely limited. No Select Committee has ever made a comprehensive assessment of the bank's performance or the United Kingdom's role within the World bank group. Clearly. that is fundamentally a matter for the House rather than the Government, but if the Government were open, forthcoming and encouraging in promoting scrutiny of the World bank, the Select Committees would have taken a greater interest.

Weaknesses in the structural relationship between the Government and administration here and the United Kingdom's executive director's office in Washington also hamper scrutiny. Replying to a written question asking what plans he had to improve the World bank's accountability to national Parliaments, the Minister said: The World bank and the IMF are accountable to their shareholders, including the United Kingdom. The Government are accountable to Parliament for payments made to these institutions. These arrangements work and we therefore have no current plans to change them."—[Official Report, 17 January 1994; Vol. 235, c. 384.] I question whether the arrangements do work and whether the line of accountability is as clear and straightforward as suggested.

There is a difficulty about the position of the executive director. It is not created by the Government exclusively but arises from the constitutional position of the bank's executive directors. As a letter from the noble Baroness Chalker to me last year pointed out: Executive directors … perform a dual function: as an official of the Bank, and as a representative of the countries which appointed or elected them. Directors are expected to act in the best interests of the Bank and its members as a whole, while reflecting the views of the country they represent. As one of the British non-governmental organisations said, that dual responsibility—partly a member of the bank's staff and partly a Government representative—does not make for clear lines of responsibility and decision making. On many occasions in recent years, it has been unclear whether the UK executive director has felt that he is primarily a staff member of the World bank with loyalty to the staff and operations of the bank or a representative of the Government within the bank.

The mechanisms of accountability are very poor. Christian Aid has sent me a briefing on this subject. It says: In practice in decisions on funding for the World Bank and the resulting financial subscriptions to the United Kingdom the line of accountability set out by the Minister does not work. The United Kingdom is represented at such discussions by the executive director, who makes his decisions without recourse to the UK Government. On such occasions there needs to be clarification of the executive director's accountability to Parliament and exactly whose interests he represents—the Government's or the Bank's. In addition, the absence of any provision by the Government for meaningful parliamentary debate on the United Kingdom's contribution to the World bank and for regular reviews of the work of such institutions ensure that Parliament is unable to hold the Government truly accountable for any funding decisions taken. There are also weaknesses in the evaluation of the work of the bank. Only two types of World bank decision are ever investigated in detail by the United Kingdom Government, through the Overseas Development Administration. These are, routinely, when the ODA is itself to be directly involved in the evaluation of co-financed projects and of structural adjustment loans. There are also occasions, not routinely made public, when the UK executive director seeks guidance from the ODA on a project or loan. However, with the vast majority of loans approved by the bank, the executive director relies entirely on the assessments of the bank staff. We should seriously question whether that reliance is satisfactory, given the bank staff's poor record over the years in the appraisal, implementation and evaluation of World bank projects and structural adjustment loans.

About the only small insight into this problem that we have comes from the National Audit Office study—about the only one of its kind ever done, as far as I could establish in correspondence with the NAO. The study, published in 1992, was on overseas aid in respect of water and the environment. It states that on four of the six occasions when the ODA relied on World bank appraisals, they were less satisfactory than appraisals that the ODA would have done for its own projects. That suggests that we should seriously question claims that although the World bank staff have got it wrong in the past, they are getting it right now.

The NAO gives but scant attention to the effectiveness of the use of UK resources in the World bank group. The Public Accounts Committee is therefore rarely invited to consider the effectiveness of the use of aid money by the group. I hope that the Minister will commit himself to publishing ODA evaluations of co-financed World bank projects and to publishing any other appraisals that the ODA is, from time to time, asked to make of World bank projects by the United Kingdom executive director.

There are also weaknesses in the implementation of World bank projects, and in the extent to which the Government monitor whether the bank is effectively pursuing the policies that it has set itself. In recent years, the bank has given much greater rhetorical emphasis to involving NGOs in developing countries in discussion of its projects and adjustment loans. It became clear to me through parliamentary answers over the past year that the Government make no independent evaluation of whether the World bank is effectively involving non-governmental organisations in the south. They do not know which non-governmental organisations are involved in any particular project or whether the involvement of those non-governmental organisations has been effective.

The Government make great play of the esteem in which they hold non-governmental organisations and the value that they place on them, but when it comes to whether the World bank is carrying out its stated policies of involving non-governmental organisations, the Government's position appears to be one of disinterest.

Having dealt with the agenda and the problems of accountability, I shall now outline some of the major concerns about the past and present performance of the bank. Where I can, I shall highlight problems with the current system of accountability which I believe prevent hon. Members and our constituents from influencing both the United Kingdom's role in the institution and the bank itself.

The first concern is obviously the widespread failure of the bank to achieve its self-proclaimed over-arching priority of eliminating poverty. The bank has two main types of lending: lending for projects and structural adjustment lending.

The overall investment record of the bank is important, not just because it is a bank, but because, under the World bank system, the cost of failure of projects falls exclusively on recipient countries in the form of the destruction of lives, livelihoods and the environment that so often follows failed projects, and also in the form of a debt burden, on which payments have to be made although the borrowing country has no useful asset to generate funds.

In normal commercial banking, the lender shares the risk with the borrower. In practice, the World bank designs programmes and projects that fail, without its staff or its shareholders being accountable for their role in that failure.

The Wapenhans report, published last year on the effective implementation of World bank projects, revealed an alarming and rising rate of project and loan failures rising from 15 per cent. in 1981 to 37.5 per cent. in 1991. The record of the World bank was worsening throughout that critical decade, often referred to as the lost decade of development. Now that we are in the 1990s, we are into the lost two decades of development. The bank is now considering its response to the Wapenhans report, but we have no idea what stance the United Kingdom will take. There is never a statement or any idea of what the Government's priorities are.

It could be argued that the Wapenhans report probably took a too narrowly economic view of loan performance. The valuation of a loan should also embrace the social, environmental and anti-poverty criteria, but I do not know whether that view is shared by the United Kingdom Government. I do not know what submissions they have made to the crucial debate about the appraisal of projects by the World bank and how it judges returns on investment. It is all shrouded in mystery.

If we examine the performance of structural adjustment loans, a similar dismal picture emerges. The bank has just published a report entitled, "Adjustment in Africa: Reforms, Results and the Road Ahead". It has been described by Oxfam as a blend of half-truths over simplifications and institutional propaganda … what was needed was an open acknowledgement of the scale of Africa's development failure—including the failure of adjustment policies to generate sustainable growth and poverty reduction. That is in tune with what other NGOs have stated.

In a report on Zimbabwe, produced last year, Christian Aid said: Zimbabwe has only recently started to implement a World Bank package, but already the evidence is clear. The immediate costs are devastating and unacceptable. Moreover, as in so many other African states, there is very little evidence of the economic recovery promised under the programme. The hope and determination of the post-independence years are rapidly turning to confusion and despair". Christian Aid highlighted the fact that one of the great triumphs of Zimbabwe after an investment—a 30 per cent. increase in the rate of investment in education—had been reversed under the structural adjustment programme. For all the rhetoric of the World bank—that it wished to concentrate resources on the important sectors of the economy and that primary education is the motive for development in economic growth—the reality in Zimbabwe was that the structural adjustment programme led to a slashing of education spending on the young people of that country.

Oxfam highlighted glaring failures in the World bank report. It highlighted the fact that Ghana, the star performer for the World bank, is many decades away from seeing its people come out of poverty, and after quite an exceptional level of external assistance. Other countries, such as the Gambia, which have been highlighted as a success, have had their success generated by a boom in the tourist industry, which has generated few economic linkages into the rest of the economy.

Earlier this week, The Guardian pointed out that Mozambique has improved its apparent economic growth per head—the most of 26 African countries in the survey from the World bank—but the poverty there has increased for the majority on a massive scale. It said: The rich who have got rich enough to pull the average income up are a tiny and deeply resented class. Another star performer, Sierra Leone, was described recently by Robert Kaplan, who generalised the situation in many west African countries. He spoke of The withering away of central governments, the rise of tribal and regional domains, the unchecked spread of disease, and the growing pervasiveness of war. In other words, the World bank has produced a travesty of an assessment of the real situation. What perhaps is most relevant to the debate is the way in which the bank seeks in public to hide the sharp differences of opinion within the organisation and to sanitise every report before it is published.

One of the documents that the Minister, in response to parliamentary questions, refused to give me earlier this year was the report of the operation and evaluations department of the World bank, entitled "Adjustment in Sub-Saharan Africa". It had a very different tone about the success of World bank adjustment policies. It said: The results of this effort … in Africa, have been decidedly mixed. Under macro-economic policies, investment fell in all but four countries out of the 36 that had adjustment policies and less than half experienced higher real GDP growth. Reform of public enterprise has been slow.

On the social impact of adjustment, the area where the World bank says that it has made most changes, the report concluded: In five of the eight countries for which data were available, the social expenditure to GDP ratio fell with the onset of structural adjustment. In only one of these did social expenditure increase in the medium term. There are very different views within the bank. I am sure that we will hear something later of the new moves by the World bank towards information and openness. I have to say that I am not encouraged, because instead of that report, what I got from the Minister was the official summary of it, produced by the World bank. None of the quotes that I have just given appear in the official, sanitised summary produced by the World bank. The tone of the summary is entirely different. There is a debate in the World bank about where adjustment goes from here. We do not know what position the Government are taking in the debate.

I could get the document, not from the Minister, who said that it was confidential, but from an American non-governmental organisation, which obtained it, as any US citizen could, under the US Freedom of Information Act. That is nonsense.

Let us turn to World bank projects. One area of concern has been the impact of major dams on the environment and the displacement of indigenous people. According to "The Ecologist", again using unpublished bank information, £1 in £7 of World bank expenditure is devoted to projects that displace people. It estimates that, in the next year alone, some 600,000 people—approximately the population of Guyana—will be resettled as a result of World bank projects, yet the bank's own assessments show that it cannot point to a single project where forcibly resettled communities have been fully rehabilitated in accordance with its own resettlement policies. In other words, those projects are creating poverty, not alleviating it.

The aim of cur aid programme is to help the poorest people in the countries, yet we have no proper accountability to show whether that is happening. All the evidence is that it is not.

Those brief examples highlight some fundamental problems of the accountability to Parliament of the UK's role in the bank. There is grossly inadequate financial scrutiny of the effectiveness and adherence to the stated aims of the aid programme; Parliament and its Members are denied information about the activities of the United Kingdom executive director, about projects and other loans, about policy debates and about management initiatives. As a result, Parliament is excluded from such debates.

Many other Government activities are not subject to effective scrutiny, so what is it about the World bank that makes it a topic of particular concern? The answer is that the bank is central to our relationship with the developing world. It dominates our bilateral aid programme. It must be appreciated that, when a country is under the tutelage of one of the bank's structural adjustment programmes, often in conjunction with an IMF programme, the programme and priorities of the bank determine the entire social, economic and often political context of development.

The bank is in the business not just of funding projects but of changing the style of government, determining the role of the state and the private sector, governing the external economic relations of the country and determining its macro-economic programmes. It is an enormously influential institution. Indeed, I think that it has a dominating influence on our own aid programme.

According to a parliamentary reply that I was given in July, 57 per cent. of the UK's bilateral aid programme goes to countries implementing IMF and World bank-supported adjustment programmes. If we add to that a fair estimate of the UK's contribution that goes to the same countries through the European Community, the figure rises to around 80 per cent. In other words, where this country is funding development programmes, the likelihood of their success or failure will be determined by the success or failure of the World bank's influence on the countries concerned.

In theory, adjustment programmes are the property of the sovereign borrowing Government; in practice, as the bank now openly admits, many Governments feel little or no sense of ownership of those programmes, which is why so many fail. The bank is a transmission belt for the priorities of northern Governments.

There is no serious intellectual argument against adjustment per se: any Government must adjust to changing external economic circumstances, just as this country must adjust to, for instance, a single market or the liberalisation of financial markets. The bank's role in all this, however, is to require each developing country to respond to external pressures determined by northern priorities—determined by our reluctance to finance adequate debt relief on a debt that, certainly in sub-Saharan Africa, is increasingly owed to the bank itself and other international financial institutions.

The bank requires individual developing countries to respond to our reluctance to provide sufficient external finance for development. It requires individual countries to respond and to adjust to the reluctance of the north to tackle seriously the problem of export dumping by northern agriculture, while requiring the dismantling of developing-country tariff barriers. It requires those countries to respond to our failure to address in any serious way the fall in the earning power of commodity-dependent countries.

The bank is also now part of the north's agenda for good governance. This is, admittedly, a difficult issue, because the promotion of human rights, democracy and good government involves legitimate issues of foreign policy. The use of external economic pressure to achieve those aims is a tricky and unpredictable mechanism, particularly when that pressure is used without the consent or participation of the people of the ocuntry concerned. In many cases, far from promoting better government, the bank has reduced the local capacity to govern independently at all.

The bank influences regional policies around the developing world. By transmitting the north's preference for seeing developing countries compete individually in world markets, in sharp contrast to the way in which the north itself is forming regional blocs, the bank acts as an obstacle to regional co-operation and economic integration.

All those factors mean that the bank is now far more than simply a development institution. It is a major tool of northern economic and foreign policy around the rest of the world. It is for those reasons, as well as its narrower development success, that the accountability of the United Kingdom Government's role in the World bank should be given much greater prominence within the House and the Government should encourage the House to take that interest.

Having said all that, my list of proposals is modest. It is an agenda to which I hope that the Government could reasonably respond. I do not think that there is anything that I am putting forward that is not the practice in at least one of the other northern countries that are major shareholders of the World bank. These points would be a major improvement in the level of accountability of the operation of the bank.

I hope that the Minister will consider some further points. Could we have an annual report on the United Kingdom's role within the World bank and the other international financial institutions which would show, at least after the event, the voting record of our executive director on major issues and the instructions given to our executive director by the United Kingdom Government? It would record the policy initiatives taken by the United Kingdom executive director and the positions that he takes in response to policy initiatives from others.

Could we have a report that would establish the strategic aims of the United Kingdom within the World bank, to be achieved over time, and an evaluation of our success in so doing? Could we see an improvement in the scrutiny of our role in the World bank by the Overseas Development Administration and greater openness about the projects that it examines and—this is more a matter for the House—an improvement in the scrutiny by the National Audit Office?

It would be helpful to see encouragement from the Government for the establishment of a system of regular scrutiny of our role in the World bank by the Select Committees. It would be helpful to have parliamentary statements and debates around key events, but particularly around the annual and semi-annual meetings of the bank.

Could we also have the release of technical documents, project documents and policy documents? As I have said, they can be obtained, but not through our Government. They illustrate the likely impact of major projects, the debates around structural adjustment loans and the debates about the bank's wider policies. The release of those documents would make informed debate about the bank a less furtive and more open process than it is today.

I am grateful for the opportunity to have this debate. I hope that I have put the importance of the World bank on the record. I believe that the proposals that I have put to the Minister are modest, but they would make an important contribution towards making the World bank a more effective institution.

4.32 am

Mr. Tom Clarke (Monklands, West)

My hon. Friend the Member for Southampton, Itchen (Mr. Denham) has done a great service to the House and to development in what I thought was an extremely comprehensive, well-informed and welcome speech. It was worthy of an hour other than this one. I am sure that it will be, rightly, widely read and studied.

In his excellent speech, my hon. Friend referred to non-governmental organisations such as Christian Aid. I know of its interest in our debate and in these matters and of its view on the accountability of the World bank in particular and other financial institutions, and about the fact that British taxpayers are entitled to know that debate takes place in this House on these important matters.

My hon. Friend almost made the relatively short speech that I am about to make somewhat redundant, because his speech was so beautifully well informed. He referred, for example, to the World bank's recent report, "Adjustment in Africa, Reforms, Results and the Road Ahead." It is interesting that on page 8 we have a public confession, which I welcome and which I hope that the Minister's views will reflect. It says: Policies are not good—yet". On something as important as that, we should be striving to get the policies right. Perhaps the best way to do that is to involve ourselves in the sort of accountability to which the main thrust of my hon. Friend's speech addressed itself.

A Foreign and Commonwealth Office report was published last week, the cover of which refers to the Foreign and Commonwealth Office including Overseas Development Administration. I am sure that my hon. Friend will agree that that shows how the ODA has been demoted in the Government's thinking to less than an arm of the Foreign Office. We certainly want to reassert the role that the noble Baroness Barbara Castle described at a meeting in the House a few weeks ago and which is crucial to genuine development.

The document will be well known to the Minister. It says that one of the main reasons for British aid is to help poorer countries and their peoples improve their standard of living. In the absence of the accountability that my hon. Friend rightly demands, those people are entitled to ask how far we have gone in achieving that objective. On page 9 of its report, the World bank says: Nor is there much evidence that public spending within those sectors—health and education—is being relocated away from costly tertiary programmes and towards the basic services likely to reach the poor. That was a refreshing, if unwelcome, comment. Even the bank admits that its funds essentially are not, as the objective suggests, reaching the poorest countries. I am sure that the Minister will share not only that objective but our disappointment.

Any discussion of the role of the World bank, the International Monetary Fund and accountability raises fundamental questions. I understand that 10 per cent. of aid spending goes to the World bank. In 1992–93, nearly 15 per cent. went to the World bank and the IMF. There should, therefore, be some transparency to our bilateral aid and our multilateral contribution, which might be obvious in other Departments but is not evident here.

I shall not extend the debate to Malaysia, which I am sure will come as a relief to the Minister.

The Parliamentary Under-Secretary of State for Foreign and Commonwealth Affairs (Mr. Mark Lennox-Boyd)

I am not worried.

Mr. Clarke

The Minister should wait for the various reports to be published.

In the absence of accountability, there is clear evidence of projects that are environmentally undesirable or even anti-social. As my hon. Friend so rightly said, there is evidence of the displacement of indigenous populations. If our development policy is about anything, it is about recognising the needs of individual communities wherever they live and their right to have a say in the kind of community in which they live. I am sure that the Minister will not disagree with that view.

My hon. Friend and the various reports available to the House show that structural adjustment programmes, far from improving poverty, actually deepen it.

Last week, I and the right hon. Member for Tweeddale, Ettrick and Lauderdale (Sir D. Steel) were privileged to visit Uganda, sponsored by Oxfam. Our visit was part of the all-party caucus on Africa. We saw that poverty is deepening in Uganda, but, in spite of its difficult recent history, it is seeking to respond to the demands of the World bank and the IMF. I admit that I would find it difficult to agree with some of the conditions being set, were I an elected Member of Parliament in Uganda and should such a Parliament exist. Uganda finds that the spirit of its approach is hardly being met by the World bank or the IMF.

The case for accountability has been well made. It has been said that there was a 150 per cent. increase in the failure rate of World bank projects since 1981. I do not know whether the figure is correct, but there have undoubtedly been some failures. I am not saying that all World bank projects have ended dismally, but such matters should be openly debated. Had there been an open debate on, for example, the Naramada project in India, I think my hon. Friend would agree that we should not have had to hear the well-informed comment that it was flawed, that resettlement and rehabilitation of all those displaced … is not possible under prevailing circumstances and that environmental impacts … have not been properly considered or properly addressed". That is a profound comment and I hope that the bank will be modest enough to accept that it is not even in the bank's interests—although it is more important to consider those of the millions of people whom it seeks to serve—that such a situation should prevail where there is not the slightest attempt to justify pluralism or a democratic input into the discussion of projects that are crucial to specific communities.

As my hon. Friend said, local people are entitled to much more information than the World bank is willing to provide. He gave a most interesting account of how he, as an elected Member of Parliament, has tried to obtain information but finds it easier to telephone Washington than to place a question in the Table Office. That cannot be right, and he is 100 per cent. right to draw it to the House's attention and suggest that there should be a better way of providing information on such important matters. Without access to information, the participation that the World bank itself says is important becomes meaningless.

However inadequately, we recently discussed the World bank and the 10th International Development Association replenishment 'which led to much criticism from non-governmental organisations including, I think, Christian Aid, not least because £620 million, it must be conceded, is a sizeable amount. Again, we need more open, crisp and well-informed debate, based on all the information that is available to the bank and all that is in the public domain.

My hon. Friend acknowledged that the bank is undertaking poverty assessments, but they hardly go far enough. We need to be assured that the bank will act on the information provided, will genuinely consult and take on board the views of those who, like the people we met in Uganda, are involved daily in trying to solve some very serious problems.

My right hon. and learned Friend the Leader of the Opposition made a very important speech on these matters in Geneva just a few weeks ago, showing that although my hon. Friend the Member for Itchen has been able only to obtain a debate in the middle of the night, many people share his interest in this important subject. My right hon. and learned Friend said: It would be sensible to establish a clear line of accountability for the World bank and the IMF. That is certainly the undiluted position of the Labour party. Surely after 50 years there is a case for such accountability and for a review.

It is becoming clear that the House does not have enough time for debates of this kind. I do not know whether the Minister agrees, but it seems to me evident that the other place gives much more time to these matters. My hon. Friend will probably agree that in view of the huge importance of the issues, this is a matter for very considerable regret. Perhaps, as my hon. Friend suggested, the only scrutiny of the World bank, the IMF, IDA, and similar bodies is undertaken on their own initiative through, say, the Select Committee on Foreign Affairs or some Committee dealing with statutory instruments. That is hardly enough. My hon. Friend made the compelling point—I hope that the Minister will find time to address himself to the specific issue—that even the Government seem to have very little influence over the executive director and his role in all this. I realise that we have lots of debates about quangos—hon. Members on both sides of the House have views on these matters—but the role of such a person is crucial and the need for accountability well established.

As my hon. Friend said, the World bank is very reluctant to reveal documents and information. That is a matter for very considerable regret. It would certainly be churlish not to welcome the appeals commission and the new information disclosure procedure, but it hardly goes far enough in terms of the matters that hon. Members, especially those as well informed as my hon. Friend, would like to debate. The expressions "commercial confidentiality" and "politically sensitive" can be abused. Indeed, there is evidence that they are being abused. We want to see more openness. The absence of openness has led to some of the problems that we face.

I join my hon. Friend in saying that the House of Commons is entitled to know what is going on in these international banking organisation to which, as shareholders, we have a contribution to make. We are entitled to know what pressure the ODA has exerted on the World bank genuinely to help the poorest people in the poorest countries. As my hon. Friend has said, we are entitled to know how Her Majesty's Government's representative on the board votes. We are entitled to know whether the Government consider that taxpayers' money is being spent really effectively and that we are securing value for money. We are entitled to ask what efforts are being made to involve the non-governmental organisations which, as I have said, are very interested in this debate. They told me so throughout yesterday and during the week. We are entitled to know whether communities at every level have an opportunity to be involved, not just at the design stage of projects but at every stage in their development right through to implementation. Those are reasonable questions, which would inevitably arise if such affairs were given the kind of scrutiny that rightly applies to other Departments of Government, national and international.

My hon. Friend concluded by asking for an annual report to Parliament. In that request, he was absolutely right. We are entitled to know about investment, development and the environmental and social consequences of World bank and IMF decisions. If my hon. Friend's debate, and his excellent initiative in drawing such matters to the attention of the House, means that at least the Government are invited to focus on those important, democratic and compelling issues, my hon. Friend can again congratulate himself on the excellent service that he has done in connection with those crucial issues.

4.49 am

The Parliamentary Under-Secretary of State for Foreign and Commonwealth Affairs (Mr. Mark Lennox-Boyd)

I am sure that it is appropriate for me to congratulate the hon. Member for Southampton, Itchen (Mr. Denham) on his contribution. The subject of the debate is certainly one in which he has made himself a considerable expert. He may not appreciate the fact until I tell him, but he has in great measure been responsible for my understanding of the subject—I do not claim that it is as great as his—not because he has been my tutor, but because he has tabled many parliamentary questions that I have had to answer, and the answers have briefing attached to them that I have to try to understand.

On 8 February last year, the hon. Gentleman tabled a question, and I suggested in my answer that he initiate a debate on the subject in the House. That has taken him only a year; perhaps in some measure the debate tonight is taking place because of that answer.

This year is the 50th anniversary of the World bank, so it is appropriate that we should now review its affairs. Even if the whole of our nation is not listening to the debate at this moment, I know that what the hon. Gentleman and the hon. Member for Monklands, West (Mr. Clarke) have said will be carefully scrutinised, and I hope that it will have some effect in the direction of which they spoke.

Before I start the main part of my speech, I must alert the hon. Member for Itchen that the main tenor of my remarks will be to pick up a theme that the hon. Member for Monklands, West emphasised. He welcomed a public confession that he had read on page 8 of a report that he had brought to the House. I shall tell the House that we should recognise that there has been an improvement in self-examination by the World bank, and a considerable improvement in the conduct of its affairs.

The World bank is the largest single source of multilateral development assistance for developing countries. In recent years, it has begun to assist countries in transition in the former Soviet Union and in central and eastern Europe. As hon. Members have pointed out, a £620 million contribution is a great deal of money. That alone is certainly a good reason why we should debate the subject tonight.

The World bank group consists of four main entities: the bank itself, the International Development Association or IDA, the International Finance Corporation or IFC and the Multilateral Investment Guarantee Agency or MIGA. The bank is the institution which makes loans to member countries on terms related to its own cost of borrowing on international capital markets. The IDA provides the soft loans on highly concessional terms to the poorest countries, which are generally unable to service debts on the harder bank terms. The IFC promotes private sector development by investing in private sector entities in developing countries and economies in transition. The MIGA also aims to promote private sector growth by insuring foreign investors against losses that might arise from political risks.

Tonight, we are speaking principally of the development role. The World bank plays a key role in the development process. Its central objectives are poverty reduction, economic reform and sustainable development—aims which complement and are mutually supportive of the priority objectives of the British aid programme. The bank has, therefore, always received strong support from the United Kingdom.

The bank has an important leadership role in policy dialogue with developing countries and in promoting economic reform measures. It has also responded swiftly to the major challenges of assisting the countries of central and eastern Europe and the former Soviet Union in their transition to market-based economies. In the year ended June 1993, new lending reached a record of almost $24 billion and membership rose to a total of 176 countries.

I should like to say a word or two about how the structure of decision making in the World bank is organised. It operates under the authority of a board of governors and each member country is represented by a governor. My right hon. and learned Friend the Chancellor of the Exchequer is the governor for the United Kingdom, assisted by the alternate governor, my right hon. and noble Friend the Minister for Overseas Development. The board of governors delegates authority on most matters to a board of executive directors which is based full time at the bank's headquarters in Washington. The board of directors is responsible for decisions on policies affecting the bank's operations and for approval of all lending proposals.

The hon. Member for Itchen has referred to the executive directors. As he said, the board consists of 22. The five members having the largest number of shares in the bank, of which the United Kingdom is one, have the right to appoint their own executive director. The rest are elected by the governors representing the other member countries. The World bank's president is chairman of the board and is responsible for the management and day-to-day operations of the bank.

I should also say something about our executive director. The United Kingdom is represented at the World bank and the International Monetary Fund by one executive director, who is a senior Treasury official appointed by the Government. He is supported by an alternate executive director for each institution and by a team of technical assistants. Something has been made by the hon. Member for Itchen of a conflict of loyalty under which this gentleman must operate—a conflict between his loyalty to the British Government and his loyalty to the institution where he works. The director and his team take instructions from, liaise closely with, and report fully to Whitehall Departments on bank policies and lending proposals. Our executive director is accountable to the Government for his actions. The Government likewise are accountable to Parliament for payments made to the bank as part of our aid programme. The hon. Member will know that my right hon. and noble Friend the Minister for Overseas Development takes a close personal interest in the bank's activities and will certainly read and note the contributions that have been made tonight.

Mr. Denham

I thank the Minister for that statement. Does he agree that, in practice, one of the difficulties for those of us who want to follow our role in the bank is that it is very difficult to know when, in the consideration of a project or a structural adjustment loan, the executive director and the small staff—I believe that it is only six people in Washington—work independently, without reference to the United Kingdom Government, and when the executive director refers back here to Whitehall? Clearly, it happens in some cases and not in others. Whatever the constitutional position, I would argue that the role of the executive director is very different when he is simply acting with his Washington team and World bank staff and when he feels it necessary to seek guidance from here. Does the Minister agree that if we knew when the executive director was seeking the British Government's advice, and if we knew what advice the Government were giving him, it would be a helpful illumination of the process?

Mr. Lennox-Boyd

When the executive director operates, he is answerable to, and under the control of, the Government, but there are occasions when he must act on his own initiative because matters are not of such moment that they must be reported to the Government. That would certainly be the case. However, the hon. Gentleman is entitled to table questions and we will answer them. I cannot do more than that. That is the only way in which I can give him the information that he wants.

I must say something about the instructions that we give to our director and our position on the board. I shall repeat, and perhaps clarify, what I have said before. As the hon. Gentleman would expect, under the rules of procedure, board proceedings are confidential. There is no consensus within the board to change those arrangements. Therefore, that places limits on what we can say about the position of our executive director in board discussions of individual project proposals and policies. We abide by the rules that have been set. We do not impose on ourselves a greater burden than has been agreed. If others bend the rules or do not follow them as closely as we do, we do not regard that as a reason for breaking the rules but as a reason for pressing to have the rules changed. I shall make some remarks later about the Government's policy on disclosure.

The bank's board aims to operate on the basis of consensus. Formal votes are rare. Our executive director works closely with fellow directors and management to achieve this. Decisions, once reached, are collective decisions of the board. Certain matters covered in board documents or discussions are, and must be, sensitive. The important point that all hon. Members must accept—it is a matter of reasonable logic—is that a balance has to be struck between openness and the need to preserve the integrity of the bank's decision-making processes. Within those constraints, however, we have encouraged the bank to be more open and transparent about its operations. I shall outline some of the measures that the bank has taken in that regard in a moment.

The hon. Member for Itchen referred specifically to scrutiny of bank spending. There are opportunities for scrutiny. Parliament approves our contributions to the International Development Association every three years and capital subscriptions to the bank and the International Finance Corporation. The Foreign Affairs Select Committee scrutinises the Overseas Development Administration's budget annually. There are general debates on aid. A plethora of parliamentary questions are tabled by the hon. Gentleman and his colleagues. In my experience, parliamentary questions are effective tools of scrutiny available to Members of Parliament. They lead civil servants and Ministers to come together and make decisions on matters of concern to hon. Members. That is my experience as a Minister.

The hon. Member for Itchen raised the Oxfam criticisms of the report on the adjustment for Africa. Oxfam has criticised adjustment efforts in Africa, but it has not made clear what alternative approach it proposes. We are convinced that good economic policies are essential to lay the foundations for growth and poverty reduction. The operations evaluation department study on adjustment in Africa complements the recent bank report. The record is mixed, but strong adjustment pays off and the bank's latest report emphasises that there is a long way to go, even for good reformers.

The full operations evaluation department report is confidential, but we made available to the hon. Gentleman a summary of the study that the bank published. It is wrong to suspect that summaries hide essential matters on which criticism could be made. Publishing summaries is not a business of whitewashing. It is a business of keeping confidential that which has to be kept confidential.

Mr. Tom Clarke

The Minister has been uncharacteristically unfair to Oxfam. If he reads the papers that it has made available on adjustment, and the views of the House all-party caucus on Africa, which is an effective body, he will see that positive suggestions to improve accountability have been made, not least by Oxfam, and those suggestions have been endorsed by hon. Members of all political parties, including the Minister's party.

Mr. Lennox-Boyd

I am grateful to the hon. Gentleman for his contribution, but I must make some progress now as I have only 17 minutes left and quite a bit of ground to cover.

I want to say something about the measures that the bank has taken to be more open and transparent. Let us consider the bank's environmental performance. There has been much criticism today about the adverse impact of some of the bank's actions in that sphere. Some of those criticisms are well founded; others are misplaced.

The bank would be the first to admit that its performance on environmental issues has been mixed, but we believe that its approach has improved over time as lessons have been learnt. We are all still learning about the complex economic and social pressures and linkages that lead to environmental degradation. In many ways, the bank has been at the forefront in devising policies to take account of environmental concerns in its operations.

The bank has produced operational guidelines on environmental assessments, involuntary resettlement and protection of indigenous peoples. Those guidelines are currently being revised—not, as some critics allege, to dilute them, but to make clearer which provisions are mandatory and which elements reflect best practice. The aim is to make the operational guidelines a more effective management tool. Environmental screening of projects is routinely carried out, and environmental assessments are undertaken where necessary at an early stage in project design. The bank's guidelines require that affected groups and local non-governmental organisations be consulted.

In 1992, the bank carried out a frank and self-critical review of why the success rate of bank-funded projects had been declining over the past decade. The hon. Member for Itchen referred to the Wapenhans report. It found that among the factors explaining the deterioration in performance were the difficult economic environment faced by many borrowers in the late 1980s—oil price rises, high interest rates and the debt crisis—and the worsening domestic conditions in many developing countries. But the team noted that aspects of bank performance also played a part. There was undue emphasis on new loan commitments and inadequate attention to supervision of continuing projects. That was part of the self-examination, for which we must give the bank credit.

The hon. Member for Itchen mentioned the investigation of bank projects by the Overseas Development Administration. He is right to say that the ODA should not double guess all activities undertaken by the bank.

Mr. Tom Clarke

rose—

Mr. Lennox-Boyd

I shall give way once more, and then I must make progress.

Mr. Tom Clarke

I am grateful to the Minister, but he will appreciate that we do not often have the opportunity to have exchanges on such matters. He was generous to the World bank, both about consultations and about taking on board the views expressed in them but last week, when the right hon. Member for Tweeddale, Ettrick and Lauderdale and I, together with others from Oxfam, were in Uganda we met the World bank representative. I am sorry to have to say this in his absence, and when he does not have the right of reply, but the representative clearly gave the impression—which all of us shared—that he regarded our meeting as a bit of a waste of time. What he did with his time for the rest of the day and the rest of the week, I do not know, but he hardly gave the impression that he regarded the views of the community—which has been devastated by AIDS and has a problem in protecting its water—as terribly important.

Mr. Lennox-Boyd

No doubt the representative will read the reports of the debate, but I cannot give way any more because in the last 12 minutes that I have left I must pursue some other matters.

It is right that the ODA should not double guess all the activities undertaken by the bank. The emphasis must be on ensuring that systems and procedures are in place. Development always entails risks, so it is obvious that not all projects will succeed, but the Wapenhans report has made definite recommendations for improving project quality.

The hon. Gentleman asked me for a specific undertaking to disclose evaluations made by the ODA. I hope that I can give him some comfort because I thought that I had already given him that undertaking last November, when I said in reply to a question: The ODA has produced a number of evaluations which we have co-financed with the bank. Details of how reports or summaries can be obtained are set out in the ODA' s catalogue of evaluation studies, a copy of which has been placed in the Library of the House."—[Official Report, 29 November 1993; Vol. 233, c. 310.] The answer to his question is yes, and I had already given him the undertaking that he sought. Now I must proceed.

After extensive discussions, the bank's board endorsed an action plan on the Wapenhans report last July to strengthen management of the bank's portfolio. That places greater emphasis on supervision and evaluation of loans, better project design, and changes in the bank staff's skills mix and incentives structure. We considered the action plan a comprehensive response to the report's finding—a positive reaction. We were impressed by the determination with which bank management followed up those issues. We also welcomed the fact that the bank publicised the findings of the task force as well as the measures being taken in response to its recommendations. We shall monitor the follow-up and implementation of that action plan closely.

We also welcome the further measures that the board adopted last year to make the bank's operations more open and transparent. In August, the bank's board of directors approved measures substantially to increase the amount of information publicly available about the bank's operations. The main features are a new project information document to provide factual information about all projects in the pipeline, the release of project appraisal reports after the board's approval of projects, the routine release of country economic reports and environmental assessments, and publication of sector policy papers and evaluation summaries. A public information centre has been set up at headquarters to process requests for information. The bank's London office is one of several regional offices which will distribute material and it has an on-line link to Washington for immediate access to information and to facilitate the processing of requests for information.

Those measures should help to improve understanding of the bank's role. The new policy should also encourage more dialogue and interaction between bank staff and interested outsiders, including NGOs and local groups, and thus help to strengthen the quality and effectiveness of projects that the bank finances. We certainly want that to happen and that is an undertaking which I can give.

The board has already taken steps to set up an independent inspection panel, which will examine allegations of failure to adhere to bank policies under bank-funded projects. The results of all investigations will be made public and an annual report will be published detailing investigations undertaken. We hope that the panel will prove a useful addition to the existing systems of control provided through the board of directors and by management. Those measures should greatly increase the transparency of the bank's operation.

The measures that the bank management and its shareholders have introduced in the past two years are already having an impact on the way in which the bank operates. Two examples may serve to illustrate that—the bank's review of resettlement policy and the consideration currently being given to a proposed project for the construction of a dam in Nepal. I will say something about the first—the Narmada valley project, to which the hon. Member for Monklands, West referred.

In response to criticisms in 1992, the management initiated a bank-wide review of all projects involving involuntary resettlement of population. We strongly supported the bank's decision to set up that review and we are pleased that it has invited contributions from informed NGOs and others outside the bank. We have also encouraged bank staff to share the review's findings and recommendations with the people who have contributed to the review, before the report goes to the board, which may be within the next couple of months or so. Management are considering our suggestion. In the meantime, the bank has published information outlining the purpose and scope of the review and some of its preliminary findings.

With regard to the Arun-3 dam in Nepal. The process that the bank is following in its appraisal of this project also illustrates a rather more interactive approach. The bank began appraising the project last May and has had meetings with local and international NGOs to hear their concerns about its potential environmental and social impact. It has undertaken to disseminate updated information to NGOs and other interested parties once the appraisal is completed so as to facilitate informed discussion of the options. We have encouraged the bank to ensure that there is a full dialogue on the issues before the project is submitted to the board for approval. I hope that that shows the hon. Members for Itchen and for Monklands, West that things are changing and improving in the World bank.

It is as well to have comments about these matters at this stage because this is the 50th anniversary of the bank and the IMF. It is an important opportunity for shareholders to step back and to reflect on its current and future role, and how it should adapt to the challenges ahead. One of the bank's great strengths is its capacity to adapt. The action that it has taken in recent years shows that it listens and that it is prepared to be responsive to constructive criticism about its role. As a major shareholder, we will continue to support measures that will enhance the effectiveness of all its operations.