HC Deb 18 July 1995 vol 263 cc1572-80

Motion made, and Question proposed, That this House do now adjourn.—[Mr. Wells.]

11.31 pm
Mr. Jeremy Corbyn (Islington, North)

I am pleased to get this Adjournment debate on the subject of the Naples terms of membership of the Paris Club. That important subject concerns the debt of the poorest nations in the world to the richest, and their ability to get any write-off of that debt.

By way of background, I shall open by quoting from an excellent document that was recently produced, "The Oxfam Poverty Report", which sets in context the discussion that we are about to have: The richest fifth of the world's population, living in the industrially advanced countries, have average incomes thirty times higher than the poorest fifth. The poorest 50 countries, mostly in Africa, have seen their incomes decline to the point where they now account for less than 2 per cent of global income. These countries are home to one-fifth of the world's people. One in four of the world's people exists in a state of absolute want, with millions more living close to this perilous state. Poverty-related diseases claim the lives of 35,000 children every day Half of the world's population is systematically discriminated against from the cradle to the grave for the 'crime' of having a female chromosome. Half-a-million women die each year from causes related to pregnancy and inadequate health care. 130 million children are denied the right to primary education … Approximately 1.3 billion people have no clean water or sanitation. Many of the countries where those people live are desperately in debt. They are forced to pay huge amounts of their export earnings straight back to the banking systems of western Europe and north America to meet that debt crisis. To understand that, we have to understand how the debt came about.

"The Oxfam Poverty Report", which puts the case so well, states: During the 1970s, international capital markets transferred around $20 billion a year to developing countries". It also states that, after the oil price rise in the 1970s Northern governments responded…with monetarist policies which forced up interest rates‖Between 1983 and 1989, creditors received $242 billion more from these countries than they provided in new loans. In that period, the poorest countries started to have to pay more and more of their income towards the banking systems of the north, because they were having to pay high interest rates on loans to finance industrial and agricultural development. They had seen the income from commodities fall as a result of the policies of the northern countries. By the end of 1992, the poor countries owed $269 billion in debts to the countries that make up the Paris Club. That in turn is only a small proportion of the total outstanding debts of poor countries, which, according to the World bank, reached $1,812 billion by the end of 1993—and that figure is still rising.

In order to qualify for entry to the Paris Club, any poor country that wants to have any of its debt written off has to accept the terms and conditions laid down on its economic development by the International Monetary Fund. The IMF, which is a heavily western-dominated organisation, imposes the strictest conditions imaginable on any poor country.

In effect, those countries are asked to surrender their economic sovereignty and adopt structure adjustment programmes based on the widely discredited policies of Thatcher and Reagan throughout the 1980s. Those are policies that no respected academic could possibly defend in any way. They resulted in the IMF investing $30 billion in the past 10 years on structure adjustment programmes.

Those programmes have not helped the situation in most countries. They have forced countries to open up markets to cheap goods coming in from abroad, thus causing local unemployment. They have forced them to cut public expenditure, thus hitting health, education and social development programmes—resulting in hunger, unemployment, and, in some cases, civil war.

Any country that wishes even to be considered for entry into the Paris Club terms for writing off its debt has to do what the IMF wants. For example, Zambia is currently asking for a write-off of part of its debt through the Paris Club, and is being told that it must speed up the privatisation of its copper mines. Those mines are the basis of the Zambian economy.

Nationalisation followed independence because the population saw copper as the basis of their prosperity in the future. Copper prices have fallen as a result of the behaviour of the west, and, as those copper prices have fallen, greater and greater debt has developed in Zambia, and the country has now been told that it must sell off those copper mines at knockdown prices to international copper cartels.

Nicaragua also wants to enter the Paris Club to have its debt written off, and has been told that it must privatise its telecommunications industry—again at knockdown prices—to one or other of the major players in the world telecommunications market. The court of star chamber even decides which countries are considered for debt write-off. Britain is a member of the forum, and negotiates the repayments of part of the debts.

In preparation for tonight's debate and in my discussions, I have been indebted to the work done by the Debt Crisis Network—an organisation representing a large number of non-governmental organisations, Church groups and voluntary organisations—which has tried to adopt a different approach to the problems of the world's debt.

The Debt Crisis Network shows that 66 per cent. of the debt owed to the UK is owed by poor countries in Africa. That is the only continent with which Britain has a trading surplus at present, but, through the IMF conditions imposed on one African country after another, we are insisting that the living standards of many people are currently falling in Africa.

Last year, I was able to visit Uganda—an African country which is attempting to develop its way out of debt and poverty, and which finds itself in an almost impossible bind. It has been told that it must privatise large sectors of industry and sell land to anyone who wants to buy it. As a result of those policies, it is having to charge for primary education for the first time since independence. Meanwhile, its health service cannot cope with the AIDS crisis that is sweeping across that part of Africa.

Tonight I raise the question not just of the situation in Uganda and countries like it, but also of the reasons for the problems they face. Our exporters and those from Organisation of Economic Co-operation and Development countries have become very rich on the basis of the structural adjustment programmes in African countries. As President Nyerere, the former and very respected President of Tanzania, has suggested, African children are having to starve in order to pay those debts.

There is an equally sinister market in international arms—it could be called "gun-runners' gold". Export of arms credits rose by 86 per cent. between 1991–92 and 1993–94, while export credits for all civil businesses rose by just 14 per cent. For example, Kenya has received £151 million-worth of military credit since 1980, despite well-recorded human rights abuses that have often been referred to in the House, including the imprisonment of people who have stood against the regime and spoken up for justice in that country.

The west appears to be saying that the poorest African countries must cut public expenditure on social programmes and open up their markets, while at the same time they are offered enormous credits to buy arms from the west that may be used in civil wars, or used to control people who protest about the conditions in which they live.

Mr. Bill Michie (Sheffield, Heeley)

It is immoral.

Mr. Corbyn

As my hon. Friend says, the situation is absolutely immoral. Britain is not among the top four creditors in the Paris Club—France, Japan, the United States and Germany are larger—but Britain is obviously important. When the Prime Minister was Chancellor of the Exchequer, he took a lead in such matters by calling for a renegotiation of debt, and the current Chancellor did the same thing at the Naples summit.

However, my questions revolve around how the negotiations are being conducted at present, as well as their long-term aspects. It is claimed that there will be an enormous reduction in the debt burden of the poorest countries, but that debt burden has not been reduced very much so far.

Unless we address the question of the sale of commodities from the poorest countries in the world, no amount of debt write-off will solve the problem. If we wrote off all their debt tomorrow but did nothing about the existing unfair trade arrangements between the United States, Europe and Japan and the poorest countries in the world, the same debt crisis would emerge a few years later. We must take a two-handed approach to the problem.

For example, it is claimed that, under the Naples terms, Uganda's debt has been reduced by 67 per cent. However, it has been pointed out that Uganda's debt was reduced by only 20 per cent. in real terms—despite the claims in the press releases issued by the Overseas Development Administration.

This Friday, there will be a meeting of the World bank consultative group on Uganda and I understand that debt will be on the agenda of that gathering. I hope that, in her response, the Economic Secretary will assure us—despite all the advice that she appears to be receiving from her colleague, the Government Whip, at the moment—that there will be a much larger write-off of Ugandan debt, and a serious examination of the social consequences of the conditions that have been imposed upon Uganda, which is only one example of the way in which the poorest countries in the world are being treated.

I shall give another example. Nicaragua's total Paris Club debt is £1.6 billion, which is only about 14 per cent. of that country's total debt of £11.6 billion. We have all been led to believe that Nicaragua will receive more than 67 per cent. debt relief—indeed, there were hints that Nicaragua would receive Paris Club debt relief of up to 80 per cent. In fact, it was offered relief amounting to about 36 per cent. of that country's debt. Another con seems to have been perpetrated, this time on the people of Nicaragua.

I return to the example of Zambia, a country of only eight million people and a gross national product of £2.9 billion, which carries a debt burden of £6.79 billion. In other words, the total GNP is less than a third of the total debt that that country carries.

It is inconceivable that Zambia could ever be expected to pay off that debt. She has been paying the rich countries of the north more in debt repayments than she has been receiving in new loans. So she is getting deeper and deeper into debt just trying to service her existing debts. This is a country suffering from the AIDS epidemic, like much of central Africa, and from a substantial fall in the prices of basic commodities. The people who have to pay are those in the poorest countries.

Of the total outstanding debt, £1.7 billion is owed to the World bank and the IMF, who have preferred creditor status and must be repaid promptly. So Zambia receives between £900,000 and £1 billion in aid each year—$110 a head assistance—and has to repay most of it straight away to the World bank. So in effect, many of the aid programmes launched by this country, the EU and others, end up supporting structural adjustment programmes which exist to repay the debts incurred in the first place.

I want to put four questions to the Minister, leaving her with sufficient time to reply. First, how much of British overseas development aid is used by poor countries for debt repayment, whether to the rich countries of the Paris Club or to those powerful, unaccountable institutions, the World bank and the IMF? I also understand that the British Government are offering budget support and untied balance of payments support to poor countries as part of debt repayment. So the British Government appear to be using the aid budget to ensure that these debts are repaid.

During the recent debate on overseas aid, my hon. Friend the Member for Eccles (Miss Lestor) made an important speech, in which she noted that the debt outstanding to the World bank is £3.9 billion. Although that is crippling for the countries concerned, it is not actually large by World bank standards. That institution has set aside £3.3 billion in the current year for loan loss provision, and £14.5 billion for reserves.

My second question, therefore, is: why cannot these funds be used to extinguish the mountain of debt, instead of diverting British aid money to the coffers of the World bank and the IMF?

The next question concerns the IMF gold. The Chancellor has made much of his belief that there should be a sale of that gold to pay off many of these debts. What has happened to that proposal? When can we expect to see a sale of the gold held by the IMF?

My third question is this. If, after the Naples terms have been negotiated with poor countries, there is only a small amount of Paris Club debt outstanding, have Ministers considered getting rid of the debt altogether? Unless we write it off, the situation will go from bad to worse.

My final question is: has the Treasury ever made use of the facility contained in the Paris Club agreement for conversion of debt into local currencies for local development projects? I understand that there is an option in the agreement allowing the conversion of up to £20 million of debt, to help extinguish it altogether.

We live in a world racked by ever-increasing poverty in the world's poorest countries. The rich west is telling the poorest countries, "The debt is your fault; the responsibility for it lies entirely with you; we will give you aid to assist development only provided you accept the principle of paying off all this debt."

The debt has been incurred not through any fault of the countries concerned, but because of a world trading system that is fundamentally stacked against the interests of the poorest people in the world. There is no flow of wealth from rich to poor in the latter part of the 20th century. There is a massive flow of wealth from the poorest to the richest. The same is happening in our society and in other industrialised countries. The same is happening, on a massive scale, in the poorest countries—and more specifically, from the poorest countries to the banking systems and trading operations of the western and northern countries of the planet.

We cannot go on witnessing the poverty, deprivation and misery in the world. As a start, we should write off large amounts, if not the total, of these debts. Secondly, we should decide not to impose an economic model that we know to be unfair and unjust on those countries. Instead, we should support a world trading system that gives farmers in Latin America and south Asia reasonable prices for the goods they produce, so that those countries can begin to develop their economic and social infrastructures as we would like them to. We cannot go on allowing the world to be divided in this way.

I hope that, in this short opportunity that we have today, the Minister will at least explain what is going on within the Paris Club, and what will be done to alleviate the suffering of the very poorest people in the poorest sub-Saharan African countries.

11.49 pm
The Economic Secretary to the Treasury (Mrs. Angela Knight)

I start by thanking the hon. Member for Islington, North (Mr. Corbyn) for raising this very important issue. He spoke with some passion about a subject which undoubtedly concerns many people.

The hon. Gentleman will be aware that the Government have long been concerned about the problems faced by the poor countries of the world, which, as he outlined, shoulder enormous debt burdens. Struggling to pay debts that they cannot—and will never be able to—afford just frustrates sensible economic reform. It keeps countries in endless poverty, some of the human consequences the hon. Gentleman outlined when he mentioned the Oxfam report.

It is necessary to chart the course of where we have been and where we are going in helping with the problem. The Overseas Development Administration has written off more than £1.2 billion of old aid loans owed to it by the poorest countries. That has certainly been of some help. We have also taken a leading role—the leading role—internationally in seeking solutions to the problems of indebtedness of the very poor. The hon. Gentleman mentioned some of that tonight. It was Lord Lawson who first took steps in that direction. They have been developed in what have become known as the Trinidad and London terms, which have helped substantially in this area.

The London terms have helped 22 countries. They have benefited from debt reduction under those terms in the region of £2.75 billion. I am sure that the hon. Gentleman will agree that that is a substantial assistance that has already been given. But the hon. Gentleman is correct to say that that is not sufficient. We feel strongly that we must do more for the world's neediest countries, and must continue to press for further action.

We have long argued that creditors should write off part of their stock of debt, instead of simply making payments due over an agreed period, even if that period is extended. Unless the debt is reduced, they are simply left with a debt overhang, which does not help them in their attempts to restore their economies.

That brings me to the Naples terms, which were developed mainly as a result of lobbying by the UK of the G7 summit in Naples in 1994. An agreement has been reached to help poor countries' debts in various ways. That has been substantially used, and I hope will be used more.

The Government have pressed to make available a maximum reduction of 67 per cent. Sadly, that has not always been the case in other countries' agreements, but that is the direction in which we are moving.

If we look at what the implementation of the Naples terms has achieved, we find that 10 countries have received concessional reschedulings with debt reductions of that 67 per cent. Bolivia, Cambodia, Chad, Guinea Bissau, Haiti, Mauretania, Nicaragua, Senegal, Togo and Uganda have all been helped. Uganda has been the only country to receive a stock of debt reduction.

I understand the points made by the hon. Gentleman about Uganda, and I shall come to that later. It is true that, so far, whereas the Naples terms are being effective, the debt problems of severely indebted low-income countries remain. The reason for this needs to be addressed. The reductions offered to date have not always been as generous as we had hoped—or indeed, as we believe necessary.

Sometimes, other creditors have been reluctant to increase to that 67 per cent. the rate of relief on debts which have already been reduced, especially debt reduced by 50 per cent. under the London terms. Some creditors have focused on the short-term projections of financing gaps. We think this does not sufficiently allow for adverse shocks which could at some point increase these gaps, such as a fall in the price of a major export commodity. Again, that was a point made by the hon. Gentleman. We are doing what we can to urge other members of the Paris Club to see the matter as we see it, and to help to reduce debt as much as possible.

Uganda has been mentioned several times. Stock-of-debt operations have not been as frequent or as generous as we should have liked; so far, Uganda has received a stock-of-debt treatment, but not all its eligible debts were reduced by as much as possible. Debt reduction for Uganda amounted to $97 million, just over 20 per cent. of its total Paris Club debt. The main reason is that the Paris Club does not normally reschedule or reduce debt contracted after the date of a country's first Paris Club agreement, which allows export credit agencies to provide new finance with a greater certainty of repayment. Uganda has a high proportion of post-cut-off-date debt.

The United Kingdom argued that Uganda should be granted exceptional treatment on its post-cut-off-date debt, but we did not succeed in reaching an agreement with the other creditors, two of which were owed more than the United Kingdom.

In addition, debt that had previously been reduced by 50 per cent. under Uganda's London terms agreement was excluded from further reductions. Again, the United Kingdom argued in favour of increasing to 67 per cent. the reduction already applied to that debt, but again there was no consensus among other creditors. The United Kingdom is pressing hard to give Uganda the greatest possible debt relief, but, sadly, the other creditors do not feel that they can do the same.

There is also the question of multilateral debt in Uganda and other countries. The total debt reduction for Uganda has been quite good so far, but we shall continue to press for its improvement. We also think that Bolivia, Guyana and Nicaragua will be good candidates for stock-of-debt reduction, and we hope that other creditors will agree.

I appreciate that implementation of the Naples terms is taking place rather slowly, and that concerns us greatly. At the recent summit in Halifax, my right hon. Friend the Prime Minister persuaded his G7 colleagues of the need for decisive action. At his prompting, the G7 urged the full and constructive implementation of Naples terms". That is a good move forward; we shall work to ensure that it is followed through, and that the potential of Naples is realised. We should then secure a win-win result: the poor countries would gain substantially—debtors have obvious gains from debt reduction—but creditors would also gain. By reducing their claims to realistic levels, creditors would increase the likelihood of being repaid the balance. We are making that point strongly to other members of the Paris Club.

The hon. Gentleman mentioned his concerns about IMF programmes and debt relief. Debt relief alone cannot solve the problems faced by the poorest countries; they must put their own economies right so that they can trade and, ultimately, stand on their own two feet. They need wise economic development.

The structural adjustment programmes mentioned by the hon. Gentleman have a strong part to play. I accept that such programmes will often require the adoption of difficult policies by the countries concerned, but the Government consider it important for lending by international financial institutions to be accompanied by appropriate conditions, because growth and the reduction of poverty ultimately depend on a country's economic situation and on its following sensible economic policies.

The IMF and the World bank help members to assess the impact that policy reforms are likely to have on different groups such as the poorest. Increasingly, they are encouraging Governments to treat social spending as a priority in their budgets, in recognition of the importance of investing in health and education for sustainable development. In some cases, they also help members—through technical assistance missions, for example—to integrate their social safety nets in their reform programmes. However, if they do not get their economies right, there will be no long-term future for them. They must have those economic reforms.

On another series of points that the hon. Gentleman made in relation to the multilateral debt problem, he mentioned the International Monetary Fund and the World bank. We have proposed that the IMF should convert a small part of its gold reserves into income-earning assets. The interest earned could then be used to provide a subsidy for large concessional loans, and, where appropriate, for loans on more concessional terms, to the IMF's poorest indebted members that have shown a sustained commitment to economic reform. That is a good way of moving forward with the IMF. It would improve countries' ability to cope with repayments, and the underlying assets would form part of the fund's reserves.

Where have we got with that? So far, some of our partners are to be convinced that our preferred solution of selling a small portion of the IMF's gold and using investment income in that manner is the way forward, but the G7 has agreed to explore the option of "pledging" IMF gold. That would release other IMF resources to finance larger and more affordable concessional lending. That is welcome progress, and again it is at least two steps in the right direction. We will continue to press for agreement to outright gold sales in the way that was outlined by my right hon. and learned Friend the Chancellor of the Exchequer.

We have been pressing the World bank to consider how the facilities of its concessional loan arm could be adapted to give greater assistance to severely indebted, low-income countries. Like the hon. Gentleman, we believe that more movements can be made in that direction, so that the World bank can give better help to some of the poorest countries by reconsidering the way in which it makes its loan. I can assure him, therefore, that we are continuing to do our utmost to enable the alleviation of the crippling effect of large debt burdens on the poorest countries of the world.

I thank the hon. Gentleman again for drawing the House's attention to this matter. As he knows, it is a fairly complex issue. He also knows that some of these countries' problems cannot be resolved overnight, by one step only, or just by considering debt alone. We must remember that debt relief cannot deal with all the problems faced by developing countries, but it can release resources that can be used for development processes. That is the direction in which we are looking. That is why we are pressing our fellow members of Paris Club to reconsider both the existing terms and further imaginative ways of helping these countries.

The hon. Gentleman briefly mentioned Nicaragua.

The motion having been made after Ten o'clock on Tuesday evening, and the debate having continued for half an hour, MADAM DEPUTY SPEAKER adjourned the House without Question put, pursuant to the Standing Order.

Adjourned at one minute past Twelve midnight.