HC Deb 23 January 2003 vol 398 cc418-20
2. Ms Julia Drown (South Swindon)

What action he is taking to discourage UK companies from pursuing litigation against heavily indebted poor countries. [92733]

7. Mr. Mark Lazarowicz (Edinburgh, North and Leith)

What his assessment is of the International Monetary Fund's latest proposal for a sovereign debt restructuring mechanism. [92739]

The Chancellor of the Exchequer (Mr. Gordon Brown)

To avoid individual creditors blocking the restructuring of poor countries' debt, we are proposing the adoption of collective action clauses on a worldwide basis and we are supporting at the IMF meetings in April the proposed new sovereign debt restructuring mechanism. I can also tell the House that, in the case of vulture funds, we are calling on the World Bank to announce expert support to highly indebted poor countries dealing with debt. I can also announce that the UK Government will provide legal help to poor indebted countries facing those problems.

Ms Drown

I welcome the Chancellor's response. When companies such as Iceland sue Guyana for £12 million, does not that undermine the Government's commitment to debt relief? If Guyana gives in, that will create a further problem because it will be breaking the UK's agreement, through the Paris club, that one creditor should not be given preferential treatment. However, given the huge support for debt relief in this country, surely the big issue is that the customers and shareholders of Iceland probably do not want it to sue in the first place.

Mr. Brown

Because the system of debt restructuring is voluntary, and until we get the collective action clauses and the debt restructuring mechanism in place, moral suasion will remain important. We have to look at individual cases to see what can be done. The Nestlé case in Ethiopia was well publicised. There have also been cases in Sierra Leone, Uganda, which involved Yugoslavian vulture funds, and Nicaragua.

The Guyana case arises from 1976 and involves a company called Booker plc. It concerns the ownership of a plant and Booker is asking for compensation from the Government. The issue will go to collective arbitration. In other words, the international court for settlement of such issues will rule whether the debt is valid. Even if it were ruled to be valid, I would hope that, in the interests of resolving the problem, the company would make the resolution of it part of the general debt forgiveness that is being given to Guyana. I hope that it can be solved on that basis.

Mr. Lazarowicz

Can my right hon. Friend give some indication of the time scale for the establishment of the new debt restructuring mechanism? Will he assure the House that he will take a lead in international negotiations to establish such a mechanism, and ensure that it is established somewhat more quickly than the many years that the IMF said that it would take?

Mr. Brown

My hon. Friend raises an important point. If we are to have a sensible system of crisis prevention and crisis resolution—after all, nearly 100 financial crises have led to the need for debt restructuring in the past decade or so—we must get a new mechanism in place. Collective action clauses exist in Britain, and we propose them for the rest of the world.

The sovereign debt restructuring mechanism proposed by the IMF board would produce an internationally validated and respectable system to which each country could sign up. That would require a change in the IMF articles of association, which is why some have proposed that, in the meantime, there should also be a voluntary code that banks and bondholders could follow as well.

The important thing is that we see progress, with all countries supporting the need for such a mechanism at April's IMF meeting, and that transitional measures that deal with my hon. Friend's point that there is a need for action on this matter now are put in place. It is in all our interests to avoid the kind of financial crises that have led to poverty as well as economic dislocation in some countries. The proposals from Britain will make a huge difference.

Mr. Laurence Robertson (Tewkesbury)

The Chancellor mentioned Ethiopia. I had the pleasure of leading a parliamentary delegation to Ethiopia in December, and we saw at first hand the absolute desperation of people there, who are already becoming hungry. Is it not iniquitous for Nestlé to claim up to $6 million from that country? Is it not claiming that sum at rather a sensitive time, especially given that the claim arises from a business deal that it did when Ethiopia was under a Marxist Government? Should it not have taken rather more care then? Does the Chancellor agree that the Treasury should join the Secretary of State for International Development, who has been very generous towards Ethiopia recently, in trying to persuade Nestlé to drop the claim completely?

Mr. Brown

I am grateful to the hon. Gentleman. I hope that there is all-party support for resolving the issue. There are 60 million people in Ethiopia. The average income is about $100 a year, which is about $2 a week. There are 40 million people facing starvation. It would seem strange at this point to demand extra repayments from a country that is attempting to reform, having got rid of the Government who incurred the debt with Nestlé in the first place. Nestlé has now said that, although it is important that the money is paid, it will give all that is received to famine relief in Ethiopia.

I think that the hon. Gentleman would agree, however, that we need a system that avoids such problems recurring—or at least if they do occur, one that offers a quick way of dealing with them. That is why we propose the collective action clauses and the new sovereign debt restructuring mechanism for future debts. That is also why we are helping Ethiopia at the moment. I shall meet the President of Ethiopia—as will the Prime Minister—when he is in Britain in the next few weeks so that we can offer help with legal advice and by other means to resolve some of the problems. In addition, as the hon. Gentleman knows, much of the Secretary of State for International Development's aid budget has been diverted to help tackle the famine in Africa.

Adam Price (East Carmarthen and Dinefwr)

Is the Chancellor aware of reports that point to the IMF's role in turning a food shortage in Malawi into a severe famine? Indeed, the IMF was implicated in the Malawi Government's disastrous decision to sell their food reserves. In the light of that fact, and given that debt repayment last year constituted 20 per cent. of Malawi's budget, would it not be right to write off its debt?

Mr. Brown

The important thing is first to implement the poverty strategy mechanism—in other words, to ensure that IMF and World Bank policies do not run counter to each other, and that we can take the steps necessary, where decisions are being made, to match economic restructuring with social justice programmes. I think that the hon. Gentleman would agree with that.

Only 50 per cent. of the aid necessary has so far been pledged for the famine. Even though countries have given some money, it is simply not enough. I hope that, on an all-party basis, we can support other countries in joining us in giving the money necessary to avoid the famine that is hitting not just Ethiopia but all the countries surrounding Malawi.