Developing Countries: Multilateral Debt Burden (Hansard, 13 February 1996)

§ The Minister of State, Department of Social Security (Lord Mackay of Ardbrecknish)
My Lords, we have put the issue firmly on the international agenda. We have wide agreement that there is a problem that needs to be addressed. It is agreed that the IMF and World Bank will put forward proposals at the April meeting of the Development Committee. My right honourable friend the Chancellor of the Exchequer is looking forward to discussing these proposals with his colleagues at that meeting.

§ Lord Judd
My Lords, I thank the noble Lord for that reply. However, is it not totally unacceptable that in a country like Uganda, where it is still the case that one in five children dies before the age of five from preventable diseases, only three dollars per head is available for health, while 17 dollars per head goes on debt servicing—mainly multilateral debt? Does not the debt burden, and particularly the multilateral debt burden, crush development efforts across the world? What are the Government doing to mobilise World Bank reserves, special drawing rights and IMF gold stocks to promote a more constructive approach to international debt management?

§ Lord Mackay of Ardbrecknish
My Lords, the noble Lord rightly draws our attention to this problem, 496 and in particular uses Uganda as an example. We have made some progress in Uganda since the beginning of the 1990s. The Ugandan Government have undertaken a strong reform programme. They have dealt with the problem of loans from commercial banks and to some considerable extent with the problem of bilateral debt. However, as the noble Lord rightly identifies, the problem of multilateral debt remains.
We have proposed, in general, 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 more concessional and, where appropriate, larger loans to the IMF's poorest and most indebted members which have shown a sustained commitment to economic reform.

§ The Lord Bishop of Oxford
My Lords, Her Majesty's Government have urged the IMF to sell some of its gold stocks and to use the proceeds to alleviate the debt burden of the lowest income countries. They are also encouraging world bankers to produce a proposal, albeit unpublished, to create a multilateral debt facility; one that will also he used to reduce the debt burden. Unfortunately, the IMF has taken no action to sell any of its gold stocks and nothing has been done to create the multilateral debt facility. What further action is the Minister proposing in order to make these promising ideas a reality?

§ Lord Mackay of Ardbrecknish
My Lords, as I explained in my original Answer, my right honourable friend the Chancellor is looking forward to the April meeting, when these issues will be addressed. We certainly will be urging on the IMF the policy that we have proposed of selling some of its gold in order to buy assets that would earn interest. That interest could go towards helping the poorest countries. We have been pressing other countries, and the various institutions in the international monetary and financial field, to support our efforts to help those countries look for an exit strategy for their multilateral debt problems.

§ Lord Redesdale
My Lords, is the Minister aware that we on these Benches support the Government's lead role in tackling the problem of debt relief? However, considering the massive burden of debt on countries in sub-Saharan Africa, will the Minister give the House an assurance that when the noble Baroness, Lady Chalker, meets with the World Bank next month in Washington this subject will be at the top of the agenda?

§ Lord Mackay of Ardbrecknish
My Lords, I shall certainly draw the noble Lord's remarks to the attention of my noble friend Lady Chalker. As all your Lordships know from my noble friend's Answers at this Dispatch Box on many occasions, she is much seized of the problems of the poorest countries in the world. I reiterate the assurance that I gave and the assurance welcomed by the noble Lord—I am grateful to him for that—that we shall continue to pursue these matters about multilateral aid on the international stage.

§ Lord Gisborough
My Lords, does the debt burden indicate that many of the loans were economically 497 unviable in the first place or, in many cases, misappropriated? Does he agree, as is thought on the ground, that there should be more loans made available to very small industries, which can then support the larger infrastructure with their profits, rather than big loans of which much is often misappropriated?

§ Lord Mackay of Ardbrecknish
My Lords, as my noble friend points out, it is important that both multilateral and bilateral loans are given with a good deal of care and mindful of the fact that the country will have to repay the loan, even though the interest rate charged is extremely low. In this country we have "forgiven"—that is the jargon—over £1.2 billion of old aid loans. All new aid by us to the poorest countries has been on grant terms for many years now to get round exactly the problem raised by my noble friend.

§ Baroness Gardner of Parkes
My Lords, as one who does much through NGOs to help the underdeveloped countries, could the Minister tell me whether there is any way in which we can ensure that the money given to those countries by international or bilateral loan filters down to the people in need? Very often that money does not go to those in need. As was said, it is simply appropriated by someone at the top who lives in absolute luxury while the people at the bottom remain in a very bad way.

§ Lord Mackay of Ardbrecknish
My Lords, my noble friend certainly makes a point that has been made by a number of people. Certainly, she could give examples of that in the past. But I very much hope that the situation has improved since then. Certainly, one of the preconditions of multilateral and bilateral aid is that the country concerned has an agreed policy with the IMF of restructuring its economy, and so on, and of sticking to it for three years. That way, we combine the aid, either the grant or the loan, with an insistence that the country attempts to use the grant or loan in such a way that it improves its economy.

§ Lord Judd
My Lords, will the Minister accept that we found much of what he said this afternoon extremely encouraging? With regard to the misappropriation and misuse of aid, is it not doubly important to ensure that the burden of settling the evils of previous malpractice does not land on the impoverished people of the third world? Will he further accept that the Chancellor of the Exchequer will have the full-hearted supported of these Benches in taking a lead at the April meeting of the World Bank in ensuring a comprehensive multilateral and bilateral approach which encourages development rather than crushes it?

§ Lord Mackay of Ardbrecknish
My Lords, I am certainly very grateful to the noble Lord for his support and that of the official Opposition for my right honourable friend the Chancellor in his efforts in that regard. I shall pass on those words of encouragement and support to him. The noble Lord makes a valid point about the situation in the past. In some cases corruption has meant that the aid given has not achieved the objectives hoped for it. I can assure him that both the 498 World Bank and the IMF, backed by ourselves, are setting standards for accountability and independent audit as conditions for funding. I very much hope that the problem he mentioned will not arise in the future.