Overseas Aid (Hansard, 13 March 1996)

§ Lord Chesham
My Lords, in the financial year 1994–95 £3.1 million of the aid programme was spent on the cancellation of aid debt. Exceptionally, in 1994–95, £25 million of British programme aid to Zambia was earmarked to help Zambia service its multilateral debt.

§ Lord Rea
My Lords, I thank the noble Lord for that Answer and acknowledge that only a small part of our bilateral aid programme is directly spent to service or repay debt. Is he aware that a large part of development assistance is used to buttress and restore the economies of the recipient nations so that they are in a position to service their debt, for instance, to the World Bank or the International Monetary Fund who require their credits to be serviced before offering further assistance? Does the Minister realise that, according to a recent study, over half of bilateral aid now to sub-Saharan Africa goes indirectly in that way back into the hands of creditors rather than being used for genuine development and poverty reduction?

§ Lord Chesham
My Lords, indeed a considerable amount of money goes in that way. The reason is that these countries need to be able to service their debt if they are to continue borrowing from these institutions. If donors had not provided the money, for example, to Zambia, budgetary constraints would probably have meant that government funding for the social sectors would have had to be cut back.

§ Lord Redesdale
My Lords, can the noble Lord give an indication as to why there are no set figures agreed between the Government and the NGOs over the level of the budget of the Overseas Development Administration which is spent on debt relief?

§ Lord Chesham
My Lords, debt relief is not generally part of the budget of the ODA but something which comes from other areas. Therefore debt relief and the NGOs have no relation to the ODA budget.

§ Lord Moyne
My Lords, can the Minister say whether it is the case that the real value of third world debt automatically reduces in line with world inflation?

§ Lord Chesham
My Lords, yes, of course it does. But it can happen that their inflation rates are considerably higher than the currencies in which the debts have to be serviced.

§ Lord Judd
My Lords, does the noble Lord agree that this is really a very grave matter and that globally 840 as much as £3 billion a year may be diverted from bilateral aid programmes intended for development to pay off debt to multilateral institutions like the World Bank and the IMF? Can he assure the House that at the World Bank—IMF meetings in April Britain will give a lead in mobilising new and additional funds from multilateral sources such as World Bank resources themselves, the IMF gold stocks, or a new issue of special drawing rights, so that the multilateral institutions begin to play their part in the crucial fight against the burden of debt?

§ Lord Chesham
My Lords, yes. The British Government have consistently pressed for action on multilateral debt. At last year's annual meetings of the IMF and the World Bank, my right honourable friend the Chancellor called on all the international financial institutions to examine further measures to deal with the problems of multilateral debt for the poorest and most indebted countries. That work is currently under way. We expect firm proposals at the spring 1996 meetings of the World Bank and the IMF in April.

§ Lord Rea
My Lords, is it true that the Chancellor of the Exchequer, Mr. Kenneth Clarke, actually advocated at a meeting with the International Monetary Fund that it should use some of its gold reserves to help towards reducing the outstanding debt, particularly of the most indebted countries?

§ Lord Chesham
My Lords, that is one suggestion that has been made. As I said, the work on this matter is currently under way. We expect firm proposals in April of this year.