Indebted Poor Countries

HL Deb 01 July 1998 vol 591 cc742-57

7.49 p.m.

Viscount Brentford rose to ask Her Majesty's Government how many of the heavily indebted poor countries are likely to experience substantial cancellation of debt in the next three years.

The noble Viscount said: My Lords, at the outset I should like to express my gratitude to all those noble Lords who are to speak in this short debate. It gives me enormous pleasure that the right reverend Prelate the Bishop of Manchester has opted to make his maiden speech in this debate. I am sure that we all look forward to his remarks, as well as to those of all other noble Lords. I wonder whether other noble Lords had the same problem as I did when preparing for this debate, which I did yesterday evening with half an ear and half an eye open to a certain football match that was being played. I hope that I concentrated enough to be reasonably coherent this evening. We may have lost that game, but it was at least good to know that at Wimbledon today Mr. Henman managed to get comfortably through another round.

I am glad that the present Government, like their predecessors, are taking an international lead on this subject. They clearly view it as very important. However, it involves a complex tangle of issues, with some of which I should like to deal when putting this Unstarred Question to Her Majesty's Government. We in the developed countries of the West must bear some responsibility for the present predicament. We, for instance, have lent money to dictators—money which has often been badly misspent. We have also, on the other hand, benefited from the low price of the raw materials of the heavily indebted poor countries (the HIPCs). Another problem is that we should not forget the thrifty countries, such as Botswana, which have not piled up debt but have lived within their means.

The first particular problem that I should like to address is the question of the creditor's balance sheet if the debt is to be written off. In the UK, we have a much smaller problem than do most other G8 countries. We are owed only about one-eighth of what is owed to Japan and one-quarter of what is owed to Germany. Most debt (some 58 per cent.) is owed to specific countries, largely for providing export credit. Another 22 per cent. is owed to the World Bank, IMF and associates, and 20 per cent. is owed to commercial banks. When the UK writes off any debt in this matter, how will that be shown in the creditor's balance sheet? Is that a problem?

I have some suggestions on this issue. First, when loans have been made for specific projects, could they now be turned into equity so that perhaps the UK Government take a 50 per cent. shareholding in a specific project? That was done with Eurotunnel and it turned loan into equity. Capital repayments and interest payments from the HIPCs would cease immediately. If the project became profitable, perhaps dividends on 50 per cent. of the share would become payable to the UK, so there would be a benefit. Secondly, will it otherwise be necessary to increase the PSBR or taxes, or is there no worry about the UK's balance sheet in this matter? Thirdly, the lending banks have written down loans. Will the Government consider buying such loans, at low value, and writing them off so that they are cleared from the HIPCs' debt? My fourth suggestion relates to the World Bank and the IMF. Would they consider selling a small part of their gold reserves (perhaps 15 per cent.) to repay debt and at the same time, and in addition, write off a similar amount of debt, which I believe that they could perfectly well do without harming their future capacity to lend?

My second point relates to the debt sustainability analysis procedure. Debt sustainability analysis is the assessment of each country made by outside people with a view to a decision about whether such a country qualifies for debt relief and, if so, how much will be given. Do Her Majesty's Government consider that such provisions today are too difficult to enable the most needy countries to qualify for adequate debt relief so as to lead to real poverty reduction? Do not the proposals look only at macro-economic indicators and not sufficiently at real poverty levels?

Perhaps I may take Tanzania as an example, although it is probably not one of the countries which the noble Lord, Lord McIntosh of Haringey, will cite in his answer. Its decision point is to be pushed back to 1999 and its completion point to 2002. Its current budget allows for 10 dollars per head for debt service and about 2 dollars per head for health and 4 dollars per head for education. That is a pretty disastrous situation. In 1996 the World Bank carried out an assessment of poverty in Tanzania and concluded that over 50 per cent. of its people lived below a poverty line of 1 dollar per day. To achieve the OECD poverty reduction target of halving poverty by 2015, the Tanzanian economy would have to double its growth rate to some 8 per cent. per annum. The current external debt of 8 billion dollars is also a big deterrent to investors. Perhaps an immediate halving of the debt is needed. What steps are Her Majesty's Government now taking to ensure that other bilateral and multilateral creditors commit themselves to the necessary poverty reduction targets?

My third point is to ask Her Majesty's Government what plans they have to ensure that savings made for HIPCs would in practice be transferred into poverty reduction programmes. Perhaps I may quote the words of the Lord Privy Seal in our debate on the G8 summit. I fully agree with the noble Lord, who said: it is important that whatever steps are taken, the benefits go to the poor in the country, and that the institutions in the relieved countries are capable of handling it".—[Official Report, 20/5/98; col. 1690.] That is a very important point.

Vital money saved must be seen both nationally and internationally to be spent on the reduction of poverty, not on commissions to government or on prestige projects as in the past. One way would be for binding guarantees on this expenditure to be given, with programmes being discussed and agreed in advance by government, creditors and donors. There must also be opportunities for external liaison as each programme continues. Would Her Majesty's Government consider such a system with a view to suggesting it to the IMF and the World Bank?

I believe that this subject is crucially important—in the UK for our own integrity and international respect, but much more so for the HIPCs. They are really struggling today and it is very important that we help them. Can we please ensure that a substantial start in actual debt reduction has been made by the end of the year 2000, a suitable year of jubilee for the forgiveness of totally irrecoverable debt?

7.58 p.m.

The Lord Bishop of Manchester

My Lords, I am sure that we are all grateful to the noble Viscount, Lord Brentford, for introducing this subject tonight. A long time ago, my mum told me never to speak to anyone until I was spoken to, so it is only after six months of listening and watching, sometimes patiently and sometimes rather impatiently, that I now close my ears, shut my eyes and give voice.

The subject we are considering tonight is not debt while others dine, but the unrepayable debts of the poorest countries of the world—unrepayable because of their huge scale in relation to the sources of the debtors, although not so large in relation to the sources of their creditors.

The magnitude of the problem is illustrated by the fact that between 1990 and 1993, the countries of sub-Saharan Africa transferred 13.4 billion dollars annually to their external creditors, considerably more than their combined spending on health and education. That annual figure of 13.4 billion dollars was prevented from being higher only because much of these debts had been rescheduled, to use the technical language of the World Bank, thereby increasing the long-term burden on people and nations who remain extremely unlikely to be able to pay in future more than they can pay at present. Today, Africa owes the richest countries more than three times the figure that she initially borrowed. The total indebtedness of the poorer countries of the world is of the order of 2,000 billion dollars, according to World Bank figures.

During this decade I have seen for myself some of the problems not as a tourist or as a businessman seeking trade but as a Church leader identifying with local Christian communities. I have camped in the bush in Uganda and stayed in bustees in Pakistan and in the townships of Namibia. I have experience of lack of clean water and sanitation and of direct access to healthcare and education. That is the daily lot of millions of people in the countries about which we are speaking tonight. I have seen the tremendous progress that is being made but also the devastating effects of continued indebtedness on the poor.

When the Secretary of State for International Development visited Manchester last March I and many others were encouraged by her strong endorsement of the Government's White Paper Eliminating World Poverty whose central objective is the sustainable development of the planet, and, most importantly, the single greatest challenge that the world faces: the elimination of poverty. I believe that that objective is still at the top of Her Majesty's Government's agenda. Like the noble Viscount, Lord Brentford, tonight I shall be interested to hear the targets. How many countries now face unrepayable debts and are likely to have those debts remitted by the year 2000, the year 2005 and the year 2010?

Can anything be done immediately? I believe that it can. Essentially, the governments of the world's 50 poorest nations need to be accepted as bankrupts and to have their debts written off. The poorer some parts of the world become the greater the instability of the world as a whole—multinational companies who control the terms of world trade are very familiar with that and are anxious about it—and the more difficult it becomes to cope globally with environmental, health and population issues that affect us all. In the long term it is impossible to have a stable Europe and an unstable Africa and to have an environmentally safe Europe and an environmentally unsafe Africa. I ask Her Majesty's Government whether the urgency of the situation is recognised.

As the noble Viscount indicated, there must be some conditionality to the relief of unrepayable debts. It is fair to test a country's probity, economic management, social policies and human rights record before relieving debt or increasing aid. But it would be improper to impose on poorer countries the kind of exactitude that we were unable to attain in the early phases of our development that stretches back nearly 2,000 years. I remind the House that it is only this century that women were given the vote in England. We should not be too pleased about our progress in democracy.

The problem has a social and moral dimension. I am not sure whether I am allowed to mention God in this House. God takes the world seriously. It was out of love for the world that God came among us. He commanded us to love our neighbours as we love ourselves—and we love ourselves quite a lot. We need to do the same for our neighbours and also to love our enemies.

Yesterday I was reminded that Shakespeare put into the mouth of John of Gaunt a description of England as this sceptered isle … This precious stone set in the silver sea". I doubt whether the waters around Britain can be described as silver. We are an island but are we "sceptered"? A scepter is a sign of authority and sovereignty. True, authority comes from the willingness to serve and to offer oneself in generous self-giving above and beyond the call of duty. Thomas Aquinas said that peace was indirectly the work of justice which removes the obstacles but directly it was the work of friendship. Poor countries saddled with unrepayable debts look for our friendship. They long for those nations that call themselves great—we among them—to help them find a way out of their bondage. A very heavy responsibility rests on us all.

8.4 p.m.

Lord Grenfell

My Lords, I am very grateful to the noble Viscount, Lord Brentford, for tabling this important Question tonight. I am also very grateful for the opportunity that it accords me to congratulate the right reverend Prelate the Bishop of Manchester on his exceptionally fine maiden speech. This is one of those occasions when one much regrets the severe time strictures placed on speakers in a dinner-hour debate in your Lordships' House. I would have liked to hear the right reverend Prelate speak at greater length on a subject in which he is clearly very knowledgeable and which he approaches with such wisdom, compassion and a great deal of common sense. We look forward to his future interventions in your Lordships' House with keen anticipation.

I should declare a past interest, in that I spent 30 years at the World Bank before retiring from the agency in 1995. Therefore I am somewhat familiar with the developments that led to the eventual establishment of the heavily indebted poor countries initiative (HIPC). However, I can claim no measure of authorship and can therefore speak with a certain amount of objectivity about it. While debt relief is a strong anti-poverty weapon, it must be seen as a component of a much wider and deeper development strategy. Debt relief never has and never can guarantee higher living standards by itself. What it can and must do is help remove the obstacles that prevent a country from fully focusing upon those strategies, policies and measures that are essential to achieving sustainable economic and social development and the eradication of poverty.

As noble Lords will be aware, the purpose of the HIPC initiative is to help these 40 or so countries achieve overall debt sustainability, thereby enabling them to exit from the debt rescheduling process. It engages the international community, including all creditors, in a concerted and co-ordinated exercise to reduce a country's debt to a sustainable level. The concept of "sustainable debt" is an important one, not least because the often promoted total debt forgiveness—the "big bang"—is so fraught with difficulties and dangers for debtors and creditors alike. The problem about a one-off total write-off is that it assumes the creditors will continue to be available if and when needed to maintain any necessary flows of capital to the original debtor countries. That may not be the case.

Furthermore, international institutions may find themselves down-rated in the capital markets as the result of a total write-off, which adds to the cost of their own borrowings, the higher cost being passed on to the new borrowers. With official aid levels sinking steadily and with serious uncertainties about the sustainability of the high levels of private capital flows, to lose access to official flows on reasonable terms would be unfortunate to say the least.

Having said that in favour of the HIPC framework for debt relief over the big bang approach, improvements in the HIPC initiative are clearly needed. I greatly welcome Jubilee 2000's campaign to keep up the pressure on this matter, even though I take issue with some of its proposals. I take issue with some but by no means all because the coalition supports a number of principles that underpin the HIPC initiative, in particular the objective of debt sustainability and the acceptance finally by multilateral financial institutions of relief for their own debtors.

The Jubilee 2000 coalition is right to call for a speeding up of the HIPC process. It is certainly none too encouraging that at present, after Uganda, only Bolivia, Guyana, Burkina Faso and Mozambique are set to obtain relief by the end of the century. The six-year performance period needs to be cut, even though some flexibility is already built into the process. I agree with Oxfam and others that we need to lower the threshold at which debt is deemed unsustainable. The rule of thumb that a nation's debt is unpayable when it totals more than two and a half times its export receipts was appropriate to the case of middle-income countries of Latin America but not, in my view, to the weaker economies of sub-Saharan Africa, where infrastructure and social expenditure needs to be a substantially higher proportion of GDP.

I very much welcome Her Majesty's Government's efforts at the G8 Birmingham Summit which led to the G8 signing up to an albeit rather less ambitious Mauritius mandate target than originally proposed by the Chancellor of the Exchequer last September. But it was a step in the right direction. I also applaud the British-inspired decision to facilitate debt relief for some seven post-conflict countries. However, the G8 could and should have gone further in modifying the HIPC initiative. Japan, a country for whom debt forgiveness is not a happy concept, is of course in a major crisis and Germany has borne and still bears the huge financial burden of reunification. But Japan's crisis will end and Germany's reservations over further debt forgiveness sit a little uncomfortably with memories of the extensive debt forgiveness afforded to her in 1953.

One further issue to which the noble Viscount, Lord Brentford, referred needs to be addressed. It is the deep and regrettable reluctance of some G8 countries to allow the IMF to sell gold to help finance the debt initiative. Perhaps my noble friend the Minister will tell us whether Her Majesty's Government still feel that this is a path worth pursuing.

To sum up, the HIPC initiative provides a reasonable framework for achieving sustainable debt levels but it needs reforming in order to match the urgency and scale of the debt crisis plaguing so many poor countries. It will, I believe, serve them better than a risky one-off write-off with all its uncertain consequences. An HIPC initiative revamped to do the job faster and less painfully will require consensus amongst creditor nations. That is what we should be striving for.

As my right honourable friend the Prime Minister said when he reported back to Parliament on the debt discussions at the G8 Summit: This is a vast and complex issue which cannot be solved overnight. And we have to mix realism with our idealism".

8.11 p.m.

Lord Hardinge of Penshurst

My Lords, I thank the noble Viscount, Lord Brentford, for introducing this important subject and I congratulate the right reverend Prelate the Bishop of Manchester on his eloquent and notable contribution.

I am the businessman to whom he referred, who goes seeking trade. I would like to look a little beyond the immediate horizon. Let us assume that things go reasonably well with the current debt relief plans. These are basically an essential damage limitation exercise, but what do we do next?

The history of lending to poorer nations is not particularly encouraging. At present sub-Saharan Africa has accumulated nearly a quarter of a trillion dollars' debt. According to my back-of-the-envelope calculation, this has increased by about 30 times, after taking account of inflation, in the last 30 years. Unforeseen circumstances such as wars and natural disasters have clearly had an impact. However, leaving these aside, it is fair to say that in many cases the assumptions made about the borrowers' ability to service this debt were optimistic or even heroic.

It is clear that over the coming decades resource flows will be necessary on a substantially greater scale than in the past if there is to be any prospect of achieving the targets set out by the Government and others. This will inevitably be a mixture of public and private funding, aid and loans. Whatever their nature, future transfers will have to perform considerably better than past ones.

The HIPC initiative sets out a framework designed to achieve this but some concerns remain. In particular the levels of debt deemed to be sustainable have been set too high and the debt relief provisions have been drawn too narrowly. I appreciate that both this Government and the last have been on the side of the angels in this matter—they have also been on the side of the Bishops—and I make these comments to encourage more of the same, not to criticise. This is an area where realism and generosity pull in the same direction.

The main issue that I want to address is that of wealth creation. Anyone who visits poor countries—even not very poor countries—becomes aware of the desperate ingenuity and entrepreneurial energy displayed there, usually crippled by a terrifying lack of resources and often by bureaucratic obstacles as well. These energies are sometimes necessarily, on a microscopic scale. My daughter found that someone had started to clean out her ears when she was not looking. This is funny in a way but it is also sad. The entrepreneur would probably have found a more productive outlet for his ingenuity if his capital resources had stretched beyond a cotton bud.

However, even if they had, he might still have found an army of people apparently dedicated to preventing wealth generation. Anyone doing business with developing countries will be familiar with the kind of bureaucratic hurdles that often exist there and which, whatever their immediate justification, divert and distort productive effort. There have been improvements in some of the poorest countries—Mozambique, for example—but there is still a long way to go. This is a key policy area in ensuring debt sustainability.

So, wherever the quarter of a trillion dollars went, it does not seem to have had much effect on the productive sector of the local economies. It would not be quite true to say it had vanished. Crumbling monuments to it can be seen here and there, dotted around amid the little markets, farms and workshops on which the future of the peoples concerned ultimately depends.

This lack of impact is not inevitable although correcting it will require detailed persistence over many years. The process arising from the present relief measures will need to be continued and refined. New frameworks for transfers will need to be developed. I think we need to do much more in the future than in the past to monitor the effectiveness of programmes and to establish best practice, by quantitative studies where possible.

G.K. Chesterton referred to Lending the poor that funny cash That makes them poorer still". Creditor nations have done quite a lot of that over the years. The HIPC initiative lays most emphasis on the debtors achieving conditions for sustainable development, but the creditors have quite a lot of work to do as well.

8.17 p.m.

The Earl of Sandwich

My Lords, the profile of international debt has risen considerably in the past year and it is to the credit of the British presidency that it was so high on the agenda at Birmingham. The positive role of the Jubilee 2000 campaign, thanks to a broad spectrum of churches, trade unions and other interests, is well known. Equally remarkable has been its effect on government and its ability to keep Ministers up to the mark.

Rarely has a lobby on overseas development received such all-party support, truly reflecting the strength of public feeling. There is a paradox. Many support aid and overseas development in principle but it seems that many more people are appalled by the spectre of debt on top of poverty, of a country already on its knees required to repay its loans. As we try to visualise the condition of people struggling to meet daily needs, it is not just an academic discussion; we are experiencing a human story of Dickensian character but on an international scale.

For many in the aid agencies the paradox goes even further. Debt relief is being paraded as a solution, a new form of overseas development substitute, another generous gesture from the high table. We would like to do more, the official argument runs, but sustainability means greater conditionality, democracy and accountability. These days we have to be more hard-headed. We must not throw good money after bad. We cannot help a man when he is down, only when he is trying to stand up.

These arguments may sound good around the boardroom table and they certainly apply to regular concessional lending. They are not appropriate to the most indebted, post-conflict countries, many of which have passed through tragedies not of their own making, presided over by tyrants whom we in Europe often supported with arms and inappropriate prestige projects. Others accumulated debts through borrowing after the unforeseen collapse of commodity prices in the 1970s. Have we sunk so far as aid donors that we now even describe relief of unpayable debt as a new form of aid?

These economic crises have also been major human catastrophes and there is, unfortunately, no Marshall Plan to deal with them. I am one of those who would like to see a much greater effort by DAC countries well beyond debt relief. Nowadays governments like to see beneficiaries as business partners. They are our business partners—they supply our needs and we supply theirs. Is it not time that we treated them as equals and traded more fairly with them, helping them to a more stable government, instead of blaming them for disasters which are often beyond their control? The Brandt Report was all about interdependence, but I fear that we have not come up to Herr Willy Brandt's expectations.

Mozambique is a particularly frail democracy which has tremendous economic potential. Its debt relief is minimal, amounting to less than 50p per head per annum. Through the HIPC initiative we are merely papering over the cracks, to lay a few small paving stones, not the foundations needed over many years, not providing development aid on the scale which is really required. Forty-one countries are classified as heavily indebted. Most have a 1993 present value of debt to exports higher than 220 per cent.

The thresholds are much too high, as has been said. Because of the stiff criteria only half a dozen of those countries are due to receive relief, and of those only Uganda has reached completion point. The G8 said last month that all eligible countries would enter the process by 2000, but it is a painfully slow process. Uganda will owe 190 million dollars in debt service this year alone, of which HIPC will pay only 20 million dollars—less than one dollar per Ugandan.

I hope to visit Uganda in two months' time to see the benefits of debt relief for myself. They will not help the million primary school children still not in school. Some countries will have to wait several more years. Others have to cling to the hope that they will qualify for relief in the future.

It is true that this Government are trying to move things along. Under the Commonwealth umbrella, donors are to accelerate the process, especially for post-conflict countries whose completion point is 2003, which may now qualify for faster relief for exceptional needs.

I have studied the factsheets and I understand that some countries qualify for additional assistance for social needs such as health and education. However, this is linked to the ESAF process, which is far from having been proved to be effective as a visible benefit for the poor.

Finally, there is no point in our complaining about the stinginess of other DAC members. As the noble Lord, Lord Grenfell, put it during a recent Question, we are on rather shaky ground when we seek to persuade other countries to increase their debt relief. The noble Lord, Lord McIntosh, who is to reply, seemed to concur when he said: It is necessary for us to pay our share in the aid programme ".—[Official Report, 18/6/98; col. 1681.] If we pay our share of the aid programme, that is encouraging news, because we are even using our aid funds now to support debt relief, which normally comes out of Treasury funds. The famous expenditure review is nearly upon us. Can the Minister, who is sympathetic to these problems, whisper to us the date when we can take our place at the DAC top table and return to a real aid programme?

8.22 p.m.

Lord Redesdale

My Lords, the noble Earl concluded on a tricky point for the Government to answer in a debate such as this. I thank the noble Viscount, Lord Brentford, for initiating the debate. A small and happy band of us raise this subject regularly. I welcome the right reverend Prelate to these debates. I hope that he will be a regular participant. Although the noble Lord, Lord McIntosh, has his Treasury cap on tonight, this is not an issue that should be answered only in an economic framework; it has moral and religious connotations.

I was surprised by the number of noble Lords who wanted to speak in the debate. One or two removed their names so as to give us six minutes in which to speak. The six minutes that I have this evening bear a close correlation to the amount of time the members of the G8 spent during their weekend in Birmingham studying the subject of international debt, there being so many other issues on the agenda.

Many of us had high hopes for that weekend. I went to the Jubilee 2000 Debt Coalition's chain around Birmingham, as did 50,000 plus other people. It bolstered my confidence in the fact that this is a political issue when so many people were willing to take part, especially from the Churches. Some good speeches were made at St. Martins in the Bullring. I was not asked to speak. My contribution was to help my noble friend Lady Williams to her place in the chain. I was asked whether I was a member of Special Branch. It was incredible to see the many people forming an enormous chain around Birmingham to illustrate that this is an issue which must be raised on the political agenda.

I was tempted this evening to go through many of the figures that are often quoted, but I thought that because the time was so short I should avoid doing so. I know that the Government have taken a leading role by putting forward the Mauritius mandate. The previous government and this Government have tried hard. I heard many arguments at Birmingham about why debt forgiveness is impossible. It occurred to me to ask: is it possible to reduce the debt by 2000? The Asian financial crisis has shown that the international community can mobilise billions of dollars at short notice if the event is seen as a crisis. If it is seen as a financial crisis that could affect our own economic well being, the money can be found. It could suddenly pour into Africa. However, at the moment that is not seen as a crisis, and I find that depressing.

The Minister will mention HIPC. The countries that are eligible for HIPC will not benefit in the immediate future. It will be a number of years down the line. Only six countries have entered HIPC: Uganda, Bolivia, Guyana, Burkina Faso, Cote d'Ivoire and Mozambique. Only the first three of those will reach their completion points and receive debt relief this year. Mozambique and Côte d'Ivoire and Burkina Faso will not benefit until 1999 and 2000 respectively. Mali is still under consideration, with a possibility of a 1999 or 2000 completion point. To stress the point made by the noble Lord, Lord Grenfell, we look further into the distance. In 2001, Zambia, Ethiopia, Guinea Bissau and Mauritania can look at joining the club.

In 2002, Madagascar, Niger, Nicaragua, Tanzania and Sao Tome could do so. In 2003, or beyond, Congo, Burundi, and the most depressing of all, Rwanda, could join. Is it not possible that there might be genocide before that because of the unsustainable debt and the economic crisis taking place in Rwanda? How can we talk about conditionality? If we were to introduce some of the structural adjustment reformed conditionality that is placed on many African countries, most western governments would immediately fall.

I have been in African countries where people are suffering. I have seen the effects of malnutrition. That is something one sees all too often and to which one almost becomes immune. The highly indebted poor countries initiative needs to be reformed. I shall leave the Minister with some suggestions. When the Government look again at the HIPC perhaps they can provide earlier debt relief, deeper debt reduction, push for new measures for determining debt sustainability, and consider the possibility of delinking eligibility for benefit under the HIPC from compliance with IMF reform packet programmes. Perhaps they can look at establishing a new poverty reduction window in the HIPC framework. That could state that the reduction of poverty would lead to debt relief of greater restraint. That has to be in line with the Government's White Paper.

I conclude with one question. Has further progress been made in respect of Rwanda? That country is teetering on the brink and debt relief might pull it back from the edge.

8.30 p.m.

Baroness Rawlings

My Lords, I, too, should like to thank the noble Viscount, Lord Brentford, for initiating this most interesting and informative debate on a topic of great moral significance. It is a fine example of your Lordships' House at its best and—dare I mention it?—all the Peers who have spoken so far, save for the right reverend Prelate, are hereditary Peers.

Basil Hume, the Archbishop of Westminster, made a moral point clearly in an article in The Times: Unpayable debt has become directly linked with terrible suffering". That was stressed clearly in the maiden speech of the right reverend Prelate the Bishop of Manchester. From these Benches, we share the moral concern of the Jubilee 2000 campaign. By calling for a one-off cancellation of the sustainable debt owed by the world's poorest countries, it followed biblical tradition. Is not cancelling debt an appropriate way to celebrate the second millennium since the birth of Christ? Certainly it is a more fitting memorial than the advertisement operation to which the Millennium Experience is being reduced.

We share the aspirations that fire the campaigners. We do have an outstanding record on debt relief. We wrote off £1.2 billion overseas development assistance loans by converting them to grants. The previous government gave the lead in bringing about international agreement on debt relief. On the initiative first of my noble friend Lord Lawson and later of my right honourable friend John Major, agreement was reached within the Paris Club on terms allowing the reduction of debt by two-thirds. Following again a British initiative, the IMF and the World Bank launched the HIPC initiative. As Camdessus said, this is an enormously precious baby with a horrible name.

The current administration is building on the achievements of the Conservative government. We support the Government in pursuing these policies. However, we are disappointed by the results achieved by the G8 meeting in Birmingham. We praised the Government for achieving agreement on the Mauritius target—that all eligible HIPCs are at least in the debt relief process by the year 2000—and the granting of interim relief wherever necessary. However, why did the summit fail to enlist the support of Japan and Germany to go further?

We on these Benches join the noble Lord, Lord Grenfell, in agreeing with the Prime Minister that: the issue is vast and complex, and it cannot be solved overnight—we have to mix our realism with our idealism. For debt relief to be effective, recipient countries must be committed to policies that ensure that the benefits reach the poor". The Government accept that the promotion of good government is a vital necessity for development. Do the Government also accept that strict good government conditions are to be closely linked to writing off debt? I am inclined to agree with the quotation from G.K. Chesterton, given by the noble Lord, Lord Hardinge.

Good government entails a number of fundamental elements, including an efficient public administration. The importance of reforming public administration cannot be overstressed. I am afraid that I disagree with the noble Earl, Lord Sandwich, even though I have great respect for his vast knowledge on this subject. Uganda is a case in point. It was ravaged by more than 10 years of ruthless despotism, war and AIDS. Under the enlightened leadership of Museveni since 1986, the country has been transformed. It undertook an extensive programme of liberalisation, privatisation and property restitution. It put into place a quasi-democratic constitution. Its parliament is vigorous; its courts strive to be independent; and its press is remarkably free. As a result, the country is an island of relative stability at the heart of the troubled region. Its economy is catching up at a remarkable rate and foreign investment is growing.

Appropriately, Uganda is the first HIPC initiative beneficiary and will receive relief representing a reduction in its debt by about 20 per cent. However, debt relief is only an element of a wider strategy. The Ugandan Government are pursuing a programme of further social and economic reform. Even here, the model child of the HIPC, reform efforts and development may be undermined by an inefficient public administration. Corruption and political interference also burden the population, diverting funds from the fight against poverty; discouraging both domestic and foreign investment; and therefore hindering the creation of much needed jobs.

This problem is much more acute in less virtuous countries. Is the government action, either bilateral or through international agencies, sufficient to strengthen public administration in HIPCs? I look forward to the Minister's answers.

8.36 p.m.

Lord McIntosh of Haringey

My Lords, the whole House will be grateful to the noble Viscount, Lord Brentford, for raising issues of such profound importance, not only to us but to many millions of people around the world. I congratulate him not only on his introduction but also on the way in which he has attracted many speeches from those who have a keen understanding of the issues and personal experience in the third world. Notable among them is the right reverend Prelate the Bishop of Manchester who clearly understands the subject structurally and deeply and who spoke of his experience in Africa and Pakistan in a very effective speech.

During the recent inquiry of the International Development Select Committee into debt relief, the Chancellor of the Exchequer described the issue as a moral as well as an economic one. That view was echoed by the right reverend Prelate and by the noble Lord, Lord Redesdale. The debate has confirmed the view of my right honourable friend.

In responding to the debate, I need to address two fundamental questions about debt relief. First, what is necessary for debt relief to be effective in achieving the two wider goals of securing sustainable development and reducing poverty in the world's poorest countries? Secondly, why is unilateral debt relief by the United Kingdom not useful, as I believe it is not? In addressing these questions, I believe that I should demonstrate the importance and usefulness of the HIPC initiative as a way of tackling third world debt. I acknowledge the criticisms that have been made of the initiative as regards the qualifying periods and the debt exports measure which is used by the initiative.

Debt relief is important because it can create a climate for future investment and growth, as the noble Lord, Lord Hardinge, said. It can release resources for essential spending in areas such as health and education in poor countries. The noble Earl, Lord Sandwich, made that point. However, debt relief is not an end in itself and it is important to recognise that. The final goals must be the sustainable development of the world's poorest countries and the eventual eradication of poverty. Removing a country's unsustainable debt burden may be necessary to do this, but it is far from being a sufficient remedy.

In order to be as effective as possible, debt relief must be accompanied, first, by economic and social policies in the debtor countries that are likely to lead to sustainable development; and, secondly, by mechanisms to ensure that all new lending goes to productive programmes and is not wasted on excessive military expenditure or prestige products. I make those points in relation to the second and third questions asked by the noble Viscount, Lord Brentford. I shall deal later with his first series of questions. He queried whether the six-year threshold for HIPC is too difficult for many countries to achieve. I acknowledge that in the early years of the HIPC initiative, it means that very little appears on the ground. It has been rightly said that only Uganda has qualified so far.

But the need for sustainable, economic and social policies has been referred to by a number of noble Lords this evening, even when they were arguing for a more relaxed view of HIPC conditions. The Government really feel that although, of course, we should always argue for extra relief wherever possible, sustainable improvement is a necessary precondition.

Similarly, the noble Viscount rightly said that the money must go to those most in need. We must have assurances that the money is not being wasted on military expenditure and prestige projects. That is why the Mauritius Mandate stated that the UK would provide export credits to HIPC countries only for productive expenditure while also seeking international commitment to such a policy.

One positive outcome from the summit meetings in May was agreement by G8 on that point. It is crucial that we do not reward bad performers when it would only encourage further waste and corruption leading to money from debt relief never reaching the poor. As the noble Lord, Lord Hardinge, said, moral responsibility extends to debtors as well as to creditors.

One-off reduction of the debts of poor countries would not provide a long-term solution to their problems. What is required is the removal of their unsustainable debt burden together with programmes of economic and structural reform and the continued commitment of the creditor countries to provide new money for productive purposes.

The second question that I set out to address is why it would not be useful for the United Kingdom to give unilateral debt relief to the world's poorest countries. The first part of that answer is that unilateral debt relief by the British Government alone will not allow those countries to reach the levels of sustainable debt which will in turn make possible sustainable development. The noble Viscount, Lord Brentford, made the valid point that our own status as a creditor is much smaller than that of many other countries and is towards different countries from those which are most in need in many cases.

The second part of the answer is that because the level of debt relief is agreed multilaterally, if the UK were to go it alone, the only benefit would be to other creditors. But that does not mean that the British Government cannot act usefully to try to solve the problem of international debt. On the contrary, there is much that the British Government can do and have done to provide a lead in establishing debt relief mechanisms and then to ensure that they work as well as possible.

In September, the Chancellor made a speech at the Commonwealth Finance Ministers' meeting which became known as the Mauritius Mandate. The speech set targets for the implementation of the HIPC initiative by the millennium—targets that the Chancellor has challenged the international community to meet.

The mandate calls for all countries that are likely to be eligible for debt relief under the HIPC initiative to have embarked on the process of securing that relief by the year 2000, and for three-quarters of those countries to have received firm decisions on the level and timing of relief that they will receive. I hope that the noble Viscount will forgive me for not reading out a list of countries in response to his specific question. That is the answer which Her Majesty's Government make. Clearly, those targets need full commitment from everybody concerned.

The Government have striven to obtain international agreement to the Mauritius Mandate targets since they were announced last September and under our presidency of the G8 there has been considerable success. During the recent summit meetings, culminating in the Birmingham summit, the G8 agreed to many of the Mauritius Mandate proposals, particularly the speedy and determined implementation of debt relief to more countries under the HIPC initiative. The summit urged all countries that are eligible for debt relief to embark on the process of securing relief by the year 2000.

However, we went further. At the G8 Foreign and Finance Ministers' meeting before the Birmingham summit, the Chancellor urged G8 colleagues to adapt the HIPC initiative to allow a special group of countries—that is post-conflict countries—to gain the resources necessary to rebuild their economic and social infrastructure as quickly as possible to minimise the chances of a return to conflict. The G8 agreed in Birmingham that work should be done to adjust current debt relief mechanisms to the needs of post-conflict countries. The Prime Minister has now written to the IMF and the World Bank to urge them to take that work forward. I do not have time to set out the mechanisms which we propose but it is clear that if we adapt our debt relief mechanisms in those ways we can provide quicker and greater resources from the international community for post-conflict countries.

Alongside the Mauritius Mandate, the Government have taken full part in the relief of export credit debts in the Paris Club, helping to provide last month a debt reduction of 67 per cent. for Senegal. I am afraid that I misunderstood the nature of the questions of which the noble Viscount warned me. I thought he was referring to the way in which we counted them in our accounts. Therefore, his very interesting questions about capitalisation, project cost sharing and that to which my noble friend Lord Grenfell referred—the possibility of the IMF selling gold—must be dealt with, not in this speech, bearing in mind the time available to me, but in a letter which I promise to write to him.

The Government have shown their determination to ensure that the HIPC initiative does not falter. They took an international lead when problems arose over financing debt relief for Mozambique and, as the noble Baroness, Lady Rawlings, said, we have cancelled £1.2 billion in old aid loans over the past 20 years.

But we have also played our full part in the debt relief work of the international community. The progress made at the Birmingham summit was only the latest evidence of the concern of creditors to provide debt relief. Indeed, over the past two decades, the Paris Club of bilateral creditors has rescheduled or reduced bilateral debts of more than £300 billion.

The HIPC initiative itself has also had a significant impact. To date 3 billion dollars has been pledged by the international community to six countries under the HIPC initiative, and several others are well down the road.

I wanted to conclude by repeating the answers to the two important questions about sustainable levels of debt and the undesirability of unilateral action by this country but I do not have time to do that. Suffice it to say that good progress has been made. The international community has worked together. Three countries have exited from the debt relief process under the HIPC initiative so far: Benin and Senegal have received debt stock reductions on Naples terms, having been shown not to require HIPC debt relief; and Uganda, as has been said, completed the full process in April, only 18 months after the launch of the new initiative.

By the new millennium several other countries will also have completed the process and it is our hope that the Mauritius Mandate targets will also have been met and that all countries eligible for HIPC relief will be firmly on the road to securing their debt relief.

I pay tribute also to the work of Jubilee 2000 and all those campaigners who have kept this issue in the public mind. I hope that what I have been able to say has indicated that the Government have a realistic but at the same time enthusiastic approach to tackling those problems.