Debt Relief

HC Deb 21 May 2002 vol 386 cc1-21WH

Motion made, and Question proposed, That the sitting be now adjourned.—[Mr. Sutcliffe.]

9.30 am

James Purnell (Stalybridge and Hyde)

I am delighted to have the opportunity to discuss the important subject of debt relief. I shall set the scene. Like many hon. Members, my interest in the subject stems from personal experience, particularly my memories of a recent trip to India. When visiting Gujarat—the site of the earthquake earlier this year—we were shown the reconstruction work, and two memories stand out.

My first memory illustrates the difficulties and dangers of aid programmes. I recall having a difficult conversation with someone from a non-governmental organisation who was complaining about the problems of money reaching the ground. I was told that it was disappearing in bureaucracy, and sometimes into people's pockets. He could see the potential uses of that money, but it was not reaching the ground.

My second memory is of one the real highs of aid policy. We visited the Self-Employed Women's Association, a trade union of more than 400,000 women in Gujarat. They formed themselves into a group to cut out the middle-man—it was always a man—by providing export help, credit services and distribution for women who worked for themselves by producing clothes and growing agricultural products. By acting as a company, those women have increased their earnings by a factor of 10.

That is the hard-headed reality of aid policy. If it is sustainable, if people are given the power to control their lives and if they can create jobs for themselves, aid can have a transforming effect. That is why today's debate is so important. Aid policy needs to be scrutinised and discussed, and I hope that our debate will play a part in that. There can be no more important subject.

We live in a world in which, each day, 30,000 children face death from diseases that could be prevented. We live in a world in which 100 million children have no schooling; in which 150 million grow up malnourished; and in which 600 million people live in conditions of extreme poverty. All of us in developed countries have a moral responsibility to act. I trust that the Financial Secretary—we are delighted to see him here—will go back to the Treasury and argue the case for increased funding for the Department for International Development in the next spending review.

The goal of achieving 0.7 per cent. of gross domestic product for aid is most important. Not only will it revive people's faith in politics, but it will show that the Government can make a real difference by spending money wisely and increasing the amount that is being spent. In that respect, I pay tribute to those who have put pressure on the Government—and on Governments in all developed countries—to raise their commitment to the issue. We have all seen the effect of the work of Jubilee 2000 and of the drop the debt campaign by hundreds of churches across the country.

Mr. Tom Watson (West Bromwich, East)

My hon. Friend rightly said that several aid agencies have played an important role in promoting Government policy on debt. I draw his attention to early-day motion 736, which has cross-party support and has been signed by more than 340 hon. Members. I should also draw to his attention to the Trade Justice Movement event on Wednesday 19 June, which promises to be the biggest mass lobby of Parliament. Does he agree that it is important that parliamentarians show their commitment to ending the problems of world poverty by giving that campaign their full support?

James Purnell

I wholeheartedly agree. I cannot say off the top of my head who introduced the early-day motion, although I believe that it was my hon. Friend the Member for South Swindon (Ms Drown). I was about to congratulate her and the all-party group on Jubilee 2000 on the way in which they have raised the issue in Parliament. Parliament has an important role to play, and hon. Members, among many others, have put pressure on the Government, just as constituents have put pressure on us. I thank the all-party group and its officers for their support in preparing for today's debate, and I encourage everyone to go to the lobby that my hon. Friend mentioned.

It is worth paying tribute to those who have worked from the ground up to put pressure on the Government to act on this issue, and Labour Members can be proud of the Government's record. Only last week in New York, my right hon. Friend the Chancellor yet again urged industrialised nations to take action. My right hon. Friend the Secretary of State for International Development has also done much work on this issue, and my right hon. Friend the Prime Minister has made a personal commitment to Africa. We have completed the first stage, which has involved moving the issue up the agenda and demonstrating political commitment to it. The question now is how we find the money to deliver on that commitment and ensure that it is wisely spent. I shall concentrate on those issues, because how the money is spent is just as important as how much money is available.

The first issue is the heavily indebted poor country process. It is important that we place conditions on the way in which money is disbursed, because the present situation was partly caused by the cycle of unsustainable borrowing, by bad governance and, sometimes, by corruption in the countries that borrowed the money. Equally, developing countries and multilateral institutions lent to projects that were not properly researched or pro-poor.

Although I understand why the international community is creating conditions to ensure that the money will be effectively spent, such conditions will affect the pace of progress. More than 40 countries may qualify for the HIPC process, but only five have completed their journey through it. The great worry is that those who are suffering are the poorest people in the world, who could be benefiting from the money that is available.

I am glad, therefore, that moves are being made to review the HIPC process. I urge the Government to consider the issue of countries that reach completion point, but which still end up with unsustainable levels of debt. The change in commodity prices has badly affected Uganda, for example, which is coming out of the process with levels of debt that may be unsustainable in the future. There must be a review of the issue.

Ms Julia Drown (South Swindon)

My hon. Friend mentions the extra help that is needed at completion point. Does he agree that help should be levelled up at decision point if it is already clear at that stage that commodity prices have changed? We could then provide very poor countries with the help that was intended when the process started, rather than always having to wait until completion point.

James Purnell

I entirely agree. It is important to consider commodity prices and the growth rates on which the World Bank bases its work. Overall, those rates seem unduly optimistic, and they will affect calculations of the level of sustainable debt if they are cut in half or three quarters.

The second issue relates to opening markets to developing countries, which is vital. When we met the Self-Employed Women's Association, we asked what its top priority was; it was not aid, but access to EU markets and for that access to be on fair terms. Every day, £1 billion is spent on subsidising farming, hugely more than is spent on aid; that is an astounding statistic. We in the west should consider that. We have a moral duty to enable people to compete in those markets on fair terms. I know that the reform of the common agricultural policy is a difficult issue in this country. However, it is incumbent on all EU countries to take a long, hard look at the way in which the money is spent. Many of the people who suffer as a result live in the poorest countries in the world.

I want to concentrate particularly on the third issue, that of countries that are excluded from the HIPC process. Bangladesh is one of the poorest countries in the world, but it is not included in the definition of highly indebted poor countries. I shall return later to the issue of definition. Even if we accept that categorisation, Bangladesh—half of whose 130 million people live below the poverty line—spends as much on servicing its debt as it does on health. In absolute numbers, Bangladesh has more people in poverty than any country apart from India and China, yet it does not qualify for the HIPC initiative. The incidence of malnutrition there is the highest in the world. Every day, in addition to those whose development will be stunted by malnutrition, 700 children die of diseases caused by malnutrition. Add to that the depressing regularity with which natural disasters occur there, and there is an unanswerable case that Bangladesh should be at the top of our priority list.

I have two worries about the exclusion of Bangladesh from the HIPC process. First, a direct consequence is that it does not benefit from some of the debt cancellation and rescheduling. More generally, because it is not part of the process, it is not automatically included in people's assumptions about which countries deserve the most help; it is falling down the pecking order. The problem is illustrated by the fact that south Asia receives about $10 per person in aid, compared with nearly $1,000 per person in north Africa and the middle east. My worry is that the way in which Bangladesh is defined is contributing to that process. We must examine the way in which the flow of aid and debt cancellation are organised, in order to ensure that countries such as Bangladesh, where the need is so acute, benefit.

Recently, I wrote to the Secretary of State for International Development about the matter. She was able to reassure me that Bangladesh was one of the greatest priorities for her Department and that the budget had increased. That is welcome. I was delighted to hear that we had written off all our bilateral aid debts with Bangladesh; they totalled about £1 billion when we came to power in 1997. Despite that, Bangladesh finds itself in a catch-22 position. It cannot qualify for HIPC because it is not sufficiently indebted, yet the international community is wary of further investment in the country. The Secretary of State went on to say: There are substantial additional donor resources available to Bangladesh. We and other donors have made it clear to the Government of Bangladesh that we are keen to increase our expenditures in Bangladesh…However we require the Government to put in place an appropriate policy environment in order to make such expenditures worthwhile. That is the catch-22. Bangladesh cannot access that aid until it improves its policy framework; yet without the extra aid, it will find it difficult to address the very problems that the international community has identified.

I should like to make two appeals today. The first is to the Government of Bangladesh, to convince the international community that the country is committed to change. In particular, Bangladesh has one of the lowest rates of public revenue raising anywhere in the world; it raises only about 9 per cent. of GDP to spend on public services. I urge the Government of Bangladesh to consider ways to increase that and to ensure that as much as possible of that money can be spent on public services and help for the very poor. At present, a high proportion is spent on supporting domestic industries and it does not reach the poorest in society.

My second appeal is to the British Government and the international community to help to find a way out of the catch-22. The people who are paying for it are the poorest people in Bangladesh; the three quarters of the population who live on less than $2 a day. Unless we end the stand-off, the prospects for Bangladesh are bleak. The International Monetary Fund used to assume that Bangladesh was growing at between 6 and 8 per cent. It then revised that down to 5 per cent. Last week, it changed its forecast for 2001–02 to 3.75 per cent. For a developing country, that is a worryingly low rate of growth. As my right hon. Friend the Chancellor of the Exchequer said last week in New York, on such rates of growth Bangladesh will start to become poorer. It will not be a matter of failing to reach the millennium goals, but of falling further behind them.

I support the Government's efforts to ensure that aid is well spent. However, we should not let the best be the enemy of the good. I urge the Minister to consider the ways in which this catch-22 situation can be dealt with. Could we consider spending money through NGOs, as these are particularly well developed in Bangladesh, which has a great history of micro-credit and self-help? Could we ensure that, if Bangladesh demonstrates a commitment to change, the money will not be withheld indefinitely until that process has been shown to succeed? There should be a route with staging posts along the way at which Bangladesh can receive the extra aid.

Finally, I shall address the definition of a heavily indebted country. Priority for international help should be based on a combination of debt payments and poverty indicators. Debt sustainability is only part of the question. According to different definitions of debt, Bangladesh has a debt stock-to-export capacity of about 180 per cent., which is much greater than the level that the World Bank considers sustainable. Even setting that to one side, the indicators used to qualify countries for the greatest aid should include their progress towards the millennium development goals and levels of absolute poverty because, as I have argued, Bangladesh is in danger not just of missing the millennium goals, but of sliding away from them.

I urge the Government of Bangladesh and the international community to break the deadlock in which the country finds itself. The tragedy is that the money is there, but cannot be released because of that deadlock. Those who are suffering are the poorest people in Bangladesh.

9.46 am

Mrs. Caroline Spelman (Meriden)

I congratulate the hon. Member for Stalybridge and Hyde (James Purnell) on securing this debate. The debate is important because Members in all parts of the House strongly support the jubilee debt campaign. We are aware that after the big push to relieve debt in 2000, it has been hard to keep the issue high up on the agenda. One of the ways in which we can demonstrate to the many thousands of people in our country who support that campaign that we have not forgotten about the issue and that we do not believe that it has gone away is by having a debate such as this, which enables us to keep the issue in the public domain.

There is no room for complacency in this area. Jubilee debt campaigners and other organisations have pushed hard for the country's attention to be focused on debt relief. Those campaigners are aware that media interest moves away very fast. Once it has gone, it becomes difficult to keep the public imagination captured by the issue. Debt relief is not something that one does once arid for all. Unfortunately, it is more of a process of debt relieving, over time. In 2000, we took a snapshot of the state of indebtedness of various countries, but several months later their situation may well have deteriorated. That is why we as politicians have to keep on our toes with the current situation.

Of the £23 billion in debt owed to this country by developing countries, heavily indebted poor countries owe only £1.3 billion, so the HIPC initiative is just the tip of the iceberg. The hon. Gentleman referred to Bangladesh; there are many other countries that do not qualify and are struggling to manage their debt relief payments. That is inextricably linked to the question of overseas aid—I am sure that this argument is attractive to the Treasury—because, in a crazy situation, we pay overseas aid to Governments and they use it to pay off their debts to us. The Treasury's response to the debate is correct, but the debate must deal with the question of balance with overseas aid.

We should place on the record the success of the jubilee debt campaign in January. A poster was launched for the drop the debt campaign that highlighted the fact that only 15 per cent. of unpayable debts have been cancelled. That shows that we cannot afford to relax and that the situation has not been sorted once and for all. In fact, we are only beginning to get the moneys through to where they are intended to go. However, we should not forget the strength of support given to that campaign; no fewer than 24.3 million people signed up to the debt relief campaign. That is a remarkable achievement; indeed, it is one of the most successful political campaigns that I have seen in my short career in the House.

The hon. Gentleman is right to refer to the question of debt sustainability. I want to impress that particular point on the Minister; the heavily indebted poor countries initiative is, without question, in trouble. In fact, the jubilee debt campaigners went so far as to produce a document, the front of which read "Heavily indebted poor countries initiative is dead." That goes further than I have gone, but I certainly agree with the analysis that the initiative is in trouble. Significantly, the Canadian Foreign Minister has also said that it is not working. That is significant, because his country will host the G8 summit at which the situation will be debated.

Many criticisms have been made of the HIPC initiative, mainly related to the use of the decision point in the calculation and the analysis of what amounts to a sustainable level of debt. The hon. Gentleman referred to the World Bank and International Monetary Fund calculation of 150 per cent. as a sustainable level of debt, and said that many countries that do not qualify for HIPC fall well outside that. Since the present level of sustainability was calculated, there have been serious events and exogenous shocks. The events of 11 September had a major impact on the global economy, which is especially acute for countries with heavy burdens of debt that are dependent on cash crops for their revenue. There has been a collapse in commodity prices across the board for crops such as coffee and cocoa, and many countries utterly depend on such crops. On that basis, Mozambique and Tanzania are the only two countries in sub-Saharan Africa whose debts are sustainable, because both those countries export gold, which was one of the few commodities to increase in price after 11 September. That gives a measure of the seriousness of the situation.

I support the hon. Gentleman's point about the need to review the debt sustainability index to take account of the collapse in commodity prices. That is the position of the International Development Committee, which is calling for a recalculation that takes account of the unforeseen shock to the capacity of those countries to repay their debt on the basis previously calculated. The figure of $1 billion has been placed on that, although that may be approximate. To put that in perspective, we should note that the American Congress has recently passed a new farm Bill giving financial support for its own farmers that will cost the American taxpayer an initial $100 billion. It is important to put such figures in perspective.

On 18 April, the American Congress passed a Bill that would make a positive contribution to recalibrating the debt sustainability analysis, which called for account to be taken of the impact of the HIV/AIDS epidemic. Some countries of sub-Saharan Africa may be decimated by the infection. Some 35 per cent. of the population of Zimbabwe, for example, is infected with HIV/AIDS. Botswana is in the same position, and 21 per cent. of Malawi's population has the disease. That catastrophe not only awaits but already affects the continent of Africa, and it is bound to have an impact on countries' capacity to repay their debts.

I urge the Minister to respond to the American proposal that a new definition for countries afflicted with an HIV/AIDS epidemic should be that if more than 5 per cent. of a heavily indebted poor country's Government revenue is spent servicing the debt, that debt should be regarded as unsustainable. I should be interested to hear how the Minister responds to those proposals. The first response would take account of the collapse in commodity prices, and the other would take account of the impact of HIV/AIDS.

I do not want to speak for long on debt relief. I am conscious that Westminster Hall gives an opportunity for many Back Benchers to speak, and I may be regarded as slightly usurping that, but I feel passionately about the subject. My final point is to ask the Minister for his view on a proposal for resolving international debt crises, the jubilee framework for international insolvency. It is a new method of arbitration produced by the jubilee debt campaign that would deal with countries that struggle under their capacity to repay debt.

The framework proposes that a heavily indebted nation could file for a standstill on debt repayments, or its creditors could declare it insolvent. It also considers a new form of regulation for international capital flows, which would discipline lenders and reckless borrowers. The jubilee debt campaign rightly thinks that those who lend money are also judge and jury on the capacity for repayment, hence the call for greater independence of calculations of a country's real capacity to work its way out of debt. My party is considering those issues, so I should be interested to hear from the Minister about them.

In relation to indebtedness and the growing inequality between the richest and poorest nations, we have to face up to an awful truth. As a member of the G8, we are getting richer, and there is no question but that the G8 is getting meaner to poorer countries.

9.57 am

Valerie Davey (Bristol, West)

I am pleased to be able to contribute to this important debate, and I congratulate my hon. Friend the Member for Stalybridge and Hyde (James Purnell) on bringing it back to our agenda.

The issue remains important for many of my constituents. Those who actively campaigned for Jubilee 2000 are well aware that it was a starting point. It raised the issues at international settings with the G8 and the World Bank, and began a process of debt cancellation. The continuing work appears to be both delayed and complex, so I welcome the opportunity to assess where we are now. Some of the issues on which we must concentrate have been clearly set out, especially that of reassessing sustainability in terms of debt in the heavily indebted poor countries, and the inclusion of counties just outside that category.

I want to use Tanzania as an example for congratulation and caution. The hon. Member for Meriden (Mrs. Spelman) referred to it as one of the two countries where the debt was sustainable. By comparison, that is true, but even there lessons can be learned. I want to consider what has happened a little more carefully.

Tanzania is one of the five countries with a great deal of support, and its Government worked hard to achieve its status. They got their act together in terms of governance, the first aspect of HIPC definition, and worked hard on the millennium agenda. As we have heard, it is still one of the poorest countries. Even with 54 per cent. of its debt cancelled, Tanzania still spends more on its debt servicing than on education and health put together. That situation cannot take it out of poverty in the long term.

Last November, Tanzania went on to achieve full HIPC status, and its achievements are impressive. Overall, Tanzania has made substantial progress in carrying out specific structural reforms and institutionally strengthening governance and financial management in the authorities identified at the time of the decision. In addition, important steps have been taken to improve transparency, which include publishing and disseminating the national action plan for the control of corruption. Significant progress has also been made in tax reform, improving the business climate and strengthening the performance of the utilities. In the health sector, Tanzania has successfully implemented a programme to ensure the immunisation of at least 75 per cent. of children under two against measles and diphtheria, and has implemented a national campaign against HIV/AIDS, including completion visits to three quarters of all districts.

The Government have undertaken important initiatives in co-operation with donors to improve, and to increase access to, education. The Government have launched an education initiative with the chief aim of increasing access to schools, especially in poor and under-served areas, while trying to alleviate the cost burden on householders, so progress has been achieved, especially at primary level. The budgets have been increased and school fees have been abolished, although those who have worked in the country recently say that other ways are being found to ask parents and others for money. A school mapping exercise is also under way.

Exports are improving. Gross domestic product has increased to 4 per cent. and 6 per cent. in recent years, but that still leaves Tanzania with the huge problem of paying back a debt that forms a higher percentage of its GDP than the amount it spends on education and health. In that context, we need to ask the World Bank and the G8 to reassess what is happening as a result of Tanzania nearing completion of the process. I want to emphasise the importance of the trade campaign and the need for a country such as Tanzania to see real benefits from the sale of agricultural produce, which forms about 85 per cent. of its exports. It has a developing tourist industry and some gold for export, but those are minimal by comparison with the need for fair trade for agricultural produce.

Let us briefly consider the case of coffee. I am not an economist and I do not know the detailed background, but I buy coffee and have worked in Tanzania. When I was there, the late President Nyrere told a neighbouring village that if it could double its coffee output, it would be possible to establish a clinic there. The village doubled its output and received exactly the same price on the world market that year. It was a boom year and the Americans who controlled output on to the world market were able to establish a mean price—mean in both senses of the word.

Tanzania has struggled for many years, and we are now told that the price of coffee has plummeted. Do hon. Members recognise the plummet in the price of coffee? Has the price in the shops or coffee bars gone down? No, it has not. Indeed, the prices in Starbucks or any other leading coffee shops would stun a coffee farmer in any developing country in the world. We pay more for a cup of coffee than the coffee producer will receive for the produce of many of his bushes on the small shambas, certainly in Tanzania. That is a shocking indictment. The added value, which producers of coffee in the developing world do not receive, increases while the world market price goes down, and the coffee producer gets less.

If we are not careful we will kill the goose that lays the golden eggs. The produce—the coffee—is the key element in the coffee trade, but the benefit of the boom in coffee shops in London and any other city one might go to is felt by the developed world. The developed world promotes the known fact, mentioned by the hon. Member for Meriden, that the coffee price, plummet though it may, is still increasing the added value to the richest countries, which get richer while the poorest get poorer. Even Tanzania, which has reached completion point under the HIPC initiative and has benefited from the cancellation of 54 per cent. of its debt, will get poorer unless something significant happens.

I must mention the military air traffic control system, an interesting subject from which we can learn many lessons. My recent copy of Tanzanian Affairs, which is produced by the Britain-Tanzania Society but gives a fair viewpoint, mentions how indignant President Mkapa is that we are still trying to interfere in Tanzania's affairs. As we know, the air traffic control system means that new debt is incurred by Tanzania while we are selling it produce and cancelling its debt. That is a vicious cycle that must be broken. I challenge what we are doing. I do not believe that we should grant an export licence. Those are issues that we must consider in great detail.

I urge the Financial Secretary to recognise that thousands in my constituency and millions throughout the country are deeply concerned at the lack of progress in reaching debt cancellation for HIPC countries, and at the complexity that surrounds such debates. There is also concern that the new campaign should urgently press the case for fair trade, which it considers a much more honourable way of ensuring that countries can enter international markets with dignity to pay their own way and no longer be truly indebted.

10.7 am

Hywel Williams (Caernarfon)

I begin by congratulating the hon. Member for Stalybridge and Hyde (James Purnell) on securing this important debate. I am glad that at least some hon. Members are here this morning; would that there were more. I certainly think that some years ago there would have been more.

It is years on from the beginning of the debts campaign and the gatherings in Birmingham and Cologne, and we are still discussing debts. I shall state a fact that puts all our efforts into context. Christian Aid argues that if poor countries' Governments are to have sufficient resources to meet their millennium development goals and other essential expenditure needs, such as those of law and order and developing the civil service, the 42 heavily indebted poor countries cannot afford to make any debt service payments. That is a significant argument. They need not only the cancellation of their debt service payments, but $16.5 billion more in aid to meet their millennium development goals.

I look forward to the lobby on 19 June, and I hope to welcome people from Wales into this very Room. I hope that many thousands will come from Wales; certainly, there will be many thousands outside the House on that day. I shall not give too many detailed figures this morning. They are obscene, and the message that they give is clear. I am sure that several hon. Members have rehearsed the figures, and that others will rehearse them later.

I shall give a small example. In spring this year, I had the opportunity of welcoming Abdon Senne from Senegal to my constituency. He is an aid worker who works on one of Christian Aid's partner projects. He works in agricultural development and education, and uses creative methods, such as drama, in small rural communities, to get his message across. I welcomed him to my mountainous Welsh constituency during one of the wettest weeks of the year. Abdon said that Senegal is a dry and flat country. The experience was instructive for both of us.

The two populations' circumstances are generally different. The west is relatively well off while Senegal is one of the poorest countries in the world. However, Abdon's visit was very valuable. He got to see a little of how we use drama in education and the community. He also saw agricultural production and processing, and he was particularly impressed by an agricultural co-op in my constituency that is involved in meat packing. That was the nitty-gritty of his visit, and he saw how meat packing occurs—unfortunately, so did I, because I did not find it a very interesting or pleasurable experience.

I got a lot out of the visit. I met a person who is working creatively and face-to-face with people to counter poverty. I heard directly about his, and others, efforts. I learned about the conditions that are faced by people involved in agriculture in Abdon's country. I discovered that there is common ground between conditions there and the problems that are faced by marginalised and economically stricken farming communities in my constituency.

I turn to farm subsidies, and I shall highlight one argument of the many that one could choose. The hon. Member for Meriden (Mrs. Spelman) mentioned the current US farm Bill. That will involve huge expenditure. A small part of the Bill commits the US Government to provide about $8 billion of aid to rice farmers. That money will go to people who are well off by even the standards of the west. If we consider the incomes of the poorest people on the planet, the rice farmers of the United States are fabulously wealthy. A sum of £8 billion will support agribusiness and that will undermine the economic stability of rice growers throughout the developing world. Hon. Members will have heard about the Africa campaign that was launched last week. Ghana faces a catastrophe in rice production because of the effect of imports.

The United States is giving $8 billion to support agribusiness, but the cost of cancelling debt repayments from the countries that are most heavily indebted over the next five years is $6.8 billion. These figures show the balance that we must measure when we in the west examine our priorities. Clearly, the weighting is wrong. Debt relief must go hand in hand with trade reform, especially when calamities strike, when there is overproduction or if natural disasters occur. The organisation of the world's trade hampers the efforts of people such as Abdon Senne and the hundreds of thousands of others who are using their own efforts to develop their communities. Yesterday's help is available from western Governments and non-governmental organisations, but Abdon Senne and others want and need the opportunity not only to receive, but to create a better future through their own efforts.

We must open markets in the west, but that will not provide sufficient help. Indeed, there is an argument that the effect of opening several such markets would be purely marginal, if not cosmetic. The World Bank and the International Monetary Fund prevent developing countries from supporting their agricultural industries, which is fundamentally unfair. That prevents people from developing their own countries, and countries are prevented from exporting finished goods, although the arguments about that are mixed. Therefore, I hope that the Minister agrees that debt relief must go hand in hand with trade reform. It must go hand in hand with reform of the support for agriculture. That is the case with regard to all countries; the United Kingdom and the United States of America are not excluded from that.

10.14 am

Dr. Jenny Tonge (Richmond Park)

I congratulate the hon. Member for Stalybridge and Hyde (James Purnell) on securing the debate. He presented a good case, and it is always heartening to see that hon. Members are interested in this subject.

Progress has been made on the debt issue in the past five years. However, we should remember that the initiative was started by the last Conservative Government. John Major and his Chancellor, the right hon. and learned Member for Rushcliffe (Mr. Clarke), had a great deal to do with starting the HIPC initiative, and it has been enthusiastically carried forward by the present Chancellor, the Secretary of State for International Development and the Jubilee 2000 campaign.

The UK, the USA and Canada have promised to cancel 100 per cent. of all bilateral debt for countries, once they qualify under the scheme. That is excellent news. We have also promised that the debt repayments of countries that do not have a poverty reduction scheme will be held in trust to pay for poverty relief, once they reach the qualifying point. I am slightly concerned about that; I am unsure whether I understand how it will work, and I seek clarification about that from the Financial Secretary.

Although progress has been made, the other G8 countries have not made such promises, and neither have the multilateral creditors, who are the largest creditors: 33 per cent. of debt is owed to the World bank, and 11 per cent. is owed to the International Monetary Fund. Only 23 per cent. of debt is bilateral. On top of that, there are all of the export credits, which form debt for developing countries. Therefore, there is still a long way to go.

The hon. Member for Meriden (Mrs. Spelman) and I helped to form the human chain that encircled the G7 meeting at Birmingham several years ago. She was accompanied by her children; they are lovely, and I envied her for having them. I remember that we spoke at meetings. There were tens of thousands of people in Birmingham on that day; it was inspirational.

Jubilee means forgiveness, and that was the great aim of Jubilee 2000. It was created to mark the millennium, and it was the idea of Professor Martin Dent of Keele university. It is a great idea, but I fear that it is turning into a damp squib, because so little progress is being made. Only 15 per cent. of the debt has been cancelled—as the hon. Lady said, in a great speech, to which I have almost nothing to add.

I share the hon. Lady's concerns about debt sustainability, and the way that it is assessed. That is a huge problem at present. Conditions move so rapidly that we must not have a fixed way of assessing it; that was also mentioned by the hon. Member for Stalybridge and Hyde. The assessment is measured with regard to the debt export ratio, but that does not necessarily mean very much, because exports might not lead to a lot of revenue coming into a country. Therefore, that is not a fair way of assessing the situation. Even by the World Bank's criteria, many countries have unsustainable debt after they have reached the decision point of HIPC. We must do better with regard to that.

Commodity prices were mentioned by the hon. Member for Meriden and other hon. Members. That is an important issue. A fall in the price of coffee triggered the genocide in Rwanda. We must never forget that. One million people died because we ignored the importance of falling commodity prices in a poor and struggling country.

As the hon. Member for Stalybridge and Hyde said, access to markets is extremely important. We must support the trade and justice campaign that is being started by more or less the same non-governmental organisations that combined to create the great Jubilee 2000 campaign. Developing countries must have better access to markets. Subsidies to agribusiness are having a terrible effect on the ability of developing countries to export their products, as the hon. Member for Caernarfon (Hywel Williams) said. We must examine all those problems. Debt sustainability should be thought of as a fluid and flexible thing to be measured, and not something written in stone that stays unchanged for a decade. The hon. Member for Meriden also mentioned a Congress Bill. It is an interesting one because it appears that the USA recognises the problem. I am glad about that. The Americans are suggesting a big change to sustainability criteria.

I am still unsure whether the world realises what a problem the HIV/AIDS crisis will become. In previous generations in developing countries, scourges, plagues, epidemics and endemic illnesses have affected the weak, newborn and elderly. Like the effect of a great storm on a forest of trees, such scourges cut out the weak and unproductive members of society. That was always what happened in developing and poor countries that had no medical care. However, HIV/AIDS affects the productive members of those countries—the young, fit, active and intelligent. That is why it is such a different crisis, and why the world should take it much more seriously. It will affect the productivity of developing countries in an enormous way that is only just beginning to be felt. I hope that the Minister will accept that we must address this crucial problem.

As the hon. Member for Bristol, West (Valerie Davey) told us, there is little point in providing countries with debt relief if they immediately fall into the greater debt of unproductive expenditure the minute that they qualify. There have been assurances that the Government have imposed a unilateral ban on export credits for unproductive expenditure, and the phrase "sustainable development" has been packed into every Bill and debate that we have had over the past few years. Why then was the air traffic control system for Tanzania approved, which will plunge that country back into debt the minute it qualifies?

I hope that the Financial Secretary will be able to clarify the issue and explain what will happen in the future. Many hon. Members feel that everything that the Government have preached in recent legislation has been completely thrown away by the single act of approving the Tanzania contract. I understand that the contract may be under review, but the Government must still carry the can for approving it.

We must always put sustainable development before any benefits that might accrue to British industry, which was the golden rule in the International Development Act 2002. We must remind ourselves of that rule. We must also exert more pressure on the international community to force greater debt relief from the World Bank and the IMF. They are not moving fast enough and the state of the poorest people in the world is becoming a world emergency that is affecting us directly. That could form the subject of another debate, so I will not go into it now.

The HIPC scheme must be reviewed again. Debt sustainability should especially be re-examined and the scheme must be widened to include more countries, as the hon. Member for Stalybridge and Hyde said. Countries in conflict should be considered, because conflict is not the only problem faced by those countries. Bangladesh is a curious example of a country that superficially appears to be prosperous, doing well and accepted as such. However, as the hon. Gentleman said, Bangladesh has so much poverty. We must look again at the problems.

We must be careful not to make debt relief available for political purposes. I was disturbed that debt relief was recently dished out to Pakistan and I wondered what precedent that set. Given the news today, I worry even more about what effect that will have. We must think carefully before debt relief is ever used for political purposes in the future.

The point that I feel strongly about and with which I hope that the Minister will deal is that debt relief must not be paid for by a reduction in the development assistance budget. It must he funded additionally from the Treasury budget for the G8 countries. In the other place, in answer to a question from the noble Lord Williams, Lord Grocott said that, in fact, the rise in the percentage of GNP going to overseas aid—which is expected to increase to 0.036 per cent. in the next couple of years—is due mainly to the increased impact of the HIPC initiative. That smells of double counting.

We cannot trumpet, on the one hand, that we are giving more aid to developing countries because we are increasing the GNP, and trumpet, on the other hand, that we are leading the world in debt relief when we push everything into one budget, which is only one sum of money. We must be careful not to claim that we are doing more than is being done. The Government have much to be proud of, thanks mainly to the Department for International Development and the Secretary of State, helped by the Chancellor. They must not spoil things by making false claims.

10.26 am

Mr. Christopher Chope (Christchurch)

I thank the hon. Member for Richmond Park (Dr. Tonge) for the tribute that she rightly paid to the former Prime Minister, John Major, and to my right hon. and learned Friend the Member for Rushcliffe (Mr. Clarke). I am sure that her expressions were not motivated at all by her recent experience of the local elections in her constituency—

Dr. Tonge

A mere blip.

Mr. Chope

I accept the hon. Lady's remark in the spirit in which it was intended. She referred in passing to debt relief in Pakistan and to today's news, which is that I million Indian soldiers are massing on the Kashmir border, yet India has the second largest number of poor people in the world. Is it any surprise that many of us find it extremely depressing to debate such a subject, when so many of the actions taken by individual Governments and the priorities that they set for their expenditure bear no resemblance to the needs of their domestic populations?

I congratulate the hon. Member for Stalybridge and Hyde (James Purnell) on being lucky in the ballot and introducing the debate. He drew on his experience and expressed his worry that money did not necessarily reach the targets and said that we must ensure not only that we make a political commitment but that the money is well spent. He made a heart-felt plea for opening up European Union markets for access on fair terms to wider trade; and so say all of us.

Given the mass lobby on 19 June, I hope that the Government will spell out in specific terms exactly what progress has been achieved in reforming the common agricultural policy. The Secretary of State for Trade and Industry visited Doha with an upbeat message that was full of good intentions about delivering on that important subject, but I fear—not because of reluctance on the part of the Government or the country, but because of the lack of influence that the Government have over some of the other countries in the European Union—that we are not making the progress that is fundamental to widen access to the European markets for the producers of food and agricultural products in the developing world.

The hon. Member for Bristol, West (Valerie Davey) made the valid point, borne from her experience of Tanzania, that 85 per cent. of that country's production is in agricultural goods. It must be able to export its goods to markets. Although farmers in this country are protected against substantial falls in the market price of agricultural produce, if, as the hon. Lady points out, the world market for coffee changes dramatically from one year to the next, farmers in Tanzania, despite doubling production, may be no better off in real terms. That must be a pretty depressing prospect for farmers in Tanzania, and we congratulate them on their efforts to improve the economy in their country.

The hon. Member for Stalybridge and Hyde discussed the definitions of heavily indebted poor countries. My hon. Friend the Member for Meriden (Mrs. Spelman) picked up that point and once again showed her passionate interest in the subject. I shall try to imagine the spectacle of her and her children joining hands with the hon. Member for Richmond Park (Dr. Tonge).

Dr. Tonge

It is the sort of thing that women do.

Mr. Chope

Is it? In that case, neither I nor the Financial Secretary will be able to comment on it.

My hon. Friend the Member for Meriden made two telling points. I hope that, in what will be ample time to respond, the Financial Secretary will answer the points that have been made. It seems odd that only 15 per cent. of unpayable debts have been cancelled and that there is insufficient recognition of what happens in the event of a fall in commodity prices and of the problems encountered as a result of HIV/AIDS.

My hon. Friend asserts that the G8 are getting meaner. I am not sure—

Mrs. Spelman

That is statistically correct.

Mr. Chope

If that is so, it is sad that we, as a G8 member and one of the richest countries in the world, cannot persuade other G8 members to be equally generous in the contributions made to resolve issues relating to poverty in the developing world.

In an interesting speech, the hon. Member for Caernarfon (Hywel Williams) referred to Senegal. He is not in his place now, but I do not agree that opening up markets would be merely cosmetic. I thought that there was a consensus in the House that it would be a good idea to open up markets and that that would be the best long-term and sustainable way to help people in indebted and impoverished circumstances.

I am sure that the Financial Secretary will refer to what the Chancellor of the Exchequer said at the UN General Assembly held earlier this month on financing a world fit for children. Partly to steal his thunder, I quote from the Treasury press notice of 10 May, in which the Chancellor is quoted as saying: We have gathered here together—governments, non-governmental organisations, parents—because of: our shared concern for all these children who live on the knife's edge of bare existence; our shared responsibility to end the senseless tragedy of young lives lost to disease and deprivation;our shared belief: that just as each and every child has a right to realise their potential we have a duty to help make it happen; and most of all, we are here because of our shared conviction that what can be achieved together by unity of purpose is far greater than what we can ever achieve acting on our own, and that is it our duty, from New York onwards, to form a partnership for children so wide, so powerful and so determined that no obstacle should be allowed to impede its path of progress. He goes on to discuss the Zedillo report, estimating that if we are to succeed in achieving these goals, an extra $50 billion will be required each year until 2015. I agree with all those sentiments, as, I am sure, does everyone in the Chamber. However, is it not extraordinary that Mr. Robert Mugabe was welcomed at that gathering in New York? Why was he not given the cold shoulder? How can we be serious about such issues if we are not prepared to confront Mr. Mugabe, who has single-handedly done more to bring poverty and deprivation to children in Zimbabwe than any living being? He was able to attend that United Nations General Assembly special session on children and was recently elected to the 15-member United Nations Commission on Human Rights. Surely the Government should take a stand when it comes to Zimbabwe. In general, the issues that we are addressing are so enormous and of such mind-boggling complexity, but we can see that matters are regressing rapidly in Zimbabwe. That is a country in which, by virtue of historical connections, we are in a position to influence matters to a greater extent than we do.

If all our wise words and rhetoric are to add up to anything, surely they should add up to taking effective action in Zimbabwe. The country has become a recipient of United Nations food aid, and its agricultural crisis is deepening. The famine is getting worse, and we are entering a cycle in which it will need more food aid in future. The collapse of that country's agriculture is not because of drought, but because of the political corruption of the Mugabe regime. A country that once had a strategic grain reserve of 1 million tonnes now finds itself without maize or the foreign currency with which to buy it. Are we listening to the opposition parties in Zimbabwe? Earlier this month, Mr. Nyati, a leading Zimbabwean opposition parliamentarian, was in London. He said: Most of the food aid is being distributed to government officials, which means it is either being sold for profit or it is going to Mugabe's supporters. I know that it is not reaching supporters of the Movement for Democratic Change in the rural areas. He continued: There seems to be confusion about what to do about Zimbabwe. The MDC's position is that until there is an agreed upon distribution network which brings in independent bodies like the Church, food aid should be withheld. If food aid is being used to legitimise Mugabe's party, it serves no useful purpose to Zimbabwe. I hope that we shall today hear details of the action that is to be taken by our Government on Zimbabwe. We have heard a host of words; we now need some serious action. So long as we continue to bestow legitimacy on the destructive dictators who have, for so long, been at the centre of Africa's ruination, bailing them out with tranches of aid is not the answer.

James Purnell

I want to reassure the hon. Gentleman that I am not quoting from the Chancellor merely to use up the time available for the debate. The Chancellor recently said that the UK was committed to the target of raising development assistance to 0.7 per cent. of national income and that he will significantly raise the amount of our development aid in the spending review covering 2005–06. I should like to give some power to the elbow of the hon. Member for Meriden (Mrs. Spelman) in her bids for a future Conservative spending review. Does the Conservative party also aspire to a 0.7 per cent target?

Mr. Chope

The hon. Gentleman makes a helpful intervention. Surely the issue, as he has said, is to look at time scales and to ensure that value is derived from the extra expenditure. My challenge to the Financial Secretary and his Government extends not just to third world aid. It extends to expenditure on the health service and other public expenditure programmes. More important than the total amounts of money being thrown at those topics is that we should ensure that our money is well invested.

That leads me from Zimbabwe to ask about Malawi; again, I hope that the Financial Secretary can answer me. The right hon. Gentleman may have seen an article in The Guardian earlier this month about the disasters occurring in Malawi. Britain has enormous influence in that country because of historical connections. I understand that Malawi is suffering serious shortages of food but, according to The Guardian, it seems that the crisis has been made worse because of international politics and the actions of NGOs.

The NGOs and the Malawi Government are said to have accused the International Monetary Fund and donor countries of forcing them to sell last year's food reserves for ideological and economic reasons. Malawi is under pressure to meet IMF targets and to reduce its expenditure. It costs the Malawi Government more than £3 million a year to store almost 200,000 tonnes of food, much of which was said to be deteriorating. The donor countries, backed by the IMF, said that only 60,000 tonnes was needed as a strategic reserve, but the Government sold all but 4,000 tonnes without refilling the silos. The result is that Malawi has had to borrow in order to obtain grain on the international markets.

Earlier this month, the IMF refused to allow Malawi debt relief, saying that money for food security must come from further budget cuts, although not from education or health. Is what is happening in Malawi good enough? Or, as is said privately, is the explanation that donors despair because Malawi is governed by a small elite who have tied up the economy and done little to help the very poor? I should be interested to hear the Financial Secretary's response.

Finally, what does the Financial Secretary think of the suggestion that debt relief should be extended to the poorest countries in the former Soviet Union? Does he go along with the argument that Armenia, Azerbaijan, Georgia, Kurdistan, Moldova, Tajikistan and Uzbekistan should receive debt relief in order to help them become richer? If so, where does that fit in with the Government's overall policy? I should be grateful if the right hon. Gentleman would respond to that question.

I am sure that the Financial Secretary and I agree that, although the problems are enormous, the fact that individuals are unable to do much is no reason why we should not do as much as we can, whether individually or through the Government. Indeed, we are all humbled by the knowledge that, every week, many of our constituents give money to the charities, churches and other agencies that are trying to bring some relief to the people suffering in the developing countries.

10.43 am

The Financial Secretary to the Treasury (Mr. Paul Boateng)

This has been a good debate on an important subject. We owe a debt of gratitude to my hon. Friend the Member for Stalybridge and Hyde (James Purnell) for enabling us to address an issue that is of real concern to many of our constituents, and of grave concern to the millions affected by the decisions made throughout the developed world on aid and debt relief that might allow developing countries better to respond to the crisis that has so many of them in its grip.

The debate has been characterised by an almost total absence of party political rancour and partisanship, and characterises the House's approach to the issue. There was one entirely characteristic fall from grace on the part of the hon. Member for Christchurch (Mr. Chope), but I shall gloss over it as far as I can, and look instead to the early preferment of the hon. Member for Meriden (Mrs. Spelman). She demonstrated a clear grasp of the subject, and has a distinguished track record. Indeed, that is true of all those who participated, and that enriched the tone and content of the debate.

It would be a mistake to present HIPC and the important initiative before us as the answer to the problems that hon. Members mentioned. The HIPC scheme makes an important contribution, but it is not the answer to poverty in a world in which so many live on so little and in such conditions. It is an important starting point on which we can build, but it was never designed to release enough resources to meet the human development needs of low-income countries. Rather, it was intended to allow heavily indebted poor countries to achieve a sustainable level of debt, and the question for us in the developed world is how we meet that objective and what more we can do in terms of development aid and trade to tackle global poverty.

The hon. Member for Meriden, referring to the Jubilee 2000 research documents, asked whether HIPC was dead, and the only fair answer is, "No, it isn't." We must, however, take steps to ensure that it delivers on its objectives. The latest IMF and World Bank analysis shows that more than half of HIPC countries will reach completion point with unsustainable debt levels. The Government acknowledge that problem, and will continue to argue that countries should exit the HIPC process with sustainable debt levels.

We must build on the approach taken in the Monterrey consensus, which agreed that future reviews of debt sustainability should also bear in mind the impact of debt relief on progress towards the achievement of the development goals contained in the Millennium Declaration". Those important words recognise the fact that more needs to be done, and give us some hope of developing an international response to the debt crisis.

We should not, however, overlook the fact that, in 2001–02, the scheme increased social expenditures by $1.7 billion in countries that received HIPC debt relief. That is equivalent to 1.2 per cent. of GDP. On average, health and education spending accounted for 65 per cent. of the funds made available under HIPC debt relief. Those are substantial benefits, but we know that they will not be enough of themselves.

Poor countries have a role to play in achieving macroeconomic stability, improving their policy environment, prioritising poverty reduction and investments in education and health, and improving governance and accountability. To judge from what hon. Members have said, there are no illusions about what the developing nations need to do if the issue is to be addressed. Anyone who has lived in Africa, as my hon. Friend the Member for Bristol, West (Valerie Davey) and I have, knows that good governance has to be fought for. It needs to be developed, and that can be done only when civil society is given the opportunity to contribute.

The history of the HIPC initiative shows that one of the most important developments was the way in which civil society was freed up in the countries, so that it could contribute to the development of poverty reduction strategy plans. Plans that emanate simply from us in Whitehall or the capital cities of the heavily indebted poor countries themselves are unlikely to deliver on the ground. There must be a sense of ownership and involvement from local people who live with the consequences of poverty and struggle to combat it.

Women are vital to that work. All the evidence suggests that they are the best agents of development. When women are empowered through organisations—faith groups, local community development organisations and trade unions—to contribute to the development of local poverty reduction strategy plans, those plans are more likely to deliver their aims.

The hon. Member for Christchurch mentioned Malawi. I travelled there a few months ago to participate in a Commonwealth Finance Ministers conference on HIPC. There I met representatives of civil society who had been engaged with the Government of Malawi in developing a poverty reduction plan. I was enormously heartened by their approach. Trade unionists, church people, women's and youth organisations and rural village community development associations come together to monitor what their Government are supposed to deliver with the moneys coming on-stream as a result of HIPC.

Those people took a direct and practical approach to the monitoring of the impact of poverty reduction plans. Their Government had told them that a certain sum had been spent on education, so they visited schools and villages to ask what had been received recently from the Ministry responsible for education. They would then take an inventory of what had been received. They would ask how many teachers worked in the school, and how many had been appointed recently; they would follow the flow of money to the point where it was supposed to make a difference. Then they would compile a report and share it with donor agencies and countries.

That was practical monitoring of plans. It was a hands-on engagement with the development of anti-poverty strategies, and, therefore, that much more likely to make a difference by changing the conditions under which people live in Malawi. I am heartened by that but, at the same time, deeply disappointed by the circumstances in which the current food crisis in that country has been allowed to develop. To pretend that that crisis is the result of any action taken by the IMF, the World Bank, the UK or other donor nations is beyond belief; that is simply not the case. That food crisis, I fear, has its origins in corruption and abuse of power.

Our concern about that corruption and abuse of power made it necessary to suspend direct budgetary support to Malawi. I was obliged to make clear to the Malawi Government our concerns about the way in which the crisis had developed. That has not stopped us continuing to deliver effective programmes of support to the people of Malawi where we are satisfied that that support will go directly to reduce poverty. It has not stopped us from providing the necessary support to the people of Malawi in addressing the food crisis, but there are important lessons to be learned from the experience of Malawi about how effective poverty reduction plans are formulated and put into effect, how they are monitored and how good governance should be developed and grown.

Other aspects of the situation in Malawi, including visible demonstrations of a commitment to democracy and civil society, give cause for hope for the future. It is dangerous to allow ourselves to be sucked into a vortex of defeatism and cynicism when tackling this problem.

The scale of the crisis in Africa and elsewhere in the developing world is made that much worse by HIV/AIDS, and the hon. Member for Richmond Park (Dr. Tonge) is right to draw attention to the scale of that crisis. In Malawi, I visited schools where the teaching population had been decimated by AIDS. I visited a village where one in three families was in the process of losing or had lost someone through AIDS. The response of NGOs and local people to that crisis in those countries is heartening and worthy of our support.

Mrs. Spelman

The right hon. Gentleman is talking about the signals that we send to very poor countries; the refusal to give budgetary support to Malawi is a signal of our unhappiness with the corruption in the Government there. However, does he accept that we are sending a strange signal to the people of Tanzania as a result of his Government's decision to sanction the purchase of an air defence system and the decision of the Secretary of State for International Development to withhold overseas aid from the Tanzanian people? What signal does that send?

Mr. Boateng

I am not going to go down that path, for good reasons that the hon. Lady ought to understand; not least as a result of the contribution of my hon. Friend the Member for Bristol, West. There are serious issues there and we understand them. However, it is a mistake to confuse them with issues of good governance or with those arising from the HIPC initiative.

Much has been done, but there is still more to do. Our debate assists in that process, and we owe a debt of gratitude to my hon. Friend the Member for Stalybridge and Hyde for enabling the debate to take place.