§ Ann McKechin (Glasgow, Maryhill) (Lab)This year marks an important anniversary for our multilateral organisations, as it is 60 years since the International Monetary Fund and the World Bank were created at the Bretton Woods conference. They were set up with the noble and worthwhile aims of providing global financial stability and growth to avoid the economic disasters that had scarred the first half of the 20th century and had, at least in part, led to world war two. Our world has, of course, changed a great deal during those 60 years and the role and influence of those bodies has altered significantly from the original ideals. Gradually, both organisations have adopted objectives based on an unswerving belief in the benefits of capital market liberalisation, which has certainly benefited the financial markets but has, in many cases, failed to secure the original aims of world stability and growth.
Today, IMF and World Bank activities directly affect the lives and livelihoods of billions of people throughout the developing world. Over the years there have been many criticisms of their policies, and of their policies' consequences, from a wide variety of sources. Despite the talk in western nations of the need for democracy and good governance, however, in many ways those institutions still appear remote and unaccountable to any form of democratic mandate.
At the end of the month, Ministers will attend the annual general meeting of the World Bank and the IMF, but despite the huge power of both those institutions, there has been no opportunity for a debate in the main Chamber of this House or in the other place on how this country's representatives propose to conduct negotiations, or on their voting patterns during the last year. That is the norm, for there has been remarkably little debate or scrutiny of the Government's record in either institution, despite the fact that we hold a permanent directorship on the boards of both and are viewed as a key world player.
Sadly, the United Kingdom is not unique in its lack of parliamentary scrutiny and I argue that that is one of the fundamental reasons why multilateral institutions have failed to address the true needs of the people whom they were ultimately designed to serve. Although they are public institutions, there is no direct accountability to the public. That is understandable, given their global nature; however, that lack could be balanced by ensuring that the operations of the organisations are open and transparent. In reality, they fail to be transparent, with a culture of secrecy ingrained in the institutional framework, and key economic and loan decisions still being taken in closed-door discussions. Some—the IMF and World Bank among them, no doubt—will argue that that provides flexibility, but it also precludes timely debate and criticism in national Parliaments and allows special interests full sway. Probably just as importantly, it creates suspicions that, even when groundless, can feed the forces that can undermine the political sustainability of such policies.
424WH Joseph Stiglitz, a former chief economist at the World Bank, argues in his book, "Globalization and its Discontents":
The most fundamental change that is required to make globalization work in the way that it should is a change in governance. This entails, at the IMF and World Bank, a change in voting rights … to ensure that it is not just the voices of … finance ministries and treasuries that are heard.At present, voting rights are determined largely on the basis of economic weight, giving the industrialised nations of the world, who are also the leading nations in the financial community, an effective veto on IMF and World Bank decisions. However, as Stiglitz argues effectively in his book, the premise that the creditor nations should hold the real power is fundamentally false, as the IMF almost always gets paid. It is not the same as a commercial bank. The money ultimately comes from the workers and other taxpayers in the developing nations.That imbalance has led to IMF and World Bank policies being concentrated on the priorities of the financial community, rather than on those of the poor. Two weeks ago, I had the opportunity to visit Zambia as part of an exchange scheme for women parliamentarians organised through the offices of the British Council. For more than 20 years, the Zambian Government have been dependent on support from the IMF and the World Bank. Unlike many of its neighbours, Zambia has enjoyed relative stability and lack of conflict for a long period, and it has a proud record of caring for substantial numbers of refugees from war-afflicted zones in countries on its borders. Despite this record, however, Zambia has become increasingly poorer during that period. It now has the lowest life expectancy of any country in the world: a mere 33.4 years in 2001. In 1990 it was ranked 130 on the UN human development index, but it had fallen to 163 in 2001.
Over the years, the multilateral organisations have imposed a whole raft of conditions on the way in which Zambia's economy should operate, but for much of that time those conditionalities did not lead to better policies, faster growth or better outcomes for the Zambian people. Zambia liberalised many of its domestic industries before neighbouring countries in the region, but owing to the failure to consider the proper sequencing of these measures, the record post-privatisation has been very mixed. Many companies have collapsed, jobs have been lost and welfare programmes originally carried out through a state organisation have not been continued by private companies.
In the past 10 years, Zambia has sold 257 out of 280 state firms. Unlike the economies of east Asia, which opened their markets slowly to the outside world and in a sequenced way, Zambia was totally unable to compete with international competition, and privatisation has not led to employment growth. Formal manufacturing employment almost halved, falling from 75,400 in 1991 to 43,320, in 1998. In addition, the Government have been required to lower tariffs on a wide range of products to levels far lower than the limits set under World Trade Organisation agreements. The IMF and World Bank have taken an exceptionally long time to admit that historical evidence shows that to develop, exporting countries need protection for a 425WH period of time from the world's markets, and most if not all of today's industrialised and newly industrialised nations—including our own in the west—have used a wide variety of what would now be considered trade-distorting policy interventions to protect their economies before they liberalised.
Sadly that lesson was not learned soon enough to save Zambia's textile industry—one of the indicators of its transition from a developing country into a more industrialised state. The lowering of tariffs on textile products, and particularly the removal of all tariffs on used clothes, led to large increases in imports of cheap, second-hand clothing from industrialised nations. There were more than 140 textile firms in 1991 but their number had fallen to just 8 by 2002, and employment in textiles fell from 34,000 to only 4,000 in that period. Sadly, textiles is not the only industry in which such consequences have been felt.
The liberalisation of trade also had an adverse impact on Government revenues. During the 1990s, total income from tariffs, which formed a significant part of Zambia's revenue, fell by more than 50 per cent., and with declining gross domestic product overall, Government revenue fell by more than 30 per cent. in real terms between 1990 and 1998. At the same time, however, the IMF and World Bank were calling for fiscal stringency, so spending on important economic infrastructure was heavily cut. During my visit, I met communities who had to wait upwards of 30 years for the most basic health care and school provision—in fact health care and school provision now is similar to that provided prior to independence in 1964. In one area, the local community had built its own school with materials supplied by a US charity, but only had resources to appoint an unqualified teacher. Their literally incredible efforts to give their children a very rudimentary education were truly humbling, yet at the same time there are approximately 5,000 qualified teachers in the country whom the Government cannot afford to employ.
Despite that record, in the very week of my visit, the World Bank representative in Zambia stated, astonishingly, that Zambians should stop complaining about the multilateral institutions of the IMF and World Bank. Apparently, he was under the strange impression that his own organisation was an invincible force for good. As the Zambian authorities grapple with the challenge of reaching the completion point in the heavily indebted poor countries process, they may feel that they are not in a strong position to argue against such arrogance. Despite the recognised efforts of the Government this year to achieve a balanced budget, Zambia will reach the completion date, probably by January next year, with an unsustainable level of debt and will be far from ever reaching the millennium development goals. Any progress that has been made in the past couple of years is agonisingly small, while Zambian people continue to suffer from crushing poverty. Such complacency on the part of the IMF and the World Bank works against good governance and democratic decision making and involvement.
I appreciate that our Government, together with the IMF and World Bank, have placed much store in recent years on the poverty reduction strategy papers process, 426WH which is linked to the debt relief programme, as being much more participatory and constituting a genuine dialogue between north and south. However, the incorporation of civil society viewpoints in the final PRSP in HIPC countries does not extend to the macroeconomic policies that are underpinned by the poverty reduction growth facility, because that is subject to complete control by the IMF. A poverty reduction growth facility letter of agreement is required before a country can reach the decision point on the PRSP. The involvement of parliamentarians, as opposed to Ministers, in the PRSP process is at best minimal, and in many HIPC nations is almost non-existent.
There is no doubt that there are other contributory factors to Zambia's economic decline, such as corruption and lack of good governance. Nevertheless, the IMF and World Bank have had 20 years of significant influence in the country and its economy but have failed to deliver. If, like a Government's, their policies were truly subject to democratic scrutiny, changes in direction and scope would have happened far quicker.
Last week, in my role as co-chair of the all-party heavily indebted poor countries group, I hosted a meeting to launch a global petition calling for both institutions to recognise the right of national Parliaments to have the right and obligation to be fully involved in the development and scrutiny of their proposals and to hold the final power of ratification. The organisers of the petition, which is supported by the Parliamentary Network on the World Bank, hope to gain support in at least 60 Parliaments and Assemblies from both the north and south of the globe.
Even though we have been back in session for only just over a week, more than 125 parliamentarians from both Houses have already signed the petition, and the response from other Parliaments has been encouraging. The petition has struck a strong chord with elected representatives, who often feel powerless to influence decisions that have such an impact on their electorate. The aims of the petition are relatively modest but can go a long way to establish better governance both in our multilateral institutions and in individual nation states.
I appreciate that no single member of the institutions can effect widespread change. However, I hope that the Economic Secretary to the Treasury will agree that in the spirit of open government engendered by our Freedom of Information Act 2000, it is not unreasonable to ask the Government to disclose their detailed voting patterns as an executive director, together with policy positions and statements made to the board. That would be a good start and act as a catalyst to reform of the way in which the House examines Government policy on those matters.
The Treasury Committee, in its report in April 2001 on the IMF, stated that the actions of the IMF's
executive board as a whole remain opaque. Most notably neither the votes, nor the minutes, of the executive board are published. We believe that … withholding this information limits our ability to hold the Government to account for their actions at the Fund.Does the Minister accept that such information should be made available as a matter of course?I know that our Government have in the past supported greater involvement by African nations on the boards of directors, and that is welcome. However, 427WH although the UK, France and Germany have one seat each, the entire African continent has only two. That makes it very hard for parliamentarians in poor countries to contact, let alone influence, their executive director. I hope that my hon. Friend will support moves to give developing nations more say in the IMF and the World Bank, which in turn would make it easier for their parliamentarians to hold their representatives on the board to account.
Given that 70 per cent. of the world's poorest people are women, my hon. Friend will agree that the fact that the boards of both institutions are overwhelmingly male—in 2002, the IMF board was entirely male—is totally unacceptable in this day and age. Have our Government requested a better gender balance on those boards, or do they have any proposals?
If policies are to succeed and gain support from those who will bear the consequences, it is important that the IMF and the World Bank engage genuinely with national Parliaments. The same is true for any policy that we as politicians try to present to our electorate. I hope that our Government will accept that if the PRSP process is to be a genuine step towards better governance, macro-economic changes and loan decisions must be subject to parliamentary scrutiny and approval, just as we would expect if the House were to enter into significant economic agreements with any multilateral institution.
I know that in order to focus policy direction on poverty reduction, the Chancellor has been at the forefront of policy changes in the IMF, but I urge my hon. Friend and his colleagues to ensure that parliamentary democracy and scrutiny are an integral part of future decision making. We all want the IMF and the World Bank to succeed in tackling poverty around the globe, and that would be a significant way of achieving that objective.
§ The Economic Secretary to the Treasury (John Healey)I begin by congratulating my hon. Friend the Member for Glasgow, Maryhill (Ann McKechin) on securing the debate, on the clear and well argued way in which she pressed her arguments for reforming the international financial institutions, and on the way in which she brought into play her particular concerns about Zambia. In paying tribute to my hon. Friend, I acknowledge the work that she puts into the all-party groups in which she is an office holder. That all-party view has been a feature of debate about such issues in this House, backed by the commitment of community groups, faith groups and campaign groups beyond Westminster. In the past few years, that campaign has made an important contribution to our pressure on international institutions for the reforms that she and I want to secure. I am aware of the parliamentarians' petition that my hon. Friend launched last week. If 125 Members of both Houses of the UK Parliament have signed it, we already have more than double the worldwide target of 60 parliamentarians per petition that the exercise set.
I welcome the opportunity to discuss the issues, and it is important that we do so in the context of our overall approach to development. The leadership and influence that the Chancellor of the Exchequer has displayed since 428WH 1997, to which my hon. Friend paid tribute, reflects the UK Government's firm commitment to support developing countries, strengthen their economies, reduce poverty and improve the provision of basic public services for their citizens. It is a moral imperative to improve people's lives in developing countries, but it is a practical imperative to support more general global growth—a point to which my hon. Friend alluded. She paid tribute to the Chancellor and our support of key measures such as the HIPC initiative, which will bring all countries to a sustainable level of debt. However, much more is needed to ensure that no country that is genuinely committed to reform is denied the opportunities to meet the millennium development goals.
Development will be a defining feature of the G7 and G8 presidencies that the UK is due to take on next year. One priority will be to progress the UK proposal for an international finance facility and to support the WTO's Doha development agenda to increase opportunities for freer and fairer trade. However, for developing countries to be able to make most use of debt relief, aid and more open trade, they must have the economic conditions necessary for growth. Without an economic system to ensure that growth benefits more than just a few in society, the millennium development goals, which will be at the heart of our vision and effort over the next decade, will be missed, even if there is greater international support. The international financial institutions have a crucial role to play in supporting Governments who have embarked on economic reform programmes, poverty reduction and tackling corruption.
To assist the reform efforts, the IMF and the World Bank provide a range of advice and support, but it is fair to say, as my hon. Friend did, that in the past too great a degree of direction has been applied to programmes that those institutions are prepared to support, so that it becomes a case more of directing than of supporting. That is why, as my hon. Friend recognised, the UK fully supported the introduction of the poverty reduction strategy papers process in 1999. That was a major step forward, providing the basis on which donor support to low-income countries can be built around the country's own development priorities. These issues are complex and will take time and effort to get right. We still have not made the progress that we want. The UK Government therefore welcome the recent reviews of the PRSP process by the IMF's independent evaluation office and the World Bank's operations evaluation department. Those reviews made a number of recommendations aimed at strengthening country ownership and improving the capacity of developing countries to reduce poverty. I say to my hon. Friend that we will continue to work to ensure that those recommendations are implemented.
It is correct to say, as my hon. Friend argues and as the parliamentarians' petition asserts, that parliamentarians must play their part in the development of poverty reduction strategies in order to underline and reinforce the ownership of development priorities in the countries involved. It is also fair to say that in many cases parliamentary involvement in that process has been weak. That is due sometimes to a lack of capacity, and sometimes to constitutional arrangements within the countries in question. However, over the last two years, 429WH the Department for International Development has been working in-country with some of them to support greater involvement of their parliamentarians. The World Bank is now doing the same in the design and implementation of its lending programmes. Ultimately, however, it is for developing countries to decide how engagement with parliamentarians should happen. Donors and international institutions cannot and should not impose that.
The Government recognise the concerns that nongovernmental organisations and others, including my hon. Friend, express about the effect that conditions attached to loans and aid programmes can have on the sense of local ownership of reform. My hon. Friend cited the example of Zambia, based on the fact-finding visit that she conducted over the summer. To complement the PRSP process, the IMF has already undertaken a considerable streamlining of its conditionality and is due to review its guidelines again this year. The World Bank has also embarked on a streamlining process. The UK is strongly behind that work to ensure that the international financial institution guidelines support country ownership and are implemented in practice. To develop further the UK's approach to conditionality, the Government—the Treasury, DFID and the Foreign Office working jointly—have prepared a consultation document for discussion with key donor and developing country partners and with NGOs. A first draft of that has been circulated to NGOs, and today sees the first consultation discussion with some of those interests. If my hon. Friend is interested, I will ensure that she gets a copy of the draft. It will be formally published in full a little later. The document sets out where and how the UK believes conditionality should be used by multilateral agencies and by itself as a bilateral donor.
The document argues that conditionality can support but cannot buy reform, that countries should have the space to develop policy options and debate them, that donors need to improve the harmonisation and predictability of aid. However, it also states that conditionality is important for justifying aid spending to parliamentarians and to the public in donor countries—I think that my hon. Friend will probably accept that point. After the period of consultation, the Government aim to publish a final document on their policy towards conditionality next year. We want to encourage the engagement of parliamentarians and elicit the views of NGOs and other groups that have shown an interest in the issues.
We agree with campaigners who make the case—as does my hon. Friend—for developing countries' input to be not just in their own country and into their own programmes, but at every level of the institutions. That is why the UK has supported the agenda of strengthening the voice of developing and transition countries in the IMF and in the World Bank. The Government are committed to measures to reinforce the 430WH voice of developing countries in the international financial institutions. We are already a major donor to the analytical trust fund to increase the capacity of the sub-Saharan African executive directors' offices at the fund and at the Bank. We also support exploring options to increase their voice in the boards of the institutions. The South African Finance Minister, Trevor Manuel, leads that work and we hope to see more detailed proposals and analysis in spring. Those issues are scheduled for discussion in the development committee and in the annual meetings of the fund and the Bank at the beginning of next month. If there were to be real progress in the development committee, there would be a real expectation on the international monetary and financial committee to deliver something in the spring.
On the question of scrutiny in this House, which my hon. Friend made a point of raising, I remind her that after the annual meetings last year, the Chancellor and the Secretary of State for International Development appeared before the International Development Committee to update its members and the House on progress. I am sure that if they were invited again, they would be delighted to accept and would welcome the opportunity to pick up these issues with hon. Members then.
On accountability and openness, we recognise that all countries must be accountable to their own citizens in their dealings with the IMF and World Bank. That is why the Treasury has for the past five years produced an annual report on our relations with the IMF, setting out our key agendas and our general positions. We can go further. We will continue to work to make clear the stance that we have taken in the IMF board and how we have voted throughout the year. The next report will make that more explicit, as my hon. Friend urged. As for our relations with the World Bank, this year the Department for International Development has committed to produce an annual statement to Parliament on the positions that it has taken on the World Bank board. In recognising the case for greater transparency, we must also recognise that there are members who fear the effect of greater transparency, especially on the opinions of investors in their own countries. However, we believe that the benefits of transparency outweigh the potential disadvantages.
My hon. Friend began by noting the changing role, priorities, and ways and practices of the two institutions during the past 60 years. That process will continue. This debate has raised some important points about the direction that it should take and I look forward to more debate in this place, especially as we refine the UK's agenda for the important presidencies of the G7 and G8 in the next year. They are an opportunity for this country to play an even greater role in influencing reform in future.
§ Sitting suspended until Four o'clock.