§ Mr. DafisTo ask the Secretary of State for Foreign and Commonwealth Affairs what action is being undertaken by the Overseas Development Administration to explore ways of limiting cash flows from lower to upper income countries.
§ Mr. Lennox-BoydCash flows from lower to upper income countries can be limited through debt relief and through pursuance of policies by lower income countries which attract investment and discourage capital flight.
The Government have consistently taken the lead in promoting debt relief measures for the poorest countries. Agreement to begin implementing the Prime Minister's Trinidad terms initiative to relieve the burden of debt on these countries was achieved in December 1991. Five countries have already benefited from the terms, and we expect more to do so over the coming months. As these new arrangements take effect, we can expect a significant reduction in repayments due to Government creditors. In addition, the ODA has relieved developing countries of around £1,000 million of old aid loans since 1980.
The United Kingdom has supported and provided its share of the finances needed to implement a 1989 agreement, known as the Brady plan, to help deal with the problems of a commercial bank debt. Under the Brady plan, the IMF and World bank set aside a part of their existing lending to indebted countries to support commercial debt reduction operations. They do this by financing debt buy-backs at a discount, or by providing collateral for reduced principal or interest payments. We are now seeing the fruits of this agreement and arrangements to cancel substantial proportions of commercial bank debt have been agreed, or are likely to be agreed soon, with most of the largest debtors.
The pursuit of policies aimed at sustained economic growth is fundamental to overcoming the problem of outward financial flows. One of the main aims of our aid programme is to help developing countries do this as effectively as possible. Recent experience in Latin America shows that determined adjustment and policy reform 201W efforts can quickly attract considerable amounts of foreign direct investment. There has been progress also, particularly in Mexico and Chile, regarding the effective mobilisation of domestic resources, including substantial return of flight capital.