Overseas Development and Co-operation

Part of the debate – in the House of Commons at 8:56 pm on 14th January 1991.

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Photo of Mrs Lynda Chalker Mrs Lynda Chalker , Wallasey 8:56 pm, 14th January 1991

The purpose of the first of these orders is to authorise a contribution of £619 million to the ninth replenishment of the International Development Association, known as IDA. This is the second biggest single commitment from our aid programme after our contribution to the seventh European development fund. We have a high regard for the World bank, of which IDA is a part. It plays a key role in the development process and the United Kingdom has been a firm supporter of IDA since its inception. IDA is by far the world's biggest provider of concessionary finance to developing countries. In the year to June 1990 IDA lending totalled !5·5 billion and in the same period the World bank approved loans totalling just over !15 billion.

IDA was set up in 1960 when it became clear that many countries were too poor to take on conventional World bank loans, which are on quasi-commercial terms. Because IDA terms are highly concessional, it is funded mainly by donors' contributions and not, as with the World bank, by borrowing on the financial markets. But IDA reflows—repayments of earlier loans that go back into the pot to help finance new ones—are becoming an increasingly important supplementary source of funds.

The World bank's goal is to promote economic progress among its borrowers so that they are fully able to turn to the world's financial markets to meet their needs. IDA, in turn, aims to bring its borrowers to the point where their needs can be met by the bank. Many countries have benefited in this way over the years. Former recipients that have graduated out of IDA as their economies have strengthened include Korea, Turkey, Thailand and Ecuador. However, most of the poorest countries of Africa and Asia continue to need substantial and highly concessional aid flows for many years to come. IDA has a key role to play in their development.

IDA resources are also significant for so-called "blend" countries that receive a mix of World bank loans on normal and concessional terms. Such countries include India, Pakistan, China and Nigeria.

Our aid programme is targeted to help achieve sustainable economic and social progress, especially in the poorest countries. Channelling funds through IDA, in collaboration with other donors, is an effective mechanism to advance that policy. At the same time, our substantial and effective bilateral aid programme is focused on the poorest countries. Thus, the funds channelled bilaterally and through IDA are mutually supportive of our central policy objectives.

IDA loans are used mostly for specific projects or programmes within individual countries. In recent years, however, a proportion of IDA resources has been used for non-project lending, mainly structural and sectoral adjustment loans. Adjustment lending of this kind provides vital foreign exchange to help finance essential imports needed to implement economic reform programmes agreed with the international donor community. As the process of adjustment proceeds, we should see a decline in the need to use concessional aid for general balance of payments support. The need will continue, of course, for sector investment and project lending to help sustain the growth that reform programmes are aiming to achieve. Up to 30 per cent. of IDA9 resources may be used for non-project lending, but the impact of the Gulf crisis will almost certainly intensify the need for adjustment efforts in many developing countries.

Our new obligation to IDA is set out fully in the White Paper, CM 1325, but it may be helpful if I comment briefly on the main features. The size and terms of such replenishments are determined through intergovernmental negotiation among interested donor countries. A total of 11·7 billion special drawing rights—about !15 billion—was agreed. Adding in the recycling of repayments on earlier loans, IDA should be able to achieve a lending programme of more than !17 billion over the three years of the replenishment. That is a much better result than we thought possible at the outset and represents a real increase over IDA8. The United Kingdom will contribute 6·7 per cent. of this total—the same share as last time. At the agreed rate of exchange, that means a United Kingdom contribution of £619 million.

We shall pay this sum to IDA by depositing three promissory notes, for equal amounts, over three years from 1990. Those will then be encashed over a longer period, to match spending incurred by IDA as a result of its commitments during the replenishment period. The costs of encashment will be met as they occur, from sums voted for overseas aid.

During the negotiations donors reviewed several policy issues. They underlined the importance of poverty reduction as IDA's central concern, and agreed that greater emphasis should be given to people and their environment. We warmly welcome this. Development will not happen if people remain uneducated and unhealthy and with insufficient access to resources. Development will not be sustainable if we do not take steps to protect our environment. The United Kingdom laid special emphasis on those issues during the negotiations and took the lead in urging the bank to do more to help with the revised tropical forestry action plan. I am also particularly pleased that more attention is to be devoted to trying to bring down the rate of population growth: a better life for all is just not possible if economic growth is outstripped by the growth in population. The prospects for sustainable development are greatly diminished when over-population leads, as it so often does, to environmental degradation.

Donors were also insistent that IDA resources must be used effectively, and that country performance should be an increasingly important factor. Again, we welcome that emphasis. We, the lenders, need to ask whether Government or public institutions are properly addressing the country's needs. Sound economic management, broadly based development, including the reduction of poverty and real efforts towards sustainable long-term developments, are all critical—in other words, good, effective government.

Many donors are above all concerned that IDA resources should be directed towards the poorest countries, particularly in Africa. In IDA8, it was agreed that up to 50 per cent. of the replenishment should go to Africa. The same share will be kept for IDA9, which I welcome. We are pleased that the needs of the large developing countries in Asia have also been recognised, but it is Africa which continues to face exceptional difficulties. The recurrence of the threat of widespread famine is but one facet of that.

Contrary to what the hon. Member for Cynon Valley (Mrs. Clwyd) said in a news release that I received today, the Gulf crisis is not hindering our famine relief efforts in Africa. Every time that Saddam Hussein refuses to withdraw from Kuwait, developing countries dependent on oil and facing increased oil prices are affected. However, I can assure the hon. Lady and the House that we are ready and prepared, and have made provision to maintain our relief programmes without interruption, come what may in the Gulf. That is extremely important.

Another difficulty is the need for economic reform and adjustment in Africa—a fact which is recognised by an increasing number of countries on the continent. The World bank has taken the lead in providing balance of payments assistance for countries prepared to adopt the necessary policy reforms. We strongly support those reform programmes and we have provided funds on grant terms from our bilateral aid programme to supplement IDA resources in such cases. Indeed, the United Kingdom is at the forefront of international efforts to increase resources available to support economic reform in the low-income, debt-distressed countries in sub-Saharan Africa. Under the first stage of the special programme of assistance for sub-Saharan Africa donors pledged a total of !6·3 billion of aid in addition to the finance available from the World bank and the IMF. That special programme is a World bank-led effort to ensure well co-ordinated financial support for the import requirements of economic reform programmes. For our part, we pledged up to £250 million of British bilateral programme aid over the three years of the special programme; that pledge has been fulfilled. A second three-year phase of the special programme has now been agreed and I am aiming to make available at least the same amount of bilateral support.

Measures have also been adopted—the "Toronto terms"—to ease the burden of debt on the poorest countries, mainly in Africa, undertaking economic adjustment. Those measures were first proposed by the United Kingdom. Nineteen countries have already benefited. My right hon. Friend the Prime Minister, while he was Chancellor, proposed ways of further easing the burden—the "Trinidad proposals". Those would involve a reduction of two thirds—!18 billion—in the stock of debt of the poorest countries. We are now seeking to persuade other creditor countries to accept those proposals.

I referred earlier to the effects of the Gulf crisis, which for most developing countries are severe. Apart from the increase in oil prices, many of those countries are suffering in other ways, notably from the loss of remittances from expatriate workers, plus the problems of reabsorbing those workers into their home economies. Many IDA recipients are seriously affected and will require extra help in this financial year, and beyond. Some countries with average incomes just above the normal upper limit for IDA are amongst those worst hit, and the bank hopes to be able to offer some IDA assistance to several of those latter countries, too. Indeed, it is because the bank is anxious to start helping as soon as possible, and because our agreement to contribute is expected to trigger IDA9's effectiveness, enabling the replenishment to be committed, that we are having this debate rather earlier than has tended to be the case in the past.

The extra assistance will come from a variety of sources, mainly by accelerated use of donor commitments both to IDA9 and to earlier replenishments that are not fully paid up and by voluntary contributions from donors. We expect to be able to help the former. We fully support IDA's central aim of alleviating poverty and its concentration of resources in key areas, especially in agricultural and rural development and in energy.