Overseas Development and Co-operation

Part of the debate – in the House of Commons at 9:18 pm on 14th January 1991.

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Photo of Ann Clwyd Ann Clwyd Shadow Secretary of State for International Development 9:18 pm, 14th January 1991

As the Minister says, the World bank may be a leading development institution, but unfortunately it has an appalling record of funding disastrous projects and of forcing developing countries to restructure their economies so that they have to use their resources to pay their debt. It is focused on economic growth and not on people and the quality of their lives. Recently there have been signs of change. Last year, in its first report on poverty in 10 years, it recommended strategies to alleviate poverty.

The bank also appears to be developing an environmental consciousness. Both the IMF and the World bank have begun talking about taking into account how well Governments serve their people, rather than just the creditors, and are looking at—and frowning on—excessive military expenditure. These changes should be welcomed and encouraged, but we have heard words about the poor from the bank before, and nothing has changed.

Will there be a genuine shift this time? What will the Government do to monitor future bank lending? How do they propose that the bank should implement its new poverty focus? The Government have adopted a passive and complacent role, supporting both United States and World bank ideology. They have defended the bank's record, but with little debate on the issues involved. In what direction do the Government think that the bank should be going? What position was put forward by the United Kingdom executive director in recent debates on bank policy?

The three priority areas identified for IDA9 are poverty reduction, support for sound economic policies and the environment. Have the Government reviewed past policies and recommended changes for the future? How does United Kingdom aid policy fit in with the new bank priorities? What changes in policy are the Government planning? What factors determine the level of United Kingdom contribution to IDA9 and the decision not to make supplementary contributions? The answer seems to be that, as usual, the Overseas Development Administration is muddling along with no clear policy or decisions, supporting a bit of everything. The Government's attitude to the world development report on poverty provides a clear example. The two-pronged strategy for the poor—labour-intensive growth combined with investment in health and education and a safety net for the poorest—marks a significant and important change in World bank thinking, and should be welcomed.

Like the ODA, the bank has focused on structural adjustment, earning foreign exchange and paying debts to the exclusion of all else. The newly announced policies should be welcomed as a significant change. Then, every ounce of political pressure must be put into ensuring that the new policies are translated into actions, and reforming United Kingdom bilateral policies to the same end. Unfortunately, the Government have hardly acknowledged the shift by the bank. Far from pledging that the United Kingdom will now focus on poverty alleviation strategies, the Minister conveniently gives the impression that all is in hand, that no change is needed, and that we can sit back and do nothing new.

Can the Minister, in all honesty, be so complacent? We are talking about whether 300 million people can climb out of poverty by the year 2000. We are talking about the lives or deaths of millions of children. We are talking about whether Governments in the north and south will take these extra steps and make these extra efforts for the quarter of the world's population living in poverty. Why does the Minister continue to give anodyne answers about all aid and growth benefiting the poor? She should admit instead that the bank and the ODA were wrong. Growth simply does not trickle down to the poorest. Structural adjustment in the 1980s has not solved the economic crisis. More than 1 billion people live in dire poverty and it is time to focus our best efforts on them.

What is needed in the 1990s is economic adjustment which redirects resources to the poor and invests in people, along with large flows of concessional funds, debt reduction and better trade. The recommendation that a Government's commitment to poverty reduction be one of the main performance criteria deciding the allocation of IDA resources has major implications. Just how much weight will be given to this?

The Labour party would be delighted to see international funds focused on Governments with a genuine commitment to helping their citizens. Are the Government willing to back up that policy? Perhaps the Government will tell us whether United Kingdom aid policy will change in line with the bank's new thinking. I understand that the bank has issued a handbook on implementing the new poverty emphasis. I wonder whether it has been issued to the staff of the Overseas Development Administration.

The bank projects that the number of people living in poverty in Africa could increase by up to 100 million. It notes that with an extraordinary effort by donors and Governments that increase could be avoided. The bank's report on Africa in October 1989 entitled, "From Crisis to Sustainable Growth", laid out a strategic agenda for donors and Governments and called for a doubling of spending on the development of human resources. It called the target of 4 per cent. to 5 per cent. annual growth in Africa "ambitious but achievable" if donors increase aid by 4 per cent. per year in real terms to reach !22 billion at today's prices by the year 2000. Can the Minister explain how, with an aid budget planned to stagnate in real terms, the United Kingdom will play its part?

The report on sub-Saharan Africa was not a one-off shot in the dark. The conference, which was organised by the Dutch Government, began by building a consensus around the report. Who represented the United Kingdom at that conference and what views did they contribute? Are the Government supporting the movement for a new global coalition or are they, as I suspect, dragging their feet?

The special needs of Africa for concessional flows have been recognised by the bank in the form of a special programme of assistance. There is now agreement that Africa needs more aid and more debt relief, but what is being done to secure it? The bank is funding a debt reduction facility to buy up the commercial debt of the poorest countries. Those are the IDA-only countries. The overhang of commercial debt is small but weighty because it inhibits new private investment and trade. Removing it is relatively easy, but vital. Just as damaging is the debt owed to the multilateral institutions. Sub-Saharan Africa owes more than !20 billion to the World bank and last year it handed over !1·5 billion in debt servicing. How can the bank possibly promote labour-intensive growth strategies and investment in the poor when the money that it puts in comes straight out in debt repayment?

Sub-Saharan Africa owes !20 billion to the IDA and the International Bank for Reconstruction and Development. The new policies being promoted in Washington cannot be realised until the contradiction is resolved; yet we have heard little from the Government about reducing multilateral debt. Debt undermines everything else. Bank loans still stress the importance of exports to earn foreign exchange to pay for debt servicing. Export promotion often means huge capital-intensive and energy-intensive projects. That means less money for investing in the poor, and more huge dams and power stations which displace people and destroy the environment.

The Minister implies that the United Kingdom is active in the World bank but prefers to keep quiet about the powerful muscles that are stretched behind the scenes. If the United Kingdom has been willing to stand up to the bank, how is it that millions of dollars have been spent on projects which have left hundreds of thousands of people homeless and decimated so many acres of agricultural land?

Why is it that the Sardar Sarovar dam in India is still going ahead after five years of bitter controversy? Total World bank funding is !450 million, of which !250 million is from the IDA. The project will submerge 13,744 hectares of forest and 11,318 hectares of valuable agricultural land. Ninety thousand people will be displaced—yet, six years into the project, no adequate resettlement plans exist. Crucial environmental studies were not undertaken at the beginning, and World bank policy on involuntary settlement has been broken. Even basic information about the project was kept from those threatened by the dam. Thousands of "oustees" have made peaceful demonstrations, and Indian non-governmental organisations have adopted a policy of peaceful non-co-operation, calling for the project to be scrapped. Several Indian Government officials now agree that the plans should be reviewed. Members of parliaments all around the world have called on the bank to cancel the project.

The World bank responded by sending more missions and by laying conditions on the Indian Government, but in most cases it has acted too late, or has ignored the recommendations of its own staff to suspend the loan. In July 1990, credit was extended for a further year on condition that satisfactory progress was made with its conditions for improved resettlement plans. However, land has still not been found to resettle 90,000 people.

Can the Minister explain why that disastrous loan has not been suspended? Of course developing countries need energy to develop their economies, and it would be wrong to block projects which can benefit the poor because we in the northern hemisphere have abused the environment and are not prepared ourselves to end harmful practices. However, the projects in question do nothing to help the poor, but devastate their lives instead.

There is an alternative to that madness. Mega-disasters such as Sardar Sarovar need never have happened if the World bank had considered energy conservation properly. Research in America by the Environmental Defence Fund shows that if, instead of investing !1·5 billion in Sardar Sarovar, a smaller investment had been made in conservation measures—including high-efficiency motors and fluorescent lighting—that would have produced three times as much electricity. However, it is clear from World bank appraisals of that project that energy and irrigation alternatives were not adequately reviewed.

What are the irrigation alternatives? Of 246 large-scale projects begun in India since 1951, 181 are still incomplete. Some are World bank projects. Instead of sinking funds into new dams, why does the bank not review incomplete projects and finish those which are environmentally and socially sound? At the same time, the bank would do well to switch to small-scale irrigation projects which directly serve and involve local communities. Sardar Sarovar is just one example. Throughout the world, 70 projects funded by the World bank, and many IDA-funded projects, are displacing 1·5 million people; yet the bank cannot document one case in which a displaced population is not worse off than before.

Energy sector lending has become the World bank's biggest sector in recent years, accounting for up to one fifth of all loans. However, only 3 per cent. of energy and industrial sector lending has gone into inducing energy efficiency improvements in the past 10 years. In India, not one dollar of the !8·5 billion spent on the energy sector has gone into improving the efficiency with which energy is consumed. The economic benefits of energy conservation are clear. The World bank's own study suggested that conservation measures saving 20 per cent. of commercial energy used in the developing world would amount to about !30 billion per annum of total government savings, which is equivalent to about two thirds of total aid flows. It is equivalent to 60 per cent. of the net flow of resources from poor to rich due to debt servicing. Recent announcements that the bank will increase its support for energy efficiency and the recommendations on that in the IDA9 agreement are greatly welcomed. However, will the Government carefully monitor whether lending is indeed focused upon renewable energy, energy efficiency and least-cost planning from now on? A radical switch in priorities is an economic and environmental necessity.

The new IDA9 agreement contains unprecedented language on many environmental aspects of its work, and that is very much to be welcomed. It is good to see references, at last, to increased public access to information on IDA projects and programmes, public participation in IDA projects, and improvement and implementation of the bank's operational directive on environmental impact assessments. However, the bank still has a long way to go. It first announced its environmental reforms and the creation of an environmental department in 1987, but examination of projects since then shows that the hoped-for improvement in the bank's policies, especially regarding tribal people and forced resettlement, has not materialised. The goals and guidelines are there, but they have not been incorporated into the bank's operations.

The central environmental department has been marginalised as the 1987–88 reorganisation decentralised decisions to regions, while the four environmental units in the regional offices are hampered by lack of authority and small budgets. The operational directive on environmental assessment encourages, but does not require, public involvement in the process of drawing up environmental impact assessments. It states that the need for environmental impact assessments should be considered, not that it must be done, and it explicitly includes non-project and structural adjustment lending from environmental improvement assessments.

Can the Minister assure the House today that work is under way to ensure that the new environmental language in IDA9 is implemented? Can she report any evidence that the bank is making environmental assessments available to the public, carrying out environmental impact assessments in all necessary cases and involving the people most affected by projects?

The news that the World bank is to triple funding for forestry is worrying, given the bank's previous forestry record and the decision to channel those funds through the tropical forestry action plan. So far, TFAP has promoted commercial forestry and ignored the needs of indigenous people who rely upon the forests, and last year's review process has not solved that problem. For example, one of the first projects to be funded by the bank is a !23 million forestry and fisheries project in Guinea. In fact, it is a deforestation scheme, paying for the construction of 45 miles of road in or around two humid forest reserves totalling 150,000 hectares, two thirds of which are pristine forest, of which two thirds will be opened up for timber production. Just as the Government should refuse to channel funds through the TFAP mechanism until comprehensive reviews are in place, so should the World bank.

The Minister mentioned the effects of the Gulf crisis, and the level of replenishment of IDA9 more than maintains the real value of IDA8. That is also to be welcomed if the reforms are implemented and the money is well spent on genuine development. However, there is no doubt about the enormous need for concessional funds in developing countries, and the Gulf crisis has certainly exacerbated the situation.

The oil price rise is devastating third-world countries. In Mozambique, one of the five countries hit by famine, flights of food supplies have been cancelled because fuel costs are too great. In this context, I was glad to hear the Minister say that the increased costs would not hamper famine relief for Ethiopia, the Sudan, Angola and Liberia.

According to United Nations economists, the world's poorest countries will have to find an extra !32 billion for oil this year. Already crippled by debt repayments, they simply cannot afford to buy the oil to keep their economies going. At the same time, many developing countries have lost a vital source of foreign exchange as their nationals have had to flee home from the Gulf. Before the invasion, one third of Bangladesh's foreign exchange earnings came from workers in the Gulf; now Bangladesh has not only lost vital earnings, but has had to cope with transporting and supporting thousands of refugees.

The crisis has already cost African nations !2 billion last year. India, Pakistan, Bangladesh and Sri Lanka lost more than !2·5 billion. All four import oil, had strong trade links with Iraq and Kuwait, and depended on remittances from thousands of citizens working in the Gulf.

Under article 50 of the United Nations charter, countries affected by United Nations actions can claim compensation, but the United Nations' has no budget allocation with which to pay them. Egypt, Jordan and Turkey are receiving aid in partial compensation for the enormous toll that sanctions take on their economy, but the poorest nations, which are devastated by the oil price rise, have received nothing. The Government should work with others to set up a United Nations' fund to finance article 50. Without that, those least able to pay will bear the costs of the crisis.

Finally, I must say a few words about the Caribbean development bank. Like other regions, the Caribbean needs aid and capital flows, but debt and the Gulf crisis are taking their toll there as well. The current oil crisis means that Jamaica will have to pay an extra !50 million each year for its oil imports. Uncertainty over the Gulf, combined with recession in the United States and Canada, is already hitting the tourist trade, a major source of foreign exchange. Jamaica is one of the most indebted countries in the world—its !4·5 billion debt represents !1,800 for every man, woman and child on the island while gross national product is just !1,200 per person. A hefty proportion of the debt is owed to the World bank and the International Monetary Fund. Along with bilateral donors, those official agencies are now taking more out of Jamaica than they are putting in through new loans. Not surprisingly, research shows that one third of Jamaicans are unable to feed themselves adequately. The Jamaican Government want to invest in health and education, but under IMF auspices the percentage of public spending devoted to those essentials has declined.

The need for the Caribbean countries to develop and diversify their export base has long been recognised. Continued dependence on goods such as bananas could be crippling after 1992. Not enough thought is yet being given to the impact of the European single market on developing countries. The various mechanisms, such as the Lome convention and the United States Caribbean basin initiative, have not brought about sustained export growth in new sectors. The Caribbean development bank must support the continued effort for export diversification. For the British dependencies, the Caribbean development bank provides a valuable link with multilateral funds to which they would not otherwise have access.

I welcome both the orders, although I enter a caveat in regard to the Caribbean development bank. That part of the world needs every possible form of help if it is to overcome the major structural problems that exist in the region as a whole.