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International Development Association

Volume 126: debated on Monday 1 February 1988

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1.17 am

I beg to move,

That the draft International Development Association (Eighth Replenishment) Order 1987, which was laid before this House on 7th December, be approved.
The purpose of the order is to authorise a contribution of £524,160,000 to the eighth replenishment of the International Development Association. This is a major element of our aid programme — our second biggest single commitment, after our contribution to the European Development Fund.

As the House will know, the association is the soft loan affiliate of the International Bank for Reconstruction and Development—more popularly known as the World Bank. It was set up in 1960, when it became clear that many countries were too poor to take on conventional World Bank loans on quasi-commercial terms. Because its terms are highly concessional, the IDA is mainly funded by donors' contributions and not, as with the World Bank, by borrowing on the financial markets.

IDA approved credits of $3·5 billion in the year to June 1987. In the same period, the World Bank approved loans totalling $14–2 billion.

The IDA aims to promote economic progress in the poorer developing countries by providing financial and technical assistance, mainly for specific projects. Just as the Bank's goal is to bring its borrowers to a point where they are fully able to turn to the world's financial markets to meet their needs, so IDA aims to bring its borrowers to the point where, one day, their needs can be met by the Bank.

Many countries have benefited in this way over the years. The most notable case is, perhaps, Korea, which graduated out of IDA in 1973, and whose economy has gone from strength to strength. But most of the poorest countries of Africa and Asia, which are IDA's customers, will continue to need substantial and highly concessional aid flows for many years to come. IDA, therefore, has a key role to play in their development.

Our efforts, through IDA and other international development agencies, complement our aid programmes, to which we attach particular importance. We maintain a substantial and effective bilateral aid programme, the quality of which was recognised by the OECD at its last review of British aid. It is focused primarily on the poorest, IDA-eligible, countries; more so than OECD bilateral aid generally.

Although IDA credits are mostly for projects, in recent years there has been an increasing emphasis on non-project lending, mainly structural and sectoral adjustment loans. Lending of this kind provides vital foreign exchange to help finance essential imports for those countries that are making an effort to get their economic house in order. Structural adjustment programmes usually follow a period of economic decline, which inevitably brings increasing hardship. There is understandable concern, which I share, about the plight of the poorest and most vulnerable groups in those circumstances.

In the long run, everyone should gain from the resumed economic growth made possible by successful adjustment. In the short run, there are some gainers too. For example, policy reforms such as higher agricultural prices will benefit many poor farmers. But there are other groups who will lose, particularly townspeople who have previously received Government subsidies in one form or another.

The World Bank and other donors, including Britain, have become increasingly aware of the human cost of economic decline in poor countries, and are trying to find ways to give a human face to the adjustment process by targeting aid on the needs of the poor.

The ODA took part last year in an initiative launched by the Government of Ghana, with assistance from the World Bank and the United Nations agencies, to consider what may be done to help poor and vulnerable groups in that country during the period of adjustment. The Government of Ghana have produced a programme which will be discussed later this month at a donors' conference, at which Britain will be represented.

The bank, the UN development programme and the African Development bank are together paying for a five-year project which aims to assess the impact of structural adjustment and to design poverty-alleviation programmes, which will increase the access of the poor to employment and to income generation. This project, which many of the United Nations agencies will supervise, is to be executed by the World Bank. But developing country governments must face up to some difficult political changes, so that their own resources are deployed where the benefits to poor people will be greatest.

It may help if I give the House some of the background to this new obligation to IDA, which we have accepted, and which I now ask the House to endorse. Negotiations for the eight replenishment were tough and lengthy, but there was a sense of urgency and even generosity about them, by contrast with those of the seventh replenishment, which began a year late and yielded a negotiated total of only $9 billion –25 per cent. down, in cash terms, on the sixth replenishment. As it was soon recognised as inadequate, especially to meet the needs of the poorer countries in Africa, the seventh replenishment was supplemented by a special facility for Africa. That brought the total up to $10·6 billion. Britain played its part in providing a contribution of £75 million to the special facility.

For the eighth replenishment, donors have agreed a negotiated total of $11·5 billion. We shall contribute our 6·7 per cent. share to that—the same percentage as last time. In addition, however, some donor countries are making voluntary extra contributions. These total $900 million, including a special pledge of $15 million from the United Kingdom. The overall amount raised by donors is $12·4 billion.

When account is also taken of repayments of earlier loans, IDA should be able to sustain a lending programme of more than $13 billion over the three years of the replenishment. Some 70 per cent. of contributions are payable in non-dollar currencies, in amounts fixed at 1986 rates of exchange. Thus, IDA is substantially protected from the effects of the depreciation of the dollar since 1986. At today's rates of exchange, the replenishment is worth considerably more than $12·4 billion. Early in the negotiations a target range of $10·5 billion to $12–5 billion was established, and the result is at the top of the range.

Many contributors to IDA are above all concerned that the amounts that they provide should help to deal with the special problems of the poorest countries, particularly in Africa. It has been agreed that at least 45 per cent. of eighth replenishment lending should go to Africa, and that an additional 5 per cent. would be available if necessary to meet the needs of countries making structural adjustment efforts. That compares with only 44 per cent. of the combined seventh replenishment and special facility. Up to $3–5 billion will be allotted to fast-spending adjustment aid. The bulk of IDA's lending will still be for longer-term development projects, however, and we are particularly satisfied that, in addition to Africa, the needs of the large developing countries in Asia have been recognised.

Countries south of the Sahara are facing exceptional difficulties. I am glad to say that there is widespread recognition by African Governments of the need for determined measures to lay the foundations for economic recovery. 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 these structural adjustment programmes and we have provided funds from our bilateral aid programme to supplement IDA resources in such cases.

Like the bank, Britain is at the forefront of efforts to increase resources available to support economic reform in the low-income, debt-distressed countries in sub-Saharan Africa. At a very successful meeting in Paris in December, bilateral donors pledged a total of $6·3 billion of aid as part of the bank-led effort to ensure well coordinated support for these reform programmes. For our part, we have said that we would expect to make available up to £250 million of British bilateral programme aid over the next three years.

Agreement has been reached in the IMF for a substantial increase in the fund's structural adjustment facility, which will increase it almost threefold. Through additions to the aid programme, Britain is contributing sufficient to subsidise interest on £750 million worth of new structural adjustment facility lending, at current interest rates. This offer was warmly welcomed by M. Camdessus, the IMF managing director.

Additionally, as the House will know, my right hon. Friend the Chancellor of the Exchequer has made far-reaching proposals to ease the burden of debt on poorer countries in Africa undertaking economic adjustment, the cost of which would be additional to the existing planned aid budget. There is also general agreement on the need for an early and substantial increase in the World Bank's capital, to enable its lending programme to expand, as we all would wish, over the next five or six years. Discussions are proceeding on these matters, and I am sure the House joins me in hoping that they will be concluded successfully.

The order will give the Secretary of State authority to make a United Kingdom contribution of £524·16 million. We shall pay this to IDA by depositing three promissory notes, for equal amounts, over three years from 1988. These 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. The detailed arrangements of the workings of this replenishment are clearly set out in the reports of the bank's executive directors which, together with the IDA resolutions dated 24 February 1987, have been published as a White Paper with which I am sure the House is familiar—Cmnd. 251.

There is, perhaps, one point which I should draw to the attention of the House, on which I am bound to say that we did not achieve quite the result that we should have liked. The terms of IDA-8 credits will be slightly less concessional than those under the previous replenishment. With a grant element of 77 per cent. for the poorest countries and 74 per cent. for others, however, they will nevertheless be more generous than the 72 per cent. grant element which was provided for the first IDA credits in 1961.

We argued that the softer IDA-7 terms should be retained, but eventually conceded some shortening of maturities to secure agreement on the highest possible replenishment total. When maturities are shortened and credits are repaid more quickly, that does of course have the incidental benefit of making more money available for new commitments in the short run. It is also true that for the poorest countries the new IDA lending terms parallel those already in use in the Asian Development Fund.

We are glad to support IDA's central aim of alleviating poverty, and its concentration of resources in key areas, especially in agriculture, rural development and energy. We welcome its action to tackle the problems of the poorest, and particularly the poorer indebted countries in Africa. We support its attempts to help those countries improve the co-ordination of aid from all sources. We play a vigorous part in such co-ordination.

The IBRD and IDA are the world's leading development institutions. They constitute the cutting edge for change and for improvement in the social and economic conditions in developing countries. Successive British Governments have supported them, and our commitment now is as firm as ever. I commend the order to the House.

1.30 am

We welcome the order for the eighth replenishment of the World Bank's International Development Association. As the Minister has said, the IDA is the most important multilateral aid agency that provides funds to the poorest countries. It plays a crucial role in development, providing concessional funds to countries that are almost wholly dependent on public, rather than private, flows of finance.

Today's Financial Times carries a report on the latest aid survey conducted by the OECD. It provides ample evidence to illustrate the crucial importance of the IDA, and paints a gloomy picture of the outlook for aid from the industrialised countries. The volume of overseas aid is growing at a mere 1·5 per cent. in real terms. That is even less than the OECD's projected trend of 2 per cent. a year. The aid performance of industrialised countries is clearly inadequate, and more funds, bilateral and multilateral, are urgently needed.

More official aid is needed because the private sector is no longer funding development on the scale achieved in the 1970s. The OECD report, published yesterday, shows that since 1980 the share of private flows to the Third world has dropped from 51 per cent. to 32 per cent., whereas the share of total official development assistance has almost doubled from 36 per cent. to 65 per cent. What an extraordinary verdict that is on the monetarist 1980s. All that spirit of enterprise unlocked, all those unfettered free markets and the end result is that the Third world is more dependent today on public-sector finance than ever before.

For these reasons, the IDA is becoming more, not less, important; and that is why we welcome the replenishment order. The sum agreed over the next three years is $12·5 billion. We welcome that amount, but believe it is far too little, given the needs of the poorest countries. The last but one replenishment of IDA — the so-called IDA-6 — in 1979 amounted to $12 billion in cash terms, so, in real terms, today's replenishment is drastically reduced.

So, too, regrettably, is the British Government's contribution. In 1979, the United Kingdom contribution to IDA-6, agreed by the Labour Government, amounted to 10·1 per cent. of the total replenishment. The Tory Government subsequently slashed the size of our contribution to only 6·7 per cent. That dramatic cut in United Kingdom support for the IDA should be reversed as quickly as possible. At the time, Tory Ministers gave the excuse of a weak economy to justify the reduction in Britain's role within the IDA. The Chancellor seems to have billions available today for tax cuts. Is it not time, therefore, to restore United Kingdom status within multilateral agencies, such as the World Bank, by increasing the size of our contributions?

I hope that the Minister can substantially improve on the recent small increase in the aid programme. Increased spending would be welcome in both bilateral and multilateral aid. Our record against the United Nations target is deplorable and likely to get worse as the United Kingdom economy grows faster than the small increase in the aid budget. The Minister should re-commit the Government to the UN aid target of 0·7 per cent. of GNP and establish a timetable of spending increases.

That is why I again refer, as I did on Monday, to the fact that my hon. Friend the Member for Cunningharne, North (Mr. Wilson) has introduced a Bill to require a timetable and to concentrate our aid on the poorest countries and the people within them. I hope that the Minister will look carefully at the Bill. Given the time constraints, it is unlikely to be given a Second Reading on 12 February, but perhaps the Minister, as I asked him the other day, can persuade the Leader of the House to provide some time in the near future to discuss the matter.

Of course, as the Minister has said, the International Development Association is similarly concerned with the poorest countries. It is mandated to lend to low-income nations, but it is not primarily concerned with the poorest groups within such countries. Opposition Members would like to see a greater emphasis on poverty alleviation in IDA programmes. Projects that are specifically targeted to benefit the poor are often the most challenging. Nevertheless, the World Bank should ensure that it becomes a pioneer agency in project work among the poorest groups.

Many hon. Members will remember that, in 1973, Robert McNamara's famous speech in Nairobi gave the major impetus to the bank's work on poverty alleviation. The rural poor became the focus of much activity and programme funding. The study, "Redistribution with Growth", provided intellectual force to the new policy trend. At the same time, the bank markedly increased its lending for agriculture and rural development.

In the 1980s, however, the bank moved away from that agenda. Under the leadership of the commercial banker, Tom Clausen, the explicit poverty focus was weakened and lending programmes—for example, in rural development —have declined. I believe that that change of direction, no doubt provoked by the monetarist ideologues of the early 1980s, was a big mistake. Under the new leadership of Mr. Barber Conable, it seems that the bank is rediscovering the wisdom of the McNamara years.

There is ample evidence that the bank's work on poverty alleviation was successful. A recent study by the Washington-based Overseas Development Council shows that poverty-focused projects have
"turned out to be what the bank does best".
ODC research proved that the rural poor are amongst the most reliable borrowers; they are more likely to invest wisely and repay promptly than the better-off. The bank's poverty projects also enjoy a better overall performance, with fewer project failures and high rates of return. Such investment in so-called human capital makes humanitarian and economic sense. The ODC concludes that
"empirical research sustains the thesis that satisfying basic human needs yields high rates of economic return".
We hope that the next round of IDA spending will see a return of poverty alleviation as the major mandate of the bank and the IDA. We also expect IDA funds to be used creatively to offset the worst impact of the debt crisis on the world's poorest countries. As a key source of credit, IDA has a major role in the process of economic adjustment forced on so many low-income nations, especially, as the Minister has said, in sub-Saharan Africa.

Recently, both the World Bank and the International Monetary Fund have spoken approvingly of the arguments put forward by the United Nations Children's Fund for adjustment with a human face. UNICEF argues that the inevitable economic changes required, as a result of mounting debt and the impact of world recession, should not cause a deterioration in the living standards of the poorest groups. Human-faced adjustment would guarantee basic needs and ensure that vulnerable groups, especially women and children, are targeted to prevent undue hardship. There can be no disagreement with that.

Since UNICEF's arguments have been accepted, at least at the level of rhetoric, the challenge now is to implement this policy approach. Donors, both bilateral and multilateral, should now ensure that their grants and loans are tailored to the social and economic needs of the poor. IDA funds are being used to support structural adjustment lending, but the bank's existing record in protecting the poor during adjustment is mixed. The bank's own report, published a few years ago, called "Focus on Poverty", admitted that, although the bank
"has argued forcefully for the removal of subsidies, it has been less effective in finding positive ways of targeting subsidies to low-income consumers".
The report added that the bank has rarely considered
"who will carry the heaviest burden of adjustment."
The bank must now take the lead in promoting adjustment with a human face. That will mean careful analysis in each debtor country of the social side of the economy. Too often, only financial criteria are applied.

Tragically, as we all know, the International Monetary Fund demands stringent adherence to financial targets for public sector budgets. The inflation rate is part of that. Why do we not pay attention to key social indicators of economic well-being, such as infant mortality rates or nutrition levels? They are just as valid measures of economic viability, but they are usually ignored.

Sadly, the adjustment process is more discussed these days than development. The debt crisis has simply arrested the economic and social progress of the Third world. Hopefully, adjustment with a human face can restore real development. As time passes, IDA will inevitably be at the centre of this debate, but the United Kingdom aid programme also has a role to play. I should be interested to know in what way the Minister is reshaping our country's programmes to ensure that adjustment with a human face will really happen.

An important step to ease the burden of adjustment is the easing of the debt burden itself. In this respect, I think that IDA could take direct action. Unlike the main lending arm of the World Bank, IDA does not borrow on the capital markets or depend on a highly favourable credit rating. The IDA raises all its funds from donor Governments. It could therefore take the initiative to cancel outstanding debts without in any way damaging its ability to make further loans.

IDA now has outstanding credits of about $20 billion. This sum, although small in terms of total debt, will become a significant burden for low-income debtors in th late 1990s. Why not convert these loans into grants and, in the future, offer all IDA funds on grant terms rather than loans?

In 1978, the Labour Government accepted the wisdom of turning former aid loans into grants for United Kingdom bilateral aid to the poorest countries. This policy has featured recently as the true substance of the so-called "Lawson" debt plan. A more imaginative and original idea for the Chancellor to propose would be the effective cancellation of IDA debts. I should be interested to hear the Minister's views on tackling the problem of debt owed to the multilateral agencies.

Finally, most of us would agree that it was very interesting to hear the new president of the World Bank when he addressed the all-party group on overseas development the other week. His speech was refreshing because he addressed many of the points that have been raised today. He recognised the problem of poverty alleviation and of adjustment. In particular, he addressed in a powerful way the eagerness that he has to ensure that the bank adapts its programmes to take account of environmental issues and the role of women in development.

I believe that he is sincere in these ambitions and means to force real change within the bank. We wish him well and hope that the policy initiatives that he is planning in both areas bear fruit. Over the long term, the bank's credibility rests on its ability to tackle poverty and to promote development that embraces all the community — men, women and children. Public support, so crucial for an institution like the World Bank, will depend on the president's ability to translate his words into practice.

1.43 am

I begin by congratulating my hon. Friend the Minister on the generous way in which he has treated the International Development Agency replenishment and on the way in which he and my right hon. Friend the Chancellor of the Exchequer have joined together to ensure that the IDA, the World Bank and the international community approach the problems of the most indebted countries in Africa and in sub-Saharan Africa in particular.

I also congratulate my hon. Friend on the way in which he has made certain that we in Britain contribute more than our fair share to the IDA replenishment. We have contributed an additional $15 million over and above our share related to our gross national product. However, the amount is insufficient, as the hon. Member for Eccles (Miss Lestor) has said. The need for the original IDA-7 was estimated by the World Bank at $18 billion. The replenishment was originally as low as $9 billion. But for the special facility for sub-Saharan Africa, our contribution to IDA-7 would have been very low. Fortunately we were able to increase it to approximately $11 billion because the Minister agreed to contribute to the special facility for sub-Saharan Africa.

The replenishment at $12 billion is a great achievement and is to be welcomed, but it is lower than the $18 billion which was originally thought to be necessary for 1DA-7. I estimate that the real need approaches $25 billion, which is almost double the replenishment. However, we must not forget the additional amounts put into IDA directly by the profits made out of the World Bank's operations worldwide. That is a considerable increase in the amount available for investment on IDA terms in the poorest countries.

Distribution is always a thorny subject within the World Bank and we must argue it out in years to come. Traditionally, India and the sub-continent of India together have taken well over 40 per cent. of the IDA distribution. That figure is falling. India has voluntarily given up that large percentage and the figure is falling in favour of sub-Saharan Africa, but it is increased by the necessity to give to China—another low-GNP-per-capita but large country. That poses a major problem for IDA in its distribution profile.

I believe that the GNP per capita criterion is misleading. It discriminates against the most impoverished parts of Africa and also against islands and small territorial states which are not in the same league as China or India, both of which are nuclear powers with enormous armies and navies, and which are very powerful in their own right. The smaller countries and island states can lay claim to a higher per capita income but are much less powerful and have many poor people. So the GNP per capita criterion has to be re-examined closely by the bank. It is doing so, but on an ad hoc basis as it tries to give more to sub-Saharan Africa by common consent.

The IDA replenishment is essential for the poverty-stricken countries of sub-Saharan Africa to enable them to handle their debts. There is no way in which those countries could get out of debt without concessional lending. If people object and say that this is the wrong way to help countries out of their indebtedness, let them cast their minds back to the Marshall plan through which the United States helped Europe and Japan to recover from the second world war. It was on even more concessional terms than are given by IDA. What an enormous help that was to enable Europe and Japan to trade again in the world's trading systems, to provide an increasing standard of living and to rebuild their capital equipment.

The same story is repeated in India, for example. The IDA has many proud graduates from the original score of countries which it helped. India is not yet among them, but, through IDA help, she has begun to be able to be self-sufficient in food.

The IDA is able to lead such enormous successes. They must now be reproduced in the poorest countries in Africa. The IDA must try to ensure that the policies that are adopted, conditional on IDA loans, produce the wealth creation necessary to increase the standard of living so that those countries can absorb our products. We can help them to build up their national resource.

It is only through IDA and similar lending, and the initiatives such as my hon. Friend the Minister has taken by cancelling loans and making them grants, that we can help countries out of their severe indebtedness.

Many Carribbean countries have recently been graduated out of IDA. I remind the House of what I said about small island states. They are graduated on a gross national product per capita basis when they should be IDA recipients for much longer than the criteria presently permit them to be.

I hope that my hon. Friend the Minister, through the alternate directorships of the World Bank, will help the Bank readjust its distribution policies and reconsider how IDA money is distributed and smaller states are treated.

This is a first-class use of part of our aid budget. It is expensive, but it is one of the most effective ways in which we can assist Third world countries to recover from their serious poverty and indebtedness.

1.51 am

I do not know why we have our overseas aid debates at 2 am.

I was about to say that I do not know whether it is a desire to demonstrate that, while it is dark here, it is light in Dhaka. I think that we must be trying to echo the haunting words of the hymn that runs:

"The sun that bids us rest is waking
Our brethren 'neath the Western skies."
I can think of no other reason for choosing such perverse times to discuss these matters, which are of major importance.

We strongly welcome the order and the decision by donor countries to step up support for IDA. It is worth drawing attention to the positive role played by Japan, which agreed to a significant increase in its contribution relative to other countries. I hope that it is a sign of an increasing Japanese recognition of the contribution that they, with their tremendous economic power, can make to the good of the world, especially parts of the world closest to them.

We are happy to support IDA as an institution, particularly as the help that it provides is targeted to the poorest countries, especially, as the Minister said, in sub-Saharan Africa. It is worth remembering that the region includes many of the poorest countries and those with the greatest problems of debt relative to gross domestic product. The IDA, as a multilateral agency, provides a means of helping poor countries directly, and encouraging a large number of developed countries to play a full part.

During Monday's debate on the Multilateral Investment Guarantee Agency Bill, my hon. Friend the Member for Inverness, Nairn and Lochaber (Sir R. Johnston), who I think is on the way to Lochaber tonight, referred to the immense scale of the Third world debt crisis and the fact that interest payments are now so high that they outweigh all cash flows into the developing world, leaving a net outflow of cash from developing to developed countries of about $26 billion a year. In response, the Minister referred to this order as evidence of the fact that the Government are taking action. That is so, but I am sure that the Minister would be the first to admit that the order does not measure up to the scale of the crisis.

Third world countries are, with increasing regularity, defaulting on loans in the face of desperate circumstances. Zambia is a recent example. There is a growing awareness that the debt crisis is holding back economic growth world-wide by limiting demand for Western produced goods in the developing world. It is not merely a question of compassion: it is about the development of our own economy as well. While I welcome the replenishment, I hope that the Government will press for a much broader and more ambitious initiative from the Group of Seven, aimed at dealing with the debt crisis.

The hon. Member for Eccles (Miss Lestor) spoke about debt cancellation, but it is unrealistic to talk about that in relation to the relatively small burden of IDA public sector debt incurred in the Third world. The main debt cancellation problem arises in relation to the private bank debts in which so many countries are involved. The cancellation of many of these IDA loans would not have a material impact on the problem, and might undermine a useful system.

I was concerned that the speech made this week by the Governor of the Bank of England might be taken as a signal of the wrong kind. I do not think that he intended it as such, and if his speech is read in full, it does not have that impact. His argument was that the provision for bad debts of Third world countries in the accounts of British banks was becoming too large, and was perhaps becoming an invitation to default. He went on to argue in favour of imaginative schemes and initiatives to deal with those debt problems and to make it clear that he was not intending to discourage those. I hope that the signal is clearly understood as that, and his speech is not taken to mean that the Governor of the Bank is in the closest possible collusion with the Chancellor of the Exchequer and is trying to make more difficult the problems of Third world countries in meeting that debt burden.

One has to remember that the United Kingdom IDA contribution comes out of the limited aid budget, which is still at around only half of the target level set by the United Nations. All the commendation that one delivers for the increased commitment set out in the order has to be tempered by the realisation that we are still far below that level, which many of us believe could be achieved. Against that background, the order looks less exciting and impressive than it might otherwise.

1.56 am

This debate should be set in the context of the Government's overseas aid record, which, as my hon. Friend the Member for Eccles (Miss Lestor) said earlier, is not just disappointing but awful. In real terms, in 1978–79, net overseas aid amounted to £1·395 billion, but in 1987–88 it amounted to only £1·198 billion. Even on the Government's plans, by 1991, it will still not have reached, in real terms, what it was in 1978, the last full year of the Labour Government, through what was then the aid to the poorest programme. While one welcomes any money put into the IBRD, it has to be set against that disappointing background.

Paragraph 2·1 of the report about the size of the eighth replenishment says:
"Throughout the negotiations, donors emphasized the pivotal role played by IDA as a multilateral institution providing resources to finance basic investment and support economic policy reforms and structural changes in the world's poorest countries. Moreover, donors also underlined the fact that IDA was a highly effective channel for aid and a key instrument of international cooperation and development."
It goes on to talk about the need for anti-poverty programmes in rural areas and the problem that low-income countries have
"had to rely on inflows of concessional resources that have been scarce in the mid-1980s."
One can agree with, and understand, all that. However, the difficulty of many of us in dealing with this problem and the way that it is presented is that that report was written not by the recipient countries but by the donor countries. Effectively, they are patting themselves on the back for the work they have done. One has to question the economic models forced on the poorest countries by the policies of the World Bank, and influenced through the IBRD.

The Minister quoted Ghana at some length, and one could quote other countries. I would be the first to say that those countries need the largest possible aid programmes at the lowest possible interest rates. Indeed, I would agree with my hon. Friend the Member for Eccles and say that the loans should be written off and made into straight grants, because that is the only way that many of those countries will get out of the poverty trap in which they find themselves. I am worried that, instead of doing that, the World Bank is forcing on those countries an economic model that is doing more than anything else to destroy their economies and environment and the political gain of independence 30 years ago. That is a serious problem.

Has the hon. Gentleman ever talked to a Finance Minister from a sub-Saharan African country? That is not what they say.

I have spoken to Finance Ministers—not in sub-Saharan African countries but in other countries. I have also spoken to economists in many of those countries, and they express similar views about the loss of independence as a result of economic models forced upon them by the World Bank. If the Minister wishes to refute that, it is up to him, but I suggest that he examines the views expressed by a number of development agencies and the voluntary aid agencies and tries to understand some of their concerns.

I am not attempting to be a scaremonger; I am merely making the point that, if the World Bank adopts an arrogant attitude towards the economic problems of Third world countries while doing nothing to solve the problems of commodity prices or private sector loans — merely saying that it is offering a panacea — it is not doing much to help anyone.

There is much evidence of the greater indebtedness that many of the poorer countries are incurring. I shall cite only a couple of examples dealt with in the January issue of South magazine. Presumably the Minister is well read and reads South, in which case I hope that he reads it carefully. Page 10 of the January issue deals with the slump in commodity prices over the past decade and the export earnings of many of the poorest countries, particularly those in sub-Saharan Africa. The Minister well knows what that problem is and where it has come from.

Page 84 of the same issue gives a very interesting set of statistics, which the magazine produces month by month, to show what commodities can buy. It gives the number of barrels of oil that 1 tonne of a given commodity will purchase. In 1975, it required 147 tonnes of coffee, and the figure has increased to 152. The figure for cotton has gone down from 119 to 90; for rubber, from 53 up to 65; and for tea from 129 down to 114. Taken overall, the poorest countries in the poorest parts of the world are getting progressively lower prices for their goods. They are paying higher and higher interest rates on the private sector loan market and are getting deeper and deeper into debt.

I support the IDA in giving soft loans to help rural development, but that does not solve the problem of the private sector loans and the countries' indebtedness. The only way that they can get out of that indebtedness is by selling assets through the encouragement of foreign investment, which creates serious political problems.

Does the hon. Gentleman agree that the countries that qualify for IDA loans are not those that have incurred, or can afford to incur, debts from private banks?

Many of them have incurred private sector loans in the past, although there is some merit in the hon. Gentleman's assertion, as it is not the very poorest that have incurred the biggest loans. That is true enough. However, I think that the hon. Gentleman will agree that there is still the problem that the countries cannot borrow that money because they are already too much in debt or because they are given such a low credit rating.

I want to deal with the question of the indebtedness of some of the poorer — although not necessarily the poorest—countries and the problems of the investment strategies adopted by multinational companies. I refer to an interesting and recently published book, "World Debt —Who Is To Pay?" by Jacob Schatan, which analyses the problems of indebtedness especially in Latin American countries. It is interesting to note from it that in 1969 the balance of trade taken as a whole between Latin America and the rest of the world was a plus of $16 million. That figure has progressively worsened to the extent that by 1984 the overall trade deficit was $34 billion.

As a comparison besides that figure, the book produces the figures for payments of profits, interest and other remittances—that is to say, the net outflow of funds from Latin America either through debt repayments, which get worse and worse, or through the repatriation of profits from multinational companies. The outflow of money in that sense is greater than the net balance of payments during that period.

In other words, much of the balance of payments problems that many of the Latin American countries have got themselves into are largely the result of foreign investment in those countries and the investment policies adopted, and pressed on them, by the private sector and the World Bank.

It is important that people in the West should begin to understand that the British, European and north American banks are incredibly overstretched, especially in Latin America, but also in other parts of the world. At the moment they are in the process of writing off large amounts of those debts and if countries in Latin America go on debt default in the way in which Brazil has, as Argentina has threatened to do or as Peru is doing to a limited extent, the consequences will be serious. Those countries are crying out for help, and it could be given by improving commodity prices and the loan relationship that goes with that. We need to know the Government's attitude to that.

An article in The Times of 26 August gave the figures for the outstanding international loans of the largest Third world borrowers at the end of 1986. The figure for Brazil was $110 billion, for Mexico $102 billion and for Argentina $50 billion. It also gave the figures for the lenders— for example, British banks that had made special provisions this year for outstanding loans. At that time Barclays bank had made a provision of £570 million on loans of £3·1 billion. In other words, it did not expect to get back one sixth of its provision. The figures are similar for the other banks, Lloyds being the most stretched at present, with one quarter of its debt provisionally written off by that decision.

I have raised the next point in the House before because of its seriousness. It relates to the World Bank's attitude to the projects that it funds in the Third world or that it allows to be funded. The president of the World Bank has gone on record as saying that he is concerned about the environmental and social impacts of some of the projects. The Minister showed some recognition of that when he referred to more money being invested and spent in rural areas among the poorest people rather than in urban development schemes.

There has been some—I think greatly insufficient—reporting of the problems of environmental damage in Brazil through World Bank policies. On 27 August 1987, The Listener stated:
"in Brazil the World Bank and the government have funded the notorious Polonoroeste project in the state of Rondônia, building a 1,000-mile road through the Amazon region".
It continues by quoting the problems that have occurred as a result of that. The president of the World Bank, Barber Conable, has admitted mistakes on that and met a delegation of Amerindian people late in 1986, who had previously been in this country to drum up support for their good and moving cause.

With support from Friends of the Earth and other people, Survival International last year produced an excellent book entitled "Bound in Misery and Iron", which is a summary of the problems that the Indian community in Brazil has suffered because of the partly World Bank funded iron ore project that has been developed there. I shall quote from it briefly because it summarises well the horrors that that project has meant for many people in Brazil.

It states:
"Many thousands of the region's 8 million people once lived and worked on the land that has now been appropriated by the Brazilian Government for the main components of the Programme".
We are talking about a massive programme covering an area the size of Britain and France, the Grande Carajás programme. It includes
"the 900 km railway … the so-called Mineral Province of Carajás."
That province has now been set up as a major iron ore, producer. The European iron and steel producers have for a long time been searching for a cheap source of iron ore and they have been prepared to invest in Brazil to get it. They have been pressurised to do so by the World Bank, which is anxious that Brazil should pay off its foreign debt by an export-led boom through the export of ore.

The problems that that development has caused to the people of the region have been horrendous. Many thousands of people have been removed from their homes, land grabs have occurred all over the place — —[Interruption.] I am sorry that the Minister finds this so funny—and serious environmental problems have arisen as a result of the project. The area can sustain only a low-density population, but the development has tried to put a high-density population into the area.

As deforestation takes place, serious erosion occurs and therefore desertification is taking place in the Amazon rain forest area, with appalling ecological results locally. The rivers have become polluted because of the industrial development and that has led to the destruction of the livelihood of many people in the region.

I share the hon. Gentleman's concern about the destruction of the tropical rain forests. In fairness, does he agree that the Minister, in answer to a parliamentary question earlier this week, referred to the efforts that have been made by the Government to support international efforts to try to minimise the destruction of those rain forests? I believe that a more generous reaction to the Minister's response to the problem is called for.

The hon. Gentleman has not heard the last of what I intend to say on the subject.

We, as a member of the EEC and the World Bank, are party to the destruction of people's livelihoods and the environmental damage and the inappropriateness of the development that is taking place. Enormous damage has already been done, and many people have already lost their lives. It is not too late to change the nature of the development, to slow it down, and, as a result, slow down the rate of environmental damage.

I know that the Minister has replied to questions by saying that he is concerned about the environmental impact of the development scheme, and I hope that he will take the opportunity tonight to say that the Government are prepared to use their influence in the World Bank to halt the scheme and to try to stop the continuing destruction of the rain forests in that part of Brazil.

My plea is set within a much wider economic context. It is not as though anyone wants to destroy the Amazonian rain forests, but the Brazilian economy has been forced into such a position because that Government believe that the only way out is to proceed with that destruction. The amount of money involved in the Carajits programme is stupendous. In fact, the World Bank investment in it is £304 million, the EEC investment is considerable and the rest of the investment is made up of private capital.

We seldom discuss such matters as these in the House and when we do it is mostly, and unfortunately, at 2 o'clock in the morning. I believe that the problems of the world economy warrant a higher profile in the House. There should be a much greater understanding of the causal relationship between high interest rates, low commodity prices and the continual extraction of wealth from extremely poor countries to aggrandise the economic system of western Europe and north America.

It is not good enough for us to ignore these matters, and it is not good enough for us to pretend that we can solve these problems merely through agencies such as the Inter-American Development Bank. We require a global approach to the problems of the world economy and the need to eliminate poverty in the poorest parts of the world.

2.14 am

By leave of the House, I shall reply to the debate. The hon. Member for Eccles (Miss Lestor) said, as she did the other day, that at some stage we should have a rather longer debate on this issue, perhaps slightly earlier in the day.

Or later in the day. I would always be happy to exchange views with the hon. Lady and such of her hon. Friends as arrive for a debate on these matters. I hope that it will be high on the list of priorities when the Opposition choose their Supply day debates in the coming months.

The hon. Lady referred, properly, to poverty targeting in aid programmes. There is often an unreal argument about economic growth and so-called trickle-down, and investment in human resources. As can be seen from developments in south Asia, it is not sensible to polarise the argument about economic growth and investment in human resources. Investment in people, whether through better health or education, helps to promote economic growth, and economic growth helps to provide the resources for investing in health and education services. Sometimes people talk as though the two were entirely separate and could be considered in different compartments.

The hon. Lady referred to the UNICEF proposals—the so-called structural adjustment with a human face agenda. I shall not trouble her with an extremely moving speech I made on the subject to the annual general meeting of UNICEF in London a few months ago.

I am most grateful to the hon. Lady; I think she must be the only hon. Member who has. [HON. MEMBERS: "So have we".] It is becoming ever more popular, but bearing in mind Christian humility I shall move on.

We have attempted to demonstrate, both in Ghana with what I was saying earlier and by refocussing our health programme on primary health care, our concern about the social impact of structural adjustment programmes, and we shall continue to do so. We sometimes forget that not engaging in these programmes also has a severe social impact.

The hon. Lady suggested that our IDA share should be increased to 10·1 per cent., as in the sixth replenishment. I understand that, when the previous Government accepted the 10·1 per cent. share in the sixth replenishment, they argued that Britain's share should be lower, on the grounds of relative economic strength. Arrangements were therefore made at Britain's special request to draw down our sixth replenishment committed at a disproportionately low level for the first five or six years—in other words, to backload the payments and to reduce the real cost of our burden. Our present 6·7 per cent. share is above our share in terms of donors' relative GNP and closely parallels our share in the donors' part of the IBRD's capital. That is 6·77 per cent.

The hon. Lady asked why we did not apply a retrospective terms adjustment to IDA's loans. The House should recognise that that would not help countries in most need. The beneficiaries would include some of the wealthier countries, such as Korea, which have graduated out of IDA and the losers would be current recipients who are, by definition, poor because repayments at present go back into the kitty to finance new credits. The immediate effect in any case would be small because repayments are only just beginning to build up.

The hon. Lady paid a wholly justified tribute to the president, Mr. Barber Conable, and his concern for environmental impact and for issues such as women in development. I am sure that when the hon. Member for Islington, North (Mr. Corbyn) gets to know more about this subject, he will share the view of most of the House about Mr. Conable's commitment to environmental issues.

In his interesting speech, my hon. Friend the Member for Hertford and Stortford (Mr. Wells) referred to the position of smaller islands, particularly in respect of the normal GNP per capita criteria, which can be applied rather crudely. Perhaps I should remind him that it was agreed in 1985 that five small islands — Dominica, Grenada, St. Lucia, St. Vincent and Tonga — should continue to be eligible for IDA credits up to the end of IDA-8 in mid-1990 because of their lack of creditworthiness for commercial or IBRD lending. Their creditworthiness and the question of their continued access to IDA will be reviewed before mid-1990.

My hon. Friend the Member for Hertford and Stortford also referred to India's share. He will probably recall that India and China together receive just over 30 per cent. of IDA-7 and the African facility combined. They will receive this same share, about 30 per cent. of IDA-8, subject to management flexibility. Both India and China receive large IBRD loans for their development. They receive loans from both IBRD and IDA.

My hon. Friend the Member for Hertford and Stortford and the hon. Member for Berwick-upon-Tweed (Mr. Beith) referred to the enormously difficult debt burden which a number of the poorest countries have to bear. In Africa and most of the countries which borrow money from IDA, we are talking principally about debts to Governments, Government agencies and export credit agencies, rather than to commercial banks.

It is important for us to continue to work for the implementation of the debt initiative launched by my right hon. Friend the Chancellor of the Exchequer last year. We have made considerable progress on parts of that initiative. We have made progress on writing off aid loans. We have written off about £260 million in aid loans to 14 African countries, and others have followed us. In all, we have written off about £1 billion in aid loans. We have made progress with the rescheduling of debts. Seven African countries have now been rescheduled over more generous periods through the Paris club.

We have not yet made the progress that we should have liked on the key element — a reduction in the interest rates which countries pursuing sensible policies have to pay. Provided that those interest rates remain at present levels, debt burdens will grow year after year for many of those countries. That is why the issue of interest rates is so important and why my right hon. Friend the Chancellor of the Exchequer has pressed it at the spring and autumn meetings of the international financial institutions. That is why Commonwealth Finance Ministers and Heads of Government were right to endorse his efforts at their meetings last autumn.

We shall continue to press for action on interest rates for the most debt-distressed countries which are pursuing sensible policies. I hope that we shall have as much success with this element of the initiative as we have had with others.

I wish to deal finally with the remarks of the hon. Member for Islington, North about environmental issues. I hope that he will not regard this as patronising, but to talk, as he did, in a way which confused IBRD and IDA, suggests that he is a little low on the learning curve, although I do not suggest that he is not passionately concerned about environmental issues.

I do not feel that I am being patronised by the Minister. I am well aware of the difference between the IDA and the other agencies that are associated with the World Bank. I was merely making the point about the environmental concerns emanating from the World Bank, because the Minister conceded that this debate had provided an opportunity to discuss the World Bank and its relationship with the poorest countries of the world.

I turn, then, to the environmental issues to which the hon. Gentleman referred. As a bilateral donor, we have done as much as anybody to build into our evaluation and assessment of projects an awareness of their impact on the environment. I am sure that he is also aware that in the European Community and in international financial institutions, we have led the way in making clear our concern about the impact on the environment. I am delighted that, with Mr. Conable, we are having not a dialogue with the deaf but a dialogue with somebody who is as concerned as we are, and rightly so, about the environment.

Is my hon. Friend aware that, during Mr. Barber Conable's recent visit to this country, he told the all-party committee on overseas development that Britain has led the way in influencing the World Bank to adopt the very much stronger environmental policies that are now in place?

I am grateful to my hon. Friend for making that point. It is easier for him to make it than for me. It is a fair assessment. However, we cannot be even remotely complacent about the progress that has been made. There are some horrific environmental problems that still have to be overcome. I returned recently from the Sudan, where I saw the desert marching forward at the rate of an inexorable 4 metres a year. That reminded me of how much still remains to be done.

We are aware of the importance of environmental issues. I hope that we are demonstrating both in Brussels and Washington and at home that we are conscious of the place that environmental items should have on the agenda.

The hon. Member for Islington, North referred in particular to Polonoroeste. Discussions are taking place between the World Bank and the Brazilian authorities, with a view to rectifying past mistakes and devoting more resources to environmental and Amerindian protection.

If the programme is not changed, great damage will be done in that part of Brazil. The original programme involves the displacement of large numbers of Amerindian people by the most brutal methods possible —an issue that was raised by the delegation that came here and that went to see Barber Conable about it. I know that he received the delegation with sympathy. What protection will there be for those unfortunate people and for the environment in which they live?

I should welcome the opportunity to deal with that question on another occasion, when we are discussing the environment and development. On this occasion, we are dealing with IDA, and I cannot think offhand of a Latin American country that is borrowiing money from IDA. The hon. Gentleman's question therefore ranges a little wide of the subject of this debate.

I repeat that discussions are taking place between the World Bank and the Brazilian authorities and that they relate to the objectives to which I referred earlier.

I hope that I have replied reasonably adequately to the points that have been made in this short, late but welcome debate. Once again I have pleasure in commending the order to the House and, on behalf of the British taxpayer, spending another £520 million on a very good cause.

Question put and agreed to.

Resolved,

That the draft International Development Association (Eighth Replenishment) Order 1987, which was laid before this House on 7th December, be approved.