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Developing Countries: Unsustainable Debt

Volume 590: debated on Thursday 18 June 1998

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3.4 p.m.

What actions they have taken to reduce developing countries' unsustainable debt following the G8 summit in Birmingham.

My Lords, following the Birmingham summit, the Prime Minister has written to the managing director of the International Monetary Fund and the president of the World Bank to ask them to take forward the proposals discussed there. The Chancellor of the Exchequer has invited Church Leaders and heads of non-governmental organisations to a second Downing Street seminar on debt. This week UK officials have been discussing debt relief for a number of developing countries in the Paris Club.

My Lords, will the noble Lord give an indication of what went on at the meeting on 2nd/3rd June concerning the debt situation in Rwanda at which Britain was going to raise the issue of reducing unsustainable debt for a country which has very little ability to repay those loans?

My Lords, Rwanda is one of the countries to which urgent attention has been and is being given. As the noble Lord knows, the HIPC initiative has been in operation for some time now. The impact of the Birmingham summit was the speedy and determined implementation of debt relief to more countries under the HIPC initiative. The intention is that all poor countries should have begun the process of securing debt relief by the year 2000. I accept that the conditions in Rwanda make a very strong case for that country.

My Lords, I recognise the considerable contribution Her Majesty's Government have made to moving forward the debt reduction plans. But does my noble friend agree that, as long as the United Kingdom remains 14th among the 21 major aid donors in the level of its aid, we are on rather shaky ground when we seek to persuade other countries to increase their debt relief, as they are always in a position to say that they make a major contribution through increased official development assistance?

My Lords, I think that both are necessary. It is necessary for us to pay our share in the aid programme. Indeed, the Secretary of State for International Development is working particularly hard in that area. But at the same time the contribution of all of us to debt relief under the HIPC initiative and in pursuance of the Naples Agreement ought not to be put on one side.

My Lords, does the noble Lord agree that the unsustainability of these loans would suggest that in the past many of them were blown rather than properly invested? What will be done to make certain that future aid will be properly invested so that it can be properly sustained?

My Lords, that is the thrust of the HIPC initiative and why progress on it has, for some people, been too slow. The intention of relief of debt for the heavily indebted countries is that they should qualify for this relief only when they have shown that they have a sustainable programme of economic reform in compliance with the requirements of the International Monetary Fund.

My Lords, on the evidence of the current progress of the Heavily Indebted Poorer Countries initiative, there are only four countries that will have full debt relief by the year 2000; namely, Bolivia, Guyana, Mozambique and Uganda. Does the Minister agree that this shows woeful complacency on behalf of the G8 with regard to the cause of international debt relief? Are the Government willing to set a shining example to the other creditor countries by cancelling all UK aid and export credit debt by the year 2000 for the benefit of the world situation?

My Lords, in response to an earlier question I acknowledged that there is concern about the slow progress of the HIPC initiative. It is not quite as bad as the right reverend Prelate said. Burkina Faso and Cêote d'Ivoire can be added to the list that he mentioned, but I would not expect him to be satisfied with that. There are major problems for us in deciding unilaterally to forgive our debts, not least the fact that we are far from being the largest creditor country. If we were to forgive our debts unilaterally, that would relieve the pressure on other creditors. The money would go to the governments rather than to those most in need in the countries concerned. It is not quite as simple as some very well meaning people seem to believe.

My Lords, does the noble Lord agree that one of the problems with debt relief is that it tends to penalise the responsible in favour of the irresponsible?

My Lords, I believe that that is what I said in response to the question about the HIPC initiative. If debt relief is to be effective, it has to go to those countries which have their economies under control and which can demonstrate that the benefits of debt relief will go to those most in need in those countries. To that extent I agree with the noble Earl.

My Lords, I know parts of Africa very well. Does the Minister agree that we owe those countries quite a lot and that they are in great trouble? Having to pay back debts to other countries is like having a noose around their neck. They want to pay back. Some of the African countries are in a disastrous state and people are starving. Does the Minister agree that some of the wealthier countries should give those countries more money?

My Lords, of course all of us agree with the sentiments expressed by the noble Baroness. I do not know whether it is of any consolation to her to know that at the Paris Club meeting this week, to which I have referred, it was agreed that Senegal can be added to the countries which will get enough debt relief to reduce them to the debt sustainability level of the Naples Agreement, which is 67 per cent. We hope that other countries in Africa and elsewhere will be added to that list.

My Lords, would the noble Lord inform the House how plans for a proposed millennium bond are progressing?

My Lords, I am afraid that the noble Baroness has caught me out. I shall have to write to her.

My Lords, does the Minister agree that it is precisely his language and that of others about getting the economies of the countries concerned under control which lies at the root of the difficulty? For a country such as Rwanda the decisions that it would have to take in order to get its economy under control would be deeply damaging. Is he aware that it is for that reason that that country and others find themselves quite unable to qualify for the HIPC and other initiatives?

My Lords, that is quite correct and why I put the issues of aid and debt relief side by side rather than falling for the temptation of mixing them up. It is quite clear that Rwanda is in particular need of huge levels of aid—and not in the form of loans, which would create debt.

My Lords, I appreciate the steps that the Government have already taken this week, but is the Minister aware that the media have talked about differences among the heads of G8, with Germany being particularly unto-operative? Can the noble Lord inform us of the extent of the support which he is getting for debt relief from other countries in G8?

My Lords, I believe the noble Viscount will understand if I prefer not to criticise foreign governments at this Dispatch Box. I have made it clear that this country has been taking a lead. The Prime Minister and the Chancellor of the Exchequer have personally sought to press matters forward faster than they have been progressing. Logically, that implies that there are those who are less enthusiastic, but I would prefer not to name them.