§ Motion made, and Question proposed, That this House do now adjourn.—[Mr. Kevin Hughes.]
§ Mr. Deputy Speaker (Sir Alan Haselhurst)
Perhaps the hon. Member for Wythenshawe and Sale, East (Mr. Goggins) should wait a moment while hon. Members leave the Chamber as quickly and as quietly as possible.
§ Mr. Paul Goggins (Wythenshawe and Sale, East)
Thank you for protecting my first paragraph, Mr. Deputy Speaker. I am grateful for the opportunity to initiate this Adjournment debate on the problems and opportunities associated with third-world debt. For me the timing is particularly appropriate, since today I accompanied my right hon. Friend the Secretary of State for International Development to meet Church groups in my constituency that have campaigned for many years on behalf of the one in four people in the world who live in abject poverty. My right hon. Friend was extremely well received. It is appropriate, too, because we are merely weeks away from important meetings of the International Monetary Fund and the World bank, as well as the Group of Seven meeting in Birmingham and we have reached a crucial point in the international strategy for reducing the debt of the world's poorest countries—the heavily indebted poor countries initiative, or HIPCI.
I see nothing wrong in any country, rich or poor, borrowing to invest to deliver a developing and sustainable economy. Indeed, one of the problems facing the poorest countries of the world is finding people who want to invest in their countries. In the 1970s and 1980s, many of the poorest countries were given loans that they could never hope to repay. Sometimes the creditors behaved irresponsibly, sometimes the Governments of the debtor countries were corrupt. Also, there were fluctuating interest rates, currency depreciations, falls in export prices, wars and drought, and all impacted on the world's poorest countries.
As an example of how the debt burden grew, in 1962 the countries of sub-Saharan Africa had a total debt of $3 billion, but today that total stands at $235 billion. In 1996, the World bank and the IMF, with considerable support it must be said from the right hon. and learned Member for Rushcliffe (Mr. Clarke), then the Chancellor of the Exchequer, established HIPCI, to provide the most heavily indebted and poverty-stricken countries with a robust exit from the burden of unsustainable debt. They identified 41 countries with a total population of 700 million people, which all had external debts valued at more than double their export earnings. Of course, many countries were in a much worse position. For example, Mozambique has debts of 10 times the value of its export earnings.
The advantages of HIPCI are that it provided a comprehensive assessment of each country's level of debt. It put in place a one-off system of debt reduction via the Paris club of Government creditors. For the first time ever, the IMF and the World bank agreed to provide debt relief themselves and they went beyond the existing Naples terms, which limited debt reduction to 67 per cent., moving instead to a new level of 80 per cent.
964 Moreover—many would argue that this was not an advantage—it was agreed that debt reduction would take place only after a six-year period of compliance, in which debtor countries had to achieve structural adjustment targets. It was recognised that, although the debts of the world's poorest countries were not a threat to the international finance system, they were a tax on economic progress and prevented sustainable growth and development.
That was why HIPCI was started. It was greeted with great acclaim—it was as if James Wolfensohn, the president of the World bank, had come as a modern messiah to bring good news to the poor. The truth is that, 18 months on, HIPCI is in some difficulty, partly because of the framework and the criteria that were laid down, and partly because of a lack of political will from a number of creditor Governments, not—I hasten to add—including the United Kingdom Government. As things stand, of the 41 heavily indebted poor countries, only Uganda and Bolivia will receive help in 1998—the majority will receive no help until into the next century.
The case of Mozambique, the poorest country in the world, has brought into focus the problems of HIPCI. Mozambique built up most of its debt during a 16-year civil war, which ended in total economic collapse. Despite its problems, however, it has started to turn round the situation. In 1996, its economy grew by 6 per cent. and its exports had risen by 30 per cent. Nevertheless, its exports are worth only $225 million—roughly what the country needs to service its debt repayments.
The price of Mozambique's indebtedness is paid by her people: 10 million people have no access to safe drinking water; 1 million children are not able to attend primary school; and 200,000 children will die this year before they reach their fifth birthday. One of Mozambique's major difficulties has been the HIPCI rules, which allow only 80 per cent. debt relief, despite the fact that most experts agree that 90 per cent. is required.
I know that, at the recent Paris club meeting, representatives managed to break through the 80 per cent. ceiling, but there is still a deficit of $100 million. Again, I praise the UK Government, who have contributed a further $10 million to try to fill that gap, in the hope that others will be moved to match that figure. It is clear that, unless creditors are prepared to change the rules and adopt a more urgent and generous approach, HIPCI for Mozambique and for many others is in grave danger.
One of the countries that may suffer is Tanzania, which has been implementing structural adjustment programmes since the mid-1980s, and which has received full marks from the IMF for its economic performance over the past two years. However, it spends a third of its export earnings on servicing its debts; it spends on debt four times what it spends on primary education or on health provision. Under HIPCI's current terms, the best that Tanzania can hope for is that next year its creditors may agree how to share out the debt reduction burden—by 2002, it may receive some actual relief.
Even the two countries that will receive help this year—Uganda and Bolivia—have not gained as much from HIPCI as they expected. Delays have cost Uganda an estimated $193 million, and overestimation of sustainable debt levels has cost Bolivia an estimated $241 million. HIPCI is in danger of delivering too little, 965 too late. Unless something is done, we are in grave danger that it will not deliver what was originally intended.
I offer some proposals, which are supported by a number of development experts and which, I believe, should be considered. We should review the definition of debt sustainability, which currently includes a ratio of debt repayment to export income of 20:25 per cent., and a ratio of total debt to export income of 200:250 per cent. I simply ask why. No one has yet been able to give a convincing justification of those levels—perhaps my hon. Friend the Economic Secretary can. At best, they seem arbitrary, and, at worst, they seem to have been set to suit the creditor, not the debtor.
We should set a limit on the proportion of Government revenue that can be spent on servicing debt—say, 15 per cent. Countries should clearly pay something to wipe out their debts, but every dollar spent servicing debt is another dollar less for education, health and sanitation.
We should review the time scales governing HIPCI. I recognise that it is extremely important for poor indebted countries to have sustainable and sound economies, but to tell a country in which one fifth of children die before their fifth birthday that it will have to wait until 2002 is simply not acceptable. It may be acceptable in the world of economic theory, but in the real world of suffering, six years is too long to wait.
We need more flexibility about the 80 per cent. debt relief ceiling. We should not expect the needs of the world's poorest people to be limited by a technical formula. If Mozambique needs 90 per cent. debt relief, it should get it. I acknowledge the United Kingdom's recent initiative, but that 90 per cent. should be given as a right, not as a fudge, which smacks more of charity than of justice and, more importantly, allows the unenthusiastic to drag their feet.
Rules and regulations count for nothing unless the IMF, the World bank and creditor Governments show more compassion and a greater sense of urgency: the kind of urgency, I might argue, that helped to put together the $100 billion package for south-east Asia in a matter of three months.
I want to emphasise the positive role played by our Government, particularly through the Mauritius mandate. No doubt my hon. Friend the Minister will outline some of the details of that mandate, which was a genuine attempt to speed up the process and deliver some practical help. That spirit is not shared by all creditors. In particular, I cite Italy, Japan and Germany.
Germany's attitude is perhaps the hardest to understand. Last Friday was the 45th anniversary of the London agreement, which arose from Germany's inability to service its debts after the second world war, and under which 50 per cent. of those debts were cancelled; yet now, Germany drags its feet over an initiative that would cost in total 5 per cent. of the cost of reunification.
New priorities and a change of heart are needed. Organisations such as Oxfam, Christian Aid, the Catholic Fund for Overseas Development and, more recently, Jubilee 2000, are playing a vital part. Jubilee 2000 is especially to be praised. The idea of jubilee is rooted in Leviticus. It was an opportunity, every 50 years, to restore balance to economic life; to forgive debts; and to let the slaves go free. As is often pointed out, that did not always 966 happen—people were as human then as they are now—but it was an aspiration and an inspiration, as it can be for us today.
The millennium can be a special time, a one-off moment for doing something extraordinary: cancelling the debts of the poorest countries and releasing the cash to reduce poverty. As a millennium project, that has the capacity to fire our nation's imagination. A nation that overturned the political status quo on 1 May and that mourned so deeply for Princess Diana is ready for a humane project that can bring progress and justice to 700 million of the world's poorest people.
Evidence of the potential popularity of such a scheme was contained in a MORI poll commissioned recently by CAFOD. Given a choice between writing off third-world debt and funding the millennium dome, people opted by four to one for the former. One in five ranked cancelling the unpayable debts of the world's poorest countries as the best way in which to celebrate the millennium.
In total, this country will spend £2.7 billion of public money on millennium projects. That is enough to cancel the debts of the 11 poorest African countries. How do we make the breakthrough? We have to start by talking in a more practical way: perhaps a little less about the telephone number debt figures owed by poor countries, and rather more about the millions of mothers in those countries who die in childbirth. The way we talk—the words and the pictures we use—can add urgency to our initiative and can help us to see that it is achievable. We could deliver the whole HIPC initiative for what Americans spend in one year on training shoes.
We must also think of debt reduction as poverty reduction. Let us forgive the debts, but let us also insist that the money is spent on health, education and clean water. In the first 10 months of our Government, we have seen priority given to health and education, which are popular causes. Let us ensure that we insist on the same standards for the world's poorest people. That is the approach that we are already taking when we link export guarantees to productive investment.
The Jubilee 2000 campaign has a prayer that will have meaning for believers and non-believers alike. It says:O God, to whom we owe more than we can count, in our desire to control all that will come to be, we hold your other children in the grip of debt which they cannot repay; and make them suffer now the poverty we dread. Do not hold us to our debts but unchain our fear, that we may release others into an open future of unbounded hope.Let us take that golden opportunity to remove the burden of debt from the world's poorest countries and give their people real hope for the new millennium.
§ The Economic Secretary to the Treasury (Mrs. Helen Liddell)
I congratulate my hon. Friend the Member for Wythenshawe and Sale, East (Mr. Goggins) on securing this Adjournment debate, which is most timely because of the significance of the issues and the international conferences that are looming on the subject. It is also timely because, as my hon. Friend reminded us in his closing remarks, we are in the Lenten season, which is a time of reflection. Many of us are impressed by the commitment and compassion that my hon. Friend has shown in raising these important issues.
It is important for all of us who live in the advanced world to recognise that the world's poorest and most heavily indebted countries need urgent help with their 967 debt problems. The debate is also timely because, as my hon. Friend said, we must consider the current state of the heavily indebted poor countries' initiative. Given the level of public feeling and the great resolve that has been shown recently by the international community in dealing with financial instability in Asia, it has become doubly important to ensure that the debt problems of the desperately poor countries are dealt with effectively and permanently, and that they are not squeezed out of our international economic debate by the scale of the problems experienced in wealthier economies.
Since the initiative was launched by the World bank and the International Monetary Fund in September 1996, we have seen some progress. Four countries—Uganda, Bolivia, Burkina Faso and Guyana—have had decisions on the level of relief that they will receive under the HIPC initiative. In a few weeks' time in April, Uganda will be the first country to receive relief. My right hon. Friend the Secretary of State for International Development has already announced a contribution by the Government of £6.5 million to help the African Development bank meet the costs of debt relief. Uganda will be followed by Bolivia in September, and Guyana in December. Burkina Faso will receive its relief under the initiative in April 2000. I recognise the problems that those countries will face, but the scale is enormous indeed.
A start has been made, but it does not yet make the HIPC initiative an undeniable success. In the speech by my right hon. Friend the Chancellor of the Exchequer—the Mauritius mandate speech, as it is now known—he set out targets that he felt that the international community should adopt to ensure the rapid and flexible implementation of the HIPC initiative.
One goal is for three quarters of the 20 countries initially identified by the International Monetary Fund and World bank as possibly needing HIPC relief to receive decisions on the timing and level of debt relief by the new millennium. I accept my hon. Friend's point about the significance of marking the millennium not only by celebration, but by recognising that many people in many parts of the world do not have the wherewithal or the will to celebrate if they live in poverty. I believe that the target set in the Mauritius mandate is attainable, but it will not and cannot be reached without very substantial efforts by the international community, as well as by the debtor countries, which must acknowledge their responsibility for putting to rights their economic problems.
My hon. Friend was right to draw our attention to the need for the international community urgently to demonstrate its commitment in the case of Mozambique, which spends twice as much on servicing its debts as on the basic services of health care and education. Even then, it manages to meet only about a third of its debt obligations. It is a severely indebted country which has, as he said, demonstrated its commitment to reform, but it awaits a decision from creditors to provide the necessary debt relief to reduce its debt burden to a sustainable level.
My hon. Friend movingly described the human cost of Mozambique's economic crisis. IMF figures show that to reach debt sustainability, Mozambique will require a debt write-off of about 88 per cent. I shall come to debt sustainability in a minute. The UK has consistently argued that the Paris club of Government creditors should provide debt relief of up to 90 per cent. in the special case 968 of Mozambique. Despite that, the Paris club agreed in January to provide debt relief equivalent only to an 85 per cent. write-off. The outstanding amount is some $100 million dollars. Without that money, the IMF and World bank boards have been unable to proceed with HIPC relief for the most deserving candidates. Mozambique is a crucial test case for the seriousness of the international community's commitment to debt relief and the HIPC initiative.
My hon. Friend asked about the debt sustainability criteria. Debt sustainability is defined in terms of an agreed ratio based on empirical studies by the World bank and the IMF on debtors' debt service performance over time. It is only an indicative analysis, but I hope that at least by reducing debts to such a level, we shall come nearer to the point of preventing the build-up of arrears, while allowing debtor countries the necessary development costs of health and education. I understand my hon. Friend's frustration about the time that that is taking, but we must concentrate countries' minds on debt relief.
Tracking the record of reform is a key indicator that sensible policies will be sustained. There is a need to ensure that structural problems are put right to make sure that the situation never again occurs. Countries get help from international financial institutions, donors and bilateral creditors while they are establishing a track record. For countries that have already established long track records, the UK will continue to argue that it is absurd to ask for further lengthy periods of such policies before debt relief is available. We have been successful in doing that for both Uganda and Guyana.
The UK, with some other creditors, has suggested that individual donors contribute bilaterally to raise the necessary $100 million. My right hon. Friend the Chancellor has written to his counterparts in the G10, urging them to help to resolve the problem, and he and my right hon. Friend the Secretary of State for International Development met the president of the World bank last week to discuss possible solutions.
After that meeting, we announced that we—the United Kingdom Government—would commit up to $10 million of aid funds to filling the financing gap. That contribution is on top of the £10 million that my right hon. Friend the Secretary of State for International Development has already committed, through her Department's bilateral aid programme, to help Mozambique to meet the costs of servicing its loans from the multilateral development banks.
I am hopeful that those efforts, along with the considerable work being done at the World bank and the IMF, will bring a rapid solution to the problem. Last month, I was in Washington, where I raised the matter again with the World bank and the US Treasury.
Decisions are expected in the coming months on Cote d'Ivoire, Mali and Mauritania. If those go smoothly and a solution is found for Mozambique, we shall be able to say that the HIPC initiative is well on track. To meet the Chancellor's Mauritius mandate targets, however, greater efforts will be required to ensure that all the countries identified under the initiative receive relief as quickly as possible.
As my hon. Friend pointed out, the United Kingdom is leading the way in making that effort, not least in our capacity as president of the G7. The HIPC initiative will 969 be on the agenda in the context of development issues at the summit in Birmingham on 15 to 17 May. I hope, as do the Government, that that discussion can pave the way for more flexible and rapid implementation of the HIPC initiative, in line with the goals set out in the Mauritius mandate.
After the recent meeting of G7 finance Ministers and central bank governors, a communique was published which expressed the hope that all the 41 countries identified under the HIPC initiative would have begun the process of securing the debt relief that they needed by the year 2000.
My hon. Friend referred to the work done by the Churches, and I pay tribute to that. The Government have engaged in regular dialogue with Church leaders and NGO directors on the HIPC initiative. In December last year, my right hon. Friend the Chancellor held a seminar on the issues at No. 11 Downing street. The discussion was constructive, and showed that, although our final objectives may differ in some respects, there is much common ground between the Government and those other groups. On 17 February, my right hon. Friends the Chancellor and the Secretary of State for International Development met the president of the World bank, as well as a smaller group of Church representatives. It is important that that dialogue continues.
My hon. Friend may be interested to know that my fellow Ministers on ECOFIN are already finding that NGOs and Church communities in their countries are putting pressure on them in relation to HIPC. That is a useful development.
In the HIPC initiative, the IMF and World bank have provided the international community with a tool for dealing with the unsustainable debt burdens of the world's 970 most indebted countries. We support that initiative and we support a serious commitment by the international community to implementing it flexibly. There must be an equal commitment by the debtor countries to reform. Once that happens, those countries can look toward implementing policies that can lead to sustainable economic growth, which is necessary for long-term development and poverty alleviation.
My hon. Friend mentioned Tanzania, which is one of the countries initially identified as possibly needing extra debt relief under the HIPC initiative. We fully support such relief for Tanzania, providing that it adopts and adheres to economic and structural reforms. My right hon. Friend the Secretary of State for International Development has committed between £5 million and £10 million to help the Tanzanians to meet the costs of servicing some of their loans.
Debt sustainability is, in the case of every poor country, our first goal. It is not, however, the full solution to the problems faced by HIPC. In short, there is a need to act quickly and effectively. It is important to the House, the Government and the British people. In the past six months, I have received 3,000 letters and postcards, many of which were accompanied by donations from 2p to several pounds from ordinary men and women in this country seeking to ease the debt burdens of those who are much poorer than we are.
We as a Government are determined to fulfil the hopes of our own people and of those in the most indebted countries of the world. I am grateful to my hon. Friend for giving us an opportunity this evening to discuss this important and timely subject.
§ Question put and agreed to.
§ Adjourned accordingly at six minutes to Eleven o'clock.