Committee Reports > List of Committees > Joint > 1995 > Committee on Foreign Affairs > Report No. 02 - Third World Debt with particular reference to the Roles of the IMF and the World Bank

JOINT COMMITTEE ON FOREIGN AFFAIRS

LIST OF MEMBERS

Sub-Committee on Development Co-operation

Terms of Reference

The Sub-Committee on Development Co-operation shall examine such aspects of

(a)Ireland’s relations with developing countries in the field of development co-operation, and

(b)the Government’s official Development Assistance Programme

as the Sub-Committee may select or as may be referred to it by the Joint Committee on Foreign Affairs, and to report thereon to the Joint Committee on Foreign Affairs, at least one report to be made annually on any aspect of its work as the Sub-Committee may choose.

The quorum of the Sub-Committee shall be three.

JOINT COMMITTEE ON FOREIGN AFFAIRS

SUB-COMMITTEE ON DEVELOPMENT CO-OPERATION

LIST OF MEMBERS

Introduction.

The Joint Committee on Foreign Affairs, in its Report, in April, 1994, on Third World Debt with Particular Reference to the Role of the IMF and World Bank noted that Third World debt continued to be a major barrier to positive development and self-sufficiency across Southern countries.

Third World debt has increased substantially since the publication of the 1994 Report. Total development assistance from the developed world in 1994 was $5.5 billion less than in the previous year while debt repayments rose by 6%. These and other facts and figures illustrate that the debt crisis is still an acute problem for the countries of the developing world. Accordingly, the Joint Committee considers it timely to review progress on the approaches towards a resolution of the problem and to put forward recommendations for action by Ireland in the context of our membership of the International Monetary Fund (IMF) and the World Bank.

The 1994 Report.

In its 1994 Report, the Joint Committee outlined the history of the debt crisis and looked at some of the attempts to deal with it. The Report contrasted the continuation of the serious debt burden problems of low income countries with the significant progress made under the International Debt Strategy towards relieving the debt crisis of the middle income countries. The Joint Committee drew attention to the fact that debt repayments by Southern countries far exceeded the level of aid which they received from the Northern countries. The devastating effects which the pressure to prioritise debt repayment has had on the lives of the people and environments of Southern countries were starkly illustrated by statistical information.

The Report focussed on the roles of the IMF and World Bank as creditors and as managers of the debt repayment process. There was criticism of the adverse social effects of the structural adjustment programmes under which debtor countries are required to restructure their economies in order to facilitate the servicing of multilateral debt. It was observed that measures introduced by the World Bank to provide a social safety net for the poorest citizens of the debtor countries were not meeting this objective.

The Joint Committee noted that none of the schemes designed to reduce or reschedule debt had been effective despite widespread acceptance that significant debt relief was essential to a resolution of the debt problem.

The Irish Government was very much aware of the problems caused by the burden of debt. The Government had raised its concerns in the IMF and World Bank and had promoted appropriate action.

The Report of the Joint Committee contained a number of recommendations regarding the role of the IMF and World Bank, debt cancellation, reform of World Bank and IMF policies and poverty alleviation.

Debt Relief/Cancellation.

The Joint Committee, in its 1994 Report, urged that the IMF and World Bank should spearhead the case for effective debt relief and push for the adoption of the Trinidad Terms as a first step towards this goal. It also recommended that the Bretton Woods Institutions adopt a new approach to debt relief starting from the primary requirement to meet the human and economic needs of developing countries. Concluding that there was an overwhelming case for reducing the debt profile of the IMF in sub-Saharan Africa, the Joint Committee called for the creation of a special fund to write off Africa’s debt to the IMF through the sale of the institution’s gold reserves.

The Economic Summit of Industrialised Countries (G7) in Naples in 1994 called for higher levels of debt relief. This was followed by the adoption of the Naples Terms by the Paris Club (an informal group of government officials representing western creditor countries). However, there was disappointment that the level of debt relief which was agreed fell short of that required to render sustainable the debt problem of most severely indebted low-income countries. Actual levels of debt reduction have been well below the agreed levels.

Both the Taoiseach at the Social Summit in Copenhagen and the British Chancellor of the Exchequer have indicated that the sale of IMF gold to fund debt relief should be considered. In Halifax in June, 1994, the G7 supported calls for the IMF and World Bank to pursue the development of a comprehensive approach to multilateral debt involving the use of the resources of the institutions. The managing director of the IMF has since expressed the view that limited amounts of IMF gold could be sold to fund debt relief. However, there has been opposition from some G7 countries to this proposal. Recent proposals by the World Bank to establish an $11 billion fund to support the relief of debt owed by developing countries to the Bank itself, IDA, the IMF and other agencies are encouraging and reflect the acknowledgement by the Bank that existing debt strategies inadequate.

The Government supports the view that special action, over and above the provision of concessional finance, needs to be taken but warns that any such action should not undermine the effectiveness of the IMF and World Bank in performing their roles.

Enhanced Structural Adjustment Facility (ESAF).

The Enhanced Structural Adjustment Facility (ESAF) of the IMF was established in 1987 to provide concessional finance to low-income countries in support of their medium term adjustment programmes. ESAF programmes operate within the structure of a policy framework paper agreed between the IMF, the World Bank and the government of the borrowing country.

The Government is considering the question of contribution by Ireland to ESAF. It believes that ESAF can assist in generating the macro-economic conditions which are essential if real economic growth and social improvement are to be achieved.

The Government is conscious that structural adjustment is a difficult process, particularly for vulnerable groups. It sees the need to pursue a broad approach in order to provide social safety nets to lessen the impact of structural adjustment on vulnerable groups. Accordingly, the Government considers that contributions to ESAF are complementary to, rather than a replacement for, its commitments to the International Development Association (IDA), the soft loan arm of the World Bank, which provides finance on more concessional terms than those offered by ESAF with the primary aim of poverty reduction and social development.

ESAF has been opposed by NGOs on the grounds that it is unsuitable as an instrument of development assistance. The developmental role envisaged for the Facility is seen as inappropriate to an instrument of the IMF which has played a more useful role in providing balance of payments support to countries facing deficits and in the regulation of exchange controls. Although ESAF loans are concessionary they are characterised by more restrictive terms than those offered by IDA and by more rigid conditionality. These features have led to criticisms of ESAF programmes as highly deflationary, unrealistic in terms of the time frames within which adjustment must be achieved and unduly harsh on vulnerable groups in the negative view taken of social spending. There has also been criticism that the high interest rates promoted by the IMF are a constraint on investment. Reform of ESAF in the light of criticisms made is seen as important if the Facility’s programmes are to lead to sustainable development.

Reform of IMF and World Bank Policies.

The Joint Committee had urged in its 1994 Report that Policy Framework Papers be made available by the IMF to the social partners in countries negotiating and adopting Stabilisation and Structural Adjustment Programmes. It also recommended that countries subject to reviews of the performance of their Stabilisation programmes by the IMF should be announced prior to the discussion of the Board of Directors. The necessity for the World Bank to reform and monitor its poverty related interventions was stressed.

While some progress has been made in the Bretton Woods institutions with regard to accountability, the executive board of the IMF has rejected a proposal to publish performance review documents. It is noted that the Irish Government supported this proposal. The publication by the World Bank of Policy Framework Papers still needs to be addressed.

The Government accepts that there is clearly scope for the extension of the process of increasing transparency in the IMF and World Bank.

The acknowledgement by the World Bank that existing debt strategies need to be supplemented by an additional fund may indicate a more poverty oriented approach by that institution.

General.

The Joint Committee acknowledges the willingness of the Minister for Finance to engage in dialogue on the issues related to the debt problem and looks forward to further constructive exchanges of views. The contribution to the debate by the Debt and Development Coalition has been invaluable. The Joint Committee has also found useful its informal contacts with officials of the IMF and World Bank and looks forward to developing these contacts further.

Recommendations.

1.Debt Relief.

The World Bank and IMF should continue to develop and pursue appropriate responses to the requirement for an approach the question of debt relief which prioritises the pressing need to meet the human and economic needs of developing countries. The Government should continue to use its membership of these institutions to press for movement in this direction.

2.Debt Cancellation.

The question of the elimination of Africa’s debt to the IMF through the sale of gold stocks should be pursued. In particular, the Government should continue to seek support for this issue at European Council level, particularly during Ireland’s Presidency of the European Union in 1996.

3.ESAF.

The Government should use its membership of the IMF to press for any reformation necessary to ensure that programmes such as ESAF are complementary to the need to minimise adverse social impact. The Joint Committee is not yet convinced that any additional funding by Ireland for the International Financial Institutions should go to ESAF, and welcomes further dialogue with the Minister for Finance on the issue. Strong consideration should be given to contributing any additional funding to IDA.

4.Reform of IMF and World Bank Policies.

(a)The need for interest groups and civil society in debtor countries to be consulted by the IMF and World Bank prior to the adoption, and during the operation, of structural adjustment programmes should be acknowledged and acted upon.

(b)Moves by the World Bank, such as the trust fund proposed for discussion at the Autumn meeting, to examine and establish improved strategies for dealing with debt relief should be encouraged and supported by the Government.

Alan M. Dukes, T.D.,

Cathaoirleach.

4 October, 1995.