PARLIAMENTARY DEBATES

HOUSE OF COMMONS

OFFICIAL REPORT

Second Standing Committee On Statutory Instruments, &c.

DRAFT CARIBBEAN DEVELOPMENT BANK (FURTHER PAYMENTS) ORDER 1987

Wednesday 3 February 1988

LONDON

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1

The Committee consisted of the following Members:

Chairman: Sir John Stradling Thomas

Abbott, Ms. Diane (Hackney, North and Stoke Newington)

Anderson, Mr. Donald (Swansea, East)

Barron, Mr. Kevin (Rother Valley)

Budgen, Mr. Nicholas (Wolverhampton, South-West)

Churchill, Mr. (Davyhulme)

Cox, Mr. Tom (Tooting)

Johnston, Sir Russell (Inverness, Nairn and Lochaber)

Key, Mr. Robert (Salisbury)

McTaggart, Mr. Bob (Glasgow, Central)

Neubert, Mr. Michael (Romford)

Patchett, Mr. Terry (Barnsley, East)

Patten, Mr. Chris (Minister for Overseas Development)

Pawsey, Mr. James (Rugby and Kenilworth)

Rowe, Mr. Andrew (Mid-Kent)

Sackville, Mr. Tom (Bolton, West)

Shephard, Mrs. Gillian (Norfolk, South-West)

Wiggin, Mr. Jerry (Weston-super-Mare)

Wolfson, Mr. Mark (Sevenoaks)

Miss P. A. Helme, Committee Clerk

2
3 Second Standing Committee on Statutory Instruments, &c. Wednesday 3 February 1988

[SIR JOHN STRADLING THOMAS in the Chair]

Draft Caribbean Development Bank (Further Payments) Order 1987

10.30 am

The Minister for Overseas Development (Mr. Chris Patten): I beg to move, "That the Committee has considered the draft Caribbean Development Bank (Further Payments) Order 1987." The purpose of the order is to provide for the payment of a further contribution to the special development fund of the Caribbean Development Bank, which is the bank's concessional lending window. We have voted in support of the contributors' resolution for an increase in resources, subject to the approval of Parliament. Britain has many close links, historically, politically and commercially, with the English speaking Caribbean countries. Though not poor by African standards, most have areas of serious poverty and special problems associated with small island communities. British Governments have therefore always had a special concern for their social and economic development. Our bilateral aid programme to the region is running at approximately £30 million a year, or about £5 per head of population. The European Community, towards whose aid expenditure we contribute about 20 per cent. will provide aid grants and soft loans worth approximately £150 million in the next four years; and the dependent territories will also get about £6 million from the European development fund. We contribute substantially to the World Bank, which has provided loans and credits of almost US $900 million, and to the Inter-American Development Bank which has provided about US $1 billion in loans to the region. Finally, there is the Caribbean Development Bank, to which I shall now turn. The Caribbean Development Bank was set up in 1969. The United Kingdom and Canada were the two non-regional founding members of the bank. We have given it strong support over the years, technically, politically and in the form of cash. There are 17 borrowing members, of which five are British dependent territories. All the remainder are members of the Commonwealth. France joined the bank in 1983, as a non-borrowing, non-regional member. In addition, the United States, Italy, Germany, Sweden and the Netherlands are all contributors to the bank's resources. Two of these countries, Germany and Italy, are contemplating full membership of the bank. We warmly welcome this, and the interest of the other contributors. We believe the existence of the bank, and the reputation it has built up, have together stimulated encouragingly wide support for its borrowing countries in the shape of help for their special needs. I am glad to say that this support also extends to three 4 important developing countries in Latin America itself. Columbia, Mexico and Venezuela will together be contributing US $10 million to the fund's replenishment, despite their own serious payments problems. The bank lends funds, promotes investment, provides technical assistance and generally encourages economic and social growth in the region. There is a "hard" lending window, which can borrow from the international financial markets on the security of the bank's capital stock, and a soft fund affiliate, the special development fund. Ordinary lending goes mainly to those developing member countries which can afford the harder terms. Special development fund resources, on the other hand, are lent at very concessional interest rates, mainly to the poorer countries in the region or those with special difficulties. These countries are Anguilla, Antigua and Barbuda, Belize, the British Virgin Islands, Dominica, Grenada, Guyana, Montserrat, St Kitts and Nevis, St Vincent and the Grenadines and the Turks and Caicos Islands, all of which are treated as most needy and are given exceptional preference in the terms and amounts of their borrowing. Other countries which will receive smaller allocations on more commercial terms are the Bahamas, Barbados, Trinidad and Tobago, the Cayman Islands and Jamaica. As one would expect from a development bank in the Caribbean area, the CDB concentrates on agriculture, marketing, industry, tourism, utilities and transport. Additionally, however, it lends to national development banks and finance corporations and, under its charter, it is permitted to lend to private sector institutions and companies without government guarantees. From its inception to 1986, the bank approved projects in borrowing member countries costing about US $600 million; 57 per cent of total financing, or US $340 million, has gone to the less developed countries. Almost all of that—US $300 million—was on concessionary terms. Of total contributed resources of US $548 million held by the bank at 31 December 1986, about 75 per cent was mobilised from outside the Commonwealth Caribbean. I now turn in more detail to the draft order before the Committee. The purpose of the order is to authorise payment of a further contribution to the special development fund to fulfil a pledge made by the United Kingdom at a meeting of contributors held on 22 September 1987. The SDF was originally funded by means of a variety of voluntary donations, each with its own special conditions. These became so difficult to manage that in 1983 the bank's management was compelled to put forward proposals, with which the membership agreed, to unify the fund with effect from 1 January 1984. Since then, all contributions have been treated in the same way, under a single set of rules. Within this fund there has thus never been a formal or calculated burden-sharing arrangement similar to those which apply in the funds of other development banks. The practice has been to hold what amounts to a pledging exercise when more resources are needed. As a result, some countries contribute in excess of their 5 "share" when set against their shareholding in the capital of the bank, and others contribute much less. Of the non-regional contributors, Canada and the United Kingdom each hold 12.9 per cent of the bank's capital, and France has 7.73 per cent. Before 1984, Canada and the United Kingdom contributed 14.3 per cent and 19.8 per cent respectively to the fund. France was not a member at that time. For the first replenishment, in 1984, we contributed US $10 million—£6.5 million—or about 11.2 per cent. The second replenishment of the fund will facilitate the continuation of a concessionary lending programme in the Caribbean, mainly for the poorer countries, during the years 1988–91. The United Kingdom played a leading role in the negotiations for the replenishment. We made an initial pledge of US $10 million, but let it be known that we could increase that to US $15 million if other donors contributed on a similarly generous scale. We also persuaded Germany and Italy to increase their pledges to include a "catch up" element to match France's cumulative contribution. In the end, total pledges exceeded US $122 million. This was a large increase on the US $89.5 million pledged for the first replenishment covering the period from 1984 to 1987. If Parliament approves, we shall contribute £9,252,510 to the fund. That is equivalent to US $15 million at the agreed exchange rate. We intend to pay by depositing four annual non-interest bearing promissory notes, which are not expected to be encashed until after 1990. I commend this draft order to the Committee in the conviction that the Caribbean Development Bank will continue to promote economic and social progress in the Caribbean, and that the United Kingdom should participate in those endeavours to the extent covered by the order.

10.38 am

Mr. Donald Anderson (Swansea, East): We thank the Minister for his clear exposition of the worthy purposes of the bilateral and international aid context in which the order comes before the Committee, and also of the history of the bank. We note that the bank was set up in 1969. I believe that my right hon. Friend Lord Thomson, then Minister of State in the Labour Government, was a signatory, so with the pride of parentage we can fully support the bank. We also support the fact that under the Overseas Development and Co-operation Act 1980, the replenishment orders must come before the House for approval. Partly because substantial sums of public money are involved, it is perhaps unfortunate that we have to examine the orders on the spot and that the Committee cannot examine the work of the bank in the areas of its operations. However, these debates give us an opportunity to ask questions about the operation and purpose of the bank. The Minister said that the form of payments would be made by notes which were not expected to be encashed until after 1990. Can the Minister tell us whether the sums to be disbursed will come from existing overseas development aid resources, and over what fiscal period the payments will be made. 6 The second question relates to the operations of the bank. Is the Minister satisfied with the balance which the bank strikes between different types of development projects, such as tourism, industry, agriculture and transport? The Minister will recall that concern was expressed in the past, particularly over the Turks and Caicos matter, about what was considered to be an obsessive preoccupation with the tourism sector. Have the priorities changed? It will be interesting to learn how and to what extent contributors such as the United Kingdom are able to influence the direction of the payments. Perhaps the Minister can give examples. Will the bank continue to operate along the same lines as at present? The first replenishment order of this soft window came into operation in April 1985. On the scale of the proposed disbursements, presumably much of which is already known to the Government, can the Minister tell us when he expects the next replenishment order to come before the House? Three years have passed since the last order. My final question relates to the membership of the development bank. It will be interesting to learn from the Minister whether there are any current or predicted regional or non-regional applicants. Is it true that the membership is still restricted to members of the Caribbean Community and Common Market? This definition covers some of the poorest countries in the region. The Minister has probably laid stress on the relevance of this specific operation of the bank towards the poorest countries in the region. A country such as Nicaragua, with an Atlantic-Caribbean coastline and one of the poorest countries in the region, is excluded, perhaps for political reasons or the narrow way in which the membership criteria have been defined. Can the Minister say whether there are countries in the waiting hall and how the membership of the bank is expected to develop in the future? Having said that, my hon. Friends and I have no intention of challenging the order. We wish such regional initiatives and the valuable work of the development bank well.

10.44 am

Mr. Chris Patten: The hon. Member for Swansea, East (Mr. Anderson) made an interesting speech. I shall try to answer his questions succinctly. Our pleasure at his appearance this morning is equalled only by our concern that the hon. Member for Eccles (Miss Lestor) is unable to be with us. However, I understand the reason and hope that she will be with us later in the day when we discuss the International Development Association replenishment order on the Floor of the House. The hon. Member for Swansea, East, paid a wholly appropriate tribute to Lord Thomson, mentioning his contribution not only to the foundation of the Caribbean Development Bank but to the Commonwealth in general. That approbation is well placed. The hon. Gentleman first asked about the disbursement periods for the funds. We expect the funds being pledged in this increase to be disbursed from 1990–91, over the following four years. That period comes after the present public expenditure period. The aid 7 programme is set to increase in real terms over the next three years, and I hope that the continued strengthening of our economy will enable a similar growth in the 1990s. However, that is to jump well ahead of the economic forecasts. The hon. gentleman asked about the next replenishment. We expect the total of this replenishment to be committed by 1991. A new replenishment will then become necessary in 1992–93. I stress that these are projections which are based on our best estimates, but that is our educated guess. The hon. Gentleman referred to the balance in the loan distribution of the bank. I think that he was considering the balance between sectors rather than between countries. The balance now is fair between infrastructure, agriculture and tourism. We are able to contribute to discussions about the bank's policy through our director on the board. Because of the presence of our development division in the region, we have close experience of the development of the economies in the region. In that way, the contribution that we make to the bank's discussions is well informed. I do not think that either in this country or in developing countries one should be as dismissive as the 8 Opposition sometimes are about the contribution that can be made by tourism. It has made, and will continue to make a considerable contribution to the development of Caribbean economies. It is not unreasonable for the bank to include tourism projects in its portfolio of loans and investments. The hon. Member for Swansea, East referred to the membership of the bank. It is not limited to CARICOM. Puerto Rico has applied and is under consideration. There has been no application from any central American country. They have their own sub-regional bank—the Central American Bank—for economic integration. I hope that satisfies the hon. Gentleman about the position of Nicaragua and other central American countries. I am grateful for the hon. Gentleman's support for this valuable order. I commend it to the Committee.

Question put and agreed to.

Resolved,

That the Committee has considered the draft Caribbean Development Bank (Further Payments) Order 1987.

Committee rose at ten minutes to Eleven o'clock.

THE FOLLOWING MEMBERS ATTENDED THE COMMITTEE

Stradling Thomas, Sir John (Chairman)

Anderson, Mr.

Barron, Mr.

Budgen, Mr.

Key, Mr.

McTaggart, Mr.

Nuebert, Mr.

Patchett, Mr.

Patten, Mr. Chris

Pawsey, Mr.

Sackville, Mr.

Shephard, Mrs. Gillian

Wiggin, Mr.

Wolfson, Mr.