Fourth Standing Committee on Statutory Instruments, &c.


Wednesday 8 November 1989



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The Committee consisted of the following Members:

Chairman: Mr. Michael J. Martin

Aitken, Mr. Jonathan (Thanet, South)

Allen, Mr. Graham (Nottingham, North)

Biffen, Mr. John (Shropshire, North)

Bowis, Mr. John (Battersea)

Butterfill, Mr. John (Bournemouth, West)

Carlisle, Mr. Kenneth (Lincoln)

Carrington, Mr. Matthew (Fulham)

Chalker, Mrs. Lynda (Minister for Overseas Development)

Cohen, Mr. Harry (Leyton)

Finsberg, Sir Geoffrey (Hampstead and Highgate)

Fox, Sir Marcus (Shipley)

French, Mr. Douglas (Gloucester)

Galloway, Mr. George (Glasgow, Hillhead)

Gilbert, Dr. John (Dudley, East)

Grylls, Mr. Michael (Surrey, North-West)

Johnston, Sir Russell (Inverness, Nairn and Lochaber)

Lestor, Joan (Eccles)

Moonie, Dr. Lewis (Kirkcaldy)

Mr. B. M. Hutton, Committee Clerk.

3 Fourth Standing Committee on Statutory Instruments, &c. Wednesday 8th November 1989

[MR. MICHAEL J. MARTIN in the Chair]


10.43 am

The Minister for Overseas Development (Mrs. Lynda Chalker): I beg to move, That the Committee has considered the draft Inter-American Development Bank (Seventh General Increase) Order 1989. The Inter-American Development bank is the oldest of the three regional development banks. It was set up as a partnership in 1959 by the United States of America and the Latin American countries. There are two non-regional directors, one of whom is at present British, on a board of 12. The bank's peak year was 1984, when it lent over $3.5 billion and spent nearly $2.4 billion. Since then the operations have fallen back. The recession and subsequent debt crisis inhibited traditional investment project lending, and then there was no consensus on how the bank should restructure its approach and its capital. Last year a charismatic and energetic new president, Enrique Iglesias, was elected with our strong support. He has helped to pave the way for an agreement which will give the bank a fresh start, increasing its capital by 76 per cent. to $62 billion, and its planned lending from $13 billion over four years to $22·5 billion. Negotiations on the seventh replenishment have taken more than three years and were unusually difficult. Apart from policy issues, they had to deal with mechanisms to secure a consensus and balance between different interests in the board of directors; with proposals for a new form of lending, fast-spending sector aid; with improved country programming; and with the consequent internal changes required in the bank. Throughout, Britain, along with other non-regional countries and Canada, played a prominent and influential role in helping major shareholders to reach a deal. There are three main financial components to the replenishment. First, a capital increase of £426·5 billion for the period 1990–93, with 2·5 per cent. paid in. Secondly, an increase in the fund for special operations of $200 million. This fund lends at concessional rates to the 10 poorest members, with the five poorest members of the bank getting preference. Together with reflows to the fund, that increase will allow a lending programme of over $1·8 billion. The third element is an extension of the intermediate financing facility, which subsidises interest costs on capital loans to lesser developed countries, totalling over $1 billion. That facility is financed by transfers from the reserves of the fund for special operations. International debt is one of the major problems for IADB borrowers. It is not exclusively a problem of Latin America. We are trying to help through the bank. Latin America owes rather less than half of the total developing country debt. Even within Latin America, some countries 4 problems are more severe than others and some have taken measures to tackle their problems much sooner than others. Venezuela and Colombia have been able to avoid repeated rescheduling, although both have faced severe problems over the past few months. Chile, Mexico, Bolivia and Uruguay have pursued effective adjustment programmes. Ecuador has recently agreed a programme with the IMF, and Argentina seems set to do so shortly. The picture is more gloomy in Peru, and even in Brazil, which last year had the world's third largest trade surplus, but is facing mounting debt problems. There is plenty for the IADB to do regarding not only debt but environmental issues, which, as the Committee knows, concern us very deeply. Latin America, with its vast natural resources is immensely important and a very vulnerable area. Most attention has focused on Brazil. My right hon. Friend, the previous Minister for Overseas Development, was highly successful in his visit there in July, when he signed a memorandum of understanding for exchange of information and technology between the two Governments. That will provide the basis for a wide range of British co-operation in the form of research exchanges with British institutions, provision of experts for long and short terms and scholarships. British experts have already visited Brazil and identified projects aimed at exploring forest resources, managing them and monitoring the environment. I shall not go further into the matter. I hope that I can answer briefly the questions of the hon. Member for Kirkcaldy and I commend the draft order to the Committee, as it will enable us to get on with a job that is much needed in Latin America. The replenishment will enhance the bank's capacity to focus on poverty alleviation measures, which are most important.

10.49 am

Dr. Lewis Moonie (Kirkcaldy): I welcome the general tenor of the Minister's statement and also the fact that the bank's restructuring and new management is likely to bring prospertiy over the nest few years. I have a few questions to ask, largely due to my ignorance of the subject. First, what will our total contribution be next year? The explanatory note does not explain that. It does not adequately explain "payments arising from the allocation of resources from the Fund to an Intermediate Financing Facility Account." The explanatory note fails also to clarify "payments to maintain the value of the subscription to the increased authorised capital stock." I would welcome further information about those matters. What percentage are the increases? The Minister mentioned a fund for special operations to lend to the poorest Member countries. Is Nicaragua a member of the organisation? If so, will it benefit from the proposed increased funds?

Mrs. Chalker: I thank the hon. Member for Kirkcaldy. Subject to parliamentary approval, the United Kingdom will subscribe $254·8 million to the capital fund, of which $6.4 million will be paid in. We shall also contribute £4 million—equivalent to $6.9 million at a fixed rate of exchange of $1.71 to the pound—to the special operations fund. The increase on previous years, as I said at the outset, is 76 per cent. Our contribution is worthwhile because of our determination to help Latin American countries to get 5 on with the job of managing the forests. I hope that the IADB will help with that. Nicaragua can apply for assistance, but its success in securing it will depend entirely on proposals that are put to the bank's board. If proposals are submitted, they will be considered. Beyond that, I cannot say, but no proposals are before the board at present. I have answered the hon. Gentleman's three quesions. I thank him for asking them in his new role—a promotion — and I wish him well for the future.


Question put and agreed to.

Resolved, That the Committee has considered the draft Inter-American Development Bank (Seventh General Increase) Order 1989.

Committee rose at eight minutes to Eleven o'ckock.


Martin, Mr. Michael J. (Chairman)

Bowis, Mr.

Carlisle, Mr. Kenneth

Carrington, Mr.

Chalker, Mrs.

Fox, Sir Marcus

French, Mr.

Moonie, Dr. Lewis