Dáil Éireann debate -
Tuesday, 16 May 2000

Vol. 519 No. 2

Multilateral Investment Guarantee Agency (Amendment) Bill, 1999: Second Stage.

Minister of State at the Department of Finance (Mr. Cullen)

I move: "That the Bill be now read a Second Time."

The purpose of the Bill is to authorise the Minister for Finance to subscribe to the 1998 capital increase of the Multilateral Investment Guarantee Agency, known as MIGA. The Multilateral Investment Guarantee Agency was created in April 1988 to encourage the flow of investments for productive purposes among member countries and, in particular, to developing member countries in many of which the perception of political risk remains a significant barrier to investment. MIGA improves the investment climate by issuing guarantees against political risk and engaging in other investment promotion activities. Prospective projects for MIGA coverage must be financially, economically and environmentally sound.

MIGA does this by issuing guarantees against non-commercial, or political, risks for foreign direct investments – FGI – in its developing member countries and by providing technical assistance to governments of such countries to improve their ability to attract foreign direct investment. MIGA covers private investments, but may cover state projects where these are being privatised or are run on a commercial basis.

In its ten years of operation, MIGA has accomplished a great deal and has implemented several innovative initiatives. It has become a significant agency in the world of international risk capital. On the guarantee side, MIGA is now one of the largest political risk insurers in the world. Through reinsurance and coinsurance agreements and through syndication of political risk insurance, MIGA now occupies a unique and central position as a standard setter for political risk insurers. MIGA now can proceed with confidence to assume more risk in more complicated and larger projects.

On the technical assistance side, MIGA's institution building activities for investment promotion agencies are highly appreciated by many host countries. MIGA's investment promotion activities are drawing the attention of many senior executives and its intermediary legal efforts are highly valued by many governments.

Deputies do not need to be reminded of the importance of foreign direct investment. Over the past decade, capital inflows have laid the basis for the current success of our economy. Our pioneering approach to the attraction of foreign investment has attracted considerable international attention and many countries are seek ing to emulate our success in utilising such capital inflows to best advantage.

Many countries, however, experience considerable difficulties in attracting capital. Perceptions among investors of political risk or instability often deter them from making large or long-term investments in many Third World countries. This, in turn, retards the industrialisation of these countries and compounds existing social problems, such as endemic poverty. MIGA was created as a contribution to solving some of these problems.

MIGA works closely with other agencies and its convention specifically requires it to supplement the activities of the World Bank, the International Finance Corporation and other international development finance institutions. It is also required to complement the activities of existing national and regional investment insurance entities. It does this through coinsurance and reinsurance with these institutions, bilateral exchanges of information and its membership of the Berne Union. It is a member of the World Bank group and shares a president and board of directors with the bank. In its operations it has particularly close ties with the IFC whose operations it supports.

The MIGA guarantee is designed to promote new investments and new contributions to expand, privatise or financially restructure existing projects in developing member countries. MIGA's long-term guarantee – 15 to 20 years – which cannot be cancelled serves to mitigate investors' concerns about political risks and facilitates investments that otherwise might not be made.

What does political and non-commercial risk insurance cover? MIGA offers guarantees to cover currency transfer restrictions which prevent investors or lenders from converting local currency into foreign exchange and transferring the proceeds abroad; expropriation by a host government that affects the insured investment; war and civil disturbances, including politically motivated acts of sabotage or terrorism; and breach of contract by a host government in certain circumstances. These are all actions by a host government which would jeopardise the return on the investment and, if not insured against, would deter much needed foreign direct investment.

MIGA covers several forms of investment, including equity, commercial bank loans, loans made or guaranteed by foreign equity holders and technical assistance and management contracts. This flexibility is designed to encourage private foreign investors to expand their activities in the developing world. MIGA is mandated to assist investments which contribute to the host country's development. The equity-related direct investments which MIGA facilitates are more stable than portfolio investments and are a necessary element of long-term sustainable development. MIGA assesses its success in terms of the number of jobs created, foreign exchange earnings and savings produced, tax and other rev enues generated for the host government and advanced technology and management practices introduced.

All MIGA insured projects must be environmentally, financially and technically sound. MIGA's technical assistance work is designed to promote the flow of investment to its developing member countries and economies in transition. These activities focus primarily on sectoral ministries and national and local investment promotion agencies. MIGA assists the agencies in capacity building and dissemination of information on investment opportunities in their countries. MIGA also supports the investment marketing efforts of agencies by organising multi-country, single sector conferences which bring together potential investors, local partners and host country investment promotion officers.

The fulfilment of MIGA's objectives contributes to the development of the private sector in host countries and increases the ability of these countries to achieve economic and social development in an environmentally sustainable way. MIGA's success in promoting foreign direct investment in its developing member countries and economies in transition makes an important contribution to the attainment of the overall development objectives of the World Bank group.

Global private flows to developing countries increased from US$42 billion in 1990 to US$256 billion in 1997, although 1997 witnessed a slight slowdown due largely to the crisis in East Asia. Growth has resulted from a combination of factors, including liberalisation and private sector growth in developing economies, particularly in the infrastructure sector, strong macroeconomic growth, an increase in trade and a more integrated global investment and production regime overall. Against this background, foreign direct investment continued to form the largest portion of net private flows and increased fivefold from US$24 billion to US$120 billion in the same period.

The growth of foreign direct investment in developing countries acted as a catalyst for and benefited from the expansion of the investment insurance market. Concerns of project sponsors about restrictions on transfer of remittances, expropriation or nationalisation and war and civil disturbance have inhibited the flow of foreign investments in the past. The increasing availability and use of political risk insurance as a risk mitigation mechanism have boosted investors' confidence to invest in developing countries. The Berne Union, which comprises 25 investment insurers, including MIGA, reports that the use of political risk insurance has more than doubled since 1990 from US$17 billion to US$38.9 billion in 1997. In response to global trends, private investment insurers are increasing the capacity and scope of their coverage and providing longer periods of insurance.

MIGA's role in relation to Africa may be of interest to Deputies. MIGA wants to respond to the growing needs of African countries. Several African countries have undertaken rigorous structural reform and adjustment efforts and these have begun to show rewards in the form of steady economic growth. This has been termed the "African Renaissance" and its potential is enormous. By the end of 1998 it was clear that some African countries were close to benefiting from debt reduction processes and badly needed foreign direct investment. However, many of these are still shaky economies and they are not immune from crises, such as that which hit East Asia.

MIGA's technical assistance and guarantee activities will be crucial to such African countries. The difference MIGA makes for them will be a key test by which MIGA will be evaluated in terms of its effectiveness in diversifying foreign direct investment to poorer countries. Since its inception, the agency has underwritten 62 contracts of guarantee in Africa, facilitating an estimated US$3.7 billion in foreign direct investment. In addition, the agency provides technical assistance to promote foreign direct investment in Africa by strengthening the capacity of investment intermediaries in the region to attract and retain foreign direct investment. It also disseminates information on business operating conditions and investment opportunities.

MIGA obtains its resources from the capital subscriptions of its members. MIGA's initial authorised capital was SDR 1 billion. The current authorised capital is SDR 1.86 billion. The increase is accounted for by an increase of SDR 77 million in the initial capital to accommodate an increase in membership over that initially provided for and the current capital increase of SDR 786 million. As of September 1999, full membership requirements in the agency have been completed by 150 countries. The current amount of the capital subscribed by full members is SDR 1.04 billion, that is, US$1.124 billion.

On 29 March 1999 the council of governors of MIGA adopted a resolution for a general capital increase. The authorised capital stock of the agency will be increased by SDR 786 million, which is US$850 million. The proposed capital increase will help underpin an underwriting strategy which envisages between US$15 billion and US$24 billion of new guarantees being issued up to 2006. After allowing for existing guarantees, cancellations, reductions, expiries and losses, MIGA's outstanding contingent liabilities would be approximately US$15.7 billion gross by the end of that period. Based on historic ratios, new guarantees of between US$15 billion and US$24 billion could facilitate an estimated US$105 billion to US$168 billion of new foreign direct investment to developing and transition countries.

Ireland is a member of MIGA since its establishment in 1988, having ratified the convention establishing MIGA on 5 July 1989. The cost of the shares allocated to Ireland was approximately US$4 million of which 10%, that is, US$300,000 or £280,000, was paid in cash.

Under the proposed capital increase, Ireland will receive additional shares involving an additional subscription of $3 million. This will consist of a cash payment of $537,000 or £396,000 and callable capital of $2.5 million. Cash payment will be made in two equal instalments in the first two years of the capital increase. The first payment fell due before 29 March 2000. The second is to be made before 29 March 2001. Each payment will amount to £198,000. Ireland's contributions to MIGA are accountable as part of our official development assistance programme and count towards Ireland's UN GNP percentage target for overseas development assistance. Contributions to MIGA are payable from the Central Fund.

Section 1 amends section 3 of the Multilateral Investment Guarantee Agency Act, 1988, to allow the Minister to subscribe to the 1998 capital increase of the agency as set out under Resolution 57 adopted by the council of governors of the MIGA on 29 March 1999. Section 2 contains the Short Title.

I commend the Bill to the House.

Mr. Noonan

I welcome the Bill and Fine Gael will support it at all Stages without amendment. The scheme operated by MIGA reminds me to some degree of the export credit insurance scheme which we operated here and with which I am familiar. The scheme we are debating is different in that it insures investment in risk countries. The export credit insurance scheme insured exports from Ireland into risky economies. When I was Minister for Industry and Commerce, I familiarised myself with the details of the export credit insurance scheme because, on one occasion, I cancelled such insurance for Iraq. Its subsequent restoration by the former Taoiseach, Deputy Albert Reynolds, became one of the major issues at the beef tribunal. Schemes which appear to have little political content can frequently have substantial political content on certain occasions.

The export credit insurance scheme was designed to ensure that private companies in Ireland could reduce their risk by being insured against the risk of not being paid for their exports. It is a scheme which operated to the benefit of Irish industry, especially during the 1980s and to some degree into the 1990s. The risk is probably less than it used to be. When Irish exporters availed of every possible opportunity to obtain a viable export market in the 1980s, they sometimes exported into very high risk economies in the sense that there was a risk they would not be paid for their produce. Such a scheme as operated was vital.

The same is true now of underdeveloped countries in terms of investment. The private sector will invest in certain underdeveloped countries. However, where the political or exchange rate risk is too high, they will be reluctant to do so. The MIGA fund, which has now been expanded by almost $2 billion, underpins the risk investors face. The explanatory memorandum to the Bill states that risk coverage will cover such items as "Currency transfer restrictions that prevent investors or lenders from converting local currency into foreign exchange and/or transferring the proceeds abroad", the complete expropriation of the investment, the risk to an investment posed by war or civil disturbance and a breach of contract by the host government. These are considerations an investor would have in mind when considering an investment in an undeveloped country or a country which did not have the long tradition of democracy and parliamentary accountability of our jurisdiction.

The alternative, if such insurance schemes do not exist, is that investment does not take place. I was interested by the Minister of State's statistic from the Berne Union that this type of insurance has doubled since 1990, and he mentioned the figure of $19 billion of insurance being drawn under this heading since 1990.

There is nothing controversial in the Bill. At present, we have 369 shares in the agency's stock, representing a total investment of more than $3 million. It is proposed that we extend our shareholding by 281 shares, with a corresponding commitment on the capital side. Only 10% to 11% is to be paid by way of cash. Like all insurance and what we read about the Lloyd's members, it is not what has to be put up front, rather it is the guarantee one gives if the investment goes wrong of what can be called upon as the main contribution. I see in the Minister of State's proposal that the cash amount to be paid by Ireland will only be approximately £412,000 and that the callable amount will be about $2.5 million. The cash up front is low and the callable amount and the ultimate commitment by the Exchequer is significant. Nonetheless, I do not believe we have been called upon to make our full contribution until now. I would be grateful if the Minister of State, in summing up, would clarify whether, in our commitments until now, we have been called upon to produce our callable amount or whether the fund has proceeded on the basis of the 10% or 11% cash up front which we have paid.

Last week we debated the International Development Association (Amendment) Bill, 1999. The Bill we discuss now is also a vehicle for reflection on our overseas development aid programme. The same considerations arise here as were recited last week. As I said then, we should examine overseas development aid in a much wider context than we view it at present. There is always a tendency among people who observe the Dáil dealing with a matter such as this to think in terms of the Skibbereen Eagle keeping an eye on the Tsar of Russia. We are so small in terms of our international role and our contribution to these great multinational funds is proportionately so small that people are sometimes of the view that we should effectively mind our manners and leave the great affairs of world politics to the big players, such as the United States, China, Russia, France or Germany. They are also of the view that, despite our role and contribution being so small, we talk well above our contribution when we reflect on these matters.

I am of the view that, if we put the issue of overseas development aid in the wider context of the great policy issues facing the world at present, the relevance of them to Ireland will be seen and our motivation should be much wider than our commitments which arise from the common humanity we share with the citizens of underdeveloped countries.

As well as the human rights agenda to which we subscribe, there is a wider agenda on which it is in our interest to reflect. I refer again to what I said last week. The Cold War is over and that way of understanding the world, with competing eastern and western blocs with different political systems and ideologies, is now redundant. The theory that this marked the end of history and that the Cold War would be succeeded by a world order of free markets and neo-liberal democracies with everyone subscribing to common human rights values is not a tenable theory. It is not the end of history. There is a new way of looking at the world, which is ongoing competition between the great civilisations of the world.

It is interesting to note that all the conflict points are along the fault lines between the civilisations, whether between Western Christianity and Islam as in the Balkans, between Orthodox Christianity and Islam in Chechnya or between Hinduism and Islam on the Indian sub-continent. These are where the fault lines are, but they have one factor in common. It is always a rivalry between rich and poor, or relatively rich and relatively poor. It has never been the case in world history that there has not been an issue of conflict between a heavily populated, poor country beside a richer country. The great issues facing Europe for the next 25 years or so are those of migration, the proliferation of nuclear weapons and international terrorism.

If we wish to aid underdeveloped countries, to ensure there are universal education systems for children at least to the age of 14 or 15, to ensure there are universal health systems in underdeveloped countries and to ensure there is investment which brings those in underdeveloped countries up to an acceptable standard of living, there is a strong vested interest for all of us in the western democracies in doing so. It is by advocating that programme and by seeing Ireland's as a strong voice in doing so that we will have more leverage and influence in international affairs. We are not an irrelevant, small player and if we raise our voice in the right context we can be influential in these matters.

Migration is a self-evident issue. As long as there are poor countries beside rich countries the citizens of the poor countries will try to live in the richer countries. We know that from our own history and it is now self-evident from what is happening in Europe. The Minister for Justice, Equality and Law Reform is dealing with the matter of asylum seekers, refugee and migration issues as if it were a temporary phenomenon. I believe – and the evidence shows it – that we are at the start of a major movement of people towards Ireland as long as our economy continues to prosper. There is an unprecedented and rapid movement of millions of people throughout the world. There are millions of economic migrants and although there are fewer asylum seekers, vast numbers of people are on the move, generally from poorer to richer countries and that will continue. It is in all our interests to ensure that the poor countries are developed and brought to a point of self-sustainable development. That requires investment and if that involves the insurance of investment through schemes such as those run by MIGA we should be fully in support of it, and we are.

I mentioned the other issues facing Europe and although people may regard them as highfaluting theories, reading the accounts of the Lockerbie trial in the Netherlands brings home to us that the citizens of no country are safe from the dangers of international terrorism. In that case the allegation is one of state-based terrorism, but the issues remain the same. I do not believe in the theory of globalisation which holds that at some stage in the future the whole world will be homogenised to the degree that we will all share a common Western culture. That is to see the appearance of things rather than the reality.

The reality is an 18 year old Islamic boy with secondary education wearing Levi's jeans and Adidas runners learning how to use an AK-47 rifle or wire a bomb for use in the Western world while he keeps a bottle of Coca-Cola nearby to slake his thirst. The fact that he looks overtly like any young man in Ireland does not mean that he shares the same cultural values or that the world will be at peace with itself as soon as the values of McDonald's, Adidas or Coca-Cola are prevalent values among international youth. That is not the way it will work.

There are and will continue to be tensions between the great civilisations and those tensions are ultimately based on the fact that the world is a very unequal place. There are levels of inequality that the bright young people will not put up with and they will lash back. They will lash back in the manner that the weak always use against the strong, through terrorism or, in the 20th century, through the desire to get nuclear weapons. They may also decide to bail out and decide to migrate to the richer countries by hook or by crook in order to establish a new life there.

It is in that wider context that the Departments of Finance and Foreign Affairs should be arguing these issues. Now that we are one of the most successful countries on the face of the earth we should renew our commitment to our UN overseas development aid commitments and move quickly, in a programmed way, so that we are contributing 0.7% of GNP to overseas develop ment aid. We would be the first country in the world to do so, although we would have companions among the Scandinavian countries and we would be giving a lead. However, if the arguments are narrowly focused on the fact that the poor are poor and we should give them a better living standard or that there are certain common human values to which we subscribe and which should apply everywhere in the world or if we see ODA as a Department of Foreign Affairs manifestation of charity, then the political desire will not be found at home to support the level of tax contribution necessary and it will certainly not be sustained if the country goes into a recession.

I appeal to the Minister of State to grasp the opportunity that is presented and to argue the case for ODA in a much wider context than is now being used. I have no doubt about his personal commitment or that of the Minister of State at the Department of Foreign Affairs, Deputy O'Donnell. There is no doubt about the political will at that level to make the necessary policy commitments, but the context and focus is far too narrow. With a wider focus and context we will not only increase the Irish contribution but we will have far more influence on our EU partners. We could make a real contribution in this context.

The Bill is not controversial. It increases our contribution to the fund by using the same mechanism of acquiring shares as provided when MIGA was established in 1988. The same call-up requirements are contingent on our purchase of shares in the first instance and again, as in the IDA contribution which was updated last week, the amount of money we contribute can be reckoned as part of our ODA in line with our international commitments. The Bill is very welcome, but I would like the Minister of State to take an even stronger interest in this matter and to discuss it with his colleague in the Department of Foreign Affairs to see if more can be done in the context of the next budget.

Mr. McDowell

As Deputy Noonan said this is a largely uncontroversial Bill. Yesterday I wondered how I could detain the House for 20 minutes debating it and came to the conclusion that I should not bother trying. Deputy Noonan has made it clear that I need a few more years' practice in debating the great issues of the world, and perhaps I have been remiss in my thought process in the past 24 hours in dealing with it. Deputy Noonan spoke of some of the global forces which operate, the end of history and Mr. Fujiyama's musings, etc., and there is some relevance in terms of the greater issue of ODA. I agree with most of the analysis and certainly that the notion of the end of history, when everything will be benign and happy, is not in accordance with our experience in the past number of years and is not likely to be so for some years to come.

Deputy Noonan omitted one great force, namely, that of globalisation, free trade, the WTO and everything associated with it. There is no doubt that the great struggle in terms of the international order is between the forces of neo-liberalism, as manifested through the WTO and its predecessor GATT, and Third World countries which are trying to live with that new reality which is being forced on them on a bilateral basis by countries of the First World and by the multilateral institutions which are the focus of this debate. This is also relevant to MIGA.

I read the mission statement of MIGA which appears on its website and which is great and wonderful. In fairness, much of what MIGA does, in so far as I understand it, is positive. It talks about carrying out research, undertaking activities to promote investment flows and disseminate information on investment opportunities in developing member countries with a view to improving the environment for foreign investment flows to such countries. It also talks about providing technical assistance and insuring political and other risks.

One could say this is great, that MIGA is filling a niche which has to be filled by somebody and well and good if it is done on a multilateral basis by a multinational organisation to which we all contribute. However, one could view it in a more sceptical way given that its role is the transfer of ownership, and sometimes of control, of at times significant parts of the economies of Third World countries to multinational capital. Its role is facilitating the privatisation of industry and sometimes of the control of natural resources in Third World countries which are inevitably taken over by those who have capital, namely, multinational companies.

By and large, if multinational companies engage in Third World countries they will probably do so to a good end and will hopefully set in place a chain reaction which will lead to economic growth and further investment. However, there have been examples of multinationals being facilitated in investing in Third World countries and in acquiring the natural resources of those countries and using them to generate significant wealth for themselves in some cases before leaving, with little benefit to the Third World country. There is a question as to whether the international community should be facilitating by way of insurance companies engaged in what ultimately proves to be an extremely profitable activity for them and with no great benefit to the recipient country. That is my major concern.

As I understand it we are talking about insuring private investment and not intergovernmental investment and, therefore, it insures the transfer of ownership of part of the economy to a multinational. I am sceptical whether this is good in all cases.

If we accept that a risk exists and that it may not always be good, the next issue is how the assessment is made, who makes it and what accountability mechanisms are in place. Deputy Noonan is correct when he says there is a temp tation for Members and the public to think we are indulging ourselves in some way, that it is an esoteric question because our contribution is tiny. Of course that is correct, but somebody has to ask these questions. I know questions have been asked by people and politicians in the US, although not always from a political angle which we would share as questions are frequently asked by politicians of the right. We are represented on these multilateral institutions and it is important that we have direct reports and accountability from our representatives, for example, with the World Bank.

The Minister of State will recall that last year when we discussed Ireland's contribution to international debt reduction we agreed that a report would be laid before the House by a certain date – I think it was 31 March each year – detailing our contribution during the course of the year to the Bretton Woods institutions. I think I am correct in saying this year's report is, unfortunately, already late. I know it is the first report of its kind which the Department has had to produce, but I hope we will be in a position to review it fairly soon. The direct experience of our representatives is the best source we have to call upon. It is very difficult to take issue with MIGA when one reads its website, its mission statement and the speech delivered by the Minister. However, NGOs have direct concerns, sometimes about individual projects, and it would be useful to have an opportunity to put those concerns to our representatives.

Understandably, much of the focus of the debate last week was on Africa. We have always directed most of our ODA assistance to Africa, although a couple of Asian countries are also involved. As I understand it MIGA and much restructuring investment in Third World countries takes place in the former CIS and the former Soviet Union. MIGA has been responsible for ensuring investment, largely by multinational companies, in the countries of the Caucasus and in the central Asian republics. The Minister of State will be aware that the European Bank for Reconstruction and Development has also been charged with that responsibility over the past number of years. He might like to reflect in his response on how this has worked out. For example, there have been concerns that the bank has become involved in projects with which we may not be comfortable, for example, financing nuclear power stations on the Danube. The bank became involved in projects in countries such as Tajikistan where the regime seems to have less than full respect for human rights. When the EBRD was set up it was intended to encourage the restructuring and development of those economies, but also to encourage the transition of those countries, which frankly had a tradition of dictatorship, to a more politically stable condition.

I appreciate I am straying a little beyond the Bill, but I would be interested to hear the Minister's reflections on how the EBRD and the multilateral institutions are fulfilling their mandate of bringing about political transition and respect for human rights in countries in Eastern Europe and the former CIS as well as in Africa. I think too much of our focus has been on Africa, which is understandable, but we have not focused to a sufficient extent on Eastern Europe.

Who are the typical clients of MIGA? Are we talking about relatively small investments or about companies which want to encourage investment in Third World countries? Are we talking about indigenous companies in Third World countries? In Mozambique, for example, is it possible for indigenous private sector industries to get this insurance or does it exist just to encourage foreign direct investment? I understand the latter is the case. It is necessary to try to encourage and develop the links with the indigenous private sector which facilitate sustainable economic growth, something which has been missing in the past.

During the debate on the International Development Association (Amendment) Bill, 1999, I was struck by the extent to which the flow of money is not circular. This comes down to the argument about loans versus grants. The IDA provides loans, not grants. On the one hand money is provided to the IDA in order to make those loans but money is also provided by way of debt relief so that loans which are owed to the IDA can be discharged. My understanding is that up to 40% of the moneys owed to the multilateral institutions, principally the World Bank and the IMF, are IDA loans which are not repaid. Will the Minister of State comment on whether this is accurate? I wonder in those circumstances whether Ireland, as a small country, would not be better off just in concentrating its efforts on bilateral grant aid rather than on the multilateral circulation of money.

The only other question I have relates to the concentration of MIGA's efforts. The Minister of State mentioned that overall investment is in the order of US$24 billion whereas the amount invested in Africa is approximately US$3.7 billion. Where is MIGA's greatest undertaking? It does not appear to be in Africa and, therefore, I assume it is in Asia but I am interested to know what is the position.

As Deputy Noonan stated, all this must be seen in the context of our ODA budget. I reiterate that given our current relative economic wealth we could have done a great deal better in recent years. Last week the Minister of State outlined his intention to achieve the target of 0.7% of GNP for overseas development aid within a few years and I welcome that. I appreciate that a little time is needed to do so. MIGA is just a tiny part of that and we should concentrate more on bilateral aid. However, in so far as this is another increase in our commitment, albeit small, I welcome it and the Labour Party will support it.

Mr. M. Kitt

I congratulate the Minister of State on the introduction of this Bill to subscribe to the 1998 capital increase of MIGA. I welcome the fact that capital inflows from foreign direct investment have been made available. The Minister of State reminded us that capital inflows have formed the basis of the success of our economy but I reiterate Deputy McDowell's comment on indigenous industry. We have seen the benefit of small industry in Ireland and we should also examine links with native industry in developing countries.

The Minister of State mentioned that MIGA improves the investment climate by issuing guarantees against political risk and engaging in other investment promotion activities. I refer to an issue which has been raised on many occasions in the House, Shell investment in Nigeria, particularly in the Ogoni region. Abuse has been perpetrated against people in this region and Shell's investment has been questioned. Trócaire has made the point that our Government and others should examine such investment. The Nigerian Government has not allowed NGOs, such as Trócaire, and Members of this House to visit the country to examine the situation there. There were dreadful executions of people who were protesting against what was happening.

Another example which has been highlighted recently is the ongoing war between Ethiopia and Eritrea. We are aware of the appalling conditions in Ethiopia, yet war continues. The US Government has tried to bring pressure to bear to stop such conflicts, but Mr. David Begg reiterated on radio this morning that the countries involved are heavily armed. It is worrying, as we discuss investment, that wars continue. Mr. John O'Shea of GOAL has also referred to the fact that some of the funding which Ireland gave to Rwanda was used to buy arms and munitions. This is one area about which we must be concerned when we discuss investment and the political risk involved.

I am glad that the Minister of State highlighted the position in regard to the World Bank and the International Finance Corporation. We discussed this last week during the debate on the International Development Association Bill, 1999. I support the comments of the Jubilee 2000 committee in regard to writing off debt. It produced a petition that was signed by 800,000 people in Ireland. It was presented to the G8 leaders in Germany and the committee looks forward to the next G8 meeting when it will make a strong case to write off developing countries' debt.

Like other Members, I am impressed by Ireland's bilateral aid programme and I congratulate the Department of Foreign Affairs and the Minister of State at the Department, in particular, on the visits she has made to countries in the bilateral aid category. Priority is given to those countries and good people from both the Department and the NGOs work in them. I hope Ireland will continue to do that but not at the expense of any other programme because programmes in priority countries have been successful.

The Minister of State said that several African countries have undertaken rigorous structural reform and adjustment efforts. There has been criticism, particularly in regard to ESAF in the past, that Ireland may have laid down too strict guidelines on structural reform which could have led to a reduction in education and health programmes. We must be careful that we do not impose programmes on countries through ESAF. During the debate on the International Development Association (Amendment) Bill, 1999, the Minister of State referred to the distinction between grants and loans. He stated that when the next replenishment of the IDA is examined, we may move more towards grants because there is not much point in continuing to provide loans if countries sink deeper into debt. I call on the Minister of State to finalise his thinking in regard to the provision of grants in future.

I support what has been said about our overseas development aid programme. The Minister of State has been positive about achieving the target of 0.7% of GNP for such aid over a specified period. Obviously we want that timeframe spelt out as soon as possible but we know it cannot happen overnight. However, we have made good progress since the cutbacks in the 1980s and I look forward to the increase in ODA as a percentage of GNP because we will then be in a position similar to countries, such as Norway and Sweden, which have exceeded that target. I welcome the Bill.

Mr. Higgins

(Dublin West): Listening to the Minister of State and Deputy Noonan one would imagine we were discussing a loan to the Little Sisters of the Poor for a worthy project in a poor country in Africa, such were the terms of virtual endearment they bestowed on the two organisations with which MIGA deals. Far from being charitable organisations, the World Bank and the International Monetary Fund, which orchestrate the investment of western companies and countries in the poorer countries of the world, are vicious instruments of globalisation. They are also vicious instruments of global capitalism which rape the resources of the Third World in a systematic fashion and exploit its people to a horrific degree.

I am amazed at the discussion we have had on this Bill, considering that last year the House discussed the structural adjustment programmes. At that stage Deputies made good and accurate points about the role of multinationals in the Third World. Loans from the IMF and World Bank are contingent on structural adjustment programmes which form a vicious attack on the public infrastructure and assets of the countries they are supposed to assist. They insist on public assets being privatised, State expenditure on social services being slashed, and they slash trade barriers to suit themselves and the multinational investors.

The IMF and World Bank structural adjustment programmes turn poor countries into loan repayment machines. That has been the experi ence over the past 20 years. The MIGA programme claims that while the IMF and World Bank reforms are a bitter pill to swallow, they lay the basis for major economic growth and, therefore, for higher living standards for the poorest people in the world. Unfortunately, the evidence demonstrates the opposite. The IMF and World Bank have created a huge debt trap in the Third World. The overwhelming debt has led poor countries to allocate enormous portions of their national income towards paying interest on debt. The sick logic of international capitalism and its so-called investments in the Third World means that money is flowing from the world's poorest people into richer countries.

Debt is one of the most important weapons with which the big capitalist powers dominate poor countries and extract the maximum return. Debt is used callously and calculatedly as a leverage to pry open new markets and gain access to cheap labour and raw materials for major western firms. To get new credit and avoid defaulting on existing debt repayments, poorer countries must accept the dictates of the IMF and World Bank. Today, the underdeveloped world owes a total of $2.5 trillion in international debt to big banks, the IMF and the World Bank. The developing nations pay the West nine times more in debt repayments than they receive in aid from western countries.

Recently, we have seen the tragic example of the devastating floods in Mozambique where western governments sat on their haunches for days on end while the lives of desperately poor and beleaguered people were lost. The livelihoods of those affected by the floods were wiped out. A mere $40 million in aid was contributed. It is all very well to pretend that it is all about charity, but Mozambique pays more than $70 million a year in debt repayments to western banks. There has been a media blitz about what has been given in aid and the rescue efforts, when they eventually got going, but there has been no reporting on the real story which is the blind robbery of a poor country. In Mozambique, while diseases such as cholera and malaria are spreading rapidly in the wake of the floods, only 1.1% of gross domestic product is spent on health care. That represents a fall of 75% after a decade of IMF-imposed austerity programmes.

Mozambique is only one country which finds itself in this situation. From 1982 to 1990, $927 billion was loaned to underdeveloped countries but in the same period debtor nations paid $1,345 billion to international banks in debt service payments. Debtor countries began the 1990s 61% more in debt than they were in 1982. That has been the experience of sub-Saharan Africa and other countries whose debt has increased dramatically. During the 1990s, the gross national product for the region fell by 2.2% per year, while per capita income declined. This is the result of the so-called friendly embraces of institutions whose activities the Minister wants this country to underwrite through the provisions of the Bill.

The Minister should listen to what a former World Bank official said when he summed up the situation, no doubt after leaving the bank. In regard to Latin America, the official said that "not since the conquistadors plundered Latin America has the world experienced a financial flow in the direction we see today". Unfortunately, that is the situation in many poor countries. Latterly, we have seen the IMF and World Bank intervening in Russia, allegedly to restructure the economy and supposedly in the interest of the Russian people. However, there have been catastrophic results from this so-called shock therapy. The Russian economy has gone into free fall with its GDP plummeting by 60% since 1991 – an unprecedented decline for any country in peace time.

The globalising trends that have been promoted by these agencies have led to a grotesque increase in inequality, poverty and misery in the developing world. In reality, the Bill is about underwriting investments in poor countries and, thus, obviating any risk to investors. Deputy McDowell asked who was being underwritten by this programme and, of course, it is the foreign investors. In other words, they can invest in areas where they would otherwise be at risk if the investment was based purely on commercial considerations and did not consider the political situation. They want western taxpayers to pick up the tab if things go wrong in their profit-making enterprises. That should not be condoned and we should not underwrite such a situation.

For example, what would be insured? Currency transfer restrictions prevent investors or lenders from converting local currency into foreign exchange and transferring the proceeds abroad. Will the Minister explain what that means? For example, will corruption in some of the brutal leaderships and bureaucracies that dominate these poor societies, in which multinationals, the IMF and the World Bank are investing and dictating policy to, be underwritten by this scheme? In current circumstances there is not much chance of expropriation by a host government that will affect the insured investment. Governments are being forced to divest themselves of enterprises and state concerns rather than the opposite.

This country should not be involved with the IMF and the World Bank. It should not give succour to these predatory organisations that have left a legacy of disaster in the poorer countries of the world. What is called for is an entirely independent and new approach. The revolt in Seattle in the autumn, when the World Trade Organisation attempted to gather to further organise the exploitation of the poor countries, should serve notice that a revolt is beginning to emerge in those countries which were represented in Seattle, and among the working people of the United States and other countries, against the carve up of the world on the terms of multi national corporations. Five hundred corporations currently dominate the world. A few handfuls of private individuals, Bill Gates included, own more wealth than the bottom 50% of all humanity. That has been the legacy of the policies of the World Trade Organisation, the IMF and the World Bank and it is in that the Minister wants to further involve this country.

Critically necessary services wield enormous power and economic leverage over the economy. They should not be in the hands of faceless private individuals and corporations whose only aim is to maximise profit at the expense of ordinary people and of the poorest of the poor. Banks and the financial institutions should be in public ownership on a world scale. Finance and investments should be planned on the basis of need, not on the basis of the greed of the multinational companies. All debts should be cancelled. The poor of the world have paid and repaid their debt to western countries and to western banks. Such debt cancellation as has happened has been merely to wipe the eye of those countries and to create the impression among young people, NGOs, etc. in the west who are concerned about the plight of the poorer countries that they are charitable organisations. Real debt cancellation would mean a complete cut of the shackles. That must go with the overthrow of the rotten dictatorships and corrupt regimes in the poorer countries where these multinational companies operate and where they make no contribution to the restoration of democracy, as we have seen in Nigeria. They assisted in the crushing of the democratic environmental movement in Ogoniland, etc. If people are really interested in assisting the poor peoples of the world, they should take an independent stand with independent investment and utilise the resources democratically for the majority of the people, rather than underwriting some of the most predatory organisations humanity has known.

Mr. Daly

I am glad to avail of the opportunity to contribute to the debate and to congratulate the Minister of State on introducing this legislation. I assure him he has our full support in that endeavour.

It is very easy, as Deputy Higgins has just done, to get emotional and hysterical about the position in these countries. It is wrong to say the abolition of the World Bank, the IMF and the institutions that are helping to solve some of these problems would in some way advance the cause of the people who are suffering poverty, disease, hardship, deprivation and death in the underdeveloped countries. That would make a bad situation immensely worse and would put more lives at risk. The proposals put forward in the contribution we have just heard would be an irresponsible approach for any government to adopt. It is fine to be lofty in ideals and in doctrine but they do not achieve anything. The policies that have just been put forward would have disastrous con sequences for the poorest of the poor, the people we claim to support.

As Minister of State with responsibility for overseas development aid, I had the opportunity to visit the poorest of the poor in Tanzania, Lesotho, Mozambique and elsewhere. One could hardly grasp the enormity of the problem in these places without seeing it at first hand. I was glad the Taoiseach recently had the opportunity to see the hardship, poverty and disease being suffered, especially in the huge countries in Africa where there seems to be little prospect of dealing effectively with the problems. The Taoiseach put on record the Government's support for the efforts required to make some impact on a situation which is rapidly deteriorating, despite all the work done in the past.

I have seen the NGOs and the State agencies working side by side. We had the opportunity to discuss with NGOs here the way they might co-operate better and work together with the State agencies to deal with some of the problems that are blatantly obvious to anybody who cares to follow what is happening in these countries. Anyone who saw the situation in Tanzania, where the poorest of the poor are suffering hardship, deprivation and death, would be more than happy to support any measure that would help to alleviate the problems there.

The legislation before the House is a further plank in the campaign to build bridges between the less well off sections of the international community and those whom we have described as needing immediate and substantial financial, technical, scientific and medical assistance. This measure in particular is valuable because it will help to alleviate their suffering. This is a very good agency, a type of guarantee agency set up only ten or 12 years ago but which already has achieved remarkable success. Rather than criticising an agency like this we should support it. The Government has adopted the correct approach in bringing forward this legislation which will further assist the agency to consolidate its work and give the guarantees which are fundamental to ensure that development takes place.

Private financial agencies and insurance companies should be encouraged to invest further in this area of insurance to enable some of the major reconstruction and development to be undertaken. It is necessary to involve the international community in this area. This fund is a good one and is, as the Minister said, achieving results. It indicates definite advancement at a time of difficulty. If Governments make a commitment to an agency such as this, a guarantee fund to help deal with the political risks which undermine the prospects of investment, not only will they make substantial progress but private investment and insurance agencies will be encouraged by the lead they are giving and will match it, pound for pound, if not more.

I pay tribute to NGOs for their work in overseas development. When I was Minister of State, almost nine years ago, we had the benefit of a combined meeting in Iveagh House of the agencies involved in the overseas aid programme. It was a revelation to see the huge volume of work being undertaken. We also discovered there were opportunities for better co-operation between State agencies and non-governmental organisations. This is apparent to anyone who has seen what is being done in Mozambique and other places. There are opportunities for a substantial increase in the volume of trade. When I met the President of Tanzania, he said that of all the aid and finance we were making available to them, they needed better access for their commodities to world markets because it would alleviate the demand on the overseas aid budget from various countries.

A balance must be struck between what can be done through guarantees such as this one and direct cash payments to the UN and other agencies. This must be done, above all, with regard to the operation of world trade so people can put their commodities – bananas, coffee or whatever – on the market which is getting more competitive and difficult to operate in. Those in business recognise the handicaps world trade is placing on economies – our farming community has also been affected. We should not underestimate the importance of the world trade regime which is taking shape. Governments of developing countries must be conscious of their financial circumstances and must find ways to accommodate these in the world trade negotiations, in order to give them access to markets.

It is regrettable that while we are introducing this guarantee fund which will provide political insurance, some developing countries are selling huge amounts of armaments to people so they can continue to kill and place hardship on innocent communities. We should attach a condition to this legislation to ensure that countries who participate in this agency give undertakings that they will not be involved in the selling of armaments to countries, many of which make no secret of the fact that they are storing ammunition. Much hardship and deprivation could have been avoided were it not for the huge revenue diverted to the purchase of armaments for ethnic wars. I will not go into detail as it is there for anybody to see.

This is good legislation. We should invest in this area further. I am not sure if there is a provision for an annual report to be presented by the agency to the Houses so we can see the areas it is involved in and the work it is undertaking. If it is fully explained to the public what is involved in this, they will be more than willing to give it their backing. In the past year there has been a tendency in the international community to reconsider their overseas aid programmes and curtail them. This would be a devastating move by such countries, many of which are wealthy, efficient and have extensive resources at their disposal. It would be a retrograde step to curtail these programmes after all the human and financial investment in overseas aid programmes.

This legislation is a vote of confidence in our agencies and those involved in NGOs throughout the international community. We must encourage them to continue their valuable work so we can bring an end to the poverty, hardship, starvation, death and destruction we have seen in many of the developing countries. This legislation is useful, positive and worthwhile. I fully support it and every Member should do likewise.

Minister of State at the Department of Finance (Mr. Cullen)

I thank the Deputies who contributed to the debate. I appreciate the general, if not unanimous, welcome for this Bill. The debate on the capital increase of MIGA offers our Legislature the opportunity to consider issues relating to economic growth in developing countries and the role of the private sector in generating such growth. In concluding this Stage, I will address a number of points raised by Deputies and comment further on the role of MIGA, particularly its future strategic direction.

I was struck by Deputy Noonan's arguments when he spoke on the IDA debate – unfortunately I was unable to reply as I had to leave the House – and found myself reflecting on them at home over the weekend. It is interesting that the issue arose again today. His central point related to the impact of economic refugees and some of the predictions which are not as rose-tinted as they might be. We must address the reality which Ireland is now experiencing. We will continue to experience the impact of the difference between the developed world and the undeveloped world and people making the strategic decision to move rather than waiting for something to happen in their country.

I agree that one of the key ways to stop people moving is to give them a real economy in their countries, raise their standard of living and create the opportunities which they perceive as existing in the more developed parts of the world. This can be done by taking a broader view of the impact of the funding we provide to the developing parts of the world, multilaterally and bilaterally. We have experienced substantial economic growth in recent years. The ODA budget in 1992 was £40 million and last year it was £178 million, which is a phenomenal increase. This is still about 0.31% of GNP. There is a collective will in this House to reach the figure of 0.7%. If we achieve this, we will have a platform from which we can further discuss the arguments made by Deputy Noonan on this Bill and on last week's IDA debate.

We are moving in this direction. I am not directly involved in all the related legislation but I have noticed that our role, multilaterally and bilaterally, in the developing world and poor countries has become greatly enhanced. Publicly there is a greater understanding of our commitments and people are supportive of the approach successive Governments have taken. That is not to say, however, that we have achieved every thing we want to achieve. There are legitimate arguments to be made and listened to.

There was some confusion about MIGA insurance. It is clearly and specifically political risk insurance. Deputy Noonan mentioned export credit insurance. I was involved in many of the debates dealing with normal commercial risks in the 1980s and 1990s. The thrust of this Bill, which was largely misunderstood by Deputy Joe Higgins, has nothing to do with insuring commercial risk at all. It focuses on the political risk and stability of the regimes which exist in some of these emerging countries. They are two separate issues.

Mr. Higgins

(Dublin West): It serves commercial concerns.

Mr. Cullen

Deputy McDowell raised nuclear issues and the EBRD, a meeting of which I will attend this weekend. I have been involved in some of the debates since I entered office three years ago on this issue and I emphasise that the EBRD focuses on safety. Any funding is to ensure that existing nuclear power stations, some of which are akin to Chernobyl, are as safe as possible. An accident at a nuclear power station will have an impact on us as much as anyone else. The issue was very much to the fore of a meeting I attended in Kiev in the Ukraine, not far from Chernobyl. The EBRD does not provide investment for the building of new nuclear facilities but to ensure safety at existing nuclear power stations.

Mr. McDowell

There is a mix of the two in some cases. In the Czech Republic it is facilitating the construction of a new nuclear power station so existing stations can be closed down.

Mr. Cullen

I take the point but there are only one or two cases of that nature. I should have said that it will not fund an increase in capacity. That case involved extreme circumstances and was the only way forward. By and large, it is not something in which we would want to be involved. We have played a significant role in making that point at EBRD level and keeping it at the top of the agenda when dealing with the nuclear issue. That should be the focus for the EBRD.

Critics of MIGA may argue that many countries have their own national political insurance agencies and that, in addition, private insurers have entered the market. When MIGA was set up, there was an implication that it would take on board all insurance functions and would squeeze private and national insurers out of the market. That is not what happened, the market developed with MIGA, private sector and national insurers becoming directly involved to create what has proved to be a stable regime.

I was asked if any of the callable amount has been called in. It has not. Of all of the projects, there is only one over which there is a question mark and it is being looked at now. MIGA's track record is extraordinary. Nothing has gone wrong and we do not anticipate that anything will. On the existing amount from 1998, nothing has been called on.

Deputy McDowell asked where the funding was being made available. The portfolio distribution by host region is, approximately, Europe and central Asia, 23%, Asia, 20%, Latin America and the Caribbean, 48% and Africa 8%.

The Deputy also mentioned contributing to the IDA twice. We contribute via a direct subscription to the IDA and in debt relief for IDA debt of HIPC countries. There is nothing inconsistent in that. The IDA relies on reflows from existing loans to fund further concessional financing. Contributing to relief on IDA debt allows the IDA to carry on at the same level. It is necessary to keep the level of aid up and the only way to do that is to recycle the finance. The system works. We also contribute to debt relief on a bilateral basis.

The quality of the investments was raised. MIGA reviews its investments on the basis of the developmental impacts and, clearly, it would want companies to become involved through inward and foreign direct investment in these countries with projects which will have a real impact on the economy and which will create sustainable jobs. It is not just about going in, raping a country's resources and leaving again. That happened in the past and I do not deny that, but in the context of the qualitative approach MIGA is taking, there has been a substantial structural change of approach in IMF and World Bank thinking in realising the social elements which need to be put in place when investing in these countries.

The ability of the host country's indigenous industry to access the insurance risk was raised. It is purely focused on foreign direct investment but there is a facility where a partnership has been formed between the company coming in with foreign direct investment and a local company. There is some degree of ability, although the scope is narrowly focused because it is concerned with foreign direct investment. It is not about commercial risk, it is about the political risk which must be taken by many of the companies involved before they will invest in a country or regime. We are not talking about underwriting commercial risk. We are simply compensating for possible action by host Governments which might deter much needed foreign investment and to date, the track record is excellent. Only one case is being investigated at present.

I would have preferred if Deputy Higgins had not clouded some legitimate points either by not reading the Bill or by choosing not to understand it. His tirade of rhetoric was of a bygone age and has no relevance.

Mr. Higgins

(Dublin West): The Minister should look at the facts.

Mr. Cullen

The Deputy did not look at the facts. He confused so many arguments that no one could follow what he was trying to say. The one or two points in his speech which had some merit were not helped by the use of outdated rhetoric and language which has no relevance.

The Deputy did not once mention good governance. The Deputy seems to think it is the fault of everyone else that certain things are wrong. Everyone accepts that the World Bank and the IMF have made mistakes in dealing with these issues. However, in dealing with many of these countries, the issue of good governance is coming to the fore. Wherever I go and whenever I speak, I insist that Ireland emphasises this issue. Good governance is essential if we are to take the poorest of the poor countries out of their difficulties. We see the results of abuse by many regimes in the starvation and poverty with which their peoples are forced to live.

The Multilateral Investment Guarantee Agency hopes to improve its effectiveness by concentrating on four key strategic areas. On the issue of development impact, MIGA intends to increase substantially the scale of its guarantee operations as technical services, as demand far exceeds the agency's capacity to meet it. In doing so it will continue to ensure the selection of guarantee projects meets the objectives of the agency and are consistent with the World Bank's country assistance strategy, the CAS.

On the issue of financial soundness, MIGA will maintain prudent underwriting, sound risk management and strong internal controls while continuing to maintain the balanced structure of its portfolio and pursuing risk diversification by sector and country. MIGA's development objectives must be pursued within the institutional requirement to maintain, under all circumstances, its abilities to meet its financial obligations.

On the issue of client orientation, MIGA needs to become more responsive to client risk mitigation needs in terms of its products and pricing. In this regard, MIGA intends to streamline its guarantee operations to ensure delivery of its products to clients in the most timely way possible. MIGA also sees the need to develop and implement a comprehensive strategy, effectively to promote FDI through the collaborative efforts of guarantees and investment marketing services. The key to this approach is for MIGA to define its target audiences and utilise the media and Internet to disseminate information about its products and services to its stakeholders.

On the issue of partnerships, MIGA will seek to expand its collaboration with national insurers and will expand its training for national insurance schemes in developing member countries. It will also continue its collaboration with private insurers with a view to contributing to the further development of the private investment insurance market.

Overall, MIGA plays a positive role in attracting vital foreign direct investment in developing member countries. Such investment is pivotal in these countries' efforts to obtain substantial poverty reduction through economic growth in the private sector. By working in partnership with the World Bank, host governments, other insurers and civil society, MIGA is in a unique position to exert a positive influence on growth and economic development in developing countries.

I commend the Bill to the House.

Question put and agreed to.

An Ceann Comhairle

When is it proposed to take Committee Stage?

Mr. Cullen

Now.

Agreed to take remaining Stages today.