I am pleased to make the Second Stage introductory speech on behalf of the Minister for Finance whom everyone in the House will be aware is in Berlin on business that is of the utmost importance to Ireland's economic, structural and social development.
The primary purpose of this Bill is to enable the Minister for Finance to take or to authorise the Central Bank on his behalf to take the necessary actions to make the payments authorised by the Government under the debt relief package announced by the Minister for Finance and the Minister for Foreign Affairs on 16 September 1998. The package will amount to £31.5 million over 12 years of which £17 million will be disbursed in 1999. It consists of three elements – debt relief of £11 million to the World Bank's HIPC debt initiative trust fund; £4 million to the IMF's, ESAF, HIPC trust; and £7 million to the IMF to provide interest subsidies under the enhanced structural adjustment facility trust.
The Bill also deals with Ireland's acceptance of a special one time allocation of SDRs by the IMF and Irish participation in the Bank for International Settlements Facility in favour of Brazil. The Bill was subjected to intensive scrutiny in the Dáil and its accountability and control provisions have been greatly strengthened as a result of amendments put forward by Government and Opposition Deputies. I do not propose in my address to cover the same ground in the Seanad as was covered in the Dáil. The debate there was intensive, if a little lopsided, and many issues were raised by Deputies to which the Minister replied during the various Stages.
Unsustainable debts have increasingly been recognised as a constraint on the ability of poor countries to pursue sustainable development and reduce poverty. In response, just over two years ago, the World Bank and the IMF launched the heavily indebted poor countries debt initiative, HIPC. It was endorsed by 180 Governments represented at the World Bank and the IMF as a sound and effective instrument to provide poor countries a way out of the debt trap. The HIPC initiative is designed through a combination of substantial debt relief and important policy reforms to help poor countries reduce their external debt to sustainable levels so they can focus on long-term poverty reduction and economic growth. HIPC debt relief is used specifically in cases where traditional debt relief mechanisms will not be enough to help countries exit from the rescheduling process.
The HIPC initiative comprehensively attacks the debt problem in some of the poorest countries. If an external debt is unsustainable and a country has established a good record of implementing structural and social reforms, the HIPC initiative provides for additional debt relief. With HIPC debt relief, Governments will have additional resources available to strengthen their social programmes, especially in primary education and primary health. A second special aspect of the initiative is the new dimension of multilateral debt relief. Before this initiative, multilateral debt relief was taboo. For the first time, multilateral institutions, such as the World Bank and the IMF, are providing debt relief together with other bilateral and commercial creditors.
There are 40 HIPCs worldwide that owe in 1996 US$170 billion in external public debt. While this amount is but a small fraction of the total debt of developing countries of more than US$2 trillion, the debts of HIPCs are, on average, more than four times their annual export earnings and well exceed their annual GNPs. These are approximately twice the levels considered to be sustainable. Some 33 African countries are HIPCs and many of these have debt that is unsustainable.
Over the past two years seven debt relief packages have been approved for Bolivia, Burkina Faso, Cote d'Ivoire, Guyana, Mali, Mozambique and Uganda, yielding debt service relief in excess of US$5 billion. In the cases of Uganda and Bolivia, the countries have already successfully completed the HIPC programme and are receiving debt relief amounting to more than US$1.4 billion in debt service reductions. HIPC and traditional debt relief will help these countries to return to a sustainable debt position. For these seven countries, total external debt, expressed in present value terms, will fall from US$31 billion in 1996 to US$19 billion in 2000. There has also been preliminary discussion on debt relief packages for Guinea-Bissau and Ethiopia.
The HIPC initiative has been catalytic in mobilising governments around the world, international institutions, NGOs and religious organisations to stay focused on the need to deal urgently with the debt problem faced by the poorest countries. At the same time we should be aware that debt relief alone will not solve the development problems of these countries, especially that of poverty. Debt relief should be seen as an integral part of the broader development agenda and integrated into an overall strategy of poverty alleviation. The key element of all strategies to reduce poverty must be a well specified plan of reform which has broad political support in the countries concerned.
From a financial point of view debt relief must also be seen as part of an overall support package that includes grants and highly concessional credits. In this context it is often forgotten that most HIPCs are already receiving substantial net inflows from creditors and donors. HIPCs receive on average twice as much by way of external assistance, involving grants and concessional loans, than they pay by way of debt service, and in some HIPCs such as Mozambique, Tanzania and Uganda this ratio is much higher.
Many Governments, institutions and civil society groups have strong feelings about debt relief and there has been an intensive debate about the HIPC initiative. The Irish Government has been to the fore in calling for significant improvements in the package on offer. The debate is attracting increasing support for more extensive debt relief. I expect an initiative to accelerate and deepen the HIPC initiative at the G7 summit planned for Cologne in June of this year.
I would draw the attention of the House to the principles concerning Third World debt which the Government announced in September last. This was one aspect of the Bill which received universal approval in the Dáil. These principles are: debt relief should become an integral part of Ireland's overall overseas development aid strategy, reinforcing the existing emphasis on the fundamental goal of poverty alleviation as well as environmental sustainability and gender equality; Ireland will continue to emphasise the need for definitions of debt sustainability to take human as well as economic development into account; we will press for increased flexibility in the implementation of the HIPC initiative in particular with a view to its speedier implementation and its application to as wide a range of the heavily indebted countries as possible; we will continue to encourage the IMF to take full account of the social impact of its policies at the design and implementation phases of its macroeconomic and structural adjustment programmes; we will strongly encourage the international community, including bilateral creditors, to take a generous and flexible approach to the heavily indebted poor countries. Ireland will continue to press for deeper debt relief so as to ease the debt burden that is imposing enormous constraints on many developing countries; we will continue to advocate a greater degree of consultation and involvement for civil society in the developing countries in the planning, design and implementation phases of IMF-World Bank programmes; we will continue to call on the IMF to maximise the use of its own resources by, for instance, the sale of its gold reserves, to fund a deeper and wider response to the debt problems of Third World countries – in recent discussions on funding HIPC and ESAF Ireland took a strong position in favour of the sale of gold; the Minister for Finance will press for greater transparency in the workings of the Bretton Woods institutions; both the Ministers for Foreign Affairs and Finance will emphasise the importance of continued consultation with the NGO community on issues of concern in relation to debt and development. These are the principles upon which all of our future aid and debt relief strategy will be based.
The Government has listened very carefully to the comments in the Lower House on the debt relief package and in particular to the stringent criticism levelled against the IMF's enhanced structural adjustment facility. However, Deputies and Senators should note that the Government means what it says when it calls for the deepest possible level of debt relief. This is not empty rhetoric.
The initiative calls upon creditors and debtors alike to work towards a way out of the debt trap and to focus scarce resources on sustainable development and reducing poverty. The HIPC initiative has made good progress in the past two years but much more needs to be done. The review of the initiative currently under way provides an opportunity for all interested parties to make their comments available. Ireland has now submitted its own proposals for reform of the initiative to the World Bank and the IMF. These comments build on the principles concerning Third World debt which I have already mentioned. In addition, we have encouraged the NGOs to make submissions and been in contact with both the IMF and the World Bank to make sure these are heard.
I would like to draw attention to some of the more significant points in the submission in the context of the debate on this Bill. The submission acknowledges that the HIPC initiative is a valuable framework for dealing with the debt issue. It is based on many sound principles and the calls for review and reform should not be allowed to obscure its solid base. Having said this, it is quite clear that many elements of the initiative could and should be improved. Many of these improvements inevitably raise the question of finance and resources.
Debt relief is an important element in the overall efforts to bring about conditions of growth and development in the HIPC countries and also to assist them in their efforts to become integrated in the world economic, financial and trading systems. Poverty eradication is the ultimate goal towards which the interim goals of growth, development and debt relief are critical underpinnings. Debt relief in itself is not therefore the end game.
We very much welcome the pledges made by many bilateral creditors to cancel their bilateral and commercial debts. In Ireland's case our overseas aid has been in the form of grant rather than loan assistance. We are aware of current calls for blanket debt cancellation of multilateral debts or the cancellation of unpayable multilateral debts. We feel there is a need for the full implication of these proposals to be fully teased out. We have drawn particular attention to the need to assess the impact of multilateral debt cancellation on the operations of the multilateral financial institutions, the flow of funds – grants and lending – to the middle income countries, and the ability of HIPC countries thus assisted to attract further external private sector flows and inward investment in particular.
We would be concerned that middle income or lower middle income countries should not bear the cost of the additional relief required to deepen, broaden and widen the HIPC initiative. The most obvious source of finance for improving the HIPC initiative would be increased aid budgets, supplemented by further contributions from the multilaterals themselves where this is possible. In the case of the IMF, for example, the sale of gold would produce additional finance. Ireland has been, and will continue to be, a strong advocate of the sale of IMF gold.
The primary prescription made in the submission is to shorten the period of track record and to extend the period within which the developed countries and the multilaterals would commit themselves to working with the HIPC countries. We support social considerations and human development indicators as an integral part of structural adjustment and not an afterthought or add-on. This is important in terms of ownership and effectiveness of programmes and of the efficient and effective use of donor resources, including those of the multilaterals.
The present scheme needs to be broadened, deepened and accelerated as well as being developed to take into account both dynamic and human factors. While the existing framework is important as a first step and as an innovative approach to deal with the complex problem of Third World debt, we favour an easing of the eligibility criteria. It is clear that the developed countries will have to be far more generous if the initiative is to provide a real exit strategy to the least developed countries. That is one of the reasons the Minister has provided for the possibility in the Bill of making further payments to assist further multilateral debt relief efforts.
The case has been made for ring-fencing social expenditure, particularly in the areas of health and education, in the context of an economic and social reform programme, worked out with the IFIs before the fiscal thresholds are brought to bear. We see merit in this approach and believe it ought to be pursued further. Otherwise the claim that foreign debt service is at the expense of social provision will gain increasing currency.
Our submission takes the view that the maximum number of HIPCs should be clear on their eligibility under the initiative by the year 2000. The key issue here is that accelerated relief should be included in a realistic and achievable national development plan which would have the backing and active participation of the main donor countries and the international financial institutions. The active participation and collaboration of the international financial institutions will also be critical. The type of collaboration and co-operation suggested by the President of the World Bank under the rubric of the Comprehensive Development Framework has much to commend it, both in terms of monitoring developments and ensuring an integrated approach to the development of HIPC countries.
Broad based growth and development can be achieved only through self-directed growth, and only the countries themselves can ultimately ensure this. For the economic and social reasons already mentioned, this implies any measures applied are implementable over the medium and long term, which requires that they are perceived as relevant and subject to influence and control by the countries concerned. There must be both ownership and empowerment on as wide a basis as possible, involving governments, parliaments, social partners and civil society.
The Bill goes beyond the question of Third World debt. It includes provisions in section 9 to deal with Ireland's participation in the IMF arranged financial package for Brazil. It also deals, at sections 2 and 3, with the acceptance by Ireland of the one-time equity allocation of special drawing rights to members of the IMF.
The Bill will enable the Minister for Finance to take the necessary action to guarantee the Central Bank against any losses it might incur under the Bank for International Settlements' Facility in favour of Banco Central do Brazil. Ireland's participation in the facility will cover the capital element of US$50 million – £34.3 million – and associated interest. It will provide for the adoption by Ireland of the proposed fourth amendment of the Articles of Agreement of the IMF. This will enable the Central Bank to accept the one-time allocation of special drawing rights agreed by the IMF at the annual meetings of the fund and the World Bank in Hong Kong in 1997.
A new section 10 was added to the Bill in the Dáil to provide for an annual report to the Houses of the Oireachtas in respect of Ireland's participation in the IMF and the World Bank. This is a welcome addition.
The entire debt relief package is designed to make an initial Irish contribution to the alleviation of the burden on HIPC countries. The package offers a pragmatic way forward to alleviate the crippling debt overhang which has acted as a constraint on the development of the HIPC countries. It is also appropriate that Ireland should show its solidarity with Brazil in the financial difficulties it is experiencing at present. We hope the international support they are getting will enable them to undertake the reforms necessary to underpin their future economic development.
The amendment of the IMF Articles of Agreement to enable the selective allocation of SDRs is also worthy of support. I commend the Bill to the House.