My colleague, Mr. Robert Carey, from the public expenditure side of the Department of Finance, deals with the expenditure on overseas aid as one of his many functions, while I deal with our participation in international financial institutions such as the World Bank and the IMF as one of my many functions. That explains why both of us are here today. We are delighted to be present to explain more generally what the Department of Finance does in relation to this sector.
The Department's primary role in this area is to ensure the stability of the financial system of the world generally. While we concentrate more often on our national or EU financial system, the success of Ireland and the EU is of considerable benefit to other countries, including some of the poorest. Those countries in difficult situations can gain from our economic success, the success of the European Union, and also from international institutions.
We circulated a rather long paper to committee members which contains a section on our debt strategy paper which members may have seen before. It is not my intention to read that out. I will concentrate on some of the key points and I hope the members will follow with questions on any area they find of interest.
The Chairman made a moot point in his introduction. The Department of Foreign Affairs is the Department with primary responsibility for overseas development aid in Ireland. It operates through Development Co-operation Ireland, formerly known as Ireland Aid. The Department of Finance has direct responsibility for Ireland's membership of certain international financial institutions, particularly the World Bank group of institutions, the IMF and some others. Some of the costs in that regard are counted for overseas development aid purposes.
The amount of funding that is available for overseas development aid is a policy decision made in the context of the Estimates and budget cycle. This Department's role essentially relates to the monitoring of, and, as appropriate, the provision on behalf of the Minister of sanction or delegated sanction to the Department of Foreign Affairs for its voted expenditure. We do not directly provide services in overseas aid unlike some states where the finance ministry might have a more direct function.
Table 1 attached to our statement shows how Ireland's overseas development expenditure has increased in recent years from €157 million in 1997 to €456 million in 2003. We are now one of the more respectable performers in the overseas development aid stakes. Our contribution is 0.41% of GNP. The United States currently provides 0.12% of GNP in overseas development aid and a wealthy state such as Switzerland provides 0.32%, according to recent OECD figures. At the UN conference on financing for development in Monterey which I attended with others from the Department, both the EU and the US signalled their intention to increase overseas development aid.
I am sure members' are aware of the commitment reached by the EU in Barcelona in 2002 that it would increase overseas development aid towards the target of 0.7% of GNP. There is an active commitment to reach 0.39% which will be a significant burden on some of our colleagues in Europe that are far below that number at present. In some cases they have difficulties with their public expenditure programmes and taxation regimes but they are committed to doing it and were happy to do so in the run-up to Monterey. This matter will also be reviewed by agencies which will be looking hard at what the European Union has agreed to do. The Americans also offered to increase overseas aid.
The Bretton Woods institutions are so-called because they were founded at a conference in the Bretton Woods resort. The key one is the International Monetary Fund which came into existence in 1945. It is a co-operative intergovernmental monetary and financial institution concerned with the working and stability of the international financial system and with the problems of individual countries. The stability of the financial system is of general benefit and importance to everybody, both wealthy and poor countries alike. A key task for the IMF is surveillance of the financial system. This is an important role and it includes what we call an article IV process in which the IMF periodically looks at the performance of member states.
Recently, as members are probably aware, the performance of Ireland was assessed by the IMF in that regard. More particularly, the IMF is a source of assistance to member states that have difficulties. For example, as of 1 January 2003 the IMF had credits and loans outstanding to 89 of its 184 members. It is important to note that this phenomenon is quite widespread and amounts to in excess of $96 billion, which is quite a lot of money. Therefore, the IMF is necessarily involved in the operations in many of the world's poorest countries.
The Word Bank group of bodies is a multilateral development institution, the purpose of which is to assist the least developed countries. Formally, it is called the International Bank for Reconstruction and Development, but almost nobody knows that. It is usually referred to as the World Bank, but in fact its family of agencies - the International Development Association, the International Finance Corporation, the Multilateral Investment Guarantee Agency, MIGA, and the International Centre for the Settlement of Investment Disputes - are referred to as the World Bank group and not all countries are members of all of them. Ireland is a member of all those agencies. Likewise, we provide a capital subscription to these agencies. We have, for example, a 0.39% quota share for the IMF. In other words, we do not own 99.61% of the capital of the IMF, which is provided by other states. The Minister for Finance is the governor for the bank and for the fund.
Given the volatility of the financial sector, the agencies rely very heavily on a resident board of executive directors in Washington. The executive directors are appointed by constituencies, which may be, in the case of the very biggest quota holders, individual countries such as the United States, or groups of countries. There are 24 executive directors and these are essentially the people who run both the bank and the fund on a day-to-day, week-to-week basis. They rarely make decisions on the basis of formal votes. They try to achieve a consensus and, like most committees, discussion and consensus are sometimes hard to achieve and sometimes issues will run for some time.
Ireland is in a constituency in both agencies with Canada, which is the dominant player in the constituency and which has almost 80% of the power, and a large group of Caribbean states. Therefore, it is an unusual constituency in that it has a G7 member, a European Union member and a number of states that have quite serious economic development problems of which we are aware. It is almost a microcosm of the institution itself. It has members from the western hemisphere, the European Union and the poorest states. We have excellent relations with our partners in the constituency and we try to reach, within the constituency operations, a consensus on our generalised approach. That is important. I should have mentioned in my introduction that my colleague, Mr. Carey, was, until relatively recently, a member of the World Bank staff in the Irish-Canadian-Carribean constituency. We do not nominate any executive directors. They are always Canadians. We hold some of the posts below them.
The International Development Association, IDA, is not the IDA with which everybody in the country is familiar. It is the concessional lending window of the World Bank. It lends to the poorest countries and on concessional terms. That is a short version of what the IDA does. It is periodically replenished by capital subscriptions, one of which is likely to come before the House for approval very shortly. We will be coming forward with a legislative procedure to underpin our commitment to what we call IDA 13. If the House agrees to it, this commitment will amount to €50 million.
We are also members of two other banks that have an international development function. These include the European Investment Bank, of which Deputies will be well aware. It operates not only within the European Union but also in other places and other continents. Also included is the European Bank for Reconstruction and Development, which was founded more recently in 1991 and which is specially tasked to assist the eastern European states and the former states of the Soviet Union.
We support and have supported debt relief for poor countries, an issue of concern both to us and others in the Community. Attached to our paper is a very long debt strategy paper, which was jointly constructed by the Departments of Finance and Foreign Affairs about a year ago. I will not attempt to summarise it very much because it is quite long. The difficulty with debt cancellation is that if agencies cancel debt, they do not get back any income stream from that debt. There are agencies and institutions which would have a need for additional capital in that instance, whereas some countries would be willing to pay that additional capital in the event of debt cancellation. A large number of countries would not necessarily be so willing. Although Ireland does support debt cancellation, I stress that this is a minority position, even within the Union and especially among the international community.