The purpose of the Bill is to authorise a special contribution of £2,076,667 by the Irish Government to the International Development Association.
The Minister for Finance, who is Governor for Ireland of the International Development Association, has asked me to apologise to the House for his inability, because of another commitment, to be here today to introduce this Bill. I am pleased to have been asked to deputise for the Minister, since as Minister of State at the Department of Foreign Affairs I have specific responsibility for Ireland's relations with developing countries in the field of development co-operation and I thus have a special interest in the adoption of this Bill.
The International Development Association was founded in 1960. The association is an affiliate of the World Bank. Like the bank itself, it provides loans to developing countries for investment in suitable projects designed to strengthen their economies and to improve the standard of living of their peoples.
The setting-up of the association was in response to a view that there should be a concessionary arm to the World Bank. It was felt at the time that the bank's normal assistance, which is on virtually commercial terms, could not be availed of to the extent that would be desirable by one important group of its members, namely, the poorest of the developing countries. Such countries required, not loans on commercial terms such as the bank offered and which they would have considerable difficulty in repaying, but loans on highly concessionary terms that would not impose a heavy repayment burden. Accordingly, the association came into being to fulfil this need.
As might be expected, the majority of the banks's members also joined the association which has resulted in a total membership of the association of 131 countries at present. Members are divided into two categories — Part I members, including Ireland, who are developed countries and who number 22; and Part II members who are developing countries and who number 109. Broadly speaking, the Part I members provide the resources to fund the association's activities and the Part II members engage in borrowing from the association, provided that they meet certain eligibility criteria. At present some 50 countries, that is about half of the Part II countries, satisfy these eligibility criteria.
Loans are made by the association direct to governments for the financing of suitable projects in their countries. The overriding criterion for eligibility to borrow is that a country has an average per capita income level of a maximum of 870 US dollars a year, but, in fact, some 90 per cent of the association's lending goes to countries with an average per capita income level considerably lower than this, indeed of less than 475 dollars a year.
Senators might be interested from the comparative point of view to get the Irish figure which for 1982 came to 4,800 dollars. Therefore, 90 per cent of the borrowings goes to countries with a per capita income of less than one-tenth the Irish level. Those of us who feel that we are very badly off in this country might bear that comparative situation in mind. These eligible countries are concentrated mainly in Africa south of the Sahara and in South Asia. I do not need to remind Senators of the continuing problems of extreme poverty that are faced by these regions.
At present the association provides some 3½ billion dollars annually in loans. This makes it one of the largest providers of concessional aid to the poorest countries. The degree of concessionality in the lending terms is certainly high. The loans are provided on an interest-free basis for 50 years. Capital repayments start only after ten years. There is a small administrative charge of 0.75 per cent a year and a fee of 0.5 per cent a year on loan amounts committed but awaiting disbursement. While these terms are extremely favourable, it must not be thought that there is any lack of rigour in assessment of projects approved for financing by the association. On the contrary, the projects must be financially and economically viable. They must meet the same standards of viability as are required by the World Bank itself whose own lending, as I have indicated, is undertaken on commercial terms.
In the association's early years there was a concentration on financing of projects that built up the basic infrastructure of borrowing countries. These projects ranged from railways and roads to ports and power plants. It was assumed that growth would follow from such investment and that, as an automatic consequence of this growth, poverty would be reduced and income disparities narrowed. These assumptions proved to be simplistic. Early efforts at industrialisation failed to generate sufficient employment and resulted in neglect of agriculture. As food deficits increased and balance of payments difficulties mounted, it became clear that agricultural production was indeed a key development priority. In response, the association increased its lending in the agricultural and rural development sectors. At present over 40 per cent of the association's total lending is in these sectors compared to a figure of only about 20 per cent in earlier years. Basic infrastructure of course continues to receive substantial support and accounts for some 30 per cent of total lending. Most of the balance of lending is spread over such sectors as industry, education and health. Finally, about 7 per cent of total lending is not related to specific projects at all but is designed to assist countries in carrying out more general adjustment of their economies.
In addition to providing actual financial assistance, the association also offers policy advice and assistance in building up institutions in the borrowing countries. This role of the association can be of great importance for countries which need and seek independent and expert advice on their developmental problems.
By 30 June last the association had provided 30 billion dollars in loans for 1,280 projects in 82 countries. Demand for the association's assistance continues to be at a high level, and strict criteria of country and project assessment have to be applied by the association in rationing its scarce resources.
Because of the concessionality of the lending, special arrangements are required to obtain resources for the association to finance its lending. By far the most important way in which resources are secured is by periodic replenishments. In these replenishments additional resources are provided on a non-repayable grant basis mainly by the Part I, or developed, member countries to which I referred earlier. A number of the more advanced Part II, or developing, member countries also contribute, on a voluntary basis. The resulting combined number of contributing, or donor, countries is 33.
The donors embrace all the EEC member countries, the Nordic countries, Spain, Portugal, Austria and Yugoslavia in Europe; the other main developed countries such as the USA, Canada, Japan and Australia; Saudi Arabia, the United Arab Emirates and Kuwait in the Middle East; and a number of the larger Central and South American countries. Each donor's share in a replenishment reflects broadly that donor's relative economic strength. The USA, for example, is obviously a most important donor and it assumed by far the largest share, 27 per cent of the total, in the most recent replenishment.
As indicated in the explanatory memorandum circulated with the Bill, Ireland joined the association on its foundation in 1960, and subscribed 3 million dollars to the initial capital. We did not contribute to the first or second of the three-yearly replenishments, but we made a contribution of 4 million dollars to the third replenishment. This was on a voluntary basis, as Ireland was still a Part II member at that time. When Ireland became a Part I member in 1973, it was accepted that this would involve a continuing commitment to contribute towards the association's financing. As a Part I member, Ireland agreed to contribute £3.1 million to the fourth replenishment in 1973, £5.8 million to the fifth replenishment in 1977 and £6.2 million to the latest sixth replenishment in 1980.
I wish to turn now to the particular problem that has given rise to this Bill. This sixth replenishment was negotiated for a total of 12 billion dollars on the basis that this would meet the association's funding requirements for the three-year period from the middle of 1980 to the middle of this year. However, the USA later indicated that, as a result of action taken by Congress, it would have to stretch its contribution to the replenishment over a four-year period instead of the three years intended.
The other donors, including Ireland, sought initially to persuade the USA to revert to three years. When this approach failed to have effect, most of the non-USA donors, including Ireland, decided that, as an exceptional measure and in order to ensure that the association's activity could be maintained at a worthwhile level, they would adhere to the originally agreed three-year phasing of their contributions.
The non-USA donors also decided that they would make additional special contributions in the fourth year, that is, the year from the middle of this year to the middle of 1984. In the absence of such special contributions, the associations's funding for the year concerned would consist almost solely of the remaining part of the USA's contribution — which would imply a drastic reduction below the association's normal annual level of activity. The special contributions will have the effect of extending the sixth replenishment to a fourth year without any additional contribution from the USA. This procedure was accepted reluctantly by donors as being the option least detrimental to the association's operations. It is hoped that after this fourth year the seventh replenishment — currently being negotiated — will come into effect. This would mean that the usual three-year replenishment cycle would be resumed.
Following agreement on the conditions to apply to the special contributions and on the amount to be borne by each donor country participating in the arrangement, the results were incorporated in a report and resolution approved by the executive board of the association. All of the non-USA donors have indicated they they will participate. This will enable the association to maintain its activities over the year at about the annual level of recent years. In general, each participating donor's share consists of one-third of its total contribution to the sixth replenishment. This results in a contribution of £2,076,667 in Ireland's case.
Under the agreed arrangements, the special contributions will be made available through either one of two mechanisms: a Fiscal Year 84 Account or a Special Fund. A donor may choose whichever mechanism it prefers. The association has been informed that Ireland would propose to participate in the Fiscal Year 84 Account. Contributions to that account will add to the general resources of the association and the account is considered by the majority of donors to provide the best means of preserving continuity in funding. The contributions to the Special Fund, on the other hand, will not be part of the general resources of the association. The fund will be a more limited operation parallel to, though administered by, the association and involving initially only seven donors.
As is the case for normal replenishments, donor countries have the right initially to substitute non-interest-bearing demand notes for the amount of their special contribution. The notes, denominated in the member's currency, are to be deposited in one instalment during the year to mid-1984. Cash payments on foot of the notes will arise over the years 1984 to 1992. The rate at which cash payments are called depends on the progress made in implementing the projects financed by the special contributions. Calls in the first two years will be small. The bulk of these payments, in fact, will not fall to be made until the years 1986-1990. Calls on contributors to make payments will be broadly in proportion to their shares in the special contributions.
It is of interest to note in this context that Ireland is making actual cash payments of nearly £2 million to the association in the present year. These payments are on foot of commitments which we entered into in earlier years in respect of the third, fourth, fifth and sixth replenishments. Cash payments will continue to grow in future years. These payments count, as will the payments under the special contribution arrangements, as part of our national official development assistance programme. It is evident that the payments are a significant element in that programme.
Ireland has traditionally been a strong supporter of the association which has been widely recognised as one of the most effective development agencies. The proposed special contributions meet the particular circumstance of a one-year hiatus in the association's funding in 1983-84. In the ordinary course of events, if this hiatus had not arisen, we would be making a contribution this year in any case under the seventh replenishment.
Concern has been expressed in various important international fora about the present difficulties in the financing of the association. It is to be hoped that the USA, which has played a big part in building up the association as an effective aid instrument, will be able to agree on an adequate and speedy seventh replenishment, so as to remove uncertainties about the association's future. The negotiations will be resumed early next month.
It is essential, at a time of recession and of trade and debt problems which have had a particularly serious adverse effect on the developing countries, that the future financing of the International Development Association be placed on a sound footing. The various multilateral financing institutions, especially the World Bank group and the International Monetary Fund, have a vital role to play in promoting financial stability and in helping to foster world economic growth.
My primary purpose today has been to explain the technical circumstances that have made necessary the Bill that is before the House. It is essential, of course, not to lose sight of the basic issues. The long-term aim of the association, and indeed of all well-directed aid efforts, must be the elimination of the poverty and malnutrition that afflict a large proportion of the world's population. The 800 million people who live in absolute poverty are an affront to the rest of mankind. We in this country must, in spite of our domestic difficulties, continue to seek to help the poorest countries within the limit of our resources. In this, our own national bilateral aid programme shares a common purpose with the association, since our bilateral aid is directed towards the poorest. In fact the four countries in Africa on which our aid is concentrated — Lesotho, Tanzania, Zambia and Sudan — are also eligible borrowers from the association.
Monetary assistance is, of course, essential but we in Ireland are well-placed to help in other ways. We can continue to supply expertise and training through the marvellous work of our agencies and personnel overseas. We can also raise our voices in a positive way, on behalf of the developing countries, in discussions in international fora.
There is growing recognition among the international community of the interdependence between the developed and the developing countries. The developed countries have a clear moral obligation to help the developing countries but it is increasingly recognised that it is in the developed countries' own economic, social and political interest that the developing countries be assisted in their efforts to achieve sustained growth. Unfortunately, the North-South dialogue, which provides a framework for discussion between the rich and the poor, has not yet yielded the results in terms of positive action that had been anticipated. The problems are not, of course, confined to aid, but extend also to trade and financial matters. We must continue with our efforts to achieve progress on all fronts.
Finally, may I say that Ireland's basic membership of the association is covered by the International Development Association Act, 1960. As in the case of normal replenishments, the legislation to authorise our special contribution takes the form of an amendment to that Act. I recommend the Bill for the approval of the House.
