The purpose of this Bill is to authorise a contribution of £13 million by the Irish Government to the tenth replenishment of the resources of the International Development Association.
I apologise for the absence of the Minister for Finance. He would very much like to have been here but he is caught up on other business. As the Minister explained to the Dáil, the International Development Association, or IDA for short — not to be confused with our own IDA — is an affiliate of the World Bank. It was established in 1960 and complements the work of the Bank by lending to the poorer developing countries on much more favourable terms than are possible for the Bank itself. Like the World Bank, IDA provides assistance to high priority investment projects and general sectoral economic adjustment programmes in member countries. Basically, IDA is different from the World Bank in two ways; how it obtains its funds, and how it lends out its funds.
The World Bank operates really like a commercial bank. It raises most of its funds by borrowing on the world's capital markets and on-lends these funds, with only a small mark up to cover expenses, to a wide range of developing countries. IDA, on the other hand, is mostly funded by regular replenishments or grant contributions from its richer member countries. These resources need to be replenished from time to time, normally at three-year intervals. The IDA 10 negotiations were completed in late 1992 and this replenishment will cover the period from 1 July 1993 to 30 June 1996. Since its inception back in 1960, IDA has been a major source of highly concessional financing for the poorest countries. Typically, IDA loans are for a 35 to 40 year duration. They have a ten year grace period before repayment begins. IDA does not charge interest, only a service charge of less than 1 per cent of the outstanding balance. Thus these loans are very attractive for developing countries.
IDA's role is one which finds great support from Ireland. This is because its focus of attention is firmly on the poorest of the poor developing countries. This is directly in line with a general Irish Overseas Aid priority, namely, to provide assistance to poorer developing countries. Within this, IDA plays a key role in the economic and social development and thrust of development within those countries. Its purpose is not to provide short term humanitarian aid — timely and welcome as that is — but to create the conditions in which the countries themselves can permanently raise the living standards of their peoples.
Its lending programmes are primarily aimed at providing resources for investment projects that are not only essential for the economic and social development of the borrowing country but also technically and economically sound. IDA also lends for more comprehensive economic programmes which facilitate the long term growth of the economy or of a particular sector. In recent years it has increasingly provided financial aid to enable poor countries to introduce and implement urgent economic policy reforms and structural adjustments.
As I mentioned earlier, only the very poorest countries can benefit from IDA lending. Generally, only countries which have a per capita income of $765 of less (in 1991 dollars) are eligible for these loans. Exceptions are maintained for small island economies and for temporary assistance to a category of countries which have per capita incomes above the cut-off level but are not creditworthy for World Bank lending. As a result, IDA lending is generally concentrated in the poorer, densely populated countries of Asia and the least developed areas of sub-Saharan Africa. Today, some 70 countries are eligible for IDA funding. Examples of these range from Angola, Lesotho and Zambia in Africa, to China, India and Egypt which are also eligible, as well as the poorest countries in South Asia, Central and Latin America and most recently the poorest countries in Eastern Europe, for example, Albania.
Each year IDA finances about $6.5 billion in new lending to these countries. Overall IDA has supported 1,100 projects which in turn support overall investments of some $83 billion. Over 45 per cent of IDA's financial support goes to sub-Saharan Africa and the same percentage to Asia.
The donor resources made available to IDA during the ninth replenishment were scheduled to be fully committed by June of this year. In anticipation of this, the representatives of the donor Governments began substantive negotiations for the tenth replenishment in January 1992. After five formal negotiating sessions, one of which was held in Dublin, the deputies reached agreement last December on a replenishment of SDR 13 billion. An SDR is a special drawing right and is the unit of account used by the IMF. One SDR is equivalent to about one Irish pound at the moment. However, IDA's lending power during the three-year period is now estimated at about SDR 16 billion or $22 billion equivalent. This is higher than the earlier estimate of 15.5 billion SDR. The full extra 3 billion SDR is made up of repayment commitments from earlier IDA loans and the recently approved transfer of $375 million equivalent from the World Bank's surplus account. This amount could be added to by further transfers from the net income or profit of the World Bank.
During the negotiations it was agreed that IDA should continue to focus on three main objectives in order to support economic development in the poorest countries. The first of these was poverty reduction, the second was economic adjustment and growth, and the third, environmental protection and improvement. These objectives remain an accurate reflection of the key development challenges facing the poorest countries. We expressed satisfaction with the recent sharpening of IDA's poverty reduction focus, including provision to Bank staff of comprehensive operational guidance on poverty issues and increases in the shares of IDA lending for poverty targeted investments and social sector projects.
IDA attaches great importance to the completion of country poverty assessments for all major IDA recipients by the end of 1994. IDA continues to emphasise social sector lending and poverty targeted investments, that is investments that disproportionately benefit the poor or have specific mechanisms for identifying and reaching the poor. We expect that the higher shares of poverty-targeted investment and social sector lending which were achieved during IDA 9 will increase steadily during the tenth period. IDA was asked to attach special importance to its efforts in two areas — women in development and family planning. IDA was also urged to expand its support for social services for women, including, in particular, education of girls.
As far as economic adjustment and growth were concerned, IDA's support for adjustment had been strengthened in a number of ways during that ninth period. For example, social safety nets are increasingly being built into adjustment operations to help protect the poor and enhance the sustainability of the adjustment effort, and lending allocations are increasingly being influenced by a country's economic performance.
The participating countries cited a number of aspects of adjustment to which particular attention might be given in the years ahead. IDA's executive directors were asked to keep track of how closely public expenditures reflected development priorities and of efforts that were being made to reduce non-development expenditures, including military expenditures, to the maximum extent feasible. This is an important point as I do not think any of us can support a situation where confessional assistance is being offered to a country which at the same time is engaged in other wasteful expenditures.
The continuing constraint to development prospects that is imposed by high levels of outstanding debt in many countries was noted. The Minister for Finance spoke of this problem at the annual meetings of the World Bank and IMF in Washington recently. The Minister called for a special debt relief package to be formulated for sub-Saharan Africa and the other poorest regions. What was asked for then was a substantial write-off of debt at least in line with the so-called Trinidad terms. Senators will be aware that these terms call for, among other things, the write-off of two thirds of the debt of low-income developing countries. Certainly, the Minister took note of the views expressed on this issue, sent to him by the Oireachtas Joint Committee on Foreign Affairs, before he made his speech in Washington. Without some new initiative to reduce debt, these countries have really no prospect of developing on the lines we demand of them.
Much of the recent effort to address this problem comes from the work of voluntary organisations. In this context I would like to acknowledge the contribution of the non-governmental organisations, or NGOs, in highlighting the impact of excessive debt. Several of these agencies have an impressive track record in working to ease the lot of the poorest. We should respect their considered opinion which is based on experience in the field.
Environmental protection and improvement is the third major goal for IDA in this tenth programme. This is an objective close to us in Ireland and in this context I welcome, in particular, IDA's intention to increase involvement by non-governemental organisations in the design and implementation of projects. I know this will be particularly welcomed by our non-governemental organisations such as Concern, Trócaire, Goal, the Irish Red Cross and Gorta. We are all extremely proud of the efforts of these groups and the people working for them in the developing world. I am certain that greater consultation between IDA personnel and these groups will enhance the effectiveness of IDA's projects and programme.
During the negotiations the representative of donor States reviewed three criteria for allocating funds, namely, per capita income, performance, and creditworthiness. As I mentioned it was agreed that the operational cut-off of per capita income be left at the same real level as in IDA's ninth programme. In addition IDA was asked to reduce its allocations to more creditworthy countries and we recommended that assistance to these countries be directed primarily to poverty focused activities or those that promote environmental sustainability. It was also agreed that resources allocated to sub-Saharan Africa would, subject to performance, be maintained at between 45 per cent and 50 per cent of the total. We also attach great weight to the timely completion and high quality of national environmental action plans that are prepared, with IDA assistance, by all active borrowers.
The ways in which these resources are allocated, by country and by sector, is a key determinant of the effective implementation of its policies. The negotiators reaffirmed that first, IDA should focus its efforts on those countries that have demonstrated their commitment to IDA's three main objectives, secondly, access to IDA resources should be based on annual assessments of performance, with allocations related to the strength of countries' commitments to the three main objectives, and thirdly, that in countries where performance is lax, lending should be limited to the minimum needed to maintain the policy dialogue.
I want to return to the funding of IDA 10 and Ireland's share of that funding. As Senators can imagine, the size of the tenth replenishment was the subject of extensive discussions during the negotiations, as were the relative contributions of the different member countries. The Minister for Finance had the pleasure of meeting many of the negotiators and World Bank or IDA personnel when Ireland hosted one of the negotiating sessions in Dublin Castle in July 1992. The great support for IDA was clearly evident among almost all the richer nations. It was also apparent that the negotiators from different countries came with different objectives for the future of IDA and different degrees of interest in aid. These varying objectives of the 34 or so donor countries are only gradually reconciled into a consensus about IDA's funding and its objectives. In short, there have to be compromises, as in all aspects of life it seems.
In addition, the negotiations took place against a backdrop of widespread recessionary conditions. As a result, and after protracted discussions, it was decided to recommend a replenishment of 13 billion SDRs. I have to say that this was less than I would have hoped for. Indeed, this sum of almost 13 billion SDRs was only reached when a number of countries, including Ireland, pledged supplementary contributions, over and above their agreed share. Ireland's basic share of 0.11 per cent called for a contribution of 14.3 million SDRs. Subject to Dáil and Seanad approval the Minister agreed to make this contribution and a supplementary contribution to IDA 10 to 15.4 million SDRs. This amount translates into £13 million at an exchange rate taken during the period March to June 1992. This is the amount for which the Seanad is now being asked to vote approval.
Ireland's membership of IDA was authorised by the International Association Act, 1960. Our contributions to the various replenishments have each been authorised by amendments to that Act. This Bill will enable us to make our contribution to the replenishment tenth programme, IDA 10. I therefore recommend the Bill for the approval of the House.
