I thank the Chairman and other members of the joint committee for their insightful comments and questions. I will take them in the order in which they came. Deputy Timmins asked why access to credit is currently being promoted by the World Bank and the IMF. That is a good question because it seems so contradictory to build international development policy on debt-creating mechanisms. It is a really serious problem that must be addressed by donor governments. The reality is that the World Bank and the IMF exist as commercial entities which engage in lending practices for development purposes. The challenge for the Irish Government is how we balance our aid programme and how much of our funding should be given to international financial institutions, such as the World Bank and the IMF. This is so, given that the IMF is highly non-concessional as regards its lending terms currently, and because it has a high level of policy conditions attached that have such macro-level impacts on economic policy, which then have a fundamental effect on the lives of people in the global South. It is true that Ireland makes efforts in channelling its funding to the World Bank to IDA, the International Development Association arm of the World Bank, which lends to the poorest countries, but nevertheless this is a highly conditional forum of finance. There should be a review of where the Government stands on the quality of this type of official development assistance.
I suppose this is more related to the politics of the urgent development finance required by southern governments to cope with the impacts of the multi-layered crises they are experiencing, but the money is not forthcoming. The G20 met in April and declared the need for $1.1 trillion to assist governments in coping with the current financial crisis. A very low percentage of that package, it appears, will go to the poorest countries in the world, who are the most vulnerable to these types of shocks.
In addition the commitments to deliver on that financial package are not forthcoming. Even where there are some pledges, it is not clear whether that funding will be in addition to existing official development assistance spending obligations. It should be noted that Ireland is currently considering what its contribution to the IMF will be to support this emergency finance package, and it may result in a commitment of more than €1 billion to the IMF towards this fund. We would raise serious questions about any decision that will be made to give such a guarantee to the IMF, given its track record in impoverished countries. The IMF has reviewed its lending criteria recently because of the enormous demand for loans it is being faced with. However, recent research carried out by the European Network on Debt and Development and others demonstrates that there are still serious concerns around the policy conditions attached to IMF lending in the medium-term.
Is there a down side to debt cancellation? This relates to fears on the part of southern governments in accepting debt cancellation. There have been cases where southern governments have not accepted debt cancellation for fear of the international stigma attached. This emphasises the need for a multilateral approach to debt cancellation agreements, because frankly, southern governments are being faced with high levels of scare-mongering to the effect that they should not default on their debts, and that they should be seen to be in a position to pay their debts. That is why Ireland should be a strong voice in advocating multilateral collective approaches to support expanded debt cancellation initiatives for southern countries, so that these fears may be allayed.
In terms of Deputy Higgins's comments, I agree that we are not making fundamental progress on the problem of international indebtedness. While a significant amount of resources have been freed up through existing multilateral debt relief mechanisms, the highly indebted poor countries' initiative and the multilateral debt relief initiative formulated more recently, the fundamentals have not been addressed. These include the circumstances of loans being extended and accepted, and that relates to the illegitimacy question, who has benefited from the lending system, what has been the impact of the loans on the ground and how they have impacted on the lives of people in the global South. Unfortunately, there are myriads of bad examples of lending, where lenders have extended loans in the full knowledge that they would not benefit the people of the recipient countries. The question from the Debt and Development Coalition's viewpoint focuses on justice and just relations between borrowers and lenders. It is not merely a matter of freeing up finance.
Deputy Higgins was right to allude to the example of the Filipino nuclear power plant, involving a loan extended by a US bank involving a contract gained by a US company to build a power plant in the Philippines on the Bataan Peninsula. As he says, it was never opened, it was built on an earthquake fault line and never produced 1 watt of electricity. The project was rife with corruption and cost $2.3 billion. The last payment was made by the Filipino people in 2007. This is a loan that originated in the 1970s.
The failure to ensure speedy and efficient action is costing the economies of southern countries enormous amounts of resources, which should not be used, as I am sure we all agree, for social spending. I completely agree with Deputy Higgins's comments on the need for speedy action. This presents a real political challenge, because the current Irish debt policy that was published in 2002 raised concerns about the need for speedier debt cancellation. The Government was right to highlight this, but given that debt cancellation has remained slow, inflexible, problematic and damaging to impoverished people, what now will Ireland's position be? This highlights the need for a much more vocal approach by the Government through its membership of the World Bank and the IMF, and an assurance from the Canadian representatives who speak at the World Bank and IMF board on our behalf that they will promote Ireland's concerns in that regard.
It also raises a fundamental question around Ireland's membership of the World Bank and the IMF, given that there is a point at which we must do a stock take and decide whether these institutions are effective. This is where there is a challenge for the Government to decide where its money is best spent. There are serious questions to be asked on continuing to channel moneys through the World Bank and the IMF if debt cancellation processes are not adequately fixed and policy conditionality is not adequately addressed.
I very much support the notion of a visit from UNCTAD to the committee. It is currently implementing a programme, working closely with the government of Norway, and China, too, is interested in engaging as a new lender in discussing standards for future lending and how to address past illegitimate debts. It should be noted that this is a programme, not a piece of research. It will be ongoing for the next three years and we would very much encourage engagement from Irish Aid, members of the committee and the Department of Finance in policy making and discussions around this programme. It is important to note that it is very difficult for social movements and citizens' groups in countries of the global South to engage with these types of processes, because they are based, usually, in Europe or in Washington. The discussions tend to take place far away, so we should strongly encourage Irish Aid to support the participation of southern justice campaigners to be in a position to give their viewpoint through the implementation of the UNCTAD programme.
Also, we work closely with the Jubilee Debt Campaign UK movement, and collaborate with it. To jump to the issue of vulture funds, the Jubilee Debt Campaign UK has worked actively on this because of the Zambia debt case, which was held in London in recent times, as has been referred to. The UK justice campaigners have been engaging in public consultations with the British Government around the problem of vulture funds. Ireland can play a role through its European Union membership to ensure that this is discussed at EU level and that the issue is closely linked to the problem of tax havens and the secrecy surrounding financial transactions. We find that the opportunistic debt collection companies, or so-called vulture funds, are often based in tax havens. We need to be able to access the information about these companies that are behaving in such an opportunistic manner.
I also agree that the interdepartmental committee is a key forum in working for greater coherence between the Department of Foreign Affairs and the Department of Finance on debt policy. We have said that we hope to be in a position to meet officials from both Departments to ensure that civil society views are taken on board and that we have a sense of collaboration between both Departments on the issue.
We have serious concerns about increasing levels of debt occurring in southern countries as a result of the new role taken on by the World Bank in financing what it calls "climate investment funds". Climate justice campaigners have very serious concerns about these funds because they will be delivered through existing World Bank group mechanisms, which are highly conditional lending mechanisms. While some of the loans will be concessional or grants-based, some of them will not be so. This is a breach of the polluter pays principle which the UNFCCC has endorsed. We understand that Ireland has not contributed any money to the climate investment funds. We advocate that Ireland should not give funding to the World Bank climate investment funds and should express its concerns about the potential undermining of the UNFCCC process by the establishment of these funds.
Deputy O'Hanlon asked why Uganda is included in debt cancellation while Kenya is not included. This is a good question because it goes to the heart of the problem with decision-making in the existing multilateral debt cancellation processes. The World Bank and the IMF have specific measurement criteria which define who qualifies for debt cancellation. One of the most commonly used criteria is the measurement of a country's debt to export ratio, which must be over 150%. It does not take into account social needs, even emergency food aid needs. This is of great concern to the global debt cancellation movement and to our colleagues who are struggling to address this issue throughout Africa, Asia and Latin America.
Research carried out by the New Economics Foundation and the Jubilee Debt Campaign in the UK found that if human needs-based measures were used in identifying what resources are required for southern countries to meet the Millennium Development Goals by 2015, we would be looking at 100 countries needing debt cancellation worth at least $400 billion. Comparing that with what has been delivered so far through the multilateral debt relief mechanisms, we have a promise of about €88 billion through the HIPC and MDRI mechanisms. Therefore, we are far from finding the resources that are required to deliver real and effective debt cancellation.
Financing standards are unfortunately still in the realm of civil society dialogue. We have had discussions with the World Bank on this issue after a long period of efforts to engage them in discussions on the problem of illegitimate debt and future responsible financing standards. The work in the civil society sector involved drawing up a detailed charter on what a responsible loan would look like. The charter is detailed because it outlines some of the key mistakes, opportunism and difficulties that southern governments experience with current loan contracts. However, the solutions we are looking for involve simplifying the whole process and stopping the use of lending as a lever to achieve other things. We advocate that international financing standards should involve ensuring that it is clear what the loan is being extended for, that it is spent on what it was intended for, that it is spent transparently and effectively, that human rights in the environment where the loan is being extended are not a concern and that policy conditions are not attached to the loan. This is the sort of simple and principled approach that we are looking for in international financing relationships between northern and southern governments and institutions.
The World Bank engaged with us on future financial standards and at the same time engaged with us in talking about illegitimate debt. It has a high discomfort in talking about past mistakes. The World Bank is much more comfortable talking about future standards because it means that past mistakes remain unaddressed. The new debt policy for Ireland must stress the need to address the historical wrongs that have been done to countries of the global south through illegitimate lending. As things stand, the international financial institutions, of which Ireland is a member, are not prepared to do that.
We have circulated to the committee the paper we submitted to the Department of Finance and the Department of Foreign Affairs, which details our priority for the new debt policy. Our priorities deal with illegitimate debt and policy conditionality at the World Bank and the IMF. This is because these are the hard issues. These are the issues where the power relationships between northern and southern countries become very exposed. We believe that a country like Ireland can play an honest broker role in pushing for action and dialogue on these issues at a multilateral level, without having a vested interest. Frankly, it will not cost Ireland anything because we have a very good policy of not extending bilateral loans directly, except through our membership of the World Bank, the IMF and other multilateral lending institutions. Ireland is well placed to show leadership in these two areas, in the way that it showed leadership in 2002 by being the first donor government to come out in support of debt cancellation for the poorest countries.
I gave a more detailed presentation in the hand-out on policy conditions. I outlined a number of examples of policy conditions in that hand-out. One of the examples not mentioned that causes most concern is the case of Malawi. This is a very poor southern African country that took six years to the completion point for debt cancellation. This happened partly because it was declared to be off track by the IMF. The IMF suspended interim debt relief and delayed debt cancellation due to the Malawi Government's additional expenditure on grain purchase. The reason for the delay in debt cancellation in an emergency such as that which existed in Malawi is morally unacceptable from our point of view.
The principles outlined in the White Paper on Irish Aid are very strong. They stress sustainable development and ownership of development processes by countries of the global south. The example of what happened to Malawi with the IMF in a situation of acute emergency demonstrates a real contradiction between the practices of the IMF and the principles outlined in Ireland's White Paper on Irish Aid.
There is no question that the figure for tax evasion is enormous and it has only lately become clear to civil society organisations. This issue of global tax justice is one that might be worthy of revisiting by the committee. The Department of Finance is engaged in the ongoing dialogue regarding global taxation policy, particularly through the medium of the OECD. However, we are greatly dissatisfied with the level of dialogue at the OECD regarding international information exchange on taxation issues. The OECD is advocating bilateral information exchange agreements but those agreements are based on a "by request" practice. This is not a viable model for southern countries because they do not have the capacity to unearth all the information they require to allow them to make the type of request that will provide the answers they seek. That is why the global tax justice movement is advocating country-by-country reporting by multinational corporations so that southern governments and citizens can see the amount of profits being earned by multinationals in their countries in addition to the level of tax they are paying. In addition, there is support for automatic information exchange so that information is readily available and there are no obstacles for southern governments in accessing the information they need to ascertain whether they are in receipt of the correct amounts of tax.
The question of whether policy conditionality implies a reduction in funding is essentially a matter of political will and what donor governments view as effective ODA expenditure. If donor governments wish to give money with strings attached and have another agenda in giving aid, that must be addressed. This is a serious problem in aid giving, with high levels of tied aid. Even countries such as Italy have reduced their ODA expenditure once they have paid out for debt cancellation, which amounts to giving with one hand and taking with the other. There is a serious contradiction in this regard in terms of aid giving by donor governments. Ireland is certainly one of the more principled donor governments but we have identified a substantial gap in policy in terms of the lack of clarity regarding Ireland's position on World Bank and IMF policy conditionality. The response given by some of the more influential members of those bodies is that they have streamlined policy conditionality. However, research we carried out before Ireland made the decision two years ago to provide a further €90 million to the international development aid arm of the World Bank showed that while the number of policy conditions had reduced, this was only at micro level. Macro level policy conditions have not reduced in number and remain a serious problem.
To contextualise the issue on a moral level, we must consider the types of relationships we wish to have with southern governments through our aid giving. Given the wide evidence of the damaging implications of policy conditionality, the lack of capacity within the World Bank and the IMF to make any decent policy recommendations shows that this practice is completely outmoded. If Ireland is to be a progressive donor, it must not only meet its ODA spending obligations by 2012 at the latest but must also ensure it takes clear action in promoting a shift to a more mature relationship between donor governments and southern countries, that is, a shift from conditional money, which is highly influenced by external factors, to a system of agreed international financing standards.
I answered Senator Hannigan's final question on vulture funds. On the broad question of debt policy, I understand from the Departments of Finance and Foreign Affairs that the review process will be completed by the end of the year. It is critical, given that southern countries are facing another potential debt crisis, that the committee actively engages on this issue before the end of the year. There is little value in having a completed debt policy which has not been engaged with at parliamentary level. I urge the committee to seek clarification on the timeframe for the development of the policy and consider means by which to engage with its development before that timeframe is completed.
