Normally we meet on a Wednesday afternoon at 2.30 p.m., but we are here today to facilitate the Debt and Development Coalition. I extend a warm welcome to Ms Nessa Ní Chasaide, co-ordinator, and Ms Morína O'Neill, policy and outreach officer. The Debt and Development Coalition was established in 1993 in order to create and increase awareness of the issue of the debt owed by Third World countries to governments and banking and multilateral financial institutions, to promote the elimination or reduction of this debt and to further promote sustainable and equitable development in Third World countries. The meeting is timely in view of the fact that the spring meetings of the IMF and the World Bank will take place in Washington later this month. As the committee focuses very much on Third World and development aid issues, we are delighted to have the delegates here to give us the benefit of their experience in dealing with debt and development issues.
Role and Functions: Debt and Development Coalition Ireland
Ms Nessa Ní Chasaide
We thank the Chairman and committee members for inviting us and giving us this opportunity to present on the critical question of international debt and the role of the international financial institutions. We submitted a briefing document to committee members in advance of the hearing, to which we will speak in our presentation. We would like to prioritise four key issues that are of serious concern to the Debt and Development Coalition. First, we will outline the debt distress levels of global south countries, current trends in public sector lending and the role of new, unregulated actors in countries of the global south. I will then hand over to my colleague, Ms O'Neill, who will speak about specific countries and regions of concern with high debt distress levels. She will also speak to the question of the International Finance Corporation of the World Bank Group and about our specific human rights concerns regarding its conduct. She will speak about the connections between international debt and tax justice which we see as deeply interconnected questions if countries of the global south are to get away from their high levels of debt dependency.
I will give an overview of current trends in global south countries regarding sovereign debt. The World Bank's international debt statistics which were released last month and are the most up-to-date figures we have show that the debt stock of southern countries increased by $400 billion in 2012 and stands at just under $5 trillion. This is the most significant deterioration in southern countries' debt dynamics since the early 2000s. As many committee members know, 39 countries in the global south have qualified for debt cancellation through the existing multilateral debt relief scheme, the so-called HIPC, heavily indebted poor countries, scheme. We believe the scheme did not go far enough as it excluded many countries, about which Ms O'Neill will speak, that are still in need of debt cancellation. It also caused serious damage to many participating countries through the policy conditions attached to it. Some 36 of the 39 countries that qualified have so far received debt relief, the vast majority of which are in Africa. The debt cancellation is worth over $100 billion in contributions from public sector lenders. There is an additional debt cancellation committed to by the private sector.
The World Bank's figures show that the problem of global south debt is far from over. Most significantly, the figures show a rise in private sector lending to southern governments. The level of sovereign bond issuance by southern governments rose by 30% above 2011 levels, with more countries of the global south issuing bonds, rather than borrowing from previously preferred private sector creditors, the foreign commercial banks.
According to the World Bank, private lenders provided 90% of new debt to southern countries in 2012, contributing to the very changed face of creditor influence in countries of the global south, which means a move away from more traditional lenders such as the World Bank. Debt and Development Coalition Ireland is concerned about these trends because, while private loans can be advantageous to governments as they do not come with intrusive policy conditions attached, they are more costly due to higher interest rates. In addition, as we in Ireland have learned to our great cost, debts to private bondholders can be extremely difficult to restructure in situations of debt crisis. Debt and Development Coalition Ireland is also concerned that this rise in indebtedness to the private sector by southern governments may be understated because there is no systematic collection of private debt data by the World Bank. The World Bank figures therefore provide an important and serious warning to governments throughout the world to act to reduce the debt dependency of southern governments, a dependency which, as we will see in the further issues we will raise, impacts negatively on their development policy options. The time for action in this policy area is now. As the new version of the millennium development goals is negotiated through the UN post-2015 process, and through the UN financing for development process, Ireland has an important opportunity to ensure this issue is central to discussions on financial policies towards southern nations.
We would like to highlight to the committee that the rise in southern government debt owed to the bond markets has opened up exposure to opportunistic actors, namely so called "vulture funds", which buy up distressed debt and then sue the sovereign government in question, often for exorbitant amounts of money. A case being heard in the New York courts, which is widely reported in the media, is causing significant international concern. This is the case of NML Capital against the Republic of Argentina, which involves a set of vulture funds suing the state of Argentina for more than $1 billion. A New York court of appeal found that these hedge funds should be treated on a more equal basis with other traditional creditors than would previously have been anticipated. This decision potentially sets a very dangerous precedent regarding the treatment of such opportunistic funds because the court ruling in its favour makes it more rational for bondholders to hold out in situations of debt restructuring. The government of Argentina is seeking to challenge this judgment in the US Supreme Court, a move which has gained support from the IMF and the US, French, Brazilian and Mexican governments.
Debt and Development Coalition Ireland believes there are broader policy concerns to be considered with regard to this case, and that in cases in which vulture funds sue a state for payment of distressed debts they must be forced to adhere to existing debt restructuring agreements and, crucially, assets must be put out of their reach. Legislation in this area is badly needed in jurisdictions where these funds operate. New legislation should build on laws recently put in place, for example in the UK and Belgium, which have sought to control such funds' behaviour by ensuring they cannot make financial claims beyond existing debt restructuring agreements relating to the countries being sued.
I will now hand over to my colleague, Ms O'Neill, who will speak on the next part of our presentation.
Ms Morína O'Neill
As Ms Ní Chasaide stated, we wish to raise specific issues relating to countries experiencing high levels of debt distress. We wish to draw the committee's attention to a range of countries throughout the world which did not benefit from the multilateral international agreed debt cancellation, the HIPC initiative about which Ms Ní Chasaide spoke. The Irish government should act in support of these countries. This would mean raising their cases, initially through Ireland’s membership of the World Bank and IMF, and through relevant regional banks that lend to these countries. We would like to direct the attention of the committee to our recent report, Life and Debt, published last year. This outlines debt crises in ten countries, including Ireland, Tunisia and the Philippines. We urge the committee to read the report and act in solidarity with these countries where debt burdens challenge the path to equitable and sustainable development for their citizens.
Debt and Development Coalition Ireland would like to draw particular attention to the Caribbean region, where many small island states experience debt crises. The region had an average debt-to-GDP ratio of 70% in 2012, increasing to 90% in the eastern Caribbean area. This month the Heads of Government of the Caribbean Community, CARICOM, called for debt cancellation and wider economic justice measures for the region. Debt and Development Coalition Ireland is focusing specifically on the small island state of Grenada, which has been in default on its debts for the past year because it has not been able to pay them back. The government of Grenada has publicly called for an independent assessment of its debt sustainability and for negotiations on debt cancellation with all of its creditors.
As committee members know, Ireland shares a constituency at the World Bank and IMF with 11 Caribbean states and Canada. This provides Ireland with an opportunity to discuss directly with the Caribbean governments their debt situation and to support these governments in tackling their debt crises by putting their debt problems formally on the agenda of the international financial institutions.
As Ms Ní Chasaide stated, we wish to highlight the role of the International Finance Corporation, IFC, which is the arm of the World Bank Group that lends directly to the private sector to boost investment in global south countries. The IFC has a series of complaints against it for investing in companies that are allegedly involved in human rights abuses. A number of cases are pending, and today we wish to raise a case in Honduras. The IFC's investments in the palm oil Dinant corporation-----
Is that spelled D-I-N-A-N-T?
Ms Morína O'Neill
Yes.
It is in the Senator's briefing notes.
Yes, but I suffer from short-term memory loss.
How does that affect your reading?
Ms Morína O'Neill
The corporation has been linked, through its connections with security firms, with forced evictions, kidnappings and killings of up to 92 people, according to figures from the Honduran National Commission for Human Rights. Along with our international civil society partners, we believe this case is so serious it demands a response from the Minister for Foreign Affairs and Trade.
We also wish to raise more general concerns about the IFC's lending through financial intermediaries. Approximately 40% of its total funding goes through financial intermediaries. A recent audit by an independent body charged with oversight of the IFC revealed an astonishing lack of oversight of such lending. The report stated that the IFC knows very little about the potential environmental or social impact of its lending through these financial intermediaries.
The annual reports of the Department of Finance on Ireland’s participation in the World Bank and IMF show that, through Irish Aid, Ireland is a supporter of IFC projects. The briefing material provided to committee members highlights three projects which show that Ireland contributes to the IFC. While there is no reason to believe there are any pending complaints about these specific projects, we believe Ireland cannot provide funding to a small number of projects without attending to wider IFC policy and practices. The Irish Government should make a statement condemning any human rights abuses linked to IFC investments and indicate to the IFC that Ireland will consider suspending investments in the IFC until it corrects its behaviour and any necessary redress for communities is put in place.
We also wish to raise the link between debt and tax justice. We are increasingly involved in tax justice.
The debt of many countries in the global south has been created by the lack of policy alternatives. Let me highlight one of the reasons for the debt. Governments around the world, including Ireland, have failed to meet their ODA spending obligations. This contributes to the fiscal constraints of Governments in the global south. The members of the joint committee will be well aware of the cuts to the overseas aid budget for the past six years and that no timetable is in place to meet our target. Debt and Development Coalition Ireland supports the campaign Act Now on 2015, which calls on Ireland to meet its ODA spending obligations.
One of the greatest financial drains to global south countries is the loss of revenue through both legal and illegal forms of tax dodging. Debt and Development Ireland believes the implications of tax dodging really deserve to be the topic of a separate hearing of the committee. Our partners in Ireland are working on this issue both at home and internationally. Countries in the global south lose up to €870 billion every year through illicit financial flows. Together with Irish and European groups, we are advocating for change in a number of critical areas to support international tax justice. We are focusing on greater tax transparency - for example, the establishment of a public register of the beneficial owners of companies in Ireland; the introduction of extended country-by-country reporting by all large companies of profits and taxes in every country in which they operate; and the establishment of an intergovernmental body on tax matters under the auspices of the United Nations.
We are concerned by the Government's stated support for the OECD as opposed to the United Nations as the leading forum for international tax decisions. This aspect of tax is a rapidly evolving policy area. As the current Action Plan on Base Erosion and Profit Shifting, BEPS, is an OECD-led project, it excludes many countries of the global south. Although progress was made on tax transparency during the Irish Presidency in 2013, the Government appears to have taken a wait-and-see position within the current multilateral action as opposed to clearly articulating its policy or solutions.
We have been very encouraged on learning that the Tanzanian public accounts committee has decided to launch an inquiry into financial outflows relating to taxation from Tanzania. We suggest to members of this committee that this could be a fruitful area of co-operation between the Joint Committee on Foreign Affairs and Trade and its counterpart in Tanzania.
My colleague Ms Nessa Ní Chasaide will summarise our recommendations.
Ms Nessa Ní Chasaide
I thank Ms O'Neill. To summarise, we urge the joint committee to raise these important policy questions with the relevant Departments - that is, the Department of Foreign Affairs and Trade and the Department of Finance. The Minister for Finance holds ultimate responsibility for decision-making on World Bank and IMF-related issues. We urge the joint committee to support legislation across relevant jurisdictions against the growing power of unregulated vulture funds and to formally propose that Ireland support and engage with our Caribbean counterparts through our constituency within the World Bank and the IMF on the growing debt distress of countries in the Caribbean region. Should members be travelling to Washington for the spring meeting this month, we would be eager and willing to set up relevant meetings on the topic under discussion in Washington. We also ask members to raise the serious allegations of human rights abuses against Dinant in Honduras, which is funded by the IFC. We ask the Minister for Foreign Affairs and Trade, Deputy Gilmore, to make a statement on the serious human rights abuses in Honduras and Ireland's intentions with regard to future financial investment in the IFC. We ask the joint committee to take action to enable a reduction of the high debt dependency of countries in the global south and to seek support from Government on the range of tax justice measures which my colleague Ms O'Neill has outlined. We believe the joint committee could play a constructive and productive role by engaging with partner countries in the global south, such as with the members of the Parliament of Tanzania in their forthcoming investigation of capital outflows relating to taxation.
We thank the Chairman and members for the opportunity to make a presentation on these pressing matters. We welcome questions and comments from members.
I thank Ms Ní Chasaide. Around 18 months or two years ago, Ms Marie-Lucie Morin, a representative of the World Bank, came before the joint committee. She has moved on, but I met the head of the section encompassing Canada, the Caribbean and Ireland, and he is anxious to come to Ireland. We can raise these issue with him.
I call on Deputy Brendan Smith to lead off on questions.
I apologise for coming late, but I had made commitments prior to the scheduling of this meeting. I thank Ms O'Neill and Ms Ní Chasaide for the clarity of their very targeted and comprehensive statement.
The issue of international tax justice was raised. During the June 2013 G8 summit held in County Fermanagh, one of the issues discussed by the groups involved in international development at meetings on the margins was international tax justice. We hear about the issues that arise at these important meetings of the G8, the G7 and the G20 but we seldom hear about the outcomes. Has the issue of tax justice gone higher up the agenda in the meantime?
Debt and Development Coalition Ireland dealt with the role of the IFC in its submission and highlighted that complaints had been made against it for investing in client companies that are allegedly involved in extreme human rights abuses. To their knowledge, has any country, or the European Union, taken direct action in that regard? I presume the European Union participates in these discussions at the World Bank.
Ms Morína O'Neill
I thank Deputy Smith for his question on tax justice. There is a really active policy agenda on tax justice and now is quite a dynamic and exciting time in terms of the global tax system. As a result of the G7, G8 and G20 meetings, particularly the G20 meeting in 2013, the OECD was asked to consider the issue of tax justice. A practical project, BEPS, was started this year and will finish in September 2015, with a final document on its 15 action points issuing in October 2015. A number of really practical policy recommendations are being made by the OECD and we will be urging the Government to actively follow these recommendations. We are following them from the perspective of our solidarity with the countries of the global south. The first action point was dealt with last week. A report dealing with the first action point, taxation and the digital economy, was released on Tuesday, 25 March. This is a very good time to become engaged in the process of tax justice, as it has just kicked off. If members would like further information or briefings, we and our colleagues in Ireland who are looking at that area would be more than pleased to engage with members.
The specific complaint against the IFC in respect of Honduras has been recognised by civil society organisations internationally and the World Bank as a really serious case of human rights abuse. The board of executive directors of the World Bank, representing countries internationally, has accepted that this is a serious case. It would be good for us in Ireland to add a clear voice to that of other Governments. There is a process under way in which the IFC must produce an action plan on how it will deal with this issue. We would be very grateful if the joint committee would monitor and track progress on the action plan, because things can appear to be dealt with and then slip off the agenda.
I congratulate both speakers, Ms Ní Chasaide and Ms O'Neill, on one of the best presentations I have heard over a number of years. It was full of facts - the meat of the issue. The figures are incredible. I do not mean that I do not believe them, but that they are beyond imagination and very worrying. I have no idea what €4.8 trillion means.
It is just beyond comprehension. Underneath it there are a series of issues. For example, the witness said, very diplomatically, "while private loans can be advantageous to governments...". I presume that means they can do whatever they like with them and in some cases it can fund the lifestyles of dictators. I imagine the witnesses would agree that there should be some assessment of how this is of advantage to the people, because it is the people are who are important, not the government or the individual dictators.
There is also the question of vulture funds. I am pleased Ms Ní Chasaide raised that issue. That is extremely significant. These really are a blister - I was going to say a cancer, but it is not appropriate for me to say that at the moment. I sincerely hope that this NML Capital case against the Republic of Argentina is revisited by the American Supreme Court. That is shocking and immoral and it seems to me when confronted with this that it will never resolve itself until there is a major restructuring of the global financial system and its institutions. We are implicated in this because of our debt situation.
With regard to human rights abuses, that is one issue to which this committee is committed. I agree that we should have a response from the Minister for Foreign Affairs and Trade, Deputy Eamon Gilmore, who I imagine would be open to this. We could ask him to do that. There is an astonishing lack of oversight in terms of where the money is going, which I have mentioned already, and there is a complete lack of assessment of the environmental impact.
The suggestion that we have a full hearing on the tax situation would probably meet with the approval of the committee. I am aware that our colleague, Deputy Maureen O'Sullivan, who has had to leave, has made a significant study in this area and continues to raise the issue. I would certainly support a full hearing. Perhaps, the representatives could recommend the people, in addition to themselves, who would be most valuable to us.
I was making notes while the witnesses were speaking as to whether we could put together a composite resolution. I take it that the indented part of the last paragraph of the presentation is what the witnesses would like. Would it be satisfactory if the members agreed to pass this after discussion and, perhaps, amendment? Is this something the committee could do that would be useful? If so, I would be happy to propose it.
Does Ms Ní Chasaide wish to respond to Senator Norris before I move on to the next question?
Ms Nessa Ní Chasaide
I thank Senator Norris. In terms of the recommendations, we would be most appreciative if this committee would pass our recommendations as a set of action points within a resolution, which would give it more formal standing in relation to the committee's views. We would greatly appreciate if the committee could pursue this and, in addition, follow up on the Government's response to those resolutions so that the committee's work is responded to and acted upon by the Minister for Finance and the Minister for Foreign Affairs and Trade.
I would be happy to propose that if the committee wishes to look at it later.
It is something that we will look at, but let us hear what the other members have to say also.
Ms Nessa Ní Chasaide
Good. With regard to Senator Norris's comments in respect of private sector debt, we believe that all forms of debt are a double-edged sword for global south countries and global north countries. We have pointed out that the rise in private sector debt held by southern governments has the benefit of reducing the need for the ideologically focused and often very intrusive and extremely damaging policy conditions that have been the track record of the World Bank and the IMF. However, private sector loans open up another problem of a build-up of high levels of expensive debt in global south countries. We believe that the governance of loan contractions should have a high level of participation by the people in global south countries. In our own country we have learned that the hard way, and that parliaments should have a much stronger role. Many of our partner organisations in Africa, Asia and Latin America are campaigning for much greater parliamentary oversight of loan contraction decisions. We are also supportive of a process within the UN system, led by UNCTAD, which has been to launch a set of responsible lending and financing principles. However, these principles are somewhat narrow in their focus and are not legally binding.
The problem with the international debt system is that there is no legislation governing any of this. We do not have any legal solutions when countries enter debt crises, and it is then a political battle for the indebted governments in question to decide what is the most just action for their people and an action that involves a low level of risk in terms of what they will expose themselves to if they do not pay. On that basis, we are part of a global movement which is calling for an international dialogue on innovative solutions to debt crises. The case of Grenada is one such example, which was mentioned by my colleague Ms Morina O'Neill. The Minister with responsibility for economic issues has called for what he terms a debtor-creditor conference, whereby Grenada would call all its creditors to that country and to negotiate a debt settlement. This happened 60 years ago when Germany got a debt write-down of approximately 50% after World War II - both sovereign debt and debts held by people and businesses. Such models, which do not preclude unilateral action by global south governments in not paying their debts but also include multilateral solutions such as debtor-creditor conferences or the establishment of an international debt court, are what we are interested in exploring.
With regard to the vulture fund case, we would greatly appreciate being allowed to get back to the committee with further suggestions around legislation in this area, because this is something on we are collaborating with our UK and Belgian partners.
I thank our guests for appearing before the committee and making its presentation, some of which I strongly agree with and some of which I disagree with. We have to remind ourselves of the position we were in, and still are in, with regard to debt. Effectively, we are beneficiaries of whatever criteria prevail worldwide. I recognise and fully accept the distinction drawn between public and private debt and public and private debt funders, which is the important issue. I strongly agree with the need for international acceptance of parliamentary oversight, but it has to be done globally. There is no sense in a situation in which one country decides to enforce this while other countries do whatever they wish.
On the issue of international taxation justice, we need to recognise that we have been singled out unfairly by some people who could ill afford to comment internationally in regard to the effect the double Irish arrangement has had. One international tycoon was very disparaging of our position and the benefits arising from the use of what they call the double Irish. It goes without saying that many other European countries have the same benefits as Ireland, except under different headings. This relates to our corporation profits tax of 12.5%. Other countries have equally attractive concessions to foreign direct investment.
It has to be recognised that manufacturing in this country is subject to a 12.5% corporation profit tax. That is how it stands; there may be an 0.5% concession apart from that. Other countries go well below that level. The issue is with regard to profits generated in third countries that can be re-routed through other countries. Why should the emphasis not be on the countries from where that profit is being re-routed to try to ensure they charge a decent level, for two reasons? One is that there may or may not be a democratic process applicable in that country, and the second is that a huge amount of the profits may go to individuals in those countries and, as a result, they could be major beneficiaries of the regime that applies internationally.
For instance, one could have a situation whereby companies could have their US profits taxed in the United States, a country that invests in this country and many other European countries. When re-routing through another European country, they could have their profits taxed in the country from whence the profits come originally. They could have their corporation profit taxed in a way that is similar to the system applicable in this country, in which case there would not be a problem. It is unfair to label the Irish system as being in some way uniquely culpable in this kind of situation. It is not.
But they did not.
It is not.
But they did not mention it.
I am making a general comment. It is correct that the witnesses did not mention it, but I point out that there is a point that comes up repeatedly that is associated with that conversation. Every time it is commented on internationally, it appears as though we in some way are major contributors to what is seen as being unfair.
By way of comparison, what has been the private sector commitment, as opposed to the commitment from the public sector, the World Bank and the IMF, to debt cancellation?
On vulture funds, in principle, why are vulture funds so attractive to developing countries, for example, in the southern region? Is it because funds are not available through conventional sources? Is it a bit like the moneylenders in this country, and if so, why is that the case?
Why do we repeatedly talk about debt write-down when we in this country and other countries may well be in a position to have to seek funding from these same sources at a later date? For example, is it likely that the lenders will be benign and state that we have been very good and they will write off our debts and as a result one can expect that they will write it off in five years' time through the moneys they will lend to us now? That is not a position on which we can win.
I will proceed as quickly as I can. We hear a lot about private bondholders in the southern countries. By the way, I support the case that is going on in the United States. Of course, if they get away with it, they will try to extract the maximum, but the question that arises then is this: what is the regime of the country that is in debt to private bondholders or whomever? How did they get the funding in the first place? How did they qualify for such loans? Anybody applying for a loan, nationally or internationally, must justify his or her ability to pay, and a loan must be awarded on some criterion or other. What were the criteria? Have they changed, or are they being changed? What is the tax regime in the country concerned? What is the accountability in the country? For instance, I can think of numerous countries where, certainly, if I was asked to give a loan out of my pocket I would not do so. I can assure the Chairman there is very little in my pocket to give to anybody. I speak in the global context. If we are to be realistic, there must be an international understanding of the criteria that apply in all situations. We ourselves know this.
My last point relates to the diminution in Ireland's contribution to international aid. We were lucky to be able to hold the line we have, and this should be recognised. A considerable effort has been made to maintain Ireland's contribution to international aid. We have not been able to achieve the 0.7% of GDP target - it has not been possible - and we have slipped away. We will come back to this again. We have given a good example to others in the field as well. However, let us be serious about it. We were in a situation in the past four or five years which was also that faced by many of the countries of which we speak. The people of this country had to shoulder a burden that was excruciating, and the significant sacrifices they had to make are not generally recognised. We must also recognise that there are considerable burdens placed on others.
I cannot go on forever. Suffice it to say that I agree with many of the suggestions, but I strongly disagree with others on the basis that we might find ourselves at the receiving end of some of our own thought process at a later stage, and I would be worried about that.
There is a lot in that. Maybe the witnesses would comment briefly on the questions.
Ms Morína O'Neill
I will start off. I thank Deputy Durkan for his questions. In response to the first point on the important role of parliamentary oversight, I am glad to hear Deputy Durkan feels strongly about that, as we do. We agree on the necessity of looking at debt from an international perspective, not on a country-by-country basis, but the problem is that there is no internationally recognised mechanism for dealing with debt. Our approach is looking at countries to see which are suffering from high levels of debt distress. The European Unions states that a debt-to-GDP ratio any greater than 60% means countries are entering into debt distress or unsustainable debt levels that then challenge and inhibit equitable and sustainable development. Many of the countries of which we spoke today have debt-to-GDP levels upwards of 90%, and we feel duty bound to respond to those cases through our membership of the World Bank and the IMF.
On the tax justice question, we may need to separate out for a moment Ireland's corporate tax regime of 12.5% and the issue of global tax transparency. There is an issue - we are a low-tax regime - but many of the corporations here are paying a much lower effective tax rate. The figure for Apple was 2%. We were not talking about the 12.5%, which, we acknowledge, as the Department of Finance stated in its tax strategy of October last year, is an economic cornerstone. We realise that is current policy, but we are asking for tax transparency. How much tax are corporations paying? There are also the issues of country-by-country reporting, who are the beneficial owners of the profits, etc. I refer to the OECD policy agenda of cracking open the issue of tax and closing down, I suppose, the culture of secrecy whereby one could not see who owned companies, where the profits were made and where the taxes were paid, and to align those more closely.
Is Ms O'Neill talking about existing companies operating in this country-----
Ms Morína O'Neill
Yes.
-----from Europe, the United States or elsewhere?
Ms Nessa Ní Chasaide
In the tax transparency argument, we are arguing that far more should be demanded of companies operating out of Ireland in terms of disclosing information on profits made and taxes paid. This is of clear concern to us in the case of multinational companies which have subsidiaries all around the world, including many in Ireland. That is a matter of particular concern. However, that is not to say we should not have this kind of country-by-country reporting for all companies in Ireland.
To build on what Ms O'Neill stated, there is a reason Ireland is being targeted in this debate, which adds to the urgency with regard to why the Government should be much more proactive on these tax transparency measures. It is because we often do not know what tax multinational companies are paying. The Apple case was a shocking one, whereby one part of the Apple conglomerate was paying an extremely low rate of tax and it was not clear to the people of Ireland how that agreement had come about.
Deputy Durkan is quite correct in pointing out it is not only Ireland's responsibility. This is a multilateral issue. There is a race to the bottom on tax. Where Ireland is involved in particular schemes, such as the "double Irish" or the "Dutch sandwich", which have been discussed a lot in the media, it is the interplay between a range of jurisdictions that has come under question, and rightly so.
How does one deal with corrupt governments, in African countries or wherever, that do sweetheart deals, for instance, with some of the Chinese companies?
Ms Nessa Ní Chasaide
That has to be acted upon as well. However, a starting point must for the people of those countries to know what is the tax on the royalties and what payments are being made. Those are currently unknown, although there has been some progress in the extractive sector in the latest EU transparency directives.
However, as for direct policy actions the Government should be but is failing to take at present, the Minister, Deputy Noonan, has refused to set up a public register of companies in Ireland. He should lead by example. If there is nothing to hide and if there is no problem, why can one not see who are the flesh-and-blood owners of trusts, foundations and companies in Ireland?
Hear, hear.
Ms Nessa Ní Chasaide
On the theme of automatic information exchange, Debt and Development Coalition Ireland also would like to see a stronger stance from the Government with regard to allowing a transition period for global south governments to meet the new standard that has just been announced by the Organisation for Economic Co-operation and Development, OECD, in recent weeks. There should be a period in which global south countries can be given the information on tax matters for companies and individuals in their jurisdictions but they may not have the capacity to reciprocate.
On country-by-country reporting, Ireland should announce it will demand this much higher level of information from companies that are operating in Ireland. Moreover, a start would be with large companies that have come under greater scrutiny in recent years, not least through parliamentary committees in the United Kingdom.
Finally, the coalition notices the Department of Finance has noted the leading grouping on policy-making in this area is the OECD. The coalition very much advocates that this should be within the United Nations system because global south governments do not have a voice in the rich club of OECD nations. This also should be addressed and should be a matter of concern to this joint committee. To move on from the tax issue, I hope there will be a different hearing on that theme, which we would greatly appreciate. Moreover, in response to Senator Norris, we will follow up by suggesting groups and individuals who could appear before the committee in that regard.
As for the further issues raised by Deputy Durkan regarding debt, the private sector contributions to the debt relief schemes have been much smaller. Moreover, some of them have been in commitment form and have not been delivered upon. The problem with the heavily indebted poor countries debt relief scheme is that it was voluntary for the private sector to participate and, consequently, has proven to be a disappointment in that regard.
What is meant by much smaller? Is it 70%, 50% or 40% or has it been quantified?
Ms Nessa Ní Chasaide
Much less. After this meeting, I can forward the exact figure vis-à-vis the public creditors that have participated in it thus far.
I would appreciate that.
Ms Nessa Ní Chasaide
I refer to the wider points raised by Deputy Durkan on the moral hazard question of not repaying debts and of lenders then believing they will never see debt repayments again and whether they will continue lending. We acknowledge this is a risk but our starting point must be that at present, there is no due diligence or holding to account of the lender. In situations of debt crisis, it is the people of countries of the global south, as well as the people of Europe nowadays, who are left holding the can. Until the international community comes together and establishes a fair and just debt workout system, we will continue to be left with that problem.
An answer to one question is missing. Why must the poorer countries resort to such a level of lending? For instance, what other conventional routes were accessible or have been avoided? Why are they going in that direction? Have the countries in question a credit rating somewhat akin to that of Ireland a couple of years ago and is that the problem?
Ms Nessa Ní Chasaide
As Ms Morína O'Neill pointed out, the reasons for the high levels of debt dependency in southern countries is because of a lack of other policy options. I refer to the loss of tax revenue through massive tax evasion and avoidance, the failure of official development assistance, ODA, flows. In addition, poor industrial policies and other major obstacles such as unjust trade rules and coping with mitigation of and adaptation to climate change mean the debt problem is just one part of a much wider picture regarding the economic expectation of global south countries and this is what is leaving them so debt-dependent.
Finally, in respect of Deputy Durkan's points on the ODA budget, we firmly believe the cuts to the ODA budget have been disproportionate and this means that Ireland's austerity programme has hit some of the most impoverished people in the world in a disproportionate manner. As the ODA budget is based on a percentage of gross national income, GNI, it does not mean that when countries in the global north are going through hard times, this automatically is the soft target. The ODA spending obligations have been a commitment of long standing since the 1970s. In addition, from the perspective of enlightened self-interest, Ireland has punched above its weight in having a voice in international fora on global development and with these consistent cuts to the ODA budget, that has been weakened.
I thank the witnesses for a thought-provoking presentation. I must admit at the outset that economics is my weakest point. However, I take particular note because I am a member of the Labour Party, which is the junior coalition partner in government, and because many challenging points have been raised that effectively are criticisms or requests for the Government to do more or to do something it is not doing. While I have never addressed many of these issues previously, it is of interest that this joint committee is a loyal advocate of the policies of Irish Aid. In fact, some people think this committee in the past has been more concerned about Irish Aid than any other foreign affairs issue. The witnesses bring to members' attention the fact that they are critical of Ireland's support for the International Finance Corporation, IFC, projects. Interestingly, it appears from the paper submitted that these projects are supported through Irish Aid. If the coalition's paper goes on to tell members what is going on in Honduras, including everything from forced evictions to kidnappings and killings of farmers, and that somehow or other, Ireland is complicit by virtue of Irish Aid supporting this development capital, then it raises serious questions. Unfortunately, however, the experts are not present today to answer for the joint committee but it is a matter to which I am keen to elicit a response. It is a very serious allegation or set of statistics or facts in that heretofore, members would never have dreamed that Irish Aid could in any way be complicit in such an area of deprivation, crime and torture. I understand the palm oil companies are evicting farmers or whatever and presumably, there is huge conflict in this regard. Consequently, I thank the witnesses for bringing this matter to the joint committee's attention.
I am feeling rather defensive because I do not know a huge amount about the workings of the Organisation for Economic Co-operation and Development except that Ireland is a member and therefore, is a member of an exclusive but apparently talented organisation. Am I correct to imply the witnesses have suggested that Ireland should not use the offices of the OECD but instead should be using the offices of the United Nations? I do not know at what stage the United Nations is at in engaging in the question of tax justice but I am aware that Ireland is particularly concerned and clearly highly embarrassed by allegations, not least of which emanate from the United States of America. I believe my colleague, Deputy Durkan, has personal experience of a wealthy man from somewhere in Africa I believe-----
----- with a major company who made strong allegations about the role of Ireland. As parliamentarians, we are very defensive of the Government's policy on a corporation tax rate of 12.5%. We are highly supportive, through the Irish Aid programme for example, of aiding and abetting the countries mentioned by the witnesses. While Ms O'Neill mentioned the practice in Tanzania, we discovered corruption in Uganda whereby €3 million of Irish taxpayers' money, that is, Irish Aid money, was being diverted, as well as a further €3 million each from two other countries. In other words, €9 million was being diverted. We praised ourselves for having built within that governmental structure the office of Comptroller and Auditor General and for raising its level of competency to the point at which that office itself was able to notice there had been fraud.
On the OECD, I can perceive no reason whereby Ireland would not or should not engage in a co-operative approach to what clearly is an international problem. Stateless companies are something that are relatively new. Until the recent past, I certainly had never heard of companies that are affiliated to no state and which are making vast profits but are not distributing them or paying taxes on them. Tanzania was mentioned, which is one of Ireland's programme countries. It is a pity that Deputy Maureen O'Sullivan is not present because the Association of European Parliamentarians with Africa, AWEPA, of which I believe she is the chairperson of the Irish section, has a collaborative relationship with Tanzania. If Tanzania is looking at financial outflows from that country relating to taxation and if we are concerned about it from a governmental or an Irish Aid position, then it is worth trying to develop this collaboration.
Nobody can pretend to protect these companies which make vast profits and use Ireland as a base through which to flush their profits. Coca Cola is probably one of the longest regarded companies that has flushed its profits through Ireland and repatriated them to America without paying taxes. We, collectively, can be very supportive of abolishing countries' debts. It is very easy for us to say that but we at this committee are very conscious of incredible abuses and corruption throughout many of these indebted countries that are indebted. They have corrupt politicians and governments and there is an inability to collect taxes from the national base. The moral hazard question is at what stage does one exonerate these countries for creating policies that have created misery for their people? I will leave it at that.
Do the delegates wish to comment on that?
Ms Morína O'Neill
I thank Deputy Byrne for his comments. To answer his first comment about Irish Aid and the IFC, we have met Irish Aid and I had an interesting meeting about the International Finance Corporation and they are very aware of this particular case. There is no direct Irish investment in this corporation but our point is that if we are investing in the IFC generally, we cannot ignore the wider policies and practices. Irish Aid may even be supportive of the fact that we have not yet raised our voice as a country. Ireland has not yet articulated clearly our concerns about this specific case.
As Irish Aid is supporting Ms O'Neill's organisation, perhaps her organisation is the voice of the country in this respect.
It is important Ms O'Neill clarifies that in regard to Honduras Irish Aid money is not going into that area.
Ms Morína O'Neill
No, absolutely. We are very clear about that. It is more in regard to our wider engagement with the World Bank, as members of the of the World Bank, and as supporters more broadly of the IFC in terms of different projects; we believe that we need to raise our voices as being very concerned about this particular case. We would appreciate the committee following up on that.
Regarding the OECD versus the United Nations, the reason we are concerned about the focus on the OECD is that it only represents the interests of its member countries which are the rich, wealthy, developed countries of the global north. Therefore, it excludes the interests and voices of southern countries. There is a UN tax forum where these issues are being discussed. We acknowledge that at the OECD there is positive progress on the international tax agenda, but how do the countries outside of the OECD that are impacted by it engage in that? We ask that the Government would support the UN tax committee. That is one area that the Government could look at. How are those southern countries, and, as the Deputy said, in particular our partner countries, supported and what is happening in our programme countries in regard to this area? This is a matter we would like the committee to follow up on. I will pass over to Ms Nessa Ní Chasaide to respond to the rest of the questions.
Ms Nessa Ní Chasaide
I would make one or two final points on the corruption issue. Certainly arguing for debt cancellation for global southern countries is not seeking to let governments that have engaged in corruption off the hook in any way. What we are pointing out is that it is a two-sided coin. There can be a lack of due diligence and even corruption on the lending side as well. That needs to be looked at in regard to creating international responsible financing rules in terms of lending and borrowing.
On the smaller point relating to the fact that the Debt and Development Coalition is funded by Irish Aid, that does not impact in any shape or form on the independence of our policy position.
I call Senator Michael Mullins.
I welcome our guests. The figures on the level of debt in their presentation are staggering. I note in 2012 the level of debt in global southern countries had increased by US$400 million. For what level of debt cancellation or debt reduction is their organisation advocating? I note that US$110 billion worth of debt has been cancelled. What sort of figure would make an impact in these countries?
Regarding the human rights abuses in Honduras, which are very disturbing and worrying when we consider the IFC involvement as an arm of the World Bank, Ms O'Neill mentioned that up to 92 people have been killed. Have any people been brought to justice for those killings? Are they unsolved murders, as we speak? If they are, there is a serious human rights issue there that needs to be pursued at international level?
On the issue of tax transparency, I will not go back over the ground that has been covered but this is a major international issue. It is not something Ireland on its own will solve. As a country we are not going to put ourselves at a disadvantage over our competitors by doing something in isolation. It needs to be addressed at European level and internationally. It is very much on the agenda at European level. Hopefully, we will see some levelling of the playing field into the future because the figures mentioned of capital outflows of between €660 billion and €870 billion of revenue loss in those countries is worrying and that is unjust and unfair.
I will wrap up the discussion with some final comments.
Ms Morína O'Neill
I acknowledge that the tax issue must be dealt with internationally. Senator Mullins is right about that. That is why we are very keen that the UN is involved as an actor as well as the OECD as it excludes a number of countries in the global south. It is an international issue. I will pass over to Ms Nessa Ní Chasaide to comment on the issue of the levels of debt.
Ms Nessa Ní Chasaide
There is no easy answer to the question on the levels of debt. We are guided by civil society groups on the ground in the countries in question for their analysis and judgment on this because there are two levels of concerns. There is concern around unsustainable or unpayable debts in certain countries but also concern about what we would call illegitimate debts, or unjust debts, which have been contracted on a dubious basis. For example, in the case of Granada, which my colleague Ms Mórina O'Neill raised, it has been identified in recent research that at least between 50% to 67% of its sovereign debt is required to be written down if it is to get back on a sustainable debt footing. We would view that as a conservative estimate.
In terms of the IFC case and whether there has been justice in relation to the killings that have occurred, the groups on the ground who are advocating on this issue, would be say the answer to that question is "No". Part of this is due to the fact that there seems to be an extremely opaque relationship between the government, the corporation in question, security firms that are hired by the corporation and the local police. It is an extremely opaque situation and one which the Dinant corporation needs to clarify in respect of its involvement with a range of actors in the region in which it is working.
On the international tax issue, we acknowledge this is a multilateral problem, not least because of the criticism Ireland is experiencing internationally on this question, and that provides more of a basis for the need for proactive action at a national level. That is why we do not see any reason our Minister for Finance does not more actively support greater financial transparency of multinational companies operating out of Ireland.
I thank our guests. Obviously, they are both experts in the area of debt and development working in the developing world.
The witnesses' CVs reveal their tremendous experience in this area and I understand they continue to educate themselves in this regard. I found their contributions to be very interesting. Next week I will meet Trócaire's Latin America director, Sally O'Neill, who lives in Honduras, and I will speak with her about the issues raised.
Ms Nessa Ní Chasaide
I was wondering if the committee would take follow-up steps on Senator Norris's suggestion.
I was about to raise that issue. The witnesses have presented a considerable amount of information and it is the committee's intention to seek the views of the Minister for Foreign Affairs and Trade on the issues arising, particularly in regard to human rights and Honduras. We will pursue the matter further as soon as we get the Tánaiste's views. As noted, we will be also get in touch with the Department of Finance regarding the taxation issues. These are important issues. I am not sure whether the Minister for Finance or the Minister for Public Expenditure and Reform will be attending next week's World Bank meeting but we will also raise issues in that regard. Certain issues raised by the witnesses are probably outside our remit and might be more appropriately discussed with the Joint Committee on Finance, Public Expenditure and Reform.
Ms Nessa Ní Chasaide
We also wanted to flag for the committee the fact that the Department of Finance produces annual reports on its participation with the World Bank and the IMF. It would be a worthwhile exercise for this committee to discuss these questions with the Minister for Finance and the Minister for Foreign Affairs and Trade because they pertain to policy coherence in terms of good consultation and joint decision making between their respective Departments. That may be a constructive action for the committee to take.
We will probably go down that road but we will first need to get the relevant information from the Departments of Finance and Foreign Affairs and Trade. I promise the witnesses that we will pursue the queries they raised today.
Ms Nessa Ní Chasaide
I ask whether members of the committee will be attending the spring meetings in Washington.
No; we have not received an invitation. Normally we are invited to the parliamentary dimension of these meetings, which is held in September. We do not attend the AGM. I have travelled to the parliamentary meeting on one occasion, in 2012. I did not manage to attend last year. We will keep in touch with the witnesses in regard to their queries.
Ms Nessa Ní Chasaide
I appreciate that.
I thank the witnesses for engaging with the committee. We had an interesting debate and I hope we will keep in touch.