The purpose of this Bill is to authorise a contribution of £12,740,000 by the Irish Government to the Ninth Replenishment of the Resources of the International Development Association.
The International Development Association, or IDA for short, is a sister organisation 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. The two institutions are essentially one and the same, sharing the same organisation management and personnel but they act in separate domains as regards both lending and financing. In essence, the differences between them are confined to the way in which they raise funds, the terms attached to their loans and their respective groups of borrowing countries.
The World Bank raises most of its funds by borrowing on the world's capital markets and on-lends these funds, at more or less commercial rates, to a wide range of developing countries. The central objective of IDA, on the other hand, is to make development finance accessible to those countries for which the World Bank's credit terms are too expensive. IDA, therefore, is funded by regular replenishments, or grant contributions, from its richer member countries and by repayments of past IDA credits. In this way, its loans can be interest-free and are given for periods of 35-40 years, with a grace period of ten years.
IDA plays a key role in the economic and social development of the poorest countries. Its purpose is not to provide short term humanitarian aid, 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 are also technically and economically sound. IDA also grants credits for more comprehensive economic programmes which facilitate the long term growth of the entire economy, or of a particular sector. In recent years, it has, increasingly, provided financial aid to enable member countries to introduce and implement urgent economic policy reforms and structural adjustments.
Only the very poorest countries can benefit from IDA lending. A per capita income of $1,135 is the level above which a country becomes ineligible for IDA loans. However, in practice, very few credits have been provided to countries with a per capita income of more than $700 and the vast majority — about 93 per cent — have gone to those with a per capita income of less than $545. Thus, while World Bank loans are distributed fairly evenly among the higher income developing countries of Asia, Latin America, the Caribbean, Europe, the Middle East and North Africa, IDA lending is generally concentrated in the poorer, densely populated, countries of Asia and the least developed areas of sub-Saharan Africa.
As I indicated earlier, the main source of funds for IDA's lending programmes is the periodic replenishment of its resources by grant donations from its member countries. For the purpose of determining the appropriate level of contribution, IDA distinguishes between two groups of members. Part I represents the industrial countries, while Part II groups together the developing countries. The vast bulk of its resources are provided by Part I members, though some Part II members also contribute on a voluntary basis.
The donor resources made available to IDA during the Eighth Replenishment, were scheduled to be fully committed by June 1990. In anticipation of this, the representatives of the donor Governments began negotiations in earnest for the Ninth Replenishment in February 1989. The negotiations were concluded at a meeting in Washington in December of the same year. The task facing the donor representatives — or IDA Deputies as they are known — was to reconcile a number of, sometimes conflicting, elements. Their first priority had to be to work out an agreement which would ensure continued adequate funding for an institution to which their governments were committed. At the same time, they had to be satisfied that the level of their government's contribution was appropriate in the context of those from other countries and also in the context of other competing claims on their own overall aid budgets.
The discussion began with a review of the evolution of IDA's role in the years immediately past. There was substantial support for the direction that IDA was taking and three programme areas were identified for higher priority in the years ahead. These were: an even stronger focus on poverty reduction; increased support for sound macro-economic and sectoral policies and the further strengthening of IDA's activities in environmental protection and improvement.
The donors stressed that IDA's lending programme should retain a sharp focus on the poorest countries and especially on the poorest sections of the populations in these countries. They recognised the importance of national plans and strategies aimed specifically at eliminating the causes of poverty and helping to alleviate its worst effects. In particular, they welcomed the significant increase proposed in the share of human resources lending during the IDA 9 period. To underline their concern in this area, they urged that in allocating resources between countries greater weight should be given to the performance of the authorities in tackling the poverty issue. We in Ireland have highlighted the need to pay particular attention to the plight of the very poor when seeking to secure long term growth, through adjustment, in low-income countries. We are, therefore, fully supportive of the efforts to ensure that IDA maintains its antipoverty emphasis at the core of all its activities.
The donors considered it important for IDA to continue playing a central role in developing and supporting adjustment programmes, both through quick-disbursing adjustment loans and through investment lending for particular projects. It must be stressed that adjustment programmes cannot be imposed on countries by outside agencies, if they are to be successful. While IDA and other donors can provide useful advice and assistance, the Government itself must be fully responsible for the development of an adjustment programme and strongly committed to its implementation. It must also seek to develop strong working relationships with voluntary organisations, both domestic and foreign, and to involve these organisations in the process to the greatest extent possible. IDA itself has been conscious of the invaluable role that non-governmental organisations can play in the development process generally and has been putting considerable effort into strengthening its own relationships with them.
The fact that environmental degradation, in its many forms, constitutes a significant threat to economic development, has become increasingly evident during the past decade. Sound environmental management is fundamental to the development process and the World Bank group, including IDA, now emphasises the need to make environmental concerns an integral part of its activities. Because of the pervasive character of environmental problems, it is necessary that the traditional emphasis on individual projects be supplemented by environmental management that is integrated into economic policy-making at all levels of government. Designing economic incentives to induce environmentally sound behaviour is especially important. I warmly welcome IDA's intention to complete environmental action plans for all its borrowers, during the IDA 9 period and to give priority to those countries where major problems have been identified. It is also seeking to promote a constructive dialogue with concerned public groups and has promised to involve them at all stages of the environmental assessment process.
The size of the Ninth Replenishment was the subject of extensive discussions during the negotiations, as was the relative contributions of the different member countries. The Deputies decided to seek the largest feasible replenishment, consistent with the need for a reasonable sharing of the burden among all donors. In the light of the strong case for maintaining the real level of IDA 8, the donors agreed, after protracted discussions, to recommend a replenishment of 11.68 billion SDRs — the amount estimated to be the equivalent of the total IDA 8 replenishment at 1989 prices. Agreeing the equitable distribution of this total among the donors proved no easy task. Burden sharing has been an accepted principle of all IDA negotiations, but the determination of relative shares is becoming increasingly difficult over the years.
The system of burden sharing eventually agreed took members' percentage share in the Eight Replenishment at the starting position and adjusted those shares to take account of inflation and exchange rate changes in member countries in the interim. Because of variations in the inflation and exchange rates of the different countries, this led to significant changes in the relative contributions of some donors vis-a-vis their IDA 8 shares. The shares of some countries declined while others increased. Ireland's percentage share went down marginally from 0.11 per cent to 0.10 per cent.
However, the sum of these potential contributions did not reach the 11.68 billion SDRs required to maintain the real value of IDA 8. In order to fill the remaining gap, a number of countries, including Ireland, pledged supplementary contributions, over and above their agreed share. Switzerland, not then a member of IDA, agreed to make available a grant of 184 million SDRs. Repayments of 1.58 billion SDRs due from earlier IDA loans, will further swell the resources available for commitment by IDA over the three year period covered by IDA 9, bringing the total to 13.26 billion SDRs, equivalent to some 12 billion Irish pounds.
Ireland's contributions to IDA are counted as part of the Official Development Assistance programme. IDA's emphasis on the needs of the poorest developing countries reflects the priorities of our own bilateral aid programme. Many developing countries, and particularly those of sub-Saharan Africa, have experienced a decade of falling per capita incomes, increasing hunger and accelerating ecological degradation. External resource flows, of which development assistance has formed an increasingly important element, will continue to play a crucial role. Low income countries cannot be expected to succeed with their own very laudable efforts, unaided. They will continue to need practical assistance to achieve and sustain improvements in their living standards. The resources pledged for IDA 9 will enable IDA to make a significant contribution in this regard. Ireland has helped, in no small way, by agreeing — subject to legislative approval — to provide a supplementary contribution of 2 million SDRs, or £1.82 million. As a percentage of our basic contribution, this voluntary payment is among the highest of all donors.
Before concluding, I would like to refer for a moment to the debt problem of developing countries generally. That problem is still a long way from resolution. Nevertheless, the new initiatives for helping debtor countries to reduce their debt are working reasonably well and can be improved with experience. In most countries, however, the debt crisis is only a symptom of deeper economic problems. It is not enough, therefore, to manage the debt; it is essential at the same time to correct the underlying economic weaknesses and distortions. There has been a positive international response, particularly from the official sector, to those heavily indebted countries who have demonstrated their commitment to implement necessary economic policies. I am confident this will encourage others to follow their example. As regards the debt of low income countries to official creditors, I very much welcome the growing recognition that more needs to be done in the area of debt forgiveness.
The developed countries can also play a vital indirect role in resolving the debt problem by managing their own economies properly. While the problem of external imbalances has eased to some extent, it still remains a barrier to economic expansion and to continuing financial stability worldwide. Greater adjustment is needed on the part of the major surplus and deficit countries. Inflation must be tackled using the widest possible range of policy instruments. Undue reliance on interest rates to fight inflation can lead to higher international interest rates which, in turn, have devastating effects on the heavily indebted developing countries.
Development assistance will, however, remain a vital ingredient of the cure for the difficulties of the poorest of developing countries. Such assistance is far more than a simple tranfer of official resources. At least as essential and as valuable are the intangible elements of skills, knowhow, practical experience in the field, and so on. The resources which Ireland possesses in this regard are enormous, given the relative size of our economy. I would like, therefore, to take this opportunity to pay tribute to the unstinting work and invaluable contribution of the thousands of Irish people who live and work in developing countries — our missionaries, volunteer workers, professionals and others. Their achievements have been and continue to be, a source of real pride to us.
Ireland's membership of IDA was authorised by the International Development 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 IDA 9.
I, therefore, commend the Bill for the approval of the House.
