Ann McKechin MP

Labour Member of Parliament for Glasgow North

African Development Strategies - 4 November 2003

I welcome a debate on Africa in the main Chamber. I wish there were more of them. I declare my interest as chair of the all-party group on heavily indebted poor countries. I want to concentrate on the importance of debt relief for African development, in particular the policies instigated by the World Bank and IMF as conditions for that relief.

The good news is that debt relief has been shown to work and is a vital component of allowing African countries to meet the millennium development goals. For those countries that have received assistance, there has been a substantial increase in health and education spending. Several countries have been able to abolish primary school fees, although they in turn have had to cope with huge surges of pupil numbers, with classes of 100-plus are not unknown in Kenya and Uganda. However, only 19 per cent. of the poorest countries' debt has been cancelled and only five of the 42 eligible nations have consistently met the conditions and achieve uninterrupted debt relief.

The bad news is that the HIPC initiative does not go far enough and helps too few countries. Even the IMF and World Bank accept that many HIPC nations will not have sustainable levels of debt when they reach completion point. The formula, which is based on a very optimistic prediction of export growth rate that has not come to pass, will not work for many nations and needs to be urgently revised if we are to achieve significant poverty reduction. I know that the Government are working on that problem.

No one would argue about the need to impose conditions on adherence to democratic processes, or to impose financial controls to prevent fraud or misuse of funds and to ensure that they are used for basic services such as health, education and, as we heard this afternoon, the prevention of HIV/AIDS. However, there is increasing disquiet about the continuing practice of the IMF and the World Bank of insisting on conditions that are not directly relevant to debt relief, such as trade liberalisation and privatisation.

The all-party group hosted a meeting last month that was addressed by Demba Dembele of the Forum for African Alternatives from Senegal. He spoke about his country's history, which parallels many of the experiences of sub-Saharan Africa. In the 1960s and '70s, Senegal achieved significant economic results through its agriculture and the strength of its exports. However, by the mid-1970s, a succession of droughts, combined with a series of external shocks and the oil crisis, led to an economic downturn, and the Government were forced to turn to the IMF and World Bank for assistance.

Those institutions in turn applied structural adjustment programmes—the well known SAPs—broadly according to a "one size fits all" philosophy based on cuts in public spending, tight monetary and fiscal policies, export-led growth, liberalisation, deregulation and privatisation of state-owned enterprises. Far from rescuing Senegal from its debt problems, the implementation of those policies since the early 1980s has aggravated the debt burden and undermined the goal of poverty eradication. Low or stagnant economic growth, deterioration in several social sectors and only modest improvement in others has characterised this period of structural adjustment throughout the continent.

In Senegal, debt ratios exploded, and by 2002 the external debt accounted for 70 per cent. of its GDP. In addition, over 70 per cent. of the bilateral debts was composed of arrears. At the same time, the percentage of the population classified as malnourished has increased over the past 10 years, and nearly 80 per cent. are trying to survive on less than $2 a day. The IMF-World Bank SAP policies forced substantial trade liberalisation along with the dismantling of the country's public sector, while at the same time cheap, subsidised imports from the developed world severely affected the agriculture sector, which employs more than 70 per cent. of the population.

The IMF appears to ignore the history of economic growth in most advanced industrial nations, including our own, which relied heavily in their earlier years on selective trade protection policies. Between 1996 and 2000, four of the top five fastest growing developing countries—Guinea, China, Mozambique and the Dominican Republic—were classified as having trade-restrictive policies. Similarly, during the 1990s the IMF ranked Mauritius, which left the SAP in 1988, as one of the most protected economies in the world. But between 1975 and 1999, that country achieved annual per capital growth of 4.2 per cent., a substantial amount, and a reduction in inequality. After years of denying that debt was a problem, the IMF and the World Bank finally agreed, thanks in large part to the efforts of our Government, to tackle the crisis with the HIPC initiative. The much-derided SAPs have been replaced with plans drawn up by developing countries themselves. That is welcome, but there is increasing evidence that the poverty reduction strategy papers have retained the dominant influence, and veto, of IMF and World Bank officials. Typically, PRSPs require privatisation of public utilities, deregulation and removal of subsidies, and promotion of exports and foreign investment.

I am not arguing that policies such as liberalisation and privatisation are wrong in themselves, but I am sure that the Minister accepts that if such policies are to work, they must be implemented at an appropriate stage in a country's development, with effective Government regulation that is capable of being enforced and with public and democratic support. Sadly, there is no evidence that the IMF and the World Bank are capable of dealing with such subtleties. Surely, if we truly believe in democracy, these decisions are best left to those who live and work in the countries concerned.

In Senegal, one of the conditions of debt relief was the privatisation of its state-owned electricity utility, Senelec, but in industries such as water and energy, there is only a small number of transnational companies that are realistically able to bid for such operations. As a result, Governments are increasingly forced to offer sweeteners to attract the few foreign investors available to take on the contracts. Typical of the energy sector are long-term contractual arrangements that enable companies to be the sole supplier of a service. Frankly, a one-off invitation for tenders from five or six companies that are well-known to each other, followed by a 25 to 30-year monopoly before retendering does not deliver much competition or efficiency. For Senegal, instead of the predicted efficiency gains, the transfer of control of its electricity provider into the hands of a French-Canadian company resulted in profit outflows, no new investment and increased power outages, which contributed to a 1.5 per cent. decline in its gross domestic product.

By contrast, there is no sound evidence to suggest that public sector involvement in, or control of, public services is necessarily less efficient or effective for poorer nations. There is growing evidence to suggest that both the public sector and alternative service suppliers such as not-for-profit companies can achieve levels of efficiency equal to or even greater than those achieved by standard privatisation programmes. However, the rigid approach followed by officials of the IMF and the World Bank has done little to encourage the search for alternatives that better suit individual economies. Our own solution of a national rail authority would not accord with IMF criteria.

The IMF and the World Bank believe that PRSPs should allow the involvement of civic society only if that facilitates a debate on issues such as the social impact of policy measures and the pace and sequencing of reforms, and that poverty reduction strategy papers should not consider whether reforms involving liberalisation and privatisation are appropriate in the first place. Despite their attempts to achieve greater democracy and transparency, decisions made by democratic representatives have been ignored. In December last year, the Zambian Parliament voted for a motion urging the Government to rescind their decision to privatise the national bank as part of their debt relief programme. That decision was accepted by the President, but almost immediately there were reports that the IMF was threatening to withdraw debt relief. After talks with the IMF, the Government admitted by the start of April that they were privatising the bank after all. Until now, the IMF and the World Bank have viewed such opposition to their policies as simply the murmuring of vested interests, but there have been repeated incidents of such opposition throughout the developing world, particularly in Africa, in both national parliaments and civic society, as well as many reports of unrest caused directly by IMF policies. Not all of those incidents can be easily dismissed and they should not be used as an excuse to bypass the democratic processes of poorer countries.

I very much welcome our Government's efforts to press for "topping-up" for countries above the debt threshold once they reach completion point, as well as the Government's acceptance of the need to reconsider the methodology, as I have said, to ensure that we obtain genuine debt sustainability once countries have reached that point. As the Secretary of State will be aware, the global economic outlook, falling commodity prices and the HIV/AIDS epidemic will put an especially severe strain on the poorest countries in the next few years. The failure of the recent WTO summit in Cancun, as we discussed in a debate in Westminster hall on Thursday, will result in yet more barriers to economic growth for the world's poor, particularly in Africa. In that climate, I hope that my right hon. Friend agrees that there is an urgent need to cancel even more debt to allow HIPC countries to meet their millennium development goals and build their way out of poverty. Although G7 countries are committed to reducing the bilateral debt—our own Government have made a generous contribution to that reduction—by 65 per cent., the IMF is committed to a reduction of just 29 per cent. and the World Bank of 33 per cent. Does my right hon. Friend agree that both those institutions need to consider a contingency financing facility to assist HIPC countries and work towards a much higher level of debt cancellation? In the light of mounting evidence of the failure of IMF-World Bank economic policies to alleviate poverty, particularly in Africa, does my right hon. Friend agree that there should be an immediate explicit commitment to ensure that the provision of both debt relief and new loans from the World Bank and the IMF is not made conditional on privatisation, deregulation or trade liberalisation? Finally, I hope that he agrees that it is now time to give poorer countries much greater control over their own economic policy and allow them to pursue their own routes to development


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