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Session 2000-01
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Delegated Legislation Committee Debates

Draft Asian Development Bank (Seventh Replenishment of the Asian Development Fund) Order 2001

First Standing Committee on Delegated Legislation

Thursday 26 April 2001

[Mr. Jim Cunningham in the Chair]

Draft Asian Development Bank (Seventh Replenishment of the Asian Development Fund) Order 2001

9.55 am

The Parliamentary Under-Secretary of State for International Development (Mr. Chris Mullin): I beg to move,

    That the Committee has considered the draft Asian Development Bank (Seventh Replenishment of the Asian Development Fund) Order 2001.

Before we start, may I correct one minor error in the memorandum that all members of the Committee have been sent? Paragraph 3 in the third line from the bottom highlights the date 22 March 1993. It should read 15 July 1997.

The Asian development fund is the concessional lending arm of the Asian development bank. Over 800 million people—nearly a third of the Asia and Pacific region's population—are poor; of those, some 500 million live in absolute poverty. Fund resources are used to help reduce poverty by promoting sustainable development in the low-income countries of the region.

The fund, which is largely financed from donor contributions, provides over $1 billion a year of development assistance on highly concessional terms with long maturity periods to low-income countries that cannot afford repayment at market rates. As a result, its income is low. Consequently, if the fund is to continue to lend, it needs to be replenished regularly—usually every four years. Negotiations on the seventh replenishment of the fund were concluded in September 2000.

Donors agreed a replenishment of $5.6 billion to cover fund operations over the period 2001-04. Of that sum, about half is to come from donors, and the rest from the Asian development bank's internal resources. That reflects the donors' strong endorsement of the bank's commitment to poverty reduction as its over-arching objective. In recognition of that, the UK pledged to increase its share from 3.8 to 4.8 per cent. of donor contributions. The increase had the effect of leveraging in a matching 1 per cent. increase in Japan's contribution, in addition to its burden-shared contribution of 35 per cent. Subject to the approval of the Committee, the UK share of the replenishment will be £84.7 million at the exchange rate agreed for the replenishment. Payment will be by four promissory notes, which will be drawn down over seven years, with the first draw-down taking place later this year.

The replenishment negotiations provided an important opportunity for donors to specify both the priorities and the policy and operational agenda for fund activities over the next four years. Those are contained in the ADF-VIII donors' report, which sets out various actions against which the bank progress on the implementation of ADF-VIII will be monitored. In that report, donors strongly endorse the bank's affirmation that poverty reduction is its over-arching goal and that it will centre its poverty focus on the achievement of the international development targets. Donors also welcome the bank's commitment to work in partnership with other donors through the comprehensive development framework and poverty reduction strategy processes, to ensure that scarce concessional resources are used effectively to make a lasting impact on poverty in the region.

Under ADF-VIII, priority will be given to poor countries that demonstrate a commitment to improving living standards, strengthening institutional capacity, redressing inequities and improving governance. Accordingly, allocation of fund resources will be based on an assessment of actual performance rather than promises of action.

Last May, my right hon. Friend the Secretary of State for International Development approved publication of the Department's institutional strategy paper for the Asian development bank, copies of which were placed in the Library. That report set out the UK's objectives for working with the bank over the coming three years.

We have three aims: to help the bank improve its poverty focus so that it can play its part in contributing to international development targets; to support the strengthening of the bank through institutional reforms; and to start a process of re-engagement between my Department and the bank with a view to improving the developmental impact of its country programmes so that it is better equipped to deliver its mandate on poverty reduction. The strategy paper also listed our objectives for the Asian development fund's replenishment negotiations. I am pleased to confirm that all but one were achieved.

Providing development assistance through multilateral agencies such as the Asian development bank and its concessional fund delivers benefits that the UK could not achieve alone. The bank can exert broad-based international influence expressed through its regional voice, encouraging developing countries to adopt sound policies that will lead to the elimination of poverty.

We are pleased to continue the support of successive British Governments to this important institution, dedicated to working for the elimination of poverty and for sustainable development. I commend the order to the Committee.

10 am

Mr. Bowen Wells (Hertford and Stortford): May I say how pleased I am to serve on this Committee and lead for the Opposition under your chairmanship, Mr. Cunningham?

Much work has been done on the regional development banks since 1997 and I congratulate the hon. Member for Carrick, Cumnock and Doon Valley (Mr. Foulkes)—for whose constituency name I usually need a prompt—on undertaking serious work with Department officials and investigating how regional development banks contribute to the whole development process in their respective regions. The Asian development bank has enjoyed much attention from the former Minister and I want to encourage the Department to continue its valuable work.

The hon. Gentleman served with me on the Select Committee on Foreign Affairs between 1980 and 1981, and we were deeply concerned about the lack of accountability and transparency not just of the regional development banks, but of the World Bank and the International Monetary Fund. Huge strides have been made as a result of the hon. Gentleman's and the Department's work in tackling problems.

The worst example is the African development bank, which needed rescuing. We found during this Parliament that it was lending to some countries requiring debt alleviation through the heavily indebted poor countries process at full commercial rates of interest. Those countries did not have the remotest possibility of repaying. Such was the condition of the African development bank, which has now been seriously tackled. Reform is under way.

The Asian development bank did not have the same problems, but nevertheless gave serious grounds for concern. The paper to which the Minister referred is frank about the problems that the bank presented to the development community. The main problems were lack of accountability and transparency, duplication of the efforts of the regional development banks, competition between those banks and the World Bank, competition between bilateral donors in the Asian and Pacific region, and the lack of co-ordination with other donors.

As a result of those problems, the total development effort in the Asia-Pacific region was incoherent, unfocused and questionable in terms of how much it achieved. It is to be hugely welcomed that, as soon as the new executive director of the bank took office, two years ago, he made poverty reduction his main and over-arching aim. That policy echoes the White Paper and the international development targets in making poverty the focus.

However, if reducing poverty is truly the over-arching aim, the total direction of the traditional investments of the Asian development bank will have to change. The paper produced by the Department for International Development on what and where the bank has historically invested shows that much of it goes into large infrastructure projects—dams, roads, railways, airports, energy production and so on. While that assists the economic development of the countries in which the bank has invested, it does not address the problems that that poverty focus would suggest. We must invest in social areas such as health and education, particularly women-focused projects. As the Minister said, we are dealing with an area with 900 million people, 500 million of whom live in abject poverty. Of that 500 million, 70 per cent. are women. Unless the problems of women are tackled, we will not get a poverty-focused programme from the Asian development bank. There is a huge amount of work to be done.

We will approve the statutory instrument, but it must be an approval conditional on monitoring achievement of the objectives established and set down by the Department for International Development. That will be a huge programme for a development bank that is based in Manila. It has regional offices in the area but they are under-staffed and have had no independent decision-making powers. What is being proposed, and what the Department wants, is a total change in focus and investment policy throughout the area. I am glad that it has been agreed that investment should take place in both India and China—which one would have thought would be the major focus of an Asian development bank. Those areas have been largely excluded from the investment of the Asian development bank but it will now open a programme in India and invest in China.

I hope that the concessional funding will be entirely focused on social objectives and address the problems of poverty, the education of girls on the same basis as boys, and women's health, particularly in giving birth, and of their children. The child mortality rates in some parts of the Asia-Pacific region, particularly Nepal, which has an appalling rate, must be addressed and that means a change in the role of women, so that they are empowered to benefit from the meagre health facilities available to them. I hope that the Asian development bank, using its concessional money, will start with those areas in the poverty focus that it has now adopted.

I want to go into more detail about some of the headlines that I have given the Committee. One is the question of co-ordination with other donors. The Minister outlined the process that is the new focus of the development world: the production of PRSPs—poverty reduction strategy papers—for each country, in line with the overall development programme of the World Bank. The Asian development bank is not, on the face of it, necessarily part of that process. Our directives on the Asian development bank must be part of the process of producing PRSPs, which must not simply be left to the World Bank or to individual donors. The Asian development bank should get involved in the consultation process, help to evolve the PRSPs and—with the agreement of the recipient countries—define its role in co-ordinating World Bank, European Union, individual donor and non-governmental organisation programmes in each country. I have not seen any evidence that the Asian development bank has been engaging in that role in the past year or two, but such involvement is absolutely essential if we are to stop duplication and competition among agencies.

I want to give the Committee an example of competition from the findings of the International Development Committee's visit to Bangladesh, India and Pakistan. Corruption is serious and endemic throughout Bangladesh. We found that the electricity generating sector in Bangladesh is run in a very corrupt manner. One might expect, and perhaps excuse, poor people stealing electricity by diverting it from a transformer into their appalling slum dwellings, but the exploitation of the power sector by some of the richest people and companies in Bangladesh is inexcusable. Electricity supplied to the Government of Bangladesh is virtually free.

Corruption must be addressed. The Asian development bank does not have a good record on this. It is included in its objectives—one would expect that, after the discussions on corruption that were initiated by the World Bank—but I am not sure that the Asian development bank is addressing the endemic corruption in the power sector in Bangladesh in particular, but elsewhere as well. I should like the Minister to reassure me about that. The Asian development bank has been a significant lender to the power sector in Bangladesh but has not achieved any reforms in the governance of the power sector there.

When we questioned the Prime Minister of Bangladesh about corruption in the power sector, she said that it was not the poor people who were stealing electricity but the rich. I asked her why she allowed that to continue. Her reply was not clear, but the reason is that those who benefit from corruption in the power sector are major political contributors to her party's funds. International bodies such as the Asian development bank, the World Bank and the British Government, as major donors in Bangladesh, must ensure that that issue is tackled.

I mentioned competition by the Asian development bank. The World Bank, and our own aid programme, have ceased to lend to the power sector because of corruption. Most donors are holding that policy line to try to push for correction of that corruption, which is rife, and which disadvantages the poorest people in Bangladesh. The power company cannot finance rural electrification because it is making losses and building up debts.

The Asian development bank likes—or liked—to invest large sums in projects such as power generation. It is deprived of that because nobody else wants to lend to the Bangladesh electricity company, so it has proposed a project, supported by the United Nations development programme, to invest in the Bangladesh power company for rural electrification purposes. That sounds wonderful, until we realise that by so doing it lets down the whole donor community and releases the pressure on the Bangladesh Government and others to correct the huge corruption problem. If that were tackled, the company would have money for the rural electrification programme, which is never the most profitable area in which to invest. By letting the company off the hook and cleansing its image, the Asian development bank undermines the efforts of the whole donor community. I hope that that will cease and that our directors will make that point every time that they attend a board meeting of the bank.

We have lots of promises from the Department for International Development, and we can approve of all of them. The Department set out in a paper its objectives and priorities before the negotiation of the new replenishment. I congratulate the Department for stating so clearly that objective 1 is

    ``To ensure that the Asian Development Bank's overarching objective of poverty reduction is fully mainstreamed in its policies, procedures and programmes, and that the Bank works to develop and pursue accelerated, but realistic, poverty reduction targets for the Asia Pacific Region in support of the International Development Targets.''

I do not want to take up the Committee's time by reading out all the paper, but it contains a serious set of objectives, which I commend to colleagues. I urge the Department—with its co-directors, including Japan, which is of course the major contributor to the Asian development bank and, incidentally, is becoming increasingly concerned by the way in which the bank has been operating—to insist on those objectives. Some of us have been invited to join the Japanese for a seminar on 19 May to try to decide how we can contribute to ensuring that the objectives set out in the DFID publication are realised.


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Prepared 26 April 2001