Select Committee on International Development Minutes of Evidence


Supplementary memorandum submitted by the Department for International Development

INTERNATIONAL DEVELOPMENT TRUST FUND

  The UK Government remains firmly committed to its long-term goal of helping to tackle global poverty and achieve the internationally-agreed Millennium Development Goals (MDGs). As you know the Zedillo report for the United Nations concludes that to achieve these goals—that include halving the proportion of those living on less than a dollar a day, reducing child mortality by two-thirds and building a better future for children all over the world by ensuring that every child has the chance to start and complete a primary education—requires each year until 2015 an additional $50 billion a year in aid.

  Clearly some uncertainty surrounds such estimates but the scale of the challenge is clear: it requires unprecedented action by the developed world. However, it is feasible for the International community to bring about such a radical shift in resources. To that end the UK Government is promoting a significant increase in development aid from all donor countries and international institutions to build capacity and address the long-term causes of poverty in the poorest countries.

  Building on proposals made by the European Commission, the Chancellor of the Exchequer proposed at the meeting of European Finance ministers on 5 March 2002 that the European Union (EU) should commit to reach an ODA/GNI ratio of 0.39 per cent by 2006. At the EU Council Meeting in Barcelona on 15/16 March 2002, just before the United Nations conference on Financing for Development in Monterrey, EU members committed to increase their collective ODA to 0.39 per cent of GNI by 2006 as a step towards the 0.7 per cent target. Within this, all member states would strive to attain at least 0.33 per cent by 2006, with other member states above that ratio maintaining or improving their levels of aid.

  For its part the UK is committed to the target of raising development assistance to 0.7 per cent of national income, and we have increased the budget of the Department for International Development (DfID) to £3.6 billion—a 45 per cent increase in real terms between 1997-98 and 2003-04. Moreover, we've made clear that the Government will significantly raise the amount of our development aid, and also raise its share in national income, in our next spending round covering the years up to 2005-06.

  To raise investment in developing countries by $50 billion a year to 2015 would require a step change in aid flows from the developed world. Recent proposals for new and innovative ways to meet this funding include global taxes and Special Drawing Rights (SDRs) from the IMF. The European Commission has examined the Tobin tax and the UK approaches further evaluation of all these options with an open mind. However, such international initiatives rely, ultimately, on consensus and approval from all national governments.

  But there is a clear, immediate and pressing need for finance now. In order to proceed with the urgency that the scale of the challenge demands, and recognising the duties of the richest countries to the least developed nations, the Chancellor has proposed an International Development Trust Fund to build on the work of the World Bank, the IMF and regional development banks.

  This fund requires donor countries to commit substantial additional resources to 2015 and beyond. By pooling these funds with national governments offering a guarantee, backed by callable reserves or appropriate collateral as security, they could be leveraged through borrowing from international capital markets to meet the demand for large-scale assistance now. To minimise bureaucracy and avoid the costly duplication of existing structures its resources should be distributed through distributed in a balanced way through existing effective bilateral, multilateral and civil society mechanisms used in supporting poverty reduction strategies in developing countries.

  The extent to which an international development trust fund might have to leverage funds from international capital markets would depend on a wide range of factors, including donor contributions, interest rates, the total amount disbursed and the proportions and terms of any grants and loans within that total. Reasonable assumptions on these factors suggest that such a fund might clear its debts in around 30 years. A broad package of measures that generated, for example, additional flows of $15-20 bn pa could be leveraged up by the private sector to provide an additional $50 bn pa until 2015.

  But we must never return to a situation where countries build up unsustainable burdens of debt. So poor and vulnerable countries should receive investment help primarily in the form of grants to partner their soft IDA loans and other low-income countries could be offered interest-free loans. Assistance to middle-income countries should be given via interest-reduced loans conditional upon implementing agreed poverty reduction strategies and engaging civil society.

  This fund could enable an earlier achievement of the MDGs than might otherwise be possible, and that in itself would bring enormous benefits to the peoples of the developing world. While this would be a great step forward it would still only go part way to reducing global poverty. There might still remain up to a billion people in desperate poverty, and developing countries would, of course, therefore still continue to need assistance on a large scale beyond 2015.

  And finally, whatever options are proposed, we must build a coherent response from the entire international community. This response must engage confidence and support from developing country governments themselves and from their citizens.

Department for International Development

June 2002


 
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