Supplementary memorandum submitted by
the Department for International Development
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 goalsthat 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 educationrequires 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 billiona
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
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
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