I move that the Bill be now read a second time.
On 16 September, 1998 the Minister for Foreign Affairs and I announced a major package of debt relief measures in favour of the Heavily Indebted Poor Countries of the world. Our motivation was simple. In our view the time had long past when it was appropriate for Ireland merely to call for debt relief as it had done for the previous decade. We felt that we should move beyond exhortation, high sounding words and rhetoric and actually do something to alleviate the crushing burden of debt on the poorest countries. The debt package announced then is the primary reason for the introduction of the Bretton Woods Bill. The Bill however also deals with Ireland's participation in the BIS Facility for Brazil and the adoption by Ireland of the Fourth Amendment of the Articles of Agreement of the International Monetary Fund. For the purpose of my speech, I will deal with the debt issue first and then provide a succinct summary of the other main provisions in the Bill.
The Debt Problem
The heavy external debt burden of many developing countries has been an issue of growing international concern in recent years. The servicing and repayment of such debt diverts valuable resources from the provision of social services and hinders the economic and social development of many developing countries, including the African priority countries of the Irish Aid programme. Debt owed to multilateral financial institutions accounts for an important portion of total indebtedness, particularly in the Heavily Indebted Poor Countries (HIPCs). There is widespread acceptance that far-reaching and co-ordinated action is needed to tackle the debt problems, whether bilateral or multilateral, of the most severely affected countries.
Ireland has long been an advocate of a multilateral response to the debt crisis in the developing world in parallel to initiatives by individual countries and successive Ministers for Finance have strongly advanced this policy at the IMF and World Bank over the past decade. The international pressure for action on debt culminated in the launch of the joint IMF/World Bank Heavily Indebted Poor Countries (HIPC) Initiative in 1996 as the first debt relief scheme to seriously address the problem of Third World debt. The initiative is aimed at HIPCs who have demonstrated, through a track record of good economic management and reform, that they are capable of achieving debt sustainability in the medium term. It commits the international financial institutions to take additional action to reduce the debt burden on HIPC countries where existing mechanisms are likely to be ineffective. The fundamental objective of the initiative is to ensure, for those countries with a track record of adjustment and reform, a robust exit from debt indebtedness and the achievement of debt sustainability.
Delivery of HIPC assistance
Both the World Bank and the IMF have established the means for delivering their share of HIPC assistance. The World Bank's participation in the Initiative takes place primarily through the HIPC Debt Initiative Trust Fund, which provides relief on debt owed to the International Development Association, either through the purchase and subsequent cancellation of outstanding IDA credits or through servicing of a portion of the beneficiary country's IDA debt.
The IMF's participation in the initiative is through the (ESAF) HIPC Trust and takes the form of special grants that are deposited in an escrow account to cover debt-service payments to the IMF under an agreed schedule.
Ireland's Debt Package
In relation to debt relief, Section 4 of the Bill will enable me, or the Central Bank on my behalf, to take the necessary actions to:
In passing I should mention here that Ireland has also committed some £20 million to the Twelfth Replenishment of IDA, the World Bank's, soft loan window. I will be returning to the Oireachtas with legislation to effect this contribution later in the year.
Ireland's position on debt
It is now time for Ireland to move on from its advocacy role in relation to debt relief and to become a direct contributor to the joint IMF/World Bank Debt Initiative. It is important that Ireland, particularly in view of our recent economic success, should join with our other European Union and IMF partners in providing finance to assist third world countries achieve debt sustainability.
The debt relief provisions in the Bill should, therefore, be seen as another important dimension to Ireland's overseas development efforts. Ireland needs to back-up our bilateral aid programme with initiatives in the multilateral area as well. A contribution by Ireland at this juncture will enhance our moral authority to call for increased efforts by the international community, including the multilateral institutions, to reduce the burden of debt on third world countries to the greatest extent possible.
While the package is a significant step forward in Ireland's evolving position on debt and overseas development, it is, however, a first step and we look forward to making further progress in partnership with interested parties over the next few years.
In this connection Deputies will be aware that the Government has adopted a series of guidelines on future Irish policy in regard to third world debt.
• Debt relief should become an integral part of Ireland's overall overseas development aid strategy, reinforcing the existing emphasis on the fundamental goal of poverty alleviation as well as environmental sustainability and gender equality; (I note with satisfaction that the President of the World Bank has also made it quite clear that debt relief must be firmly situated in the Bank's poverty reduction strategy.)
• Ireland will continue to emphasise the need for definitions of debt sustainability to take human, as well as economic, development into account;
• We will press for increased flexibility in the implementation of the HIPC Initiative in particular with a view to its speedier implementation and its application to as wide a range of the heavily indebted countries as possible;
• We will continue to encourage the IMF to take full account of the social impact of its policies at the design and implementation phases of its macroeconomic and structural adjustment programmes;
• We will strongly encourage the international community, including bilateral creditors, to take a generous and flexible approach to the heavily indebted poor countries. Ireland will continue to press for deeper debt relief so as to ease the debt burden that is imposing enormous constraints on many developing countries;
• We will continue to advocate a greater degree of consultation and involvement for civil society in the developing countries in the planning design and implementation phases of IMF/World Bank programmes;
• We will continue to call on the IMF to maximise the use of its own resources by, for instance, the sale of its gold reserves, to fund a deeper and wider response to the debt problems of third world countries; (In recent discussions, on funding HIPC and ESAF, Ireland took a strong position in favour of the sale of gold.);
• As Minister for Finance I will press for greater transparency in the workings of the Bretton Woods Institutions;
• Both the Minister for Foreign Affairs and I will emphasise the importance of continued consultation with the NGO community on issues of concern in relation to debt and development.
Ireland's Commitment to Multilateral Financial Institutions
Ireland's commitment to multilateral cooperation is well founded and widely respected. The Oireachtas has over the years been supportive of deepening Ireland's involvement in the International Financial Institutions. In addition to approving Ireland's membership of the original Bretton Woods Institutions, it subsequently approved Ireland's membership of the International Finance Corporation and the Multilateral Investment Guarantee Agency and more recently endorsed Ireland's membership of the European Bank for Reconstruction and Development.
The Oireachtas has also, on numerous occasions, overwhelmingly approved various replenishments of the International Development Association - the soft-loan arm of the World Bank. As I said, I hope to introduce legislation in the coming session to confirm Ireland's proposed contribution of £20 million to the 12th Replenishment of the Association.
Ireland's participation in international institutions is predicated on working cooperatively within the institutions while remaining strongly focused on our legitimate national and international objectives.
Most actors in the Irish economic and social success story fully acknowledge the importance of consultation, inclusion and participation as a critical enabling mechanism in our consensual approach to economic and social development.
Our European Union partners and fellow members at the IMF all aspire to equitable treatment for the low and middle income countries in economic, social, trade and development matters. We all share with them the imperative of finding an exit from the crushing burden of debt, war oppression, hunger and famine.
The needs of developing countries include adequate levels of external financing, fair patterns of participation in the world economy, a strong private sector, good governance, a strong civil society, strengthened patterns of expenditure on basic needs and debt relief. These are interrelated themes that are all part of Irish Development Cooperation Policy. They are all themes currently under negotiation in a new Lomé framework. They are the reasons why, in my view, Ireland must contribute to HIPC and to an ESAF framework already placing much greater emphasis on social needs, as African leaders themselves acknowledge.
My colleague, Liz O'Donnell TD, was in Mozambique last week and heard at first hand of the need for urgent debt relief through HIPC. Ireland must now play our part in the response of the international community to the debt needs of highly indebted poor countries in Africa and elsewhere.
In this connection, and in the context of ESAF, it is instructive to note the recent resolution adopted in the UN General Assembly on "Enhancing international cooperation towards a durable solution to the external debt problem of developing countries".
The resolution provides a very thorough summary of the views of the developing countries on the HIPCs Debt Initiative, ESAF, the elimination of poverty and related matters. Of particular relevance is the resolution's call for bilateral donors to finalise their arrangements for contributing to the World Bank's HIPC Debt Initiative Trust and the IMF's (ESAF) HIPC Trust. The resolution also calls for strong support for the continuation of ESAF operations and underlines the urgency of securing ESAF's funding and sustenance.
It is generally recognised that debt cancellation is only one of the many problems facing these countries.
The IMF, with justification, point out that unconditional debt relief is not the right tool for promoting the ultimate goal of sustainable development and poverty reduction. These goals are best attained by providing debt relief in a process, such as that provided by the Debt Initiative, which encourages the adopting of appropriate policies by the recipient country designed to stimulate private sector-led growth and focuses on an improvement in social expenditures.
The members of the IMF and the World Bank see conditionality as an integral part of this process. The goal is to ensure that the debt relief provided is used effectively, particularly through promoting health and education expenditures. The IMF fear that unconditional debt cancellation risks debt relief being used for purposes not related to grown and development.
The Government is open to pursuing a rational debate on this important issue. Ireland will be in a stronger position to pursue the debt cancellation issue more rigorously once we have established our credibility by bearing our fair proportion of the costs of the ESAF and HIPCs initiatives.
The Cologne Initiative
I note the strong similarity between the Debt Relief package announced by Chancellor Schroder of Germany on 21 January 1999 and that previously announced by Ireland.
The Cologne Initiative is aimed at intensifying and accelerating the Joint IMF/World Bank HIPC Initiative to speed up the debt relief process so that all countries entitled to take part can ascertain the extent and date of their debt relief by 2000. It includes a call for cancellation of commercial debt and debt connected with official development aid. We fully support these proposals and note the German Chancellor's commitment to contributing to ESAF and the World Bank's HIPC Debt Initiative Trust Fund.
The IMF's Enhanced Structural Adjustment Facility
The ESAF facility is the principal means by which the IMF provides financial support, in the form of highly concessional loans, to low income member countries facing protracted balance of payments problems. ESAF resources are made available to eligible members in the context of a three year structural adjustment programme.
In 1994 the Government decided to contribute to ESAF. Subsequently, in 1996, the Minister for Finance decided to defer Ireland's contribution pending a satisfactory operational implementation of the debt initiative and against a background of criticism of the severity of the accompanying adjustment programmes.
In response to concerns about the social impacts of ESAF programmes, an independent panel of experts, appointed by the IMF, recently conducted an external evaluation of the Facility. Their report endorsed the fundamental view that the structural reforms of the type supported by ESAF generally have positive effects on growth and income distribution in low-income countries. In a similar vein, the African Governors of the IMF and the World Bank have reiterated their support for the ESAF, indicating that it has been very useful in supporting the adjustment programs of low-income countries.
The external evaluation - together with a review of ten years of ESAF operations prepared by staff of the IMF - also provided valuable insights on how to make the Facility more effective in supporting macroeconomic and structural reform in low-income countries. Consequently, in the light of these evaluations, the IMF's Executive Board has endorsed proposals that are now being implemented to ameliorate adverse impacts of ESAF operations in a number of areas. These include the social impact of adjustment; improved IMF collaboration with the World Bank; promoting ownership of the programmes; increasing the level of consultation and participation of civil society; and advancing reform across all sectors. Actions in these and other areas are intended to refocus ESAF to provide more effective support for economic reform in all low-income countries. We will continue to encourage the IMF to advance these proposals in the planning, design and implementation of ESAF programmes.
Scale of Development Challenge
Given the scale of the development challenges facing the Bretton Woods institutions, it is not surprising that all regions of the world have not received, at all times, the attention that they deserved. It is perfectly understandable that, in recent times, a major effort should have been made to deal with the Asian financial crises; the crisis and institutional and political challenges facing Russia; and latterly the crisis of confidence in Brazil.
It is unfortunate that the birth of the Debt Initiative in 1996 should have been followed by a crisis in the international financial system. The focus of attentions of the world's political, economic and financial community had necessarily to be directed to mitigating the effects of the financial crisis in the countries concerned and to stop contagion effects in neighbouring countries and regions.
I am pleased that Ireland for the first time has joined with its EU partners to play an active part in this process through the BIS Facility for Brazil. It is also the first time that all 15 EU members have stepped in to participate as a "Union" to assist a country experiencing a crisis.
All of the recent developments have tended to deflect attention from the "other crisis", the particular development and poverty resolution needs of the continent of Africa. I am glad to see that this issue is now taking centre stage on the international agenda.
I am pleased to work side by side with the Bretton Woods Institutions in their efforts to bring about order and progress in the world monetary, financial and economic systems as the critical underpinning for community growth, social solidarity and economic development among the nations of the world. Their's is a critical role and in my view the world would certainly be worse off without them. Clearly both the IMF and the World Bank are not without fault and no commentator can stand uncritically over all of the actions that they have taken over the years. While recognizing that reform is necessary, I favour planned evolutionary change rather than forced, coercive and revolutionary change that is based on ideological approaches alone.
Other Significant Provisions in the Bill
The Bill does, however, go beyond the question of third world debt. It includes provisions in Section 8, to deal with Ireland's participation in the IMF arranged financial package for Brazil. It also deals at Sections 2 and 3 with the acceptance by Ireland of the one-time equity allocation of Special Drawing Rights to members of the IMF.
Specifically the Bill will enable me to take the necessary actions to:
Financial Package for Brazil As part of the overall US$41.5 billion international financial support package for Brazil, the Bank for International Settlements (BIS) has agreed a US$14.5 billion Credit Facility in favour of Banco Central do Brazil. All member States of the European Union, in recognition of the growing international financial and economic importance of the Union, are participating in the Facility. The Credit Facility will work through the extension of a credit line by the Bank for International Settlements to Banco Central do Brazil. Ireland has agreed to participate in the package in the amount of US$50m (IR£34.3m), acting through the Central Bank. The funding is not being provided up front. The Credit Facility is structured in such a way that, in the event of any default by Brazil, a Substitution Agreement (which forms part of the Facility) will be invoked under which the BIS could call on the Central Bank to pay in full or in part its proportionate share of the package up to US$50m. The Central Bank would also be liable for any interest payments outstanding. The Minister will, in turn, provide the Central Bank with a guarantee in respect of any losses that may be incurred by them under the terms of the Substitution Agreement. Minister's Power to Guarantee The Minister does not have power to provide a guarantee to the Central Bank under any existing legislation, so it is now proposed to include the necessary authority in this Bill to enable him to do so. The detailed terms and conditions which will apply under the guarantee itself will be worked out later, in consultation with the Bank, in accordance with standard procedures. Proposed Fourth Amendment of the Articles of Agreement of the IMF The Special Drawing Right (SDR) is an international reserve asset created by the IMF following the First Amendment of the Articles of Agreement in 1969. Its value as a reserve asset derives, essentially, from the commitments of participants to hold and accept SDRs and to honour various obligations connected with its proper functioning as a reserve asset. It is a purely official asset that can only be held and used by member country participants in the SDR Department, by the IMF, and by official entities prescribed as "other holders" of SDRs by the IMF. Some IMF members have not received any SDRs, or have only participated in some of the earlier allocations, depending on when they joined the IMF. To ensure that all members receive an equitable share of cumulative SDR allocations, the Board of Governors adopted a resolution on September 23, 1997, approving a proposal for a Fourth Amendment to the Articles which would remedy the current unequal holdings of this useful asset. The proposed amendment would not affect the IMF's existing power to make a general rather than a selective allocation of SDRs based on a finding of a long-term global need to supplement reserves as and when such a need arises.
The Bill will provide for the adoption by Ireland of the Proposed Fourth Amendment of the Articles of Agreement of the IMF which concerns a one-time allocation of Special Drawing Rights (SDRs) - the reserve currency of the IMF - to Members of the Fund. The relevant provisions to enable the Central Bank to accept the SDRs on behalf of Ireland following the approval of the Oireachtas are incorporated in the Bill. Ireland's holdings of SDRs are counted as part of Ireland's official external reserves. The net effect of the one-time allocation means that Ireland's external reserves will increase by SDR 67m (IR£64m)
Aggregation Clauses in respect of IMF/World Bank Contributions
A number of aggregation limits are also being inserted in the Bill to deal with possible future contributions to the World Bank and IMF in respect of contributions in respect of debt relief and economic and social reform. Given the emphasis now being placed by the European Union and the international community in general to resolving the debt problems of the heavily indebted poor countries, further efforts may be made internationally to provide additional debt relief to support specific countries. I would like to be in a position to respond speedily and flexibly to any further such initiatives in the future. For this reason, I propose to include aggregation clauses in the Bill to permit further contributions to these instruments without the need for legislation.
The entire debt relief package is designed to make an initial Irish contribution to the alleviation of the burden on HIPC countries. I am satisfied that the package offers a pragmatic way forward to alleviate the crippling debt overhang which has acted as a constraint on the development of the HIPC countries.
It is also entirely appropriate that Ireland should show its solidarity with Brazil in the financial difficulties from which it is suffering at present. We hope that the international support which they are getting will enable them to undertake the reforms necessary to underpin their future economic development.
The amendment of the IMF Articles of Agreement to enable the selective allocation of SDRs is also worthy of your support.
I, therefore, recommend the Bill for the approval of the House.
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