---

Debt Relief (Developing Countries) Bill

I would like to start by putting it on the record that the Government fully support the Debt Relief (Developing Countries) Bill, introduced by my hon. Friend the Member for Denton and Reddish (Andrew Gwynne). He has decided to introduce a serious and worthwhile measure, and I would like to join other hon. Members in expressing my sadness that he could not move the Second Reading in person. I wish him a speedy recovery. I am also grateful to my hon. Friend the Member for Northampton, North (Ms Keeble) for so ably opening the debate in his place. We are fortunate that someone with her expertise and commitment to this issue could do so, and I would like to pay tribute to her work over a considerable period on the issue of debt relief. I also pay tribute to the commitment of my hon. Friend the Member for Denton and Reddish. Several private Members' Bills this Session have been substantial and constructive pieces of legislation, but I am confident in saying that few, if any, have given the House the opportunity to progress a Bill as beneficial as this one. It was not a hard decision to support a Bill that will protect the debt relief that is vital to the development of the world's poorest countries by preventing it from being exploited and diverted. It will do so efficiently and fairly, respecting legitimate commercial rights, and will ensure that the aid and debt relief funded by UK taxpayers will be used effectively to tackle global poverty. I also welcome the support for the Second Reading from both the Conservative and Liberal Democrat Front-Bench Members. Importantly, the provisions in the Bill are carefully targeted, and I think that both sides of the House recognise that. I shall explain in more detail our reasons for supporting the Bill. As the House will be aware, several factors led many of the world's poorest countries to build up debts that they had no realistic prospect of fully repaying, and by the 1990s this burden of debt was clearly a barrier to renewed development for those countries. Partial and piecemeal refinancing of their debts had proved insufficient, which is why, in 1996, the heavily indebted poor countries initiative for debt relief was established. HIPC provides a comprehensive framework for the debt relief that all creditors need to provide to reduce eligible countries' debts to sustainable levels. Forty countries with a total population of more than 600 million, but an average income per person of just $530, qualify for the initiative, due to their high level of poverty and unsustainable debts. The World Bank and the International Monetary Fund jointly administer the initiative and monitor each country's progress. When a country meets the conditions for decision point on the initiative, those organisations assess the country's total external debts and calculate the percentage reduction required from all creditors to reduce the debts to an economically sustainable level. The HIPC initiative expects that all creditors—bilateral, multilateral and commercial—will provide this percentage reduction fairly and equally, doing what is financially necessary. At decision point, the World Bank and the IMF also agree with the country a set of reforms that it will undertake to direct the extra resources, from which it benefits through debt relief, towards tackling poverty and catalysing economic growth. Once the country achieves those triggers, it reaches completion point—the point at which all creditors are expected to have reduced their debts to the set level. With sustainable debt levels, a track record of macro-economic stability and a strategy being implemented to reduce poverty, countries completing the HIPC initiative are much better placed to continue their development. The HIPC initiative is providing considerable success. Countries that have completed it have achieved higher rates of economic growth, maintained lower inflation and fiscal deficits and similarly improved their relative performance compared with other low-income countries. It is sustained economic growth that offers the surest underpinning for lifting people out of the poverty that continues to affect much of the countries' populations. Of course, development is never a simple story, but the recent progress of, for example, Tanzania, Ghana and Rwanda shows the real contribution that debt relief can make. Completing the HIPC initiative also triggers additional debt relief that goes beyond the aim of reducing debts to a sustainable level and further increases the resources freed up for the development. The UK is one of several countries that completely cancel all debts owed to the Government at completion point. At Gleneagles, in 2005, the UK won international agreement for the multilateral debt relief initiative that completely cancels debts owed to the IMF and the main multinational development banks. Together those initiatives are so far worth $117 billion in debt relief for the 40 heavily indebted poor countries. It is an achievement that the UK has led the world in bringing about, and all of us in the House should feel proud of it. The benefits of debt relief, however, could, and should, be even greater. Most commercial creditors recognise that, aside from considerations of tackling poverty, the heavily indebted poor countries are unable to repay debts in excess of the percentage reduction expected under the HIPC initiative, and they agree to voluntarily reduce their debts accordingly. However, a small minority of creditors instead seize on the opportunity presented by the debt relief provided by others and sue the Government of the country for debts often contracted decades ago and which have accumulated interest and arrears. If a company cannot meet all its obligations to creditors, insolvency law brings about a fair and efficient resolution by requiring that all creditors receive repayment of an equal proportion of their debt. No analogous system exists for countries, as the hon. Member for South-West Hertfordshire (Mr. Gauke) noted when he said that there was no sovereign system of liquidation or insolvency. I do not think that we would want a system of liquidation for a country, but it is important that we have something comparable to an insolvency regime for countries that get into massive debt. That is what we are trying to do with the Bill. It is currently legally possible for a creditor to free-ride on the debt relief that others provide, enforce its claim for full repayment and siphon off for commercial gain some of the resources that would have been used for poverty reduction. Hon. Members have spoken of how they see this practice as morally unjustifiable, and I agree with them, but I would also like to emphasise that allowing this free-riding to continue would perpetuate an economically unjustified and inefficient market failure. As the money that is diverted includes the development assistance funded by UK taxpayers, I have another strong reason, as a Treasury Minister, to support action in this area. That is an important point that I would want Members in all parts of the House to recognise. For those reasons, the Government have already taken a range of steps to limit the problem. Many commercial creditors are happy to be repaid whatever proportion of their debt they remain entitled to, consistent with providing relief under the HIPC initiative. The World Bank's debt reduction facility organises operations to buy back debts eligible for relief at the deep discount corresponding to HIPC initiative terms, and then to cancel them. The UK supports and, with other donors, funds such operations, which can be very effective. Last April the facility brought back and cancelled 97.5 per cent. of Liberia's eligible commercial debt, for only 3 per cent. of its face value of $1.2 billion. I want to say something more about Liberia in a minute, because it was referred to by a number of hon. Members. High-quality legal advice for heavily indebted poor countries is also important, to help them defend claims and avoid problematic terms in new borrowing. For that reason the Department for International Development has committed £5 million to fund the new African legal support facility. The value of good legal advice was illustrated by the case of Donegal International Ltd v. Zambia, where our funding for legal advice helped Zambia reduce its liability by around $40 million. Also, a number of claims brought by litigating creditors can be reduced if fewer responsible creditors sell on their claims. We have won support for commitments not to sell on claims, from 19 members of the Paris Club of creditor Governments, the European Union and signatories to the UN's Doha declaration on financing for development. Despite the success of all those measures, a problem remains. It is a problem of a small minority of commercial creditors that continue to litigate and recover sums greatly in excess of that which is compatible with the debt relief that heavily indebted poor countries can expect. The best information on the scale of the problem comes from the World Bank's annual survey of heavily indebted poor country Governments. The most recent survey, in 2009, reported 14 active or unresolved law suits worldwide, with a total value of $1.2 billion. More new cases continue to be brought. Rates of litigation since 2002 indicate that around a fifth of such cases are heard here in the United Kingdom. I cited Liberia as an example of the success of voluntary buy-backs, but as hon. Members have recognised, in November the High Court gave judgment for $20 million against Liberia, in a claim brought by two commercial creditors against the country, allowing them to seek to enforce full repayment in the United Kingdom. In Liberia, a country with an average income per person of just $170 and where 13 per cent. of children die before their fifth birthday, all the resources that the Government should expect are vital. I find the actions of commercial creditors morally repugnant. Only legislation, in the Bill before us today, can prevent such free riding under UK laws and in UK courts by a small minority of unscrupulous commercial creditors. By passing the Bill, I believe that we can help to protect Liberia, Ethiopia, Sierra Leone, the Democratic Republic of the Congo and the other heavily indebted poor countries facing litigation. I want to address some of the comments made by the hon. Member for South-West Hertfordshire about the Bill. He principally raised the issues of contractual rights and whether the Bill would actually benefit developing countries. There is certainly an interference with contractual rights, as he notes, but we believe that this is morally and economically justified. I shall say something about the compelling reasons for that in a moment. I strongly believe that the Bill will benefit developing countries. Indeed, if one asks developing countries, they, too, will say that the Bill will be helpful to them. The hon. Gentleman also raised what might be called the "thin end of the wedge" argument, which is that the Bill might set a precedent and that people might go further. I want to address that too, as well as commenting on the position of original creditors, to which he also referred.