Draft International Bank for Reconstruction and Development (General Capital Increase) Order 2019 Draft International Bank for Reconstruction and Development (Selective Capital Increase) Order 2019 Draft International Finance Corporation (General Capital Increase) Order 2019

Alex Norris Excerpts

Monday 15th July 2019 General Committees

[Alex Norris (Nottingham North) (Lab/Co-op)]

I am grateful for the chance to serve under your chairmanship, Mr Sharma, and grateful to the Minister for outlining the statutory instruments before us. The Opposition do not intend to divide the Committee on this matter, but I have a series of points to raise. The Minister is always well briefed and may have the information with him, but if there are some things he does not know, perhaps he will follow up in writing. That would be much appreciated.

We seek reassurance on a number of points of serious concern relating to these two arms of the World Bank. I will talk first about impact. What independent evidence can the Minister give us on both the IBRD’s and the IFC’s impact on reducing poverty? We have concerns about the developmental impact of the World Bank’s work, as raised by its independent evaluation group, which found that the IFC in particular has in recent years experienced a downward trend in the developmental impact of its investments. IFC investments made via private equity funds are of particular concern, given that they can be opaque and difficult to track. How can we be certain that all the IFC’s investments will lead to demonstrable developmental impacts?

I was pleased to hear the Minister’s reference to gender and the positive outlook and direction being taken. I am keen to know what plans are in place to ensure the impact sought. I was also pleased to hear the Minister’s assurances regarding the shift in direction on governance. Hopefully, we will be able to tease out a bit more. The recent leadership selection exercise, which lacked a fair or competitive process, showed that we still have a long way to go in increasing the representation of borrower countries. There is a clear need across the architecture of global financial institutions for serious change in that respect. The governance of the World Bank is skewed towards the wealthiest nations. Developed countries retain the majority of shares and board seats, which means that there is an uneven distribution of voting powers, and of course the United States retains its veto power. I would be interested to hear how we will achieve the changes that the Minister outlined, and on what sort of timeline.

Tying voting powers directly to capital contributions is a problematic way to govern such an important international financial institution, so I welcome the Minister’s saying that we will move away from that, not least because the capital that the UK provides is a relatively small proportion of the bank’s funding, and large chunks of its operations are funded by loan repayments from developing countries. Surely we could go further than the reforms of recent years and de-link capital contributions and voting powers. I would be interested to hear how far we can go on that, so that we take into consideration other factors, such as population or developmental needs. Does he agree that we still have a way to go to ensure more balanced structures? What tangible changes will he be advocating through these orders and beyond?

Thirdly, on domestic resource mobilisation, as law makers we know how important collecting taxes is to a country’s development. A major impediment to raising the resources they need is tax avoidance. How will the Minister make sure the World Bank helps Governments to maximise their domestic revenues by ensuring that no investments go to companies engaging in tax avoidance or operating through non-compliant jurisdictions? Does he agree that we should ensure that all investments made by the IFC are analysed for their impact on domestic revenues?

Fourthly, I was pleased with what the Minister said about aligning the work with the Paris climate agreement, but I want to probe that a bit more. In the recent general debate on climate change and global development—a very good debate indeed, with excellent contributions from across the House and a high degree of consensus—the Government assured the House that the big multilateral banks are aligning their climate finance with the targets of the Paris agreement. However, we are deeply concerned about the bank’s continued funding of fossil fuel projects after the Paris agreement, which the shadow Chancellor raised in his speech at Labour’s International Social Forum this weekend. At that conference, the Leader of the Opposition announced Labour’s plans to stop channelling finance through the World Bank’s climate investment funds, but instead to redirect them to the UN’s green climate funds—a move that would give more direct access to national and local actors, rather than concentrating funding in a handful of multinational development banks. I would be very interested to hear the Minister’s thoughts on that idea. In additoin, how will the Government ensure that all climate finance is spent in a way that ensures local ownership? Will he set out the ways in which the World Bank is aligning its investments with the Paris agreement, and how that will be monitored?

Finally, transparency is very important to all right hon. and hon. Members, and the Department for International Development raised that issue in its multilateral spending review. Although the IBRD and the IFC scored “good” overall, both agencies’ scores for transparency were weak. In particular, the IFC has struggled with scandal. Just this month, one of its investment officers was in the press after she allegedly favoured the company in which her husband was a senior executive and which was awarded a significant part of a £2.6 billion contract that she was involved with. According to the New York Times, that conflict of interest has dragged the bank into Latin America’s biggest corruption scandal. We all agree that transparency is critical to tackling corruption, so will the Minister set out how he will ensure that the World Bank urgently improves the transparency of all its institutions?

I will leave it there. I have raised a number of issues, and I would be very grateful for the Minister’s reflections on them. If the answers are not available today, perhaps he will follow up in writing.