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Tuesday, 26 March 1985
Page: 928


Mr ROCHER(6.04) —The International Development Association was created just over 24 years ago to fill a void in the dealings of the World Bank with the lowest income level, lesser developed countries. The International Development Association (Special Contribution) Bill intends to top up Australia's seventh increment of $200m by a further $60m. Each three years the subscriber countries, of which Australia is one, replenish the Association's funds. This year's and last year's contribution will go towards coping with the needs of the IDA over the three-year period commencing 1 July 1984. Although Australia has been a donor country since the inception of the Association, the Bill involves one of those items of expenditure which has escaped close examination and debate. That is probably because the enabling legislation only comes before the Parliament every three years.

It is to be regretted that expenditure of $260m of taxpayers' money over the next three years, which in reality is part of our overseas aid program, does not seem to have warranted the close scrutiny of the Parliament. That regret is only partly based on the fact that Australia is a major contributor by world standards. In the financial year to 30 June 1984 Australia was about the eleventh most generous country, despite having something like the fifteenth or sixteenth highest living standard in the world. It is important to note that until quite recently the United States was the major contributor to IDA and its affiliated bodies. However, Congress has lately reduced the United States degree of participation for reasons which cannot be entirely ignored. Without making value judgments on the reticence of the United States Congress, it may be useful to go over some details which might balance what is, after all, an almost unquestioning Australian commitment to our role in IDA.

In effect, IDA is the 'soft loan' window of the World Bank. As far as can be ascertained, it extends interest free credits for up to 50 years with a 10-year repayment grace period. The only additional cost to a recipient nation is an annual 0.75 per cent service charge on the principal. The IDA may be distinguished from another affiliate, the International Bank for Reconstruction and Development, for reasons which invite special attention. Unlike the IDA, the IBRD borrows on the private capital market and charges near commercial interest rates to borrowers. On the other hand, IDA credits are funded by taxpayer contributions from the donor countries, including Australia. There are about 131 member countries of the IDA, the majority of which are recipients, the remainder being donor countries which make its work possible.

The IDA, as a branch of the World Bank group, in 1973 made a commitment to what were then described as 'new style' projects. The IDA, as an affiliate of the World Bank, was given the onus for meeting this then new objective of increasing assistance with a view to solving the basic human needs of the lesser developed countries. However, there is a body of opinion in the United States and elsewhere which seriously questions whether attainment of that stated goal is now likely. An examination of the lending habits of IDA would seem to indicate that there are more questions than answers. There is certainly little in the second reading speech of the Minister for Foreign Affairs (Mr Hayden) or the explanatory memorandum which would give rise to legitimate questioning and debate. Nevertheless, that should be done, not with a partisan political objective in mind, if only because successive governments of both persuasions have co-operated in maintaining Australia's contribution over the past 24 years.

An examination of readily accessible information-there is not exactly a surfeit of it, I can assure honourable members-indicates that the main beneficiary of the IDA, and therefore Australia's contribution, is in fact India. India appears to have had the lion's share over at least a decade and probably longer. Naturally, no one denies that India is one of the world's less developed countries in many respects. However, in some ways it is not. It is not numbered amongst the least developed countries. Indeed, it must be one of the wealthiest LDCs, if that is not a contradiction to so describe it. Look at some of the national achievements of India. It has developed and tested nuclear weapons, unlike any of its near neighbours, with the exception of the Union of Soviet Socialist Republics and China. India and China are the only LDCs to have a known capacity to make nuclear weapons. India has one of the biggest and best equipped military forces in its region, having purchased most of its arsenal and impressive military hardware from the Union of Soviet Socialist Republics. India continues to enter into ongoing arms purchase agreements with the Union of Soviet Socialist Republics on a scale which Australia cannot hope to match, be it with the Soviet Union or any other supplier. India has a space program which progressive Australians can only dream about, particularly the Minister for Science (Mr Barry Jones) who was so savagely rebuffed by his own Hawke socialist Government in its last Budget.


Mr Hodgman —Hear, hear! He was mauled.


Mr ROCHER —He was mauled, indeed. India is a major competitor of Australia in trade in some raw materials. In this context it should be remembered that much of the wealth created in Australia is generated by our extractive mining industry, which in turn enables us to embark on programs of foreign aid. If the significance of that has not dawned upon honourable members it is to be hoped that it will. Despite what are commendable technological, military and limited but significant commercial achievements, in many ways superior to our own, India lacks the ability, it seems, to resolve and successfully tackle its basic human needs requirements. It is one of the most populous poverty stricken nations on earth. Hence it qualifies to receive concessional, to the extent that they are long term and interest free, loans from IDA. Remembering Australia's not ungenerous contribution to IDA over 24 years, or 27 years after the passage of last year's Bill, it might be said that we finance a country which in some ways and in some areas has achieved more than we can possibly hope to achieve in the foreseeable future.

While no one could properly suggest that funds from IDA will find their way into these technological or military spending programs, equally no one could deny that such financing allows India the flexibility to order its spending priorities in a way which would be otherwise impossible. In other words, IDA loans indirectly but undeniably allow that country to do things which many may judge not to be in the best interests of either Australia or the poverty stricken masses in India we set out to help. We are, through this measure and other aid programs, indirectly financing India to develop its nuclear capacity, both military and peaceful. Australia is indirectly financing that country's rocketry and space satellite program. We are financing a massive military machine as well as the purchase of sophisticated weapons from the USSR. We are financing resources projects which will sell in direct competition with our own minerals. All that is very generous but arguably it is unwise.


Dr Harry Edwards —That is the utter frustration of it all.


Mr ROCHER —It is frustrating. India is the example I have chosen-because it offers almost a full range of activities and programs-to illustrate the need for questioning. Nevertheless, there are many other beneficiaries which would also merit close examination for similar, if not identical, reasons. Many other LDCs have so ordered their priorities as to leave food production, housing and poverty relief well down the list, behind military expansion and nationalistic edifices. We all know of countries in the Horn of Africa, in the sub-Sahara region, indeed in the entire African continent, with armed forces of a magnitude and a standard not commensurate with their needs while, at the same time, their populations are denied more than a meagre existence. We also know of lesser developed countries which sell coal, iron ore and alumina at uneconomical prices-sometimes below the cost of production-because of an ever-increasing need for foreign currency. They sell in markets where cost efficient unsubsidised Australian producers have established, or seek to establish, a presence. The need for foreign exchange is often an overriding consideration and, in turn, is often due to a need to service both soft and hard foreign loans. Generally, there is something of a vicious circle which too often has little beneficial effect on the masses living in many LDCs.

One study of the International Development Association's lending program for its fiscal year 1979 seemed to highlight the need for critical concern by contributor countries such as Australia. It showed that approximately 33 per cent of IDA credits were for the purpose of agricultural and rural development, as should reasonably be expected. The chastening statistic over that admittedly limited sampling period was, however, one which showed that only a little over one per cent was allocated for population control and nutrition. At the same time, 17 per cent was to be spent on transportation, and a further 13 per cent on so-called non-projects which often provided foreign exchange for imported technology of doubtful value. It seems also that IDA credits are too widely dispersed in various economic sectors. The poorest LDCs continue to suffer from disproportionate overpopulation, malnutrition and starvation. Those three conditions require concentrated attention and will not be ameliorated merely in the light of plans for industrial progress or a professed need for technology of doubtful immediate importance or benefit.

Because Australia's voting rights in IDA are only marginally significant, it is unable to significantly influence IDA's credit allocation procedure. That procedure often produces allocations which we would not condone if our contribution were part of our direct foreign aid program. It must be at least doubtful that foreign aid channelled through a body such as IDA-over which we can exercise little control-is the best way of going about helping the poorest of developing member countries. For instance, we cannot stop IDA extending credits to Vietnam as it did a few years ago, even if as a nation we were of the opinion that such aid would only enhance that recipient country's ability to invade and occupy Kampuchea. Without debating the merits of Vietnam's invasion and occupation of its neighbour, it should be understood that Australia's views would be likely to be disregarded, despite our assessment of our own national interest. If all the $260m now pledged remained as part of our discretionary aid appropriation over the next three years, there is little doubt that our own national interest and the values of the government of the day would be taken into account when decisions on how these taxpayers' aid dollars were to be allocated.

As with many of the agencies established by the United Nations Organisation, the IDA's relevance has been only very recently seriously questioned. It has its own bureaucracy. Its deputies meet regularly in the capitals of Europe and North America but rarely, it seems, in the countries of its poorest members. That may not be significant, but the unquestioned existence and role of IDA must not be condoned. The basic premise that so-called soft loans are more beneficial to donor and recipient alike than are the alternatives of hard loans or even outright grants should be constantly under the microscope. In an article entitled 'Rethinking the Multilateral Development Banks' Professor Wilson Schmidt had this to say:

When the yield on investments in the recipient country exceeds that in the benefactor, both are better off with a hard loan because it is possible to set an interest rate between the two yields such that both parties gain.

He went on to generalise:

Paradoxical as it may seem, it is in fact cheaper to give the money away than lend it when the yield on investment in the recipient is below that in the benefactor.

In terms of IDA loans, any yields in recipient countries must certainly exceed that in the benefactor, when the benefactor is Australia and its contributions take the form of grants. We do not even get the kudos and accompanying national advantage which should accrue from unilateral or bilateral aid granted directly and not under the IDA or World Bank umbrella. The report of the Jackson Committee to Review the Australian Overseas Aid Program has not yet come under close scrutiny in this Parliament; nor have its views and recommendations been acted upon by the Government. Nevertheless, it makes references relevant to the nature of our overseas aid, as well as going into a great deal of detail. While noting considerable improvement over the past decade, the Jackson report also observed that the ad hoc nature of it has persisted in many respects. It is not possible, of course, to deny that money Australia and other donor nations provide to IDA finds its way into the most impoverished nations, as intended. It may even help us garner enough votes to get Australia a seat in the United Nations Security Council. Nevertheless, whatever the real or perceived advantages for Australia, there must be some downside as well. Although these downsides may have been mentioned by other honourable members tonight, they certainly were not in the Minister's second reading speech.

The report of the Jackson Committee does, however, make distinctions between bilateral and multilateral aid directly given or granted. Unfortunately, it does not quantitatively deal with aspects of aid of the type envisaged in this Bill or possibly because of this Bill. The proposed contributions to IDA might be described as unilateral aid rendered indirectly-I repeat, 'indirectly'-to distinguish it from aid given directly, albeit either in the form of bilateral or multilateral aid. The Jackson Committee does make one observation which, if read in isolation, might give an impression that we act in accordance with Professor Schmidt's implied preferred position in suggesting that it is cheaper to give the money away rather than lend it when the yield on the investment in the recipient country is below that in the benefactor country or vice versa. Remember that the benefactor is Australia in this context. The Committee report also says:

In recent years Australia has given all its aid on grant terms.

It is important to stress that it should not be assumed by anyone that this Bill will result in aid eventually being delivered on grant terms and certainly not on Australia's terms, grant or otherwise. It is equally clear that this contribution is aid and is more importantly part of our foreign aid, regardless of any claims to the contrary. In the absence of sufficient information, it may be enough, given our earlier pledges to IDA which the Bill merely validates, to flag such questions as matters of importance. Perhaps consideration of the Jackson Committee report and the subsequent revision of our total aid program will quell any existing doubts. For humanitarian, commercial and national reasons, those doubts should be eliminated, and eliminated quickly.