Orders of the Day — Oecd Support Fund Bill

Part of the debate – in the House of Commons at 12:00 am on 28 November 1975.

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Photo of Mr David Howell Mr David Howell , Guildford 12:00, 28 November 1975

I shall come in a moment to the details of the short Bill, but there is a place for a few preliminary remarks on the attitudes and economic thinking that he behind arrangements of this kind. It has been observed that if our problems could be solved by the sheer volume and number of credit facilities and swop arrangements that have been set up, we should be well on the road to recovery, but, unfortunately, they cannot.

The arrangements and the Bill are part of an attempt which Western Governments have decided, in their wisdom, to make to manage their payments deficits arising particularly, but not exclusively, from the substantial rise in the cost of oil imports. Like all arrangements of its kind, it assumes that the Government have the ability to overcome all the instabilities caused by ups and downs in current deficits and capital flows as a consequence of a sharp rise in the cost of oil imports or any similar impulse. The claim is that Governments can do better than these forces would do if left to themselves.

That is a big assumption, and I am sure that the Minister of State is the first to recognise it. I am sure that he and his colleagues, therefore, approach arrangements of this sort, and the United Kingdom's involvement in such arrangements, with some caution. I certainly do. I feel it necessary to say that from the Opposition Benches, because we sometimes get the impression that the Chancellor has an almost blind faith in the power of such arrangements and of the act of borrowing to anaesthetise the pains of readjustment or to overcome the need for readjustment. It is right to put formally on record that when involving ourselves as a nation in arrangements of this sort we need to approach them with considerable caution and not with a glowing faith that in borrowing arrangements of this sort the answers to our problems lie, because they do not.

The Bill seeks to legislate in relation to lending by the United Kingdom and to authorise us to participate in the support for the new Fund. That is curious, because in the House nowadays we are more accustomed to talk about borrowing rather than lending. But here lending is involved, and we are required to be prepared to make a contribution of up to £1,600 million in special drawing rights. In the Annex to Cmnd. 6242, which sets out the Agreement, appears the table of quotas expected from member countries. Our quota is £1,600 million. The quota for the Federal Republic of Germany is £2,500 million, for Japan it is £2,340 million, and for France £1,700 million—a slightly humiliating reminder that a nation with a smaller population and a smaller labour force is now a richer country. Those are the categories that have been decided, and that is the quota that we shall be expected to meet.

The Bill allows for our quota to be met either through direct support or through Government guarantees for loans raised in the United Kingdom market. The explanatory document asserts how unlikely it is that the quota will be met through further guarantees for loans and how al most certain it is—as the Minister of State confirmed—that we shall meet the additional burden through direct support from the National Loans Fund. That is not surprising. We should have been amazed to hear any other view asserted. In view of the state of Government debt and public sector borrowing it would be strange for the Government to suggest that more money should be raised in that way.

If the Government met their quota through a direct handout from the National Loans Fund, in the end their problems would be thereby increased by that amount, and they would still have to face the choice of how to get the revenue to fill the hole, whether by further borrowing, taxation, or printing money. In the present state of affairs an additional borrowing liability placed on the Government would be a sensitive and risky liability to take on. It is, therefore, no surprise to us that both the Minister of State and the supporting documents hurriedly assert how unlikely it is that any further guaranteed borrowing will take place to meet this quota.

By giving a Second Reading to the Bill and passing it into law in due course we undertake to meet our quota. The question which then has to be put is: what do we, as a country, get in return?

The Minister of State reminded us that this arrangement was christened the "safety net". He pointed out, rightly, that this is because it is regarded as the last in the line of the various swop facilities and credit arrangements which have been set up. It is the one to which countries are supposed to turn, on a number of conditions, of which one is that it should be used after all other multilateral facilities have been drawn on to the full. I think that is one important condition.

The other important condition, to which I do not think the Minister of State referred—it is strange that he did not, because it is the No. 1 objective of the whole Fund—is to avoid unilateral measures which would restrict international trade or other current account transactions, or which would artificially stimulate visible and current invisible exports. That is apparently the No. 1 condition upon which the Fund was set up. I want to say a little on these matters, on the other multilateral facilities, and on the need for the avoidance of unilateral restrictions on trade.

On the other facilities, this is the occasion to ask the Minister of State, should he speak again in the debate, to give us a little more information about the other facilities. What are the other loan facilities now remaining open to this country? One sometimes feels that there is less openness on the full extent of our existing indebtedness and our possibilities for further resort to borrowing than one might expect in this House.

What is the position now? The list of published other multilateral facilities that I have before me includes the IMF General Account. I think that we made an application to borrow £400 million from the General Account, the limit being in the region of $3·3 billion. There is the IMF 1975 oil facility. We have applied to borrow £575 million from that. There is the $3 billion United States' Federal Reserve swop line. I do not know how far we are into that, or what the position is there. There is the OECD Support Fund, which we are now discussing, to which we are expected to make a quota contribution of up to £1·6 million in special drawing rights. There is the EEC Joint Borrowing Scheme. It would be useful to know where we stand in relation to that. There is the whole of our existing outstanding amount of foreign currency loans to the public sector, which I calculate—the Minister can perhaps confirm this figure—is in the region of $9,500 million, on which, presumably, we have to meet a very substantial annual interest rate. My own calculation is that that is in the region of $900 million a year.

Those are the other facilities. As the Minister of State mentioned those other multilateral facilities, it is right that we should have some more details on the question whether we are going to make use of those at the moment. I would not expect him to predict the future too closely, but we should like to know a little more on that point.

Let me come to the second aspect—the prime objective and condition of the Fund; indeed, almost the basis upon which it was set up. I repeat that I find it odd, to put it at its mildest, that the Minister of State made no mention of this No. 1 objective of the Fund which I earlier read out. The newspapers are full of stories about impending announcements of selective import controls, and it would be the height of cynicism if we were asked, this morning, to slip through Parliament this little Bill, one of the key conditions of which is that we avoid unilateral trade restrictions, at the moment when the Government were planning to announce unilateral trade restrictions. What the true position is I do not know. The Prime Minister has played his part in obscuring it, as usual.

In the Financial Times of this morning there is an interesting story by the Washington Editor, in which he makes some points that are germane to this condition laid down in the Agreement, in Cmnd. 6242. These comments were as follows: Over the past few days high-level and strongly worded representations have been made to British embassies in Washington, Tokyo and a number of Common Market capitals warning of the damaging precedent such controls"— referring to import controls— would create and the serious diversionary effect they could have on world trade. The article continued: The Americans are particularly annoyed at the way Mr. Harold Wilson, the Prime Minister, claimed that controls had been endorsed by the Rambouillet summit meeting. They maintain that no such endorsement was given and that Mr. Wilson twisted an innocuous remark by Mr. William Seidman, the White House economic councillor, to give the impression that President Ford was acquiescing. That is very surprising to hear—the Prime Minister actually twisting words. What a thing!

The report continued: The American position at the moment, which appears to be very similar to that taken by Japan—is that the 'Rambouillet communique specifically reaffirmed the pledge the major countries had already taken in the OECD' is to refrain from protective trade measures. Any British import controls, whether justifiable under GATT or not would be highly undesirable in the present world situation, and a breach of the spirit of Rambouillet. Where are we? We are here this morning discussing a Bill which depends, as a matter of good faith, upon the No. 1 condition that we avoid unilateral measures. Yet here are the newspapers, full of the most loaded and worrying reports, when we are just about to break that condition and introduce unilateral trade restrictions. I do not know whether the Minister of State knows anything about this, or whether he is going to say that it does not arise. In fact, it does arise. It is central to this Bill and we must have some reassurance from the Treasury on the precise position, because otherwise we, as a House of Commons, will be placed in a most ambiguous situation in relation to this measure.

Those are the remarks I want to make on the details. Let me now make a general remark on the Bill as a whole and return to something that I was saying earlier. Borrowing through facilities of this kind, or exchange rate intervention, cannot be a substitute for correct internal policies. I hope no one in the Treasury imagines that they can be. Our view on the Opposition side of the House is that the correct internal policies are not yet being pursued and that until they are pursued all the credit arrangements, swop facilities and other devices which can be set up in the Western world cannot solve our problems. It is in that spirit that we look at this Bill.