asked the Chancellor of the Exchequer whether he has given any advice to British banks about their involvement in a consortium of foreign banks which is seeking to negotiate the new medium term loan to Argentina following the Argentine decision to suspend repayment on nearly £1,000 million of its foreign debt.
No, Sir. This must be a matter for the individual banks concerned. The swap facilities, to which I assume the hon. Gentleman refers in the latter part of his question, form part of the foreign debt obligations of Argentina which are the subject of negotiations currently in progress between that country and international banks.
Will the hon. Gentleman confirm that there are no conditions attached to the loan to prevent the Argentine Government from using it to purchase arms, and that recently the Almirante Brown has been delivered, replete with British components, along with 70 Mirage III or Dagger jet fighters? Numerous other items are on order. Is it not a disgrace that the Government are prepared to finance the rearming of Fascist Argentina?
The part of the hon. Gentleman's question relating to Argentina's recent acquisition of frigates is not a matter for the Treasury—[HON. MEMBERS: "Oh".] There is no shortage of arms sellers around the world. We would not deny the Argentines the opportunity of purchasing arms by driving Argentina into default.
It is clear that this loan is an integral part of the IMF programme for Argentina which puts tight controls on Argentina's public finances. If Argentina diverted money to buy more arms that could jeopardise the IMF programme and hence Argentina's ability for future drawings.
On the more general point, is it the Government's view that no one economy can be allowed to disintegrate without a substantial knock-on effect on its neighbours and, ultimately, on the whole international economic scene? In those circumstances, does my hon. Friend agree that the Government have no alternative but to pursue their policies irrespective of their views of the regime in Buenos Aires?
My hon. Friend is entirely right. We are a major trading nation and we depend upon exports for a larger proportion of our total output than do most other major trading nations and upon a steady expansion of international trade. A default that was triggered in Argentina by a failure to resolve the immediate problems of Argentina's indebtedness could have repercussions in other countries and serious implications for international trade that would be seriously to our disadvantage.
If Argentina were to default, would that not mean that British banks would have to write off considerable loans? [Interruption.] Before the Opposition jump for joy, will my hon. Friend confirm that the effect would be a reduction in their capital base which would mean that they would find difficulty in lending to domestic companies? Would that not mean a reduction in jobs?
Is the hon. Gentleman aware of Tuesday's report in the Financial Times, that despite Argentina's reduction in interest arrears, the conditions for the $1.5 billion loan have not yet been settled? As the Prime Minister has stated categorically that the money is not being lent to purchase armaments, why is that not to be a condition of the loan?
As the right hon. Gentleman knows well, international arms trading is conducted on credit which is not necessarily pervious to the consequences of such banking negotiations. All the arrangements that are being conducted by the IMF are designed to ensure that Argentina, like other countries with debt problems, pursues correction policies that will enable it to settle its debts and not involve itself in additional outgoings that it could not meet.