I am naturally delighted with the welcome that my right hon. Friend has given to the second Brandt report and the approval that he has expressed, without exception, to all of its major proposals. That is in contrast to the hostile reception that the Government gave to the first Brandt report, and therefore it gives me pleasure that this report has been given such support by my right hon. Friend.
I also wish to thank my right hon. Friend for his expression of gratitude to the members of the Brandt commission, and especially the compliment that he paid to myself. It almost became like old times.
The commission never had any intention of following up the first report with a second one. However, the commission met every year. When it met in Kuwait in January last year, the members came to the conclusion that after the failure of the Cancun summit it was essential to produce a further document. The first purpose was to examine the position that had developed since the first report three years earlier; the second was to review the order of priorities for action which the commission set out in that report and to examine whether they still held good; and the third was to try to deal with some of the misconceptions that had arisen about the first report.
The second Brandt report was written in London under the supervision of the Secretary-General of the Commonwealth, and myself, assisted by Professor Robert Cassen. As we worked through the year, we found that we were forced to abandon our original intention. We state in the second report what has happened since the first report was written three years ago. In every instance the position both of North and South has become lamentably worse. After an examination of the priorities, the conclusion was that those priorities were right. The commission wanted to ensure that the matters dealt with in great detail in the first report had in no way changed.
An examination of the basic questions of health, clean water, education, general social services, clinics and so on in the developing countries is just as necessary as ever. Emphasis on the production of food by the developing countries is now more imporant than when the first report was written. Far fewer of the developing countries are self-sufficient in food than three years ago.
During the year priority had to be given to the financial position of the developing countries and the impact of that on the North. The House has heard much about that from my right hon. Friend the Foreign Secretary and from the right hon. Member for Leeds, East (Mr. Healey). Secondly, the commission had to concentrate on negotiation and the forms of negotiation. The commission had to state as specifically as possible how the proposals that it was putting forward could be acted upon. From the two speeches that have been made in the debate, it is apparent that this is a major issue.
The right hon. Member for Leeds, East was somewhat unfair to my right hon. Friend the Foreign Secretary when he said that my right hon. Friend approved of the proposals put forward by the Brandt commission but had not put forward any proposals himself and that if he did not there was a danger of his being sent to the House of Lords. That shows a complete misconception of modern politics. If the Foreign Secretary were to put forward a specific proposal, the danger of his going to the House of Lords would be infinitely greater. I therefore fully understand my right hon. Friend's position. I take a much more optimistic view of what he said. I profoundly agree that a solution will never be found to most of these proposals until there is an expanding world economy. That, therefore, must be the objective of Governments.
My right hon. Friend the Foreign Secretary said, with his customary courtesy, that the Williamsburg summit would be yet another tea party. I think the time is coming when not only politicians but the public as a whole will say "This is a complete failure of modern politics and a complete abdication of the authority of those in power." It is not possible to continue having summits at which not only are contradictory communiqués issued but no action of any type follows, unless the action is contradictory to that alleged to have been agreed. I believe that Williamsburg will be the test. If nothing results from Williamsburg to deal with these problems, the general reaction throughout the world — in Europe, North America and Japan as well as in the other countries—will be a revulsion against such summits and an alternative means of obtaining results will be sought.
I wish to deal with the recommendations in the report. The right hon. Member for Leeds, East said that the financial crisis was foreseen in the first report. In some ways it came even more quickly than the commission thought. It never believed that the first country to go bankrupt would be behind the iron curtain—Poland—but the commission foresaw that several non-aligned and other countries would be in difficulties quite quickly. It was not thought that some of the big countries would be in such enormous danger so quickly. My right hon. Friend the Foreign Secretary, in dealing with this point, referred to the important question of the connection of East-West and North-South relations. My right hon. Friend has pointed to the Caribbean. Nothing will be served by continuing to pile up arms if it is not possible to give sufficient economic resources to rescue the Caribbean from its present disgraceful position.
It is necessary to use our economic resources. Grenada has gone the way it has because it was not possible to help it maintain what we would regard as a desirable Government. The danger to Jamaica still exists, and the dangers in central Latin America are obvious for everyone to see. On the other hand, these countries can be helped at a price. If we want to see Soviet power limited, we must pay an economic price. There is already the danger that what the IMF is asking Brazil to do is just not bearable in that society, and that has already been seen in the riots in Sao Paulo.
That brings us to the question of conditionality. My right hon. Friend said that he fully appreciated the problems of these conditions. However, the IMF has not yet adapted itself to the requirements of the developing world in relation to the treatment that they receive. This again requires action. I said during my speech on the Budget that I was grateful to my right hon. and learned Friend the Chancellor for having helped by increasing the amount under the General Agreement to Borrow, as well as for agreeing to bring forward the negotiation on the IMF quotas. I said then, and I do so again, that we shall face a difficult political decision if Congress refuses the President what he is asking. He is asking for less than half of what is proposed in the Brandt report — a 100 per cent. increase in quotas. If the United States Congress is not prepared to approve that, it should not be allowed to block the rest of the world in going ahead with what is necessary for the resources of the IMF.
This all comes down to resources. This year alone, the reserves of the developing countries will fall by about $85 billion. That is the gap that must be filled in this year alone. The increase in quotas cannot possibly become effective before next year, and probably not until halfway through next year despite everything that my right hon. and learned Friend the Chancellor is doing.
Where can the rest of the resources come from? We have proposed that we should allow the IMF to go into the market. The developing countries do not like that very much because they regard the market as the last resort. Their view is, "If we do not like what the IMF says, that is the only other place that we can go." However, the commercial banks are now very loth to lend further to the developing countries, and for understandable reasons. It is, therefore, better to say to our friends in the developing countries, "Allow the IMF to go into the market and channel the funds through the IMF into the developing countries, which the commercial banks are no longer prepared to do".
The commercial banks are now under tremendous pressure from the central banks to maintain their existing loans to developing countries. As we know, resistance to that will increase. The only answer is resources from the IMF.
We also proposed a special issue of drawing rights, which my right hon. Friend supported. We suggested that the developed countries should say, "Very well, we will undertake not to draw on the special drawing rights issue. We will allow it to be used for developing countries, according to their needs, under the control of the IMF."
The monetarists will criticise that as inflationary. En my view and that of the commission, it is impossible to argue that when world reserves have fallen $200 billion and those of the developing countries by $85 billion—a total of nearly $300 billion in such a short period—special drawing rights of up to $50 billion can possibly be inflationary. It is anti-deflationary in the present situation, not inflationary.
If we take the view that any issue of drawing rights or resources for the IMF is bound to be inflationary, we shall merely go from deeper depression to deeper depression. That is why the argument for special drawing rights is now unanswerable.
In his letter to me when I sent him a presentation copy of the second Brandt report, the Chancellor told me that he will have this discussed in the autumn, but the autumn is another six months hence and by then we are hound to have another series of problems for the developing countries. There is no reason why this matter should not be brought forward for discussion now in the Committee of 20 to try to get agreement.
From the summer of 1982 to the end of 1983, at least 40 developing countries will be in financial trouble. They will have to reschedule or default and go bankrupt. That is more than in the whole of the previous 25 years. That in itself sets out the scale of the problem of financing the developing world.
That is the immediate action that is required. The report goes on to describe medium-term action of up to two years as well as longer-term action. In the medium term, there must be rescheduling of these debts to put them on a better long-term basis. As the right hon. Member for Leeds, East has said, in the longer term these debts will have to be put on a lower rate basis to enable those developing countries to survive at all.
This is important for us because of the involvement of our own banking system. It is also important for the American banking system. The major American banks have investment in Latin America alone that is nine times their total capital. That explains their vulnerability. Washington policy is that if these countries get into a mess, they must get out of it.
That was all very well until the crises in Brazil and Mexico. In Brazil, the President attempted to win back Latin American support after the Falklands war with offers of loans and rescheduling, but he could not possibly afford to allow Mexico to collapse. The social and economic collapse of Mexico would have meant millions, if not tens of millions, of Mexicans flooding across an uncontrolled border to look for jobs in the United States. Between 20 million and 40 million Mexicans already live in the United States, which many Americans think too many, and the thought of millions more flooding across the border with Mexico in disorder was more than could possibly be sustained by Washington. That was the real reason why suddenly, and late at night, the United States formed the package which at that time sustained Mexico.
Today, Mr. Shultz and Mr. Donald Regan are both in Mexico City discussing the present situation. Mexico still has a ghastly financial problem, and they recognise the importance of dealing with it on a longer-term basis. Therefore, the Western banking system is still extremely vulnerable.