It is a great pleasure to speak immediately after the hon. Member for Sheffield, Heeley (Mr. Hooley), especially when I find myself in agreement with his concluding sentence, that Britain is in a good position to give a lead in these matters and must for its own benefit give that lead. That is a central issue not just for Britain, but for all trading nations, among which are some of the poorest in the world. This is a matter of major importance to the entire developing world.
I have great pleasure in saying how much I enjoyed the positive tone in which my right hon. Friend the Foreign Secretary opened the debate. I am unable to say the same for the right hon. Member for Leeds, East (Mr. Healey), who did a great disservice to the cause of the debate. It is essential, as the hon. Member for Inverness (Mr. Johnston) said, to make the issue a cross-party affair which I believe the hon. Member for Heeley tried to do. The issue is one to which this House should show the political will of all hon. Members so that a political climate of opinion can be established that will back up our leaders in the forthcoming conferences.
I am greatly encouraged by the way in which this issue is moving to the centre of the stage. It results from the effect that private bank indebtedness is beginning to have on the domestic economy of Britain, the United States, Japan, Germany, France and the rest of the European Community. Significantly, "Common Crisis" makes 35 recommendations under the heading "Finance". With those recommendations is coincidence of view on the report of the Treasury and Civil Service Select Committee in its recent report, dated 15 March, on international monetary arrangements and international lending by banks. The Select Committee states that the way out of the crisis is as follows:
the commercial banks will have to lend enough new money to permit orderly adjustment"—
they will have to go on lending to poorer countries—
the governments of the debtor countries will have to implement their commitments to follow austere policies".
There is no difference between that wording and the president of the World Bank, Mr. Tom Clausen, who said early last week that the debtor countries would need appropriate economic policies to assist the world out of this problem.
The third recommendation by the Treasury and Civil Service Select Committee is that
the world economy will have to grow enough to ensure that the expected payments improvement materialises if debtor countries implement their commitments.
The report continues:
In our judgment the major threat to successful resolution of the debt crisis therefore lies in the possibility that an adequate global recovery will fail to materialise.
It is clear that both the Treasury and Civil Service Select Committee and the Brandt report are in agreement as is much of the debate. A way must be found to stimulate non-inflationary growth in the world economy and trade to get us out of our domestic unemployment difficulties and the debt crisis facing the private banks.
I wish to turn to the disruptive and old hat article by the noble Professor Peter Bauer, to which my right hon. Friend the Member for Daventry (Mr. Prentice) referred, in which he says:
Aid cannot significantly promote Third world development; aid does not relieve poverty in the Third world; aid does not promote world peace or make friends for the West; aid is neither appropriate nor necessary for relieving unemployment in the West; aid is neither appropriate nor necessary for solving the so-called international financial crisis.
I have already said sufficient to refute much of that statement. The International Development Agency, in its retrospective report on its activities for the past 20 years, stated that it is not true to say that aid has not helped countries, nor that it has not aided poor countries. The IDA point out in table 3.4 that some countries have graduated from IDA assistance, having increased their GNP per capita income so that they are now no longer eligible for IDA credits. Those countries are Chile, Colombia, Costa Rica, Nigeria, the Dominican Republic, Ivory Coast, the Republic of Korea, Turkey, Botswana, Ecuador, the
Syrian Arab Republic, Mauritius, Morocco, Swaziland, El Salvador, Paraguay, Tunisia, Jordan, the Philippines, Thailand, Bolivia, Honduras, Indonesia, Egypt, Nicaragua, and the People's Republic of the Congo. That is a list showing the countries that have been helped out of abject poverty into that approaching a minimal recovery, which is defined in the report as $800 per capita per annum GNP, which is very low indeed. None the less, those countries have made that progress in part as a result of the investment put into the IDA by countries such as Britain.
Colombia and South Korea have become donors to the IDA. That gives the lie to the noble professor's argument and sets the framework in which the House should be considering what must be done now.
The prerequisites for an expansion of world trade and finding our way out of our domestic difficulties are the reform of the international monetary system, finding an orderly way out of private bank indebtedness, support of the International Monetary Fund, the IDA, the International Bank for Reconstruction and Development, an increase in Britain's bilateral programme, especially since Britain is facing an UNCTAD conference, to which I was pleased to hear the hon. Member for Healey address himself on behalf of the Labour party, which, like all of us, has great differences about the argument in favour of protectionism. A way must be found of maintaining an open trading system.
I wish to examine the matters that I have listed in more detail and to say where the major problems and arguments arise. In the reform of the international monetary system, I reiterate that neither private nor public investment will occur either in our domestic economy or in the world unless there is sound money. A way must be found out of the yo-yoing of exchange and interest rates which has occurred especially during the past three years. If investors cannot reasonably predict their returns on investments, they are less likely to take risks. If I am doubted, perhaps hon. Members will talk to the major multinational companies based in Britain about their international investment programmes. I was told by ICI recently that it could no longer take risks. Unless reform takes place, the investment necessary to generate wealth in poor countries, thereby permitting them to purchase goods from this country, to employ more of their people and to begin the trading cycle will not take place.
The answer to the problem of obtaining a more equitable exchange rate system and trying to prevent yo-yoing interest rates does not lie in the current special drawing rights programme. The SDRs have major defects. I am not sufficiently proficient to know what is a substitute. International currencies must be related to some identifiable product that will maintain some equilibrium.
The major defect of SDRs is that they are only as strong as the major currency in the basket to which they are valued. For that reason, I am doubtful about the recommendation in "Common Crisis" that we should issue SDRs to poor countries. I have grave misgivings about that, not because it may be inflationary, but because I am not certain whether this is the right medium to increase the credit-worthiness of the developing world. Some other method must be found. That leads me to conclude that we must hunt hard to find the solution to these difficult problems.
As to bank indebtedness, much progress has been made in recent months as a result of IMF intervention in and assistance to the private banks to help them get over the difficulty of restructuring their loans. When looking with pride at our own private investment, we should remember that the private banks got into this business because they were recycling OPEC dollars. The problem was that they used traditional methods of lending, but this is sovereign lending for development, and development takes much longer than the three to seven year period for which many of the loans were made to the developing world.
IMF lending was also restricted because it was too short-term. As a result, the IMF has now moved to a longer term period. I believe that a combination of the private banks and IMF assistance will provide the solution to the indebtedness which, as the hon. Member for Heeley said, is often a liquidity crisis rather than a bankruptcy in the sense that the countries concerned will never be able to repay their loans.
I know that a private bank manager would not distinguish between the two facets of not being able to pay one's bills, but in international lending between sovereign countries that vital difference must be taken into account. This means that the loans must be long-term with lower interest rates attached.
We must go beyond the agreement that the Chancellor managed to negotiate as chairman of the interim committee—that of increasing the quotas to the IMF by 50 per cent. He must now go on with equal determination to make certain that the Brandt "Common Crisis" criterion of 100 per cent. is achieved. That will assist both private bank indebtedness and structural balance of payments loans which the IMF has been making to countries in difficulties. We should soften the terms of those loans to allow a longer period for recovery for the most severely indebted countries, such as Tanzania which so far has been unable to agree with the IMF because of the difficulties of conditionality.
On IDA, I add my plea that we contribute to the seventh replenishment without condition. We should shame the American Executive and Congress into following suit. I say that because this has not been fully effective in the United States. When the British Government agreed to contribute to the IDA ahead of all other countries, they released the rest of international contribution to the IDA under the sixth replenishment, with the exception of the United States which contributed in part. I agree that we must try to get Congress to understand that agreement to the completion of the sixth replenishment is vital if we are to see domestic recovery in the United States and elsewhere.
Few people realise that two fifths of American exports go to Third world developing countries. It is calculated that that means thousands of jobs within the United States economy. I am sure that that will be emphasised to the United States Government and Congress by our representatives at all levels.
With regard to IBRD, the 1:1 ratio between borrowing and lending should be a ratio of at least 2:1. In banking terms, all commentators say that that will be extremely conservative. That would release the additional funds that the IBRD needs for further investment in poorer countries.
We must increase our bilateral aid even further to accommodate not only investment in the Falkland Islands but additional fees for overseas students. I hope that a greater contribution will be made to that end. We need far more than the £42 million that has now been allocated. It should be at least double in a very short time.
I am not concerned with targets of 0·7 per cent. GNP, because development is a more difficult question than meeting United Nations targets. We must increase the sum so that it is effective aid that provides development. If the figure happens to be 0·7 per cent., so be it, but I do not go along with the Pearson report view that it should be 0·7 per cent., 0·8 per cent., 1 per cent. or whatever. It must be effective development aid that will generate employment in the host country and our own domestic economy. That is the objective that we should adopt.
There are two aspects of bilateral aid on which we must concentrate. First, we must try to cease export subsidies under the trade-aid arrangements. That takes an estimated £54 million out of our present arrangements, and the figure is likely to increase.
Britain is not the only country that is subsidising exports. It is happening in the whole of western Europe as well as in Japan and the United States. All are indulging in competitive export subsidies to Third world countries, many of which are not the poorest. They are the newly emergent countries. That is a distortion in world trade terms that will not benefit the domestic economies of either the host or the donor. We must work with greater determination towards eliminating them.
Secondly, we must work to eliminate agricultural subsidies. Commodity prices, which are vital to Third world development, are important when one considers a product such as sugar. Much of the Third world produces sugar for export—the West Indies in particular—and has done for many years. Included among those are Swaziland, the Sudan and even Nigeria. Those countries must export to the world market because they cannot get all their produce taken at a special rate into the United States or the European Community. As a result, they face prices on the world market that are incredibly low—£90 a tonne the last time I looked from a 1975 high of £600 a tonne. Today's price is about £250 a tonne less than the cost of production in the most economic sugar fields in the West Indies. That arises because the European Community puts sugar on to the world market at prices that are subsidised through the CAP. That must cease, and we must be determined to ensure that it does. Such a move will provide additional income to Third world countries which will have worked for it. They will be in control of their receipts and will benefit in a way that their Governments and peoples so choose.
We should restructure our budget to ensure that our project aid through the Commonwealth Development Association is increased as a percentage of our bilateral aid. We do not want to prejudice our very good overseas aid programmme for the areas that need social, education, health and infrastructure developments. We must increase our bilateral aid programme.
We must control more closely the EC's use of our increased contributions to the European development fund. I hope that the Select Committee on Overseas Development will take up the issue and provide a detailed report on which we can base our arguments to assist the Minister for Overseas Development in his arguments for a realignment of the programme so that it assists the least developed countries and does not become an agent of the CAP programme.
We must create the political will. We must hunt for coordination in all these matters. No single solution will provide what we need. It is not just a question of increasing aid by slinging money. We must have the political will to reform the monetary system and to increase aid efforts and their co-ordination. In countries such as Tanzania different aid agencies undermine each other, which is useless. It is important that the IBRD structural adjustment loans are constructed with bilateral programmes in mind so that they all slot into a co-ordinated programme of assistance to any one country. Clearly that does not happen in Tanzania. Tanzania is short of food. It has just imported a large amount of food into Dar-es-Salaam, but it is going to waste. Members of the Select Committee visited southern Tanzania and saw that food could not be transported because of a lack of spare parts for lorries as a result of having no foreign exchange. The French are building a spanking new airport in Dar-es-Salaam. What a foolish waste of scarce resources that is.
We need additional determination to co-ordinate efforts to ensure that money is used properly. We must maintain the open trading system so that countries can trade and improve and increase their own wealth. I beg the Government to increase still further their efforts to ensure that they lead with their arguments at the conferences.
If the difference between this Government's attitude in 1979 to the question of aid has improved by a turn-round of, say, 500 per cent., it must be improved and built on again until there is an increase this year of 1,000 per cent., supported by the Treasury and Civil Service Committee as well as by the Foreign Office, the Department of Trade, the Department of Employment and the Department of Education and Science. They must all make the programme the central issue so that we can cure our domestic unemployment and improve the prosperity of the poorest people in the world.