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Orders of the Day — International Monetary Arrangements Bill

Part of the debate – in the House of Commons at 3:35 pm on 11th July 1983.

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Photo of Mr John Moore Mr John Moore , Croydon Central 3:35 pm, 11th July 1983

There are many forms of collateral. I should prefer to return to the matter at the conclusion of the debate. The right hon. Gentleman makes a legitimate point, and this is a legitimate debate, as it has always been, about the nature of collateral for loans.

The president of the board of directors of the BIS has expressed his hope that there will be no further need for emergency credits of that kind, while recognising that the possibility cannot be ruled out. Nevertheless, the Government feel it right, as a matter of propriety, to seek specific statutory authority to cover any such future indemnities because of the contingent risk to public expenditure and the fact that potential liability can extend beyond a given financial year. That is the purpose of clause 2.

I come now to the role of the IMF. The fund has resources of two kinds — those based on quotas subscribed by members, and those borrowed from member Governments. There is widespread agreement that the fund's resources need to be increased. At the recent IMF interim committee meeting in February, which was chaired by my right hon. and learned Friend the present Foreign Secretary, it was agreed that quotas should increase by 47·5 per cent. As the House knows, subscriptions are for each member country equal to its quota, and must therefore rise accordingly. The draft order before the House facilitates that increase for the United Kingdom.

Finance Ministers and central bank governors of the Group of Ten countries have also agreed to increase the resources that the fund may borrow from member countries under the general arrangements to borrow. The original purpose of that facility, established in 1962, was to cope with prospective drawing of G 10 countries. For example, a significant element of the 1976 United Kingdom standby arrangement was financed with GAB resources. After the Mexican liquidity crisis, however, the GAB was also considered as a possible resource of conditional finance for other countries in extreme circumstances. Following G10 ministerial agreement in January 1983, the fund's executive board approved amendments to the GAB that would accommodate such a development.

Under these amendments the total commitment under the GAB is increased from 6·4 billion SDRs to 17 billion SDRs. The United Kingdom's share remains at 10 per cent. The "second window" for finance for members outside the G10 can be opened only when a proposal from the fund's managing director to use the GAB to cope with impairment of the international monetary system is accepted by participants and then approved by the executive board. Loans by participants will attract interest at market rates.

The new GAB will become effective when all the participants have notified the fund of their concurrence, and the deadline for notification is 31 December. Clause 1 embodies those proposals as they affect the United Kingdom.

Under the Bill, the limit on powers to lend to the IMF under its borrowing arrangements will be re-expressed in special drawing rights. It will also increase from its present level of approximately £350 million to 1,700 million SDRs, or about £1,200 million.