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

Hon. Members, and especially the right hon. Member for Cardiff, South and Penarth (Mr. Callaghan) may wish to be reminded of the increases to which we are referring specifically today. The meeting agreed to nearly a doubling of resources in usable currencies, which is more than twice the increase that was agreed last time. We start from a fund of 61 billion SDRs, of which 30 billion SDRs is in usable currencies, and that, as the right hon. Gentleman knows, is the key.

The meeting agreed a quota increase of 30 billion SDRs, or 15 billion SDRs in usable currencies. The GAB was increased by 10 5 billion SDRs, plus a sizeable, but so far undecided, additional contribution from Saudi Arabia. We believe that most of that sum will he usable, so we are talking about an increase of 25 billion SDRs of usable resources, which will compare favourably with previous increases.

Several right hon. and hon. Members have tabled observations about the provision of assistance to Argentina. I well understand the anxieties on this matter. Argentina's invasion of the Falkland Islands was am, act of unprovoked aggression, and its ejection from the islands cost British lives and hostilities have yet to be formally ended. Yet we, through the IMF and through the United Kingdom banking sector, are involved in the international effort to facilitate the resolution of Argentina's debt problems.

I cannot hide fro n the House my distaste, and the distaste of my right hon. and hon. Friends, that this should be necessary. But the House should not deceive itself. It is necessary, and it is very much in the interests of 13ritain and the world economy, that Argentina should be put back into a position from which it can repay its overseas debts. Default by Argentina would not be in our interests. It would be inimical to the whole financial system upon which we, as a major trading nation, depend more than most. It would damage our prosperity and destroy British jobs. I know that the Opposition will understand that.

It is also in our interests that the IMF's adjustment programmes should be negotiated in a political way. Their purpose is to stabilise the international financial system to the greater good of all. An attempt to grade access to IMF support according to the political complexion of a member country would be wholly damaging, counter-productive and without precedent.

That does not, however, mean that the performance targets do not bite, is was evident in 1976. The IMF programme agreed in January gives us the central elements of the international package. It is based on a thorough economic assessment. Disbursement is in five quarterly instalments subject to fulfilment of performance criteria covering balance of payments deficits, public sector domestic and external borrowing, domestic credit expansion, the elimination of external arrears and the removal of exchange restrictions. The United Kingdom is represented on the executive board of the fund, which is responsible for reviewing the progress of the programme and ensuring that the criteria are met before advances are made. We are playing our full part in that process.

Perhaps I could remind right hon. and hon. Members of the historical sequence. At the beginning of the Falklands conflict the previous Government took action, with the full support of the House, to freeze all Argentine assets in the United Kingdom by means of directions made under the Emergency Laws (Re-enactments and Repeals) Act 1964. In an attempt to improve the long-term position and to facilitate an agreement between the fund and the Argentine authorities, the Government acted on 14 September last year to begin to remove those restrictions on a reciprocal basis We did that without in any way compromising our position on the Falklands. We have always said—both sides of the House accept this—that we wish stability to be restored to Argentina's economic and financial system.

Much progress has been made. The Argentines have removed many of the financial restrictions that they imposed last year on British companies. The fund programme built in a specific condition that any remaining Argentine discriminatory financial restrictions would be lifted. A time scale for the removal of exchange restrictions was not, as I have already made clear, the only condition of the fund programme. Nor would it have been appropriate for the United Kingdom to design or to dictate such general conditions, which would need to be consistent with the fund's normal practice and cover the whole spectrum of economic policy. The removal of discriminatory restrictions, although a matter of keen interest to us, is a matter between the fund as a whole and an assisted member, since discrimination is offensive to fund practice. Argentina has the right to apply for a waiver of any conditions imposed, but such matters, especially matters of principle, are taken seriously by the board. My expectation is that any such application would be refused.

I should add that the commercial bank loans are contingent on satisfactory performance of the IMF programme. The first was limited in time. Drawings on the medium-term loan, still to be signed, would depend on provision of a certificate from the fund that the IMF programme was on track. That requirement is consistent with the normal pattern of relationships about which I spoke earlier.