Orders of the Day — International Monetary Arrangements Bill

Part of the debate – in the House of Commons at 4:04 pm on 11th July 1983.

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Photo of Mr Peter Shore Mr Peter Shore , Bethnal Green and Stepney 4:04 pm, 11th July 1983

I thank the Economic Secretary for that information.

Whether those funds will be sufficient to enable Argentina to cope with its present difficulties and, if so, for how long are open questions. What the Opposition find extraordinary and unacceptable, in the light of the seizure of the Falkland Islands by the Argentines last year and their subsequent liberation by the British task force, is that the British Government and British commercial banks have contributed at every stage to the refinancing of the Argentine economy, while the Argentine Government have refused to terminate the state of hostilities between them and us.

That is far from a formality. The continued threat to the Falklands by the Argentines has driven Britain into major and continuing expenditure on garrisoning, supplying and defending those islands. The latest development, announced only 10 days ago, is the decision to build an international runway at a cost of over £200 million to enable us rapidly to reinforce our garrison in the face of a resumed Argentine threat.

That is not all. The Argentine Government have embarked on a major programme of rebuilding and extending their armed forces. Last November they purchased from France nine super Etendard strike aircraft equipped with Exocet missiles. In February they took delivery of the first of four frigates, with British Rolls-Royce engines, now being completed in the great shipyard of Blohm and Voss Two sophisticated submarines are under construction in other German shipyards. There are six MEKO type 1400 Corvettes, and in the Bazan shipyard of El Ferrol in Spain five 900-ton Halcon class fast patrol boats are being fitted out with sonar and radar equipment and with an Alouette helicopter, not to mention the even more deadly rocket weapons to which my hon. Friend the Member for Linlithgow (Mr. Dalyell) referred a few moments ago. Virtually all that equipment, costing about £2 billion, will be delivered in the next 12 months.

The background is one of invasion and aggression, armed conflict at hem y cost in human life and equipment incurred in the liberation of the islands, the heavy further cost to Britain of ensuring that our arm's length defence remains a sufficient deterrent, and the Argentine purchase of an armada of new ships from European countries and of planes and missiles from France, Brazil and Israel.

Why on earth, against such a background, are Her Majesty's Government and British banks lending money to Argentina today? The question became all the more pertinent last Thursday, when the Chancellor announced a cut of £1,000 million at home, including a reduction of £230 million in Britain's defence budget and £130 million in expenditure on the National Health Service.

We are talking, not simply about the rollover of old British credits to the Argentine, but about the provision of new money. The Government have not, to my knowledge, clearly revealed how much money is involved. I did not ascertain that from the Economic Secretary's speech. If, however, we assume that Britain's share of the $·2billion IMF loan is the same as our quota of the IMF, Britain's contribution in that form will be roughly £100 million. If reports of today's meeting in New York are correct, British banks will be providing a further injection of £100 million.

Right hon. and hon. Members on both sides of the House have asked how that expenditure can be justified and we have had a range of unconvincing and embarrassed answers from the Prime Minister, the Secretary of State for Defence, the Chancellor of the Exchequer and, with respect, from the Economic Secretary as well, although he has been able to address the matter more seriously in the course of a speech rather than in answer to questions.

In a written answer given on 20 December last year, the Prime Minister gave the excuse that lies at the heart of the Economic Secretary's defence today. She said: These loans are not for arms purchase, but are to help Argentina to continue paying its debts, many of which are to residents of this country. We support the IMF in its efforts to maintain the stability of the international financial system."—[Official Report, 20 December 1982; Vol. 34, c. 352.] The Prime Minister's unease with that excuse surfaced during Prime Minister's Question Time on 27 January, when she was asked a direct question by the then hon. Member for Harlow. He asked whether she approved of the involvement of British banks in making loans to Argentina, and she replied: Will the hon. Gentleman please understand that I understand why he is worried, and so am I? On the same occasion the Leader of the Opposition asked the Prime Minister to halt loans from this country until hostilities had ceased. She began her reply by saying: I share such feelings". — [Official Report, 27 January 1983; Vol. 35, c. 1060.] Echoing that view today, the Economic Secretary spoke of his distaste for the whole refinancing operation. Like the Prime Minister on the earlier occasion, he sought to justify the Government's failure to act by saying that it was not in the interests of the financial system of this country or of the West that there should be a default on either interest or capital, because the consequences would be very serious.

The Government's case has been fairly put this afternoon. It gives rise to three questions. First, it may indeed not be in the interests of the financial system of this country to increase the risk of an Argentine default, but how is that risk to be weighed? That was at the heart of the question put by my hon. Friend the Member for Linlithgow. How is that risk to be weighed against the defence risk to this country—which also involves heavy financial cost—and against the interest of the Falkland Islanders in continuing their freedom from Argentine molestation and occupation, not to mention the cost in British lives of maintaining that freedom?

Secondly, why did the Prime Minister not insist that any British financial assistance should be conditional upon either the acceptance of a formal end to hostilities or, better still, an agreement that the money should not be used for rearmament or warlike preparations?

Thirdly, is it true that British non-participation would have led to an Argentine default on all its debts to the Western world?

The first question— concerning the relative human and financial cost to Britain of a rearmed junta able to resume hostilities against the cost of non-payment to British banks—has received no answer at all from the Government. However, the scale of the expenditures is clear. Britain's capital and running costs for the defence of the Falklands were, last September, officially estimated at £1,600 million. That figure does not take account of the £200 million additional capital expenditure on the new Falklands airstrips, or the annual costs of maintaining, servicing and supplying our garrison. British banks have a total of £2,200 billion in various forms of credit to the Argentine. Simply as a financial equation, the cost of maintaining and defending the Falkland Islands, especially if there were to be another assault upon them, is greater than the amount of British money involved in the Argentine.

The second question concerns making money conditional upon a proper end to hostilities and the abandonment of the major rearmament programme. My hon. Friend the Member for Workington (Mr. Campbell-Savours) has been very assiduous in asking questions, both last year and this, and on 31 January the Prime Minister gave him the following reply: The rules of the IMF do not allow such restrictions to be placed on its loans."—[Official Report, 31 January 1983; Vol. 35, c. 8.] The Prime Minister sought to bolster that by reference to the decisions adopted by the IMF in 1979, which are published on pages 20 to 22 of its document, Selected Decisions of the Executive Board". I have inspected that document, and, hardly surprisingly, it has nothing to say about the almost unique situation of a country seeking IMF support while in a state of continuing armed hostility with another IMF member state, and whose whole economy is distorted precisely by the massive arms programme of its military leaders, who purport at any rate to be the lawful Government of the country. However, paragraph 4 states that in helping members to devise adjustment programmes the Fund will pay due regard to the domestic social and political objectives, the economic priorities and the circumstances of members, including the causes of their balance of payments problems. That is, as I am sure it was designed to be, a catch-all clause. It certainly allows for the most searching examination of the social and political objectives of the Argentine, including the seizure and attempted colonisation of the Falklands, and the massive rearmament programme now being undertaken by the Argentine Government. Therefore, I do not understand why we should now suddenly say that conditionality—which lies at the very heart of the IMF operation—should not be applied rigorously to the Argentine.

I well understand that to use conditionality to achieve specific political objectives opens up possibilities of action that may not be entirely welcome to many hon. Members, particularly Conservative Members. However, in my view, we must, in the period ahead, consider the politicisation of conditionality by the IMF and the open criteria that should be adopted. I have in mind not only the Argentine but the great controversy that followed the very easy extension of an IMF loan to South Africa, without any reference to its internal policies or its heavy commitment to defence programmes. That went unchallenged only a few months ago.