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

The international community is not in a state of hostility with the Argentine. However, the burden of my case is that I would certainly wish to have the full co-operation of the IMF and other institutions in putting pressure and imposing proper conditionality on the Argentine. If that can be done collectively it will be far stronger and more effective. That is my answer to the right hon. Gentleman. However, if I could not achieve that, I would not go ahead easily with the unconditional British advance of money to the Argentine at a time when we —unlike the rest of the international community—are in a state of hostility and contention with the Argentine. I hope that I have made my point clear.

Prior to the debate I thought about the various arguments that might be put forward to justify British involvement in the refinancing of the Argentine. I have also listened to the additional arguments put forward by the Economic Secretary, but I have not been convinced and shall not be deflected from my course in recommending that my right hon. and hon. Friends should vote against the Bill'S Second Reading.

The Government are not acting correctly, and are pursuing a double policy with double standards: one of strong military defence, but at an economic cost that is enormous; the other of financial and economic appeasement that can only increase our own burdens, assist our enemies to re-equip and embolden them for further adventures. Many of us find that hypocritical and disgraceful. It is an insult to our armed forces, to the Falkland Islanders, and to the people of Britain. It is the supreme triumph of the values of money and the interests of finance over the values of freedom and independence and the interests of our country.

I want to say a few words about the larger questions of lending and borrowing and the threat to the world economic and financial system that now clearly exists. I mentioned earlier the enormous $38 billion debt that Argentina had accumulated. We know only too well that she is not alone in her predicament. The accumulation of debt by developing countries in the years since the OPEC cartel quadrupled the price of oil in 1974, and redoubled it in 1979, has been staggering. It has risen from some $100 billion to over $600 billion today, of which well over $200 billion is represented by the loans of commercial banks.

Given the vast surpluses that the oil rich countries accumulated, recycling—if that is the right word; I am pondering it, after what the Economic Secretary said—was essential if world trade was not to be disrupted by balance of payments crises of the most serious kind. However, that recycling, was not carried out to any serious extent, either by the international institutions—the IMF and the World Bank—or under the discipline of national banks, supervising and regulating their own commercial banks. So recycling was undertaken, with astonishing recklessness, by the commercial banks of the West. While the oil surpluses continued, and while the rate of inflation exceeded the costs of servicing the loans, world trade continued, in spite of setbacks, to expand, and debtor countries were able to service their increased borrowings.

Inevitably, as debts accumulated, and as the Western countries, led by the United States and the United Kingdom, pursued sharply deflationary policies after 1979, the bubble burst Recession in the West brought about a fall in both the volume and price of Third world exports. The servicing c f existing loans mounted steadily as a proportion of their external earnings. The Treasury and Civil Service Select Committee's report on international monetary arrangements, published on 15 March this year, documents the effects on individual countries. It is well worth perusal by any hon. Gentlemen who have not already done so.

No less than 59 per cent. of Mexico's exports are absorbed in the servicing, of debt. It is no less than 67 per cent. in the case of Brazil, and no less than 88 per cent. in the case of Argentina, with other countries across the world with far lower per capita incomes than those two countries having to pay between 20 per cent. and 50 per cent. of their export earnings in debt reservicing. This great problem will increase rather than diminish. The Arab oil surpluses are no longer available. The commercial banks are already over-lent, but the needs of the developing countries to borrow more, both for development purposes and to finance their current accounts, remain.

The increase in IMF quotas, the increase in the resources available, under the general agreements to borrow, are almost trivial in relation to the magnitude of the debt problem. The packages arranged, of which Argentina is only one, are temporary and fragile. Only today we learn that the second tranche of the IMF loan to Brazil is unlikely to be paid, as that country, with strikes and riots spreading through its industrial areas, is unable to carry through the harsh conditionality that has been imposed.

The truth is that irresponsible borrowing and lending have created a situation in which the orthodox remedies of the IMF are almost irrelevant, and the whole problem has been immensely compounded by the deflationary policies which the major countries of the West have pursued and which they again reaffirmed as recently as Williamsburg.