Orders of the Day — International Monetary Arrangements Bill

Part of the debate – in the House of Commons at 4:36 pm on 11th July 1983.

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Photo of Mr James Callaghan Mr James Callaghan Father of the House of Commons 4:36 pm, 11th July 1983

I echo the latter words of my right hon. Friend the Member for Bethnal Green and Stepney (Mr. Shore). I am sure that we shall come back to this subject many times. Dry as dust though it is, and difficult to comprehend, it is nevertheless one of the most important topics that the world and the country have to face, and it is for politicians to try to translate the problems into simple and understandable terms and explain why they vitally affect the ordinary citizen of this country and of so many other countries.

My right hon. Friend introduced a most important element into the consideration of the role of the International Monetary Fund. I have watched it over 20 years, and although the central bankers—and, indeed, financial Ministers — believed that they were being politically neutral and were trying to exclude politics from their consideration, in fact politics has been growing more and more important in the work of the IMF. Indeed, I believe that it will grow more than it has done so far.

My right hon. Friend moved the amendment about Argentina, which I well understand. However, I think we shall need to look at the problem because of the growing politicisation—if I may use that awful word—of the IMF in relation to much wider problems. There is the whole question of human rights and the terms on which loans are made. If it is thought right to impose austere rigid economic conditions on a country, which may, as my right hon. Friend said in his closing remarks, lead to riots, a coup, or loss of office by the existing Government, is that not a very political act? There is also the question that my right hon. Friend raised indirectly of the financing of arms programmes. We cannot act simply in relation to Argentina, but I think that countries will move more and more into greater political oversight of the work of the IMF. We shall have to be careful how that is done, but I believe that more thought should be given to the matter than has been given so far.

For 10 years I have listened to reassuring, bland statements—if the Economic Secretary will forgive me for saying so—to the effect that the debt problem is serious, that it is well understood, that it is under control, and that it is slowly improving. This afternoon we heard another such statement. However, 10 years later, the problem is still here, and I am bound to say that it will be here, unless the fundamental restructuring to which my right hon. Friend referred takes place, in 10 years' time. We are tinkering with the problem. That is not to say that I despise this Bill or its proposals. They are a solarium for a dangerous disease, but they will not cure the disease and nor will the disease be cured by the free market system which we have lived through and in which the banks have been encouraged.

I agree with the Economic Secretary that the banks were encouraged during the 1970s to take over the role of Governments. Governments were ready to step out of the arena and allow the commercial banks to step in and take over the responsibility that Governments were not willing to shoulder.

We thought—no, many of us did not; Lord Lever did not think and he had an interesting article in The Economist on the matter this week. He has written more persuasively and perhaps with more foresight about this than most people. Not everybody thought that it would be possible successfully to recycle those petro-dollars. It was claimed as a success when the petro-dollars flowed from the OPEC countries into Wall street and the City of London and were then sent to Third world countries which, momentarily, were able to finance their exports with ease. It was said to be a great success, but it was an illusion that was built up that it was possible to have a fivefold increase in world oil prices without a long-term economic cost.

The Bill destroys that illusion and pretence. It says that it is not possible to continue along those lines. The banks have found themselves in great trouble and Governments have now had to step in, despite the prejudices and ideologies of some of the leaders of the Western world. President Reagan came to power on a programme of withdrawing support from the IMF, curtailing its arrangements and reducing the facilities that it might employ. Three years too late, he has learnt the facts of life and he and the United States Treasury have had to come round because there is no other way.

I am looking forward to hearing the right hon. Member for Down. South (Mr. Powell) — he dissented audibly when the Economic Secretary was putting his conditions earlier—try to defend the case for commercial banks lending at high rates of interest under a free market system, piling the unpaid interest on top of the exisiting debt, finding themselves ensnared in their difficulties, and eventually having to step out and refuse to lend until forced to do so by the IMF. I always value the right hon. Gentleman's contributions on these matters.

What would be the position of small countries? I do not mean Brazil. Brazil is big enough to look after itself and will get its money. I am told the Prime Minister is opposed to that—if I may say so by way of interpolation—but it would be short-sighted of her if she were, considering her priorities in the south Atlantic. But what will be said to those countries—there are several of them—who are unable to provide a supply of clean water, elementary housing and the very elements of health for their people? Will it be said that they must adopt a free market philosophy and that if they cannot borrow from the commercial banks on commercial terms there is no international institution to take their place? If that is the right hon. Gentleman's case, it may appeal to his head but thank God there are occasions when his heart will overrule his head. I hope that this will be one of them.

The conditions that have been imposed upon some of the smaller countries have made it impossible for them to fulfil the conditions from either the banks or the IMF. I shall not name any country today because I do not want to make any invidious comparisons. However, I have spoken to our officials who serve in some of those countries and they tell me that the conditions that the IMF is attempting to impose are impossible to achieve. If that is the position, where will it put us?

I want to return to the kind of proposals that were suggested by my right hon. Friend the Member for Bethnal Green and Stepney. We need many changes, not only the exposure of the banks. Mr. Tom Causen, the president of the World Bank—a hard-nosed banker if ever there was one—said recently in his report that some of the smaller Third world countries are having to abandon projects that are economically sound, that would aid economic growth and that, at the same time, would increase their export potential and capacity, because of the failure of the United States, among other to fulfil its replenishment of the International Development Association funds, the projects of which have been guaranteed. They are now having to be put aside.

A further effect is the regional impact. Many countries, because of their shortage of foreign exchange—some of them have no access to foreign exchange and no reserves other than what they obtain from the IMF—have had to embark on what is almost a bilateral barter arrangement with their neighbours in Africa, parts of Asia and South America. They are trying to arrange between each other that at the end of the year neither will owe the other anything but that everything will be balanced out. That is because they will not have any foreign exchange to pay each other, anyway. The IMF will not give them any and the commercial banks are unable to provide any more. That is silting up the channels of trade. It means that trade is being conducted an a lower level that it need or should be between these countries.

The Bill will provide some help in such circumstances. I particularly welcome the fact that, under the general arrangements to borrow for the first time, what are called Third world countries — non-member countries of the Group of Ten—will be empowered to borrow through those arrangements. That is a sensible step forward. I hope, in view of some reports in the newspapers, that I understood the Economic Secretary rightly and that he will give me an assurance that the extension of this arrangement will not be curtailed because of the proposed increase in the IMF quotas. That would be to rob Peter to pay Paul. I hope that there is no such suggestion and that Britain will not support any arrangement under which access to the genera] arrangements to borrow would be denied to Third world countries.

It is said—the Economic Secretary got close to it this afternoon — that the present economic recovery will make matters manageable. I do not believe it. First, we do not know how long the present world economic recovery will continue. I have a feeling that it will continue until President Reagan is re-elected. Unless the American economic recovery is more deeply seated than it is at present, based as it is on domestic consumption, construction and the rebuilding of inventories, until we see new capital investment, the American recovery, with all its implications for European recovery, is not likely to persist for longer than 18 months at the outside. Even if it does, on the best estimates that can be made, the rate of growth of the Third world countries will still be only half what it was five years ago.

That being so, there is no way in which those countries can use their export earnings. Even if the price of primary commodities and metals goes up—metals are going up now, but primary products are not moving much—the additional export earnings will not be sufficient to do more than service a large part of the loan, with little left over for purchasing Western industrialised countries' exports. Therefore, there is little prospect of the debt problem going away.

I have come to the conclusion that we now need a fundamental restructuring of world debt. Lord Lever said: The West needs to teal with particular emergencies within a comprehensive and durable system. We do not have such a system at present. We have been living from hand to mouth ever since the crisis in oil prices. We have staggered from one crisis to another. The crises have not affected us too much, although they have had an impact on this country, but they have affected dramatically and seriously the countries of the Third world.