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

There are a number of ways in which the matter can be considered. It is not my task to give a solution. One solution, which has been hotly criticised, is for the World Bank, or the IMF, or a combination of the two, to take over some of the liabilities. That is regarded as bailing out the banks, but the position of the Third world is more important than not bailing out the banks. Another solution is that the commercial banks should be required to lend further sums, either with or without additional guarantees, at a penal rate of interest. Therefore, those banks would have to subsidise the rate of interest that they charged on new loans, having built up tremendous loan charges during the past. I shall not propose either of those solutions or any other.

However, the matter has been partly taken out of the hands of the banks, which still have severe exposure. If Brazil were to default, there is no doubt that a large slice of the capital of one internationally known bank would go and several smaller banks would suffer. That would be injurious to the prospects of world expansion, however much there is. Therefore, I shall content myself with saying that I shall not attach myself to any solution. Solutions can easily be worked out by the expert technicians from whom I have had the most profound professional advice, but I am not necessarily so keen on their political judgment.

We need to restructure the Third world debt, lengthen it, make maturities longer and make the interest rates less. My right hon. Friend the Member for Bethnal Green and Stepney referred to this. We need to reconsider the rates of interest that are being charged. What we need is an international interest rate disarmament conference. I might go further than START has done. I say that because I know of no rule under which it is necessary for real interest rates to be so much higher than the rate of inflation. They used not to be. Some 20 years ago, in the bad old days when I was Chancellor of the Exchequer and we had only 350,000 unemployed, a growth rate of 3 per cent. or 4 per cent. a year and all the rest of the evils from which we have now escaped, we had some international arrangements on interest rates. I put it strongly to the politicians and statesmen who lead us today that there is a case for them all to get together and to ask how far it is necessary to relate the real rate of interest to the level of inflation. Why was it possible for the world to have a lower rate of interest than today in the 1960s, which was not too bad in retrospect, however much Reggie Maudling and I have been criticised since? It is not enough to say that one has to finance the American debt and that it is forcing up the rates of interest. If there were general agreement, it would be possible to reduce interest rates.

Means should be found to prevent a worsening of the terms of trade against the Third world. They have moved badly against those countries since the oil price crisis. I have already referred to the need for a comprehensive and durable world payments system. It is the sort of thing that Lord Lever has argued for on many occasions. He and I often hunted together on that matter. I became convinced of its necessity many years ago. We must go on preaching it. I hope that it will be taken up by Governments.

Finally, there should be more political oversight of the IMF. I have already referred to that matter and shall not go further into detail today. As I have said, the technicians at the IMF do a first-class job and try to do so internationally in a way that satisfies the needs of the statutes under which they operate. Those statutes are 40 years old. If one reads them carefully, one sees that they contain the material for extending the operations of the IMF. It is necessary to extend those operations. Just as we are becoming one world in so many ways, in our economic, financial and monetary policies we have to move nearer to that end. I am by no means an idealist. No one has ever called me that. However, I can see the practical necessity for us to co-ordinate our arrangements in all those affairs much more than we have done so far if we are to make the fullest use of the wealth of natural resources that the world possesses to meet the basic needs of men and women throughout the world.