The right hon. and learned Gentleman tempts me to reopen a range of arguments in which I myself participated in 1976, but I shall not go into that area of history.
The right hon. and learned Gentleman will find that the movement of world interest rates coincides with the introduction in 1979 in Britain and in 1980 in America of an additional degree of monetarism. It is from that point that one can date a spiralling of world interest rates and a spiralling in the debt of the Third world.
One curious feature of the situation is mentioned in the Treasury and Civil Service Committee's fourth report on "International Monetary Arrangements", to which I shall refer. The most curious and unreal feature is that when the countries that have received loans are going bust— I shall not bandy words with the right hon. Member for
Down, South over whether the countries are technically bankrupt — and are undergoing major austerity programmes in order to meet their loans, the banks making the loans are behaving with every appearance of prosperity. In the current year, despite the attempts of the Bank of England to dissuade them, the British clearing banks have declared record dividends, increasing dividend payments by several times the rate of inflation. It is strange that at a time when half of Latin America is going bust, the banks participating in the loans that created that crisis are showing record increases in both shares and dividends. The Select Committee's report drew attention to what it regarded as
the highly dubious practice of seeking to make profits out of the rescheduling of what are effectively bad debts.
According to the figures released today, it is estimated that the commercial banks have contrived to make a profit of £1·75 billion out of rescheduling the bad debts of the Third world.
There is something grotesque about carrying out at a profit an activity turning on the rescheduling of what are effectively bad debts. Moreover, that profit of £1·75 billion can only make worse the crisis that the rescheduling is supposed to be easing.
My right hon. Friend the Member for Cardiff, South and Penarth (Mr. Callaghan) introduced a point that has run through the debate. There is a gathering consensus that the only permanent way out of the crisis is to expand out of the world slump. If the countries caught with these debts are obliged to respond by contracting their economies, the consequence must be that their ratio of debts to exports will worsen. There is therefore a critical part to be played by the industrialised nations which constitute the market for those exports.
In a report that is given some coverage in this morning's newspapers, the Group of Thirty states that unless the industrialised world grows at a rate of 3 per cent. per annum, there is no prospect of the Third world increasing its exports at a rate that will enable it to catch up on the debts that it has already contracted. The Group of Thirty points out that Britain has a pivotal role to play. The chairman of the group suggests that the countries that should take the lead in stimulating the expansion of demand to provide a market for Third world exports are those that currently enjoy a balance of payments surplus and a low inflation rate. Although he does not name them, it is clear that he has in mind Germany, Japan and Britain. There is poignancy in that advice, in that the chairman who offers it is Dr. Johannes Witteveen, who descended upon us in 1976 to advocate deflation. If even Dr. Witteveen is now convinced that the time is right for Britain to carry out some degree of reflation, why have the Government, who are in charge of the economic levers of Britain, far from bringing forward a modest degree of reflation, actually during the past week introduced a degree of deflation into our economy?