Orders of the Day — International Monetary Arrangements Bill

Part of the debate – in the House of Commons at 6:45 pm on 11th July 1983.

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Photo of Mr John Moore Mr John Moore , Croydon Central 6:45 pm, 11th July 1983

I am, of course, the servant of the House, and I am sure that the House will regard that intervention in the way that it should do. The debate was rightly wide-ranging, and hon. Members legitimately asked why so many of us were concerned with tinkering at the margin in the face of possibly structural problems in the whole area of world debt. My hon. Friend the Member for Birmingham, Selly Oak (Mr. Beaumont-Dark) was right to say that at some stage we should consider to what extent we should concern ourselves with different and major initiatives.

Before trying to answer some of the substantive points that were legitimately raised, I should point out that the Bill seeks substantially to increase not only the quotas but the facilities in terms of GAB borrowing.

I accept and recognise the difficulties, but the Bill is at least a step in the right direction. With one exception, that has been accepted in all quarters of the House. The right hon. Member for Cardiff, South and Penarth asked a legitimate question. I confirm that, in addition to quota resources, the resources of the GAB will now be available to meet the needs not only of founder members but of any fund member undertaking an adjustment programme. When the fund is faced with payment imbalances which threaten the stability of the monetary system, this second window—I went into this subject in some detail in my speech — is activated when the managing director proposes use of the GAB and the G10 participants and the executive board agree. This is, of course, a matter of fund resources and does not of itself affect the amount of access of individual members to those resources. I think that what I have said will help the right hon. Gentleman, and it is a matter that I shall be happy to pursue, in view of its importance, if he wishes, at another time.

The right hon. Member for Bethnal Green and Stepney (Mr. Shore) shared my distaste, but essentially I believe that he offered no alternative to trying, through the IMF, combined with international banking operations—if I have time I shall try to show the present position and how it relates to the matter— gradually to bring Argentina back to normalcy.

The right hon. Member for Down, South (Mr. Powell), in a speech in which I was interested in an academic sense, although I could not agree with its total substance, asked whether, whatever Argentina's present internal political structure—and this is the question that I put to the right hon. Member for Bethnal Green and Stepney—the long-term resolution of our relationships with Argentina would be improved or hindered by trying to resolve them with the help of institutions such as the IMF, and the conditionality, however limited and however difficult it may be, that it is able effectively to attach to its loans.

Perhaps I might go through three questions asked by the right hon. Member for Bethnal Green and Stepney. First, I do not see the choice that he poses between the risks and the costs attached to the defence of the Falklands, and the risks to the financial system. I do not believe that there is a choice. Argentina, which has a trade surplus, would be perfectly able to buy arms if she defaulted or if the international system collapsed. I remind the right hon. Gentleman that the Labour Government, of which he was a member, supported specific lending to South Africa in 1976 precisely on the basis that political criteria should not be permitted to determine IMF lending. I shall not go into the whole debate about the politicisation of IMF policies. Of course, the existence of an IMF programme puts a squeeze on all Argentine Government spending, including their spending on arms.

The answer to the right hon. Gentleman's third question, as the right hon. Member for Down, South said, is that it would be a curious position if we were simply to wash our hands of the matter—if that is what the right hon. Gentleman was suggesting. What could United Kingdom non-participation mean? We are a leading member of the IMF, and British banks are members of leading syndicates to Argentina. By participating in the IMF we are in a position, however limited, to insist that all the IMF conditions are met and continue to be met as each tranche of the fund money falls to be drawn.

I do not in any way exaggerate our strength and our position. I am seeking to contrast the ways in which IMF conditionality — it is in no way different from the conditionality that was accepted by the right hon. Gentleman when he was in office—is a tool in the process of returning Argentina to normalcy.

My right hon. and learned Friend the Member for Hexham (Mr. Rippon), in a major contribution to the debate, covered many questions that were raised by hon. Members on both sides about the nature of the structures of the IMF, its future, its resources and its liquidity. I think that it might help all right hon. and hon. Members if I go through my right hon. and learned Friend's question. He first asked about private banks. No formal guarantees are associated with this measure. The right assurance to private banks is that provided by fund conditionality through a programme to which banks also contribute.

The second question, about the prospect of loans being repaid, is linked, first, with the success of the adjustment programme, and, next, with world recovery. Our belief and that of the fund is that debt problems respond to these changes, just as the problems began, because of over-borrowing and the recession. We believe that debt export ratios will improve. We must not forget that these economies have great underlying strength.

The third question related to the ways in which IMF member countries were committed to getting these increased resources agreed by the end of this year. Some have already achieved that. In most cases, as in our case here today, legislative action is still in progress.

My right hon. and learned Friend's fourth question related to Williamsburg. Williamsburg restated the basic economic strategy, that is, control of budgetary deficits and monetary aggregates so as to control inflation. It is a matter of continuing policy. Williamsburg spoke of making greater efforts to achieve convergence of economic performance so as to move towards greater exchange rate stability. It is a matter not of instant action, but of continuing policy. It is a subject in which my right hon. and learned Friend the Member for Surrey, East (Sir G. Howe) has played a prominent part. It involves continuing discussions among, in particular, the countries whose currencies make up the SDRs.

Many questions have been asked about IMF resources. The fund recently agreed on a substantial increase in quotas and will also be able to draw on the recently enlarged general agreements to borrow that I mentioned, if international monetary conditions warrant it. Together, these measures should provide the fund with sufficient resources for intermediate needs. I expect new quotas to be ratified early next year, and the fund should have adequate resources to last until then. If there is any need to top up the fund's resources after the eighth quota review, I see no reason why arrangements could not again be made to cover the requirements. Of course, the fund will be able to draw on the GAB if the conditions for activating are met.

I believe that the IMF should rely primarily on resources from its members from quotas, but I am prepared to look at the matter. With other fund members, I am anxious to ensure that the fund has adequate resources to lend to countries in balance of payment need. Clearly, fund liquidity is kept constantly under review, but I am prepared to discuss any constructive proposals.

The right hon. Member for Bethnal Green and Stepney asked what information was available about bank loans. It might help the House if I put the matter on record. As part of the overall financial support package for Argentina, five facilities were made available, by the IMF, commercial banks and the Bank of International Settlements. The first was a short-term bridging loan for $1·1 billion from international commercial banks. It was agreed in December last year. A number of drawings have been made, but it has not been totally drawn down yet. One final tranche remains. The following month, in January 1982, the two IMF facilities were agreed. A compensatory financing facility of SDR 520·1 million was agreed and made available immediately. At the same time, the IMF agreed a standby facility for SDR 1·5 billion, but this is being released in five quarterly instalments, subject to performance criteria being satisfied. The first two instalments have been paid, and the third is due next month.

Also in January 1982, after the IMF programme had been agreed, the Bank for International Settlements approved a short-term facility. As I said, that facility of $500 million was never drawn and has now lapsed. Finally, there is the medium-term commercial bank loan of $1·5 billion which has been under discussion for several months. Negotiations by the banks are proceeding. I am not advised that the suggestion about a signature today is accurate.

I have tried to cover some of the fundamental issues.