The Bill increases by some considerable amount the moneys that are to be available to the IMF. There is no doubt that, in increasing that money, we are increasing the trust of this House and the country in the IMF and in the way that the Government discharge that trust on our behalf. The manner in which that trust is discharged is a matter of legitimate concern and one on which we are entitled to ask the Government how they intend to deal with different applications that come before the IMF.
In particular, I want to refer to the decision taken by the IMF on 3 November 1982 to lend to the Government of the Republic of South Africa an amount equivalent to $1·1 billion. That is a considerable amount of money. The way in which that money was granted reflects badly, in my opinion, on the IMF, and in a sense brings into sharp relief the dilemma that Governments often face in trying to match the responsibilities under different arms of government and the different ways in which they operate as Governments.
When the Commonwealth Prime Ministers last met, the British Government of the day—they were, in fact, a Conservative Government — committed themselves to the solemn duty of
vigorously combatting the evil of apartheid by the adoption of effective measures against it and to assist those struggling to rid themselves of it.
That responsibility cannot simply be picked up and cast aside as the Government think fit. It is not something to which the Government can give a solemn commitment which they can then disregard as and when it suits them. This is especially so, as the United Nations General Assembly, during the 1982–83 annual session, voted to condemn the IMF loan to South Africa, and urged the IMF directors
to reverse the decision and to refrain from providing any support to the South African government as long as it maintains its apartheid policies.
Those are two important issues to which I believe the British Government should address themselves, because
there is no doubt that the British representatives on the IMF ply a vigorous role in its workings and their policy decisions are ones that carry grave importance.
During the last Parliament, I was engaged in correspondence with the former Chancellor of the Exchequer about this matter. It is fair to say that the former Chancellor and the IMF board of executive directors sought to justify the loans to South Africa on the grounds that the South African Government had met the conditionality requirements on which such loans are normally granted, and that, being an IMF member, South Africa was legally justified in securing financial support to deal with its balance of payments problems. I do not accept that the IMF should operate in such a simple mechanistic way as is suggested by IMF dealings on that loan.
It has been put to me—these are matters that must be answered—that the IMF team went to investigate the South African economy secretly, that the majority of IMF executive directors were not advised of the visit or told straight away of the South African application for a loan, and that the initial negotiations were confined to the major western countries, of which Britain is one. In other words, it is alleged that a clandestine deal was arranged with the South African Government and certain members of the IMF executive board in an attempt to rush through the decision before the application and its size became known.
It is alleged that the IMF executive team did not conduct an independent investigation into the South African economy but simply accepted the South African Government's policies as being adequate for IMF purposes. In that respect the IMF team did not seek to inform itself properly whether the alleged economic problems of South Africa arose from either the disproportionate share of military spending by the Government or the structural obstacles of South Africa's economic development which flow from the country's apartheid policies. Nor did it seek to inform itself whether the South African Government were pursuing a policy which would deprive the African majority of the right to acquire skills and enter into skilled occupations.
Contrary to what the former Chancellor of the Exchequer said in his letter to me, I do not believe that the normal procedures were followed. It is the normal procedure that if an executive director of the IMF calls for a postponement of the discussion of an application for a loan, it is postponed. In this case the request that the application should be postponed for further discussion was refused, despite the fact that nine of the directors—a majority, although certainly not a majority in terms of votes — wanted such a postponement. It is clear that exceptional treatment was given to South Africa because the loan arrangement was heavily biased in South Africa's favour in that it obtained 80 per cent. of the $1·1 billion before having to fulfil any conditions whatever.
The application for postponement having been refused, several directors objected and some voted against the granting of the loan. The Governments of western Europe, Canada and the United States backed the loan and refused to permit a postponement. Despite the attempts to obtain a quick vote which were successful, some of the western representatives expressed misgivings about the loan to South Africa. For example, the Italian representative expressed strong reservations about the lack of conditionality and about South Africa's structural rigidity which prevented an efficient functioning of the labour market.
I have also expressed strong reservations. On Second Reading I asked the hon. Member for Hertford and Stortford (Mr. Wells) to give some examples of countries which had received a loan from the IMF and which had failed to meet the conditions imposed upon them, upon which action had been taken by the IMF. The hon. Gentleman said that the Government of Jamaica was one such example. It is interesting that despite an earlier loan from the IMF with certain conditions attached to it, South Africa has taken no account of the views of the IMF expressed in 1976. Indeed, it appears to be moving in the opposite direction. I shall quote from a draft document, EBM/82140, which is the draft minutes of the executive board members, dated 3 November 1982. On page 47, Mr. Jayawardena said that the staff had concluded that
the labour market constraints had been a serious bottleneck especially during the recent growth phase of the economy.
That is the South African economy. He went on to say:
The same serious problem had been highlighted by the staff in its report in 1976 and considerable concern about the issue had been expressed by several Executive Directors during the discussions of the report. Now, six years later, the same issue had surfaced again. Despite the assurances by the authorities that remedial measures would be taken, there had clearly been no progress in dealing with the labour market constraints.
Those labour market constraints were the failure of the South African Government to make sure that their non-white population had the opportunity to improve its skills——
The hon. Gentleman mentioned Jamaica. Is he suggesting that there should be no help to Jamaica? It is facing considerable problems, which it has tried hard to overcome. Is he suggesting that there should be no loans to Jamaica?
I mentioned Jamaica. I shall make my point again as the hon. Lady has clearly not followed the argument. Jamaica was one of the examples that was given of the way in which the IMF operated in imposing conditions and acting vigorously if it felt that the conditions that applied to a loan had not been fulfilled. The IMF had not been satisfied with the way in which the Jamaican Government were responding and put severe pressure on that Government to change their policies and carry out the conditions of the IMF loan.
I think that the hon. Gentleman would like all those who were not present on Second Reading to be reminded of the specific point about Jamaica because it is important. For Jamaica there was none of the political conditionality for South Africa, which was mentioned in our debate. The specifics, whichever Governments were involved, related to technical matters concerning the economic conditions and the technical financial relationships to the loan. They were not political matters, to which the hon. Gentleman is obviously referring.
I am coming to almost exactly that point. I am not discussing a political objective. I was in the middle of reading a quotation when the hon. Lady intervened. That was a response to the South African Government in 1976. The IMF said to that Government in 1976 that one of the problems facing the South African economy was the constraints on the labour market and on the availability of skills and, eventually, on the growth of the economy through expanding incomes and so on. That economic argument was being put forward in 1976. One of the things that was identified by the IMF in 1976 was the technical point about the economy. The contrast that I was trying to draw between Jamaica and South Africa was that the conditions were applied to Jamaica, but because of political considerations they were not applied to South Africa.
In draft document EBM/82141 on structural problems the IMF director said that, in 1977, the South African Government had sought to respond to the IMF's discussions by appointing two commissions to investigate various aspects of the labour market. He said:
The heart of the matter however had beer addressed by the second commission which had dealt with the questions of geographical mobility of labour and the desired location of new employment opportunities. In that connection a number of recommendations had been considered. For instance, it had been suggested that the 72-hour limit on the presence of black workers without prior permission in urban areas be eliminated. The recommendation had been accepted in principle but had apparently not been implemented.
Certain directors of the IMF have pushed this loan through quickly with apparently exceptional conditions and have resisted the attempts of executive board members to discuss the issue with their Governments and so forth. This was driven through despite the fact that there was clear evidence that South Africa had no intention of taking notice of IMF conditions.
Nor should we accept that the .South African Government take any account of IMF conditions. The South African Government are determined, whatever anyone else may do or say, not to be influenced from outside. They are determined to continue with their apartheid policies although they may from time to time genuflect in the direction of western public opinion by saying that they will do something about: the apartheid system. But that is purely for external consumption because they have no intention to make real changes. Indeed, it is suggested that, far from moving towards a more liberal system of dealing with their African population, they will go even further with present policies. There is about to be enacted, if it has not already been enacted, an Orderly Movement and Settlement of Black Persons Bill which would further limit the residential and employment rights of the black population, impose strict curfews and other restrictions on the movement of black labour.
We have a responsibility in this matter. The Government cannot deal with issues by saying solemnly that they will take action against the apartheid regime and then do the opposite by bolstering it up, by giving it loans and grants when it is clear that it will not change its policies. We know that many thousands of Africans have been forcibly moved around the country simply because they do not apparently live in the right part of the country according to the language they speak. The shocking system of apartheid must be seen to be believed. We should fight it with all the force at our command.
My next point illustrates the difference between our system of government and the American system of government. Several members of the United States House of Representatives are trying to propose an amendment to the Federal Government's Bill to increase the quota and to do something about the way in which the American Government will deal with South Africa in the IMF. The United States house banking committee has proposed as an amendment, that:
The Secretary of the Treasury shall instruct the United States executive director of the IMF to oppose actively and to vote against any credit drawings by any country which practices apartheid.
I do not know what the fate of that amendment will be. I have strong hopes that it will be endorsed by the House of Representatives and the Senate. We cannot impose such restrictions or amendments on the way in which our Chancellor operates so we must try to get assurances from him about the way in which he will deal with the business.
On Second Reading, we had an interesting discussion of whether the conditionalities of the IMF should he politicised. I do not want to use the cumbersome phrase "politicising conditionalities". The issue is clear. Does the IMF operate on political or on purely economic grounds? The two cannot be separated. There are many issues on which there is no such thing as straightforward economics which can be divorced from political principles. The two are intertwined—[Interruption.] I do not know why the hon. Member for Hertford and Stortford finds that so funny, as the Prime Minister does not divorce economics from politics, nor does she try to.
It is my experience that no economics are straightforward. The issues that the hon. Gentleman was dealing with on purely economic grounds must be related to political circumstances. There is no doubt about that. I hope that he agrees that these issues must be seen against an economic, financial, political and social background. Perhaps he would like to confirm the great difficulty of defining when IMF loans should and should not be given when they are related to an array of problems such as human rights, of which apartheid is one. How do we do that while keeping the world economic system going and expanding?
The hon. Gentleman and I form a curious alliance as we agree that it is not possible to have simple economics that are divorced from politics. The Government are trying to make such a separation. In correspondence with me, the former Chancellor said that:
to treat South Africa's request on a basis other than its technical merits would undermine the principle of the Fund that all members are treated in a uniform way and would damage the confidence that members could put in the Fund at a time when more than ever the international monetary system requires impartial expertise and objectivity.
I simply do not believe that it is possible to separate such decisions so that they are based purely on economics. It does not work like that. Giving loans to South Africa is
a political decision. Whatever the United States Administration, the United Nations or the British Government might say, only one thing matters — commercial profit. Nothing else matters, otherwise this IMF loan would not have been given without any real effort to apply conditions. It is not true to say that conditions are not applied. We all know that they are. We all know that severe conditions were attached to a loan sought by Tanzania and that they were applied when my right hon. Friends went to the IMF in 1976. No one has yet explained fully why such favourable treatment is given to South Africa, especially when everyone is apparently against the apartheid system.
That is not the end of the story, because the South African Government, even under the terms of its 1982 application, will have to come back in future years to the IMF to seek further loans to bail them out of their economic difficulties. It is becoming clear to me and to almost everyone else that the South African economy cannot sustain itself on the basis of a purely apartheid system, nor can it sustain itself unless it gets help and assistance from outside. If we are to take seriously our responsibilities to all the peole of South Africa, we must begin to take some action instead of paying lip service in opposition to apartheid.
Before and since I came to the House in 1970, I argued that the Government should take strong action against the unilateral declaration of independence of Ian Smith. I said that if they did so, they would save many lives and bring to Zimbabwe a happier and more confident future than might otherwise be the case. Over the years successive Governments have failed to act with sufficient vigour. I know that lip service was paid to economic sanctions, and we know how many lives were lost as a result.
If the Government argue that they want to avoid loss of life in South Africa, if they argue that they want to have an influence on the development of South Africa and if, they argue that the best way of achieving a non-racial democratic South Africa is by peaceful means and evolution, I would agree. But the only way to achieve that is for western Governments to do something about it and to act as a catalyst to assist in the process.
So long as we have double standards and say, "Yes, we are against apartheid but we shall do nothing about it. The only thing that matters more to us is the commercial profit that our companies and banks can make, whether through the IMF or anywhere else", we hasten the day——
In this instance, I would be interested to see how the hon. Gentleman has been proved right. In what other African, black-controlled country that he can name are minority tribes represented in a democratic house of representatives?
I am not interested in a tribal society. The interesting thing is that by that short intervention the hon. Gentleman has shown the fallacy on which policy towards South Africa and Africa has been based for generations—an excessive belief in tribalism as an instrument of policy. From that stems the difficulties faced throughout Africa, not only in South Africa. The only minority tribe that governs and controls a country is the white tribe of the English and the Afrikaners. We want to avoid tribalism.
We warned of the problems that would arise. We warned of the carnage and bloodshed in Rhodesia, and tonight we warn the Government of the consequences, unless they are prepared to take action. They cannot, as the Tory party did in the case of Ian Smith, put themselves on the side of those who prefer bloodshed to peaceful change and co-existence. Unless they put themselves on the latter side, the Government will be condemned out of hand. I ask the Minister to give us an assurance that when he is dealing with the IMF a more vigorous policy will be pursued through the IMF to try to see that South Africa meets its responsibilities, instead of allowing it to get away with what it has done for so many years.
I was not able to come to the Chamber for the Second Reading of the Bill, much as I wanted to, because I was playing my part in the national executive committee making policy in Committee Room 17. I had to stay until 7 o'clock because somebody wanted to reschedule Labour party policy. I can say with some authority that we have managed to ensure that those reschedulers have been kept at bay, including many of the leadership contenders.
I am not going into that — I am a careful fellow on these matters.
I can tell my hon. Friend the Member for Aberdeen, North (Mr. Hughes) that the policy on South Africa has been re-affirmed in no uncertain terms, and there was no attempt to reschedule that policy.
Clause 1 is the kernel of the Bill. The Labour party would not want to give the impression that we are against sums of money of this magnitude being sent to various rescheduling countries, in particular the developing countries. We are not arguing against sending money to areas such as Ethiopia, where on television, night after night, we have seen those little hungry kids running around on matchstick legs. We are talking about the massive increase in the amount of money going to developed countries, as distinct from those in the Third world. It is because of that that some of us have been anxious to have a debate on this for a long time, and it was that which prompted me to speak on the matter in July 1982, when it became apparent that the banking system was getting out of hand because of the amount of money going abroad.
I see that the Liberals and the SDP have gone. I do not know what contribution has been made by them to this great issue, which is one of the big issues of our time—nobody could deny that, whichever view they take on this matter. Reams and reams of material has poured out of the Brandt report. If hon. Members scratch a Liberal or a Social Democrat, they will find a copy of the Brandt report underneath. Where are the Liberal and Social Democrat Members? They are missing because the decision is hard to make. When it comes to the crunch, they cannot find the answer. People who float about in the middle of politics do not have an answer. The bankers have an answer to the problem. I have no doubt that some Conservative Members have an answer. I do not deny them the facts, the analyses and the reasoning behind their answer.
However, the Liberals and the Social Democrats—the much-vaunted alliance — have gone running. I looked at them when the House was voting at 7 o'clock. I wondered what those people would do. They back every horse in the race. They are like a rocking horse—all motion and no progress. What will they do as they rock gently? I heard one Alliance Member whisper to another, "That's what you get for having a parliamentary party like our lot." I do not know whether the Member was a supporter of the right hon. Member for Tweeddale, Ettrick and Lauderdale (Mr. Steel), sympathetic to a man having two-and-a-half months off. What did they do? Some went into the Aye Lobby and voted for the amendment, some went into the No Lobby and voted against the amendment and some sat in the Chamber wondering where they had landed and then walked out. They were split three ways on an issue of such dimensions.
Many or all Opposition Members would not hesitate to hand British taxpayers' money to those who are starving in the vast swathes of Africa and parts of the Caribbean.
The present problem is even bigger. For the past 12 or 18 months, financial experts have been visiting South America, parts of Africa, Philippines, Taiwan, South Korea—some of the great consumer-oriented countries that have been producing goods, thereby putting British workers on the dole. We were told that they were the acme of capitalist production. What happened? Three of those countries are in the top 10 or 12 who are rescheduling their debts because they cannot cope with the current crisis that they face.
The financial experts, including Witteveen, who was dragged out to Brazil from retirement or whatever he was doing, have been employed to solve the They are running around pushing their fingers into the financial dykes trying to prevent the clams from overflowing. Whatever the Minister may say about the Bill, it will not resolve the crisis because the position gets more difficult as each day passes.
When I spoke about this subject in July 1982, I was told that Britain was OK. When the House was preparing for the summer recess, I was told by some of the pundits on the Conservative Benches that the problem was solved. They said that there had been a crisis but we should leave it to Lord Richardson, Larosière and others with foreign-sounding names as they would be able to resolve it. Hon. Members had not left the House for five minutes when the banks wrote to the Chancellor saying, "For God's sake, stop the freeze on the Argentine assets because we are up to our neck in trouble, and if the freeze is not lifted, we will be unable to get out of the mess." The Prime Minister was faced with the problem, which I acknowledge, between August and December. With the so-called "conviction politician" aura around her, she could not afford to say in the House that she would allow Argentina, with British connivance to get money from Britain by way of bridging, medium-term and IMF loans, while, at the same time, Argentina refused to cease hostilities. On 20 December 1982 the Prime Minister had to give in and bite the bullet. What is happening? They are using that money without any conditions—that was one of the reasons why the Opposition voted against the Second Reading—to buy Exocets, German frigates and all the rest.
What a catastrophe it is. Lads fought for their lives at Bluff cove and some died on the beaches. Yet the Government are handing over hundreds of millions of pounds to Argentina so that it can buy more weapons. We are spending £600 million or so on a new airport, but that will be bombed by the new-fangled missiles and I suppose that we shall have to rebuild it.
I do not believe that the Tories can justify their policy. Some of us took a different view of the Falklands war, but I do not see how any decent Tory can espouse the idea of Fortress Falklands while shovelling out hundreds of millions of pounds to the Argentines so that they can bomb the islands and the airport again.
No one suggests giving Argentina money so that it can bomb the islands again. The hon. Gentleman knows that, and he also knows that the Government are determined to fortify the islands so that that cannot happen.
After the second world war, the western allies had to spend a great deal of money to ensure that Germany did not bring down the rest of Europe because of its economic weakness. Does not the hon. Gentleman agree that it is important for South America and Europe that Argentina does not present a similar risk?
But there is a significant difference. I was only a bit of a kid at the end of the war, but I get the impression that when we made reparations in Germany and Japan those countries were not refusing to say that they had ceased hostilities. The Argentines are saying forthrightly, "When we get hold of your money, we will use it to bomb your people in the Falklands." I do not believe that the Prime Minister or any other Tory can justify such double standards. That is why we feel so strongly about the matter.
What worked me up was the fact that in January this year I picked up The Guardian—I believe that The Times and The Daily Telegraph carried similar pieces—and read that the banks would be allowed tax relief on all the bad debts with Argentina. Brazil and the rest. The top four clearing banks, which made £6,000 million in the four years of the previous Conservative Government, and the hundreds of minor banks that have lent money to Argentina and Brazil through the Bank for International Settlements will not have to foot the bill for the bad debts. They will get the money back from the ordinary taxpayer.
The rich taxpayers will not have to pay. We know that, because we had a debate last week in which it was made clear that £400 million is to be handed over to the richest 3 per cent. of the population. The bill for the bad debts in the 25 rescheduling countries will be met by the widows who pay tax on their £45 a week—the people who the Tories always talk about at election time.
I have all the figures and I have a letter from the Inland Revenue. I was careful not to believe The Guardian on spec. I thought that I ought to follow it up by asking the Government what they thought about the proposal, so I asked some parliamentary questions. Not content with that, because the Government used some sleight of hand in their answers, I wrote to the Inland Revenue, who sent me the documents and told me that tax relief would be allowed on all the rescheduling. There were two or three pages of details.
I received an answer from the Economic Secretary to the Treasury last week. He did not say that there would be no tax relief. He said:
It is not possible to make an estimate of tax relief in relation to the second part of the question."—[Official Report, 7 July 1983; Vol. 45, c. 172.]
The Economic Secretary used to be in charge of running down the Coal Board. Today he is bailing out the banks.
It is a travesty. A total of £6,000 million in profits has been made in four years and all the bills for the bad debts will be paid for by the ordinary taxpayer. Every time that we ask about the international banking crisis we are told, "It is improving you know." Bankers are bound to say that because they live on confidence. They do not have much money of their own, apart from massive profits. The real money is borrowed and sent via a posting box to someone else. Bankers cannot afford to have confidence in them smashed.
During the secondary banking crisis in 1972–73 I remember a fellow who used to sit near where I am—he is not even in Parliament now because he got mixed up with someone else, Somerset way. His bank, London and Counties, went down because confidence went. Once that went, many banks in the secondary banking system went down like dominoes, including the one that the Chairman of the 1922 Committee used to look at carefully —Keyser Ullman. I do not know whether that was an issue when he was run close for the chairmanship, but I have no doubt that one or two people remember that.
The point that I am trying to illustrate is that confidence cannot be held once it starts to fall. When we recall that fellow who was found hanging under Blackfriars bridge, we do not have to go far away from Signor Calvi and some of the things that have been discussed in this debate because the crisis in the system is becoming worse all the time.
I have figures from the beginning of January, not for today. The position is worse today than it was then. They show that $728 billion is owed by countries up to their necks in debt in one form or another. Let us compare that with the reserves of the major western industrial countries. They have only 5580 billion between them in reserves. The 500 top banks in the world have only another $250 billion. About $728 billion is floating about and it compares almost exactly with the amount owing.
We are not talking abut the corner shopkeeper with a few bad debtors. He will manage if only three out of 500 are bad payers. He will get by. We are considering organisations with more bad payers than good customers. That is what is happening in the real world. That is why we should be worried about what is happening in the international banking scene.
When my hon. Friends met Dr. Witteveen and the rest in 1976 and said, "Let's tear up the rest of the Labour party manifesto"—roughly what they did—they did not have a mandate from the people. In Brazil that is not happening any more. Brazil is in the process of forming a debtors' club. Mexico and Brazil—the two top debtors—met not so long ago. Now they are forming a cartel. Several Latin American countries are getting together and saying "We'll pay back our debts, or not at all, on the basis of what we say. We will put our terms to the IMF. We owe that much money that we can call the tune." They are bound to call the tune since Brazil has a 120 per cent. inflation rate, riots in the streets. There is also the possibility—I put it no higher — of Governments being elected in Latin American countries such as Brazil, Venezuela, Chile or Argentina with a mandate not to pay. Nearly all the parties there which go to the starving people experiencing massive inflation will get a mandate not to pay.
It reminds me of the tally man coming round the streets where I used to live—I suppose that he still does—when we would knock on the doors to tell the neighbours that the man was coming to collect their debts for a few paltry clothes and a bit of furniture, and to tip them off not to pay. Little did I realise, when I told the man that my man and dad were not in and could not pay this week, that in a small way I was saying that they were rescheduling their debts for a week. The morality of the working class was that they wanted to pay the following week, or at the end of the year, but in the casino economy where bankers thrive, the morality is different. They do not say, "My man and dad cannot pay this week". Now we have reached the point where Brazil and several other countries are telling the bankers in no uncertain terms, "We are playing your game. We will pay you back when it suits us".
Set against that background, there is no doubt that the crisis is upon us, and it cannot be solved by being tinkered with. The casino economy proliferates in Britain as well as abroad, because it is still easier to lend money at 12 per cent. interest. One need only look at the City columns in the Sunday Telegraph or other newspapers to find massive advertisements telling British people to invest their money in America, Japan or elsewhere. Just before the general election, Aitken Hume was asking British people to invest £500 or £1,000 in an American technology fund, saying that there was a crisis in Britain and that one would get a better return on money invested in America. That is called waving the British flag.
We shall be told later tonight, when my hon. Friends speak in the debate on the Coal Industry (Borrowing Powers) Order, that the real crisis in Britain is due to the miners trying to get a substantial wage increase. We shall be told that the economy is in a mess because we have too many pits, and that some of them should be shut. But the real crisis is not in the pits, on the railways or in the areas of the industrial economy that have been savaged by the Government and run down to a great extent. The real crisis is in the international and domestic banking scene. It will continue for as long as it is possible to make money out of money, investing at high interest rates, and not having the capacity to invest in industry at rates of 3 per cent. or 4 per cent.
Set against that, the American dollar can no longer do what it did in the 1950s and 1960s. Anyone who believes that the United States can bail us out of trouble should forget it. In the 1950s and 1960s it was possible for America, with its mighty dollar, to go round and cover up and pass a few million dollars here and there to keep the natives quiet. But we have gone well beyond that. Now the problem is so large that even the dollar cannot compete. The Latin American countries alone owe $300 billion, and there is the spectre of riots as a result of the people in those countries going hungry and being out of work.
This is not a crisis of our making. It has nothing to do with Socialism, and no Opposition Member need feel guilty about what has happened. The problem is that the enterpreneurs have been making money, but now they cannot pay their bills. So they call upon the taxpayer and anyone else they can find to bail them out. The system of market forces and monetarism, as exemplified by the appeal in the House to get this Bill through, show only too well that they have now burnt themselves out. That is why I was happy that my right hon. Friend the Member for Bethnal Green and Stepney (Mr. Shore) agreed to put down an amendment based on the conditions — not because we are against sending money to the parts of the world that need it, but because we are beginning to see that the system that the Government support and operate cannot deliver the goods at the end of the road.
My hon. Friend the Member for Bolsover (Mr. Skinner) addressed a silenced and hushed House. It is significant that, apart from one occasion, Conservative Members did not intervene. They know that, in great measure, what he says is true. Increasingly, as the months and years go by, more and more journalists, economic commentators, people in the media, hon. Friends, Conservative Members and others in the country will recognise that the international economy moves steadily and relentlessly into crisis. What was once a small minority of people will surface as time passes to address themselves to the real problems and solutions that are necessary.
We all recall my hon. Friend the Member for Bolsover intervening during the speech of my right hon. Friend the shadow Foreign Secretary a week and a half ago to ask the important question whether it was true that the taxpayer would be funding the losses of any United Kingdom banks. My right hon. Friend replied in the affirmative. It was an important contribution to our debates, because my right hon. Friend was clearly accepting, as does my hon. Friend, the measure of the crisis.
Clause 1, which quadruples the limit from £350 million to 1,700 million SDRs in the Treasury's power to lend to the IMF, gives us the opportunity to debate these matters again as we did on Second Reading. The public seek assurances about the use of these moneys. Therefore, the debate on conditionality must be central to our deliberations. There is public anxiety about the irresponsible use of quota funds and those funds that have been and are to be contributed by member Governments because, as my hon. Friend the Member for Bolsover said, in its crudest and simplest terms it may be the pensioner who picks up the bill at the end of the day, because we are talking about priority in the allocation of Treasury resources.
Too often we have, as quota contributors—I can only quote the words of Lord Lever—
lending that has financed wars, the purchase of ludicrous levels of armaments and economic megalomania of all kinds.
If the debate today has done one thing, it has enabled many of us to concentrate our attention on the use of these funds.
My hon. Friend the Member for Aberdeen, North (Mr. Hughes) addressed his comments to a problem in South Africa. Worst of all, we have underpinned Fascist regimes to which we are opposed. There seems to be a strict correlation between some of the largest borrowers and anti-democratic Governments. In further contributions tonight and further debates we should address ourselves to why the anti-democratic Governments are the largest borrowers. May it not be perceived as a reflection of the kind of political and economic systems that they manage?
Commenting on the allocation of moneys to the antidemocratic borrowers identifies the double standards that exist. We do complain about sending food to the Soviet Union or ships to Poland and the funding of those two commodities, but we do not complain about the supply of weapons to Latin America. However, in the minds of those who seek to be objective in these matters, they are equally squalid anti-democratic societies. When the media and Members of Parliament set out to criticise eastern Europe, they should also criticise the anti-democratic regimes which exist in other parts of the world and which are too often propped up by the resources of the central banks and the IMF.
I submit that the IMF has the power to impose conditions but, for political reasons, lacks the will to do so. The clearest and nearest example to the hearts of the British people has been the notable case of Argentina and its attempts to use precious resources, which have been made available through the banking system, to fund its additional purchases of arms supplies. We all know that inevitably they will be used to shoot at our people in the south Atlantic.
There has been a dearth of information about the real terms of the loans and IMF advances. On 9 February 1983 I asked the Prime Minister, in a written question, to publish the Argentine letter of intent. The following day the right hon. Lady replied that that letter of intent was confidential. However, there are some sources of information. One of them is an article written by a Mr. Jimmy Burns, which appeared, I believe, in The Times.
Our man in Buenos Aires—if that is the right phrase—said that the letter of intent that he had been able to identify
lays out the broad outline of the military Government's economic programme for a 15-month period beginning in January 1983.
It includes a forecast of 5 per cent. growth in gross domestic product in 1983 after slight contraction in the current year.…
The letter is understood to have accepted the need for fiscal and monetary discipline while forecasting an inflation rate for the next year of 150 per cent. This compares with consumer price inflation of 175 per cent. in the 12 months to September this year …
Yesterday's agreement in principle followed four weeks of complex negotiations which on a number of occasions had come close to collapse. Last-minute objections to the negotiations from sectors of the armed forces were thought to have delayed the departure of the IMF team's chief.
Sr Jorge Welbe the Economy Minister, is presenting the deal as a compromise, with the IMF stepping back from tough conditions which might have been politically and socially unacceptable. But the economists view the growth and inflation targets as too optimistic if not incompatible in the present uncertain political atmosphere.
That was a journalist's comment on the letter of intent which the Prime Minister refused to publish, despite the fact that Britain, and the Chancellor of the Exchequer as chairman of the IMF, were clearly involved.
I asked the Prime Minister what conditions were imposed by the International Monetary Fund on its loans to Argentina in respect of public sector and external borrowing by that country. I received an answer that was simply based on undertakings given by the Argentine Government about growth rates. There was a promise to eliminate external payments arrears by June 1983. It is now July and perhaps the Economic Secretary will tell us whether that element of conditionality was complied with by the Argentine Government.
The question for the House to ask is whether the IMF went far enough in the correcting measures that it was required to demand of the Argentine junta. I believe that it did not. The origins of conditionality which are at the heart of the debate and which have already been referred to put immeasurable powers in the hands of IMF negotiators in discussions with the Argentine Government.
Paragraph 4 of the selected decisions of the executive board, the background document on conditionality, says:
In helping members to devise adjustment programs, the Fund will pay due regard to the domestic social and political objectives, the economic priorities, and the circumstances of members, including the causes of their balance of payments problems.
Political objectives and economic priorities are clearly defined there as areas where the IMF negotiators have responsibilities and the right to intervene.
Much has been written on the fund's responsibilities on conditionality, but there are a number of excellent sources on conditionality which I want to bring to the attention of the House and which I believe the House should bear in mind in considering the Bill and this clause.
Joseph Gold, who is a senior consultant to the IMF, and formerly general counsellor and director of the legal department of the fund, said in an article on conditionality:
The program set forth in a member's letter of intent normally spells out certain aims in connection with the balance of payments, growth, and inflation, and includes a range of policies and intentions covering many aspects of the economy. The program is not dictated by the Fund, but the Fund has the duty to determine whether or not support of a program with its resources would be consistent with the Articles and with the policies of the Fund.
I understand that to mean that the IMF negotiators have the right to establish whether certain purchases which would affect the balance of payments should be taken into account in any allocation of moneys by the IMF.
Mr. Gold continued, on the subject of conditionality:
Specific prices of commodities or services, specific taxes, or other detailed measures to increase revenues or to reduce expenditures would not be considered macroeconomic variables".
He says that because he maintains that macroeconomic variables are the only matters that are to be included in consideration by IMF negotiators.
Mr. Gold went on to say:
The Fund may wish to know, however, what a member's intentions are on matters of this kind in order to have a view on whether there is a reasonable prospect that the member will be able to meet performance criteria
Therefore, there is the possibility of a detailed analysis of the public purchasing programmes of Governments such as the Argentine Government. I believe that questions should have been asked about what the Argentine Government intended to do with moneys that were likely to be made available to them over the period following negotiations. Mr. Gold's comments speak of reduced expenditure as an area for consideration, and that implies consideration of arms purchases by the Argentine Government.
Another senior adviser and counsellor to the IMF, Mr. Manuel Guitian, the senior adviser in the exchange and trade relations department of the fund, in an article in Finance and Development in June 1981–1 believe that that is an IMF publication, but I stand to be corrected—had much to say about conditionality. He said:
It is also common to have a number of important policy understandings in the formulation of an adjustment program, which provide the basis on which the feasibility of the domestic financial policies is predicated. These understandings are rarely made performance criteria in programs supported by the Fund, but they can be critical for the attainment of financial balance and sustainable growth rates. They normally include: public sector policies on prices, taxes, and subsidies, which can contribute to eliminate financial imbalances and to promote efficiency in public sector activities.
That shows the detail into which IMF negotiators can go in trying to establish what may be the criteria or, in his terms, understandings, before loans are made by the IMF.
On this occasion, particularly with the provision of money to Argentina, according to published documents there was no consideration of those matters. If it is the Prime Minister's intention, as she suggested earlier this year, to ensure the closest possible scrutiny of the use to which money is put within the IMF criteria, the right hon. Lady should use the criteria and understandings identified by that senior adviser in his article to ensure that there is more positive restraint on the use of this money by the Argentine Government.
A. W. Hook, another IMF commentator, in the pamphlet—[Interruption.] Hon. Gentlemen may laugh, but there are many people who believe that Parliament should have considered these matters at the same time as the IMF and when the Chancellor of the Exchequer, as chairman of the interim committee, was winging his way across the world to meetings to discuss the allocation of the money. Hon. Gentlemen would do well not to be scornful or to laugh. It is a matter of great concern to the British people.
The hon. Gentleman is providing us with all this tedious detail from IMF experts, but he should bear in mind that his hon. Friend the Member for Bolsover (Mr. Skinner) said that it does not matter what conditions were imposed because it was possible for these states to ignore them all, form a club and impose their own terms.
I am sure that my hon. Friend the Member for Bolsover will accept what I say. If the Argentines had been informed that the allocation of money precluded the purchase of weapons that could be used against British troops in the south Atlantic, they would have fulfilled and complied with the terms and conditions laid down. They are the conditions and arrangements under discussion. My hon. Friend was referring to repayments. We are now talking about conditionality on the principle of allocation in the first place.
Mr. Hook, in the IMF pamphlet, stated:
Performance criteria also include limits on the contracting of new external and medium term debt.
As I understand it, it is that debt which is being incurred to secure the purchases of the weapons that were referred to by my hon. Friend the Member for Linlithgow (Mr. Dalyell) and my right hon. Friend the Member for Bethnal Green and Stepney (Mr. Shore).
All the comments on conditionality imply substantial levels of intervention. Intervention could have taken place on weapon purchases. In an article in The Guardian on 23 March 1983 those weapons purchases were all clearly laid out for the record. The article, under the heading "Junta inspects new warship", said:
Navy chiefs inspected their newest ship yesterday, the 3,600-ton Almirante Brown … The ship, which cost £500 million, is fitted with Rolls-Royce engines … The Almirante Brown ߪ was fitted with sea-to-sea MM40 Exocet missiles, similar to those used against the Task Force last year … Argentina also awaits delivery of 3 other Meko-360 type ships built in West Germany. Defence sources say that Argentina has received up to 70 Mirage III or Dagger fighter-bombers since last summer. About 24 of these were delivered during the conflict, another seven arrived in January and up to 28 in early February.
How many of those weapons are being paid for out of money that even now we are providing by increasing the money in clause 1?
I should like to refer to this minor point in my hon. Friend's argument. The M 38 Exocets, which had a range of just under 20 miles, were used against the task force. The Exocets :to which my hon. Friend refers, the M 40 Exocets, are updated and more formidable, and have a range of over 40 miles, with better control and guidance systems.
My hon. Friend is a master of those matters, as we all know. Over the past few months he has drawn to our attention innumerable examples of arms purchases by the Argentine junta, all of which we know and believe will be used against our people in the south Atlantic over the coming years unless negotiations are undergone with the Argentine junta or, we hope, with a democratic Government later this year after the elections.
The last batch of French-built Mirages was received on 1 February, according to the article in The Guardian. They were
transferred by night from the port of Buenos Aires to the metropolitan airport for assembly at the Aerolineas Argentinas sheds.
That was all before our eyes. We are seeing that purchase taking place and seeing the money allocated, yet the British Government stand back and refuse to move on conditionality in the way in which many of us in the Opposition believe is possible under the present agreements. The article continues:
Argentina has also bought 12 Brazilian Xavantes light reconnaissance jets … The Argentinian Government arranged last September to buy 10 Lynx helicopters from Westland in a three-way deal through West Germany.
That was reported on 23 March. I wonder how far those negotiations have got. The article states:
Argentina is looking for more French Mirage 2000 fighter-bombers and Israeli Dagger aircraft to replace its Skyhawk fighters … Up to $6,000 million
—this is of crucial importance to the House—
of Argentina's $6,000 million debt is thought to have been spent on defence.
That is a warning for the future. The House would do well to take note. The question is whether we have the power to intervene on matters of restricting trade and by doing so prevent those purchases from taking place, I can only refer back to the comments of Mr. Joseph Gold——
The hon. Gentleman would do well to leave these matters to the Chair if he cannot be bothered to debate himself.
I return to the comments of Joseph Gold. He says that we have the power to stop them from restricting trade, so I presume that we have the power further to restrict them in their trading practices. On foreign debt, presumably acquired through borrowing for imports, lie says that
New foreign debt of some kinds may place too great a burden on a member's reserves in the medium term and maturity of those kinds of debt may be the subject of a performance criterion.
That statement invites intervention by the British Government through the criteria on arms purchases. Paragraph 10 of the background document on the use of the fund's general resources and standby arrangements
provides a review of the conditionality arrangements imposed on a recipient borrower. The Minister should give clear undertakings that when that matter is reviewed the British Government and Chancellor will ensure that conditionality includes far stricter rules on the ability of the Argentines to purchase weapons. If we fail——
We have had a useful debate. One clear lesson stands out from the debate of the past one and a half hours—it is to be regretted that the Government did not find time for a full day's debate on the Second Reading of this important Bill. It is perhaps unreasonable to hold it against the Economic Secretary on both counts, but it is a matter of regret for the House as a whole and a particular criticism of the Government that it is now a full year since the origins of the debt crisis with the Mexican threat to default. This is the first time that this House has paused to debate that debt crisis and its implications for the world monetary system. No hon. Member can be proud of the fact that we have managed to get through the past year without, at length and seriously, turning our minds to these affairs, which are profound.
The House will be grateful to my hon. Friends the Members for Bolsover (Mr. Skinner) and for Workington (Mr. Campbell-Savours) for the way in which they have addressed their minds in their different manners to the profound issues that lie behind the Bill. My hon. Friend the Member for Workington has given a scholarly analysis of the meaning of conditionality as applied by the IMF. I was particularly interested in the manifest research that he put into his work. My hon. Friend has shown without any doubt that it would be perfectly possible for the IMF to attach a condition preventing Argentina using facilities it received for the purchase of weapons. Any hon. Member who listened carefully and attentively to the references produced by my hon. Friend could not doubt that it would be technically, politically and practically feasible to attach such a condition. It would be feasible even on the narrow grounds of what is relevant to the financial facility being offered. As those hon. Members who were present during the Second Reading debate earlier today will be aware, Argentina is now committed to spending £2 billion on the purchase of arms abroad. It is the largest single commitment of the Argentine foreign reserves apart from debt servicing. It cannot but be relevant to our consideration of whether Argentina should be given a loan facility as to whether Argentina will use that facility to fuel its military grandeur.
My hon. Friend the Member for Bolsover approached the Bill in a different spirit, with passion, vigour and vehemence. My hon. Friend was absolutely right to say that the countries that are affected by the debt crisis are not the most destitute countries in the world. We are not dealing with the countries of the Indian sub-continent or of the sub-Saharan region. We are dealing primarily with0020the newly industrialised countries—Mexico, Brazil and Argentina.
Only three or four years ago, those countries were held to be the spear-head of the Third world's development. Indeed, three or four years ago, it was fashionable for articles to appear in the quality press warning of the dire future for the industrialised and developed world from the new industries springing up in those very countries which we now regard as the worst victims of the debt crisis. My hon. Friend was right to raise the issue. If the world's institutions cannot manage to find a way to handle the emergence of those countries on to the industrialised stage in a more successful manner than we have managed the emergence of these three Latin American countries, what hope is there for the destitute countries of the Indian subcontinent and of the sub-Saharan region? I am ever grateful to my hon. Friends for taking part in the debate and for adding in depth to our earlier debate on the Bill.
My hon. Friend the Member for Aberdeen, North (Mr. Hughes) concentrated on the issue of South Africa and raised some new matters which we did not have an opportunity to explore in our earlier debate. I wish to refer in detail to a few of the points that he raised.
I cannot resist noting that the House of Representatives, when considering a similar Bill which fulfils the American contribution under the agreement that was obtained by the previous Chancellor of the Exchequer at the IMF meeting in Washington, attached an amendment obliging the representatives of the United States in the IMF to vote against the use of the increased facilities for any country that practises apartheid. I cannot resist comparing and contrasting the more democratic procedures of the House of Representatives, which enabled it to reach that decision, with the more narrow procedure under which we operate whereby the similar amendment that my hon. Friend the Member for Aberdeen, North tabled is held not to be in order so the House cannot judge on that point of principle.
My hon. Friend aired fully and in detail a matter that concerns him and should worry the whole House. There can be no doubt that he was right to raise the political issues that are involved in the loan to South Africa. I should like to pick up the exchange between him, the Economic Secretary to the Treasury and the hon. Member for Lancaster (Mrs. Kellett-Bowman) on the history of Jamaica.
The Economic Secretary said that the facility to the Jamaican Government were suspended on technical grounds. That is perfectly correct. In 1977, the credit facilities to Michael Manley's Government in Jamaica were suspended on the precise technical ground that one of his monetary targets was 3 per cent. adrift of that which was set under the conditions that were attached to the facility. It is perhaps just as well for the Government that they are not the recipients of credit from the IMF on the condition that they hit their monetary targets because they have been far more than 3 per cent. adrift on their targets on the monetary aggregates.—[Interruption.] The hon. Member for Beaconsfield (Mr. Smith) intervenes from a sedentary position. If he follows the history of the period 1974–79 he will find that there were no monetary targets in the first two years and when monetary targets were introduced, for what it is worth—I do not think that it is worth much—the Chancellor hit the targets with much more precision and regularity than the succeeding Government, although they raised those same monetary targets to the level of a fetish.
It is true that there were technical grounds for the suspension of the credit facility to Jamaica. The question that has often been asked is whether there would be any other Government, such a technical breach of the conditionality by which would have resulted in the decision to withdraw the credit facility. It is not possible to draw a clear line between a technical judgment and a political judgment because the technical judgments employed by the IMF reflect the political values of the dominant groups in the IMF.
That was shown in 1978 when Michael Manley's Government asked for and received another credit facility under extreme duress, but it was a credit facility that involved conditions that resulted in a 60 per cent. price increase in food and fuel and a cut in public spending, especially in welfare. Those may have been technical conditions but they were also political. They were certainly political in their outcome because, as the hon. Member for Lancaster said, as a result of those conditions, unemployment rose by 30 per cent. and there was a 45 per cent. drop in the living standards of the Jamaican people. The entirely predictable consequence, which could not have escaped the IMF, was that the Government were hounded from office and replaced by another. The hon. Lady said that the new Government was better. I shall not bother to maintain that technical discussion and perhaps I shall not condescend to such a subjective concept of what is better or worse but I agree with the hon. Lady that the new Government of Jamaica are far more akin in their political values to those of the Western bankers who dominate the IMF. As soon as that Government obtained office with a different set of political values, they then obtained the same credit facilities that Michael Manley had been seeking on much softer conditions than he had been able to obtain.
Surely the reason for that increase in facility was not the political values of the new Government but their economic values, which made it much more likely that they would be able to repay the loan than Michael Manley's Government who followed pure Socialist dogma.
The hon. Gentleman's intervention gives us an interesting insight into the current Conservative mind, which appears to hold that economic policies, performance and judgment have nothing to do with politics. That may go a long way to explain the unresolved mystery of how this Government were re-elected with an increased majority. If we leave aside economic performance and policies, we may indeed start to understand the result of the last general election, but to any normal punter and humble Back Bencher, it is impossible to separate economic policies from political judgment.
It is, therefore, very clear from the recent history of Jamaica that the IMF has been willing to make a political judgment. I do not criticise it for that, but if it make a political judgment in relation to a Government in the Caribbean who happen to be Socialist, radical and black, we are entitled to expect it to exercise a similar political judgment in the context of a Government of South Africa who are Conservative, capitalist-minded and who happen to be white.
That brings me to the basis on which that credit facility was made last year. Quite apart from the wider political considerations, there are narrower technical matters that are intriguing. For instance, the financial policies pursued by the Government of South Africa last year, were not the kind that are normally pursued by a country that has just succeeded in raising a $1 billion credit facility from the IMF. The normal condition of an IMF facility is that the budget deficit should be reduced, but in the year in which it obtained this credit facility, South Africa's budget deficit expanded in cash terms and remained constant as a percentage of GDP. It is normally a condition that monetary targets are tightened, but South Africa's credit facility was obtained in the very year in which it relaxed its monetary targets. It is normally a condition that interest rates rise to curb monetary expansion, but interest rates in South Africa fell.
In other words, the precise reverse of all the features of financial policy that we normally associate with IMF credit facilities obtained in South Africa last year. One is then driven to ask the question posed by my hon. Friend the Member for Aberdeen, North, why, in the case of South Africa alone, were an entirely different set of financial standards applied from the standards exercised in the case of Michael Manley's Government in Jamaica in 1977 and 1978?
My hon. Friend is entitled to a detailed reply to the specific questions that he asked. First, was the majority of the directors of the IMF informed of the visit to South Africa before it took place? Secondly, why was the request by nine IMF directors for a postponement of a decision refused? Thirdly, why, again uniquely in the case of South Africa, and most unusually in the case of the IMF, was the credit facility front loaded so that 80 per cent. was triggered before South Africa could have been expected to fulfil any of the conditions attached to it?
The answers to these questions will be telling, and I am well aware that the Minister attempts to answer all questions punctiliously and carefully. He may not be able to answer my hon. Friend's questions tonight. If he is unable to do so, I hope that he will set out the answers in writing for my hon. Friend. The questions go to the heart of the debate on conditionality, which has overhung the general debate throughout the afternoon and evening.
My hon. Friend the Member for Bolsover (Mr. Skinner) understandably expressed surprise at the fact that not one alliance Member took part in the debate especially as it has centred on an issue on which alliance Members' compassion, so they constantly claim, is pinned to their sleeves. My hon. Friend spoke about their absence in Committee, but they were absent on Second Reading. Not one alliance Member intervened on Second Reading. However, we were favoured by a visit by one alliance Member for the Front Bench replies.
During the debate on whether the clause should stand part of the Bill, one alliance Member managed to sustain an attendance for 20 minutes before, perplexed by the detailed exposition of my hon. Friend the Member for Workington, he retired from the Chamber. He was replaced by the hon. Member for Berwick-upon-Tweed (Mr. Beith).
The hon. Member for Berwick-upon-Tweed may have arranged the rota. If he did so, he certainly arranged it to suit himself, for he stayed in the Chamber for only six minutes. That was the combined contribution of those who sit on the alliance Benches. It exposes as a hollow sham the many rhetorical speeches throughout the country of alliance Members who are happy to address public meetings and tell the press about their concern for the Third world. It seems that they are not prepared to be in their places in the House when they could do something towards resolving the problems of the Third world.
Until the speech of the hon. Member for Livingston (Mr. Cook), it was hard to believe that we were addressing ourselves to a clause that seeks massively to increase international aid from Britain to the IMF. I shall take up immediately the hon. Gentleman's last remarks because they were extremely germane. It is true that an alliance Member has not participated in our debates. Indeed, for most of the time no alliance Member has been present. This fact was touched upon by the hon. Member for Bolsover (Mr. Skinner). Much as I admire and love the coal industry and all my memories of it — I was involved ministerially with the industry in the previous Parliament — I thought that I would not be visited by Bolsover again. However, the hon. Gentleman made an engaging, lucid and outstanding speech, in which he drew our attention to the absence of the alliance. I think it right in its absence to draw attention to a passage in its manifesto. I am sure that the Committee will not wish to prevent the public knowing what it stated in that document. Among many other things, including an expression of the need to make available additional finance for the developing world, it ended a significant paragraph by stating:
support the principles of the Brandt report, and in particular the proposals for increased credit through the international institutions.
It would have been to the benefit of all parties which seek on each side of the Chamber to represent those who voted for them at least to have heard an alliance Member explain why the issue was so critical during the election campaign and so irrelevant when it came to be debated in the House.
The hon. Gentleman is right. My difficulty is to find any form of identity. That being so, I employed slipshod journalese. It is hard to describe something that does not exist and lives in some in-between world. I shall reconcile myself to the hon. Gentleman's specific approach, which I shall try to recall in future.
I recognised the value of the comments of the hon. Member for Bolsover, who asked "How can the Government justify this policy?" It was somewhat difficult for him, as I appreciate that he was unavoidably detained in a meeting of the NEC, and was therefore unable to attend the critical debate on Second Reading, and hear the attempt that I made—perhaps not a very good attempt—to express and explain the Government's policy. I draw the hon. Gentleman's attention, as a pure matter of technicality, to the fact that he did not vote against the Second Reading of the Bill, but on an amendment. The Second Reading was approved without a vote.
I wish to take up the specific point raised by the hon. Member for Bolsover, because it has resulted in an important debate that has gone on for months. It concerns banks, bank interest and the nature and relationship of that to the tax liability of banks. I find it difficult to explain to some of the 350,000 people who work in the banking industry and have a pride in their occupation and their work, why they are the subject of constant attack. As a politician, I do not mind being under attack, and have become quite used to it. I should like to give the Committee, as I have an opportunity to do so, the facts on relief for taxpayers. The hon. Member for Bolsover is right —and has been assiduous in his pursuit of the matter—to say that it merits the House having the details.
Provisions dealing with tax deductibility apply to all businesses, whether banks, companies generally or unincorporated businesses, and in respect of domestic as well as international banking debts. Secondly, this is not a new relief. The deductibility of specific bad debts is fundamental to the United Kingdom tax system, and of long standing. The Inland Revenue statement of practice, which the hon. Member for Bolsover is attempting to produce, was printed on 25 January 1983, and explained the general rules of tax deductibility and how these applied in the case of country-risks debts.
This statement needed to be published and brought out, and was not a new revelation or discovery, because there had been considerable press speculation — I do not suggest that we encouraged it—that seemed to create difficulties and doubts in peoples' minds. The Inland Revenue thought it right that the position should be made clear. The position is no different, there are no changes, and it still applies to all businesses.
The hon. Member for Bolsover asked a parliamentary question the other day, which I sought to answer, on how we could quantify these debts in terms of the potential for debts that could be offset against taxation. I was unfortunately unable to explain, and had to say that it was not possible to quantify. Let me try to explain why, because this is a legitimate point, and we should all know the background. First, the Inland Revenue is concerned, at the moment, largely with accounts for periods at the end of 1981 or early 1982, largely before the problem of international indebtedness arose. Secondly, this is only one item deducted in arriving at taxable profits, and separate statistics are not kept of such details. Thirdly, as to confidentiality in relation to any specific bank, anyone interested in pursuing the matter further can refer to banks' annual reports on this matter. I always try to answer detailed questions, but there is no essential difference.
Will the Minister acknowledge that on 21 January, a story was run in the financial columns of most of the newspapers, on the lines of:
Until now the Inland Revenue has not publicly accepted that these provisions are deductible.
That statement came in an article by Peter Rogers in The Guardian, and if that and other articles in other newspapers are wrong, why has the position changed? We know, and the Government know, that by making it public, they were giving the nod and the wink to many of the banks that were reluctant to send money abroad to Argentina, Brazil and Mexico that, like others who get perks from the Inland Revenue, they could go ahead and be all right because at the end of the day they wuld not have to foot the bill. That is why the big four banks have
set aside £922 million for bad debts and why many other banks have added to that. The making of this fact public, as was shown in the article, and as the Inland Revenue has told me in its letter, made all the difference, and has resulted in much more tax relief being available to these banks.
Being an assiduous reader of the press, I am surprised by the determination of the hon. Member for Bolsover to believe what he reads in it.
I shall repeat the facts that I previously stated. Speculation in the press did not help, so at the request of the British Bankers' Association a statement of practice was issued on 25 January entitled "Country-risk Debts" which restated the tax treatment of those debts. The statement was issued as a means of making the position perfectly clear.
The hon. Member for Aberdeen, North (Mr. Hughes) legitimately raised a subject on which I, in my limited time of nine or 10 years in the House, have heard him speak, argue and discuss with consistency. I do not, in any way, deny him the right to address the Committee on his arguments. However, I am asked to concern myself with the IMF conditions, which have always related to economic need. That subject has previously been discussed. An area for further debate involves the definitions. I shall pursue with great care the contribution by the hon. Member for Workington (Mr. Campbell-Savours). Opposition Members have a better understanding of the economic need facilities surrounding the IMF provisions from their experiences in 1976. The decisions, as I clearly said during the Second Reading debate, are essentially apolitical.
I wish to speak about South Africa. I shall, as the hon. Member for Livingston suggested, return with specific details. I wish to remind the Committee — the hon. Member is most familiar with the subject — of the specific loan that he was talking about, which was referred to in a parliamentary answer in November 1982, which said:
There is no provision within IMF's articles for declaring a member ineligible to use the fund's resources unless it fails to fulfil any of its obligations under the articles. South Africa is not in this position. Accordingly the UK supported the application on its technical merits." — [Official Report, 11 November 1982: Vol. 31, c. 601.]
I am sure the hon. Member remembers that. I remind the hon. Member for Aberdeen, North who has been consistent on this issue, that policies did not suddenly change in 1979. South Africa last used fund resources in 1976 and 1977. In 1976 the SDR figure was 160 million and 232 million in 1977. The then Labour Government were as consistent as the present Conservative Government in their attitude and application to the principles. Last year's loan contained a specific difference —I shall return with further details in correspondence, which will be made public,—in that access to the CFF —the compensating facilities which are quite different from general loans — is more mechanical. Temporary slumps in export earnings are compensated, provided certain tests are met. For example, the shortfall should be attributable to circumstances beyond the members' control, the member must demonstrate a balance of payments need. The hon. Member for Livingston is aware of the difference, as he is familiar with this topic.
In 1976 and 1977 I was as vociferous against the then Labour Government's facilities through the IMF towards South Africa as I am now. The Minister referred to balance of payments difficulties. The loan was curious in that the South Africans maintained that one of the reasons why they needed these facilities was that the gold price would fall to 315 dollars an ounce, whereas it remained steady at 400 dollars an ounce. It is surprising that the views by the South African Government were taken at such face value without, apparently, the rigorous investigation that applies to other countries which base their application on the falling price of a commodity.
We can debate the matter further on another occasion, but the hon. Gentleman's question related to the CFF facility, as opposed to normal IMF loans, and that facility provides finance to help recovery from temporary export shortfalls. The hon. Gentleman suggested that the South African request was dealt with on a basis other than its technical merits. But that would undermine the principle of the fund, which the hon. Gentleman quoted accurately, without necessarily agreeing with it, that
all members are treated in a uniform way".
Such action might also have acted as a disincentive to other potential fund clients and would have damaged the confidence that members could repose in the fund. The hon. Gentleman quoted some of those words. I know that he does not agree with them, but they represent the policy of the previous Conservative and Labour Governments and the policy of the present Government.
Absolutely. I would not do other than quote the original words to the original questioner.
The hon. Gentleman asked about the Government's policy. We believe that economic need is the key criterion and that IMF decisions are apolitical. We do not agree with what has been said about the absence of conditionality. The Opposition believe that it is possible to introduce greater conditionality and that debate will continue. I re-emphasise that the apolitical nature of IMF funding must be maintained.