§ Order for Second Reading read.
§ 3.38 p.m.
The Chancellor of the Exchequer (Mr. Derick Heathcoat Amory)
I beg to move, That the Bill be now read a Second time.
The Measure which I am proposing is a machinery Bill to enable the United Kingdom to give effect to the increases in quota and subscription to the International Monetary Fund and the International Bank for Reconstruction and Development respectively. My task today is one which does not lend itself, perhaps fortunately, to flights of oratory, so I shall concentrate my efforts, to the relief of hon. Members, on an attempt at clarity and reasonable brevity. Not that the subject matter we are discussing has no human implications. On the contrary, this subject is one which is bound to affect the livelihoods and standard of living of millions of people throughout the world.
I have already told the House on 3rd November, in the debate on the Address, of the general policy lying behind our support for the increase in resources of these two international institutions. I need, therefore, only briefly remind the House of the background, starting with the International Monetary Fund.
During the last two or three years, the Fund's resources have been used on a considerable scale. It started in a slow and quiet way, but it has developed considerably over recent years. In 1956, 700 million dollars worth of currencies were drawn. In 1957, nearly 1,000 million dollars worth were drawn, and in 1958 over 300 million dollars worth. In addition to these drawings, the Fund has entered into so-called "standby" arrangements with members whereby, for a stated period, a certain amount of currency is on immediate call. These arrangements total at present about 800 million dollars and were as much as 1,100 million dollars at the end of 1956. The standby with the United Kingdom is by far the largest item of these arrangements.
The Fund, in the course of these operations, has used up a fairly large proportion of its holdings of gold and of 36 those currencies which are in demand. The meeting at New Delhi, in October, decided to set on foot an immediate investigation into the need for an increase in resources, and the resulting report by the Executive Board is contained in Part I of Cmnd. 652. As hon. Members will see from the foreword to that White Paper, the Board of Governors has passed a resolution deciding on an all-round 50 per cent. increase in quotas. That resolution is one of the two causes of the present Bill. The resolution provides that the 50 per cent. increase will not become effective until members with at least 75 per cent. of the total of quotas have given their consent to their increased individual quotas.
Before member countries can do this, they must be in a position to promise the additional subscription which will become due, and that is why the Government ask for Clause 1 (a)of the Bill. Two subsidiary resolutions were passed by the Board which provide for the special cases of certain small countries and also the special cases of three countries— Canada, Germany and Japan — which have expanded their production and trade very greatly during recent years and so have justified consideration of special quotas.
Her Majesty's Government want to see the Fund working with its expanded resources just as soon as possible, and certainly by the time of its next annual meeting next September. As the House knows, for some considerable time we have thought it most important to increase the level of international liquidity generally. We concluded that the best and most practical way of doing that was to build up the resources of the International Monetary Fund, that is to say, of an approved international institution. I am glad to say that this objective had the wholehearted support of the Commonwealth Economic Conference in Montreal last September, when we discussed the matter there.
In strongly supporting the proposal for a substantial increase in the Fund's resources at the annual meeting in New Delhi, I pointed out that I thought that the Fund had been working on rather too narrow a margin. I said that we had reason to be very grateful for the continuing outflow of dollars from the United States during its recession, but that we ought not to conduct our affairs on the 37 assumption that events would always turn out so fortunately. Moreover, I said that the future which we wanted to create was one of expansion, which meant higher levels of production and trade and payments throughout the world. In working towards that objective, there might well be, from time to time, periods of strain and imbalance when substantial and timely reinforcement would be needed if our hopes were not to be defeated.
I should like to underline that the International Monetary Fund is an active organisation which, particularly in the last three years, has provided a large amount of money to member countries to help them to recover their equilibrium when for some reason there has been a drain on their reserves. The reasons why they have found themselves in a situation of disequilibrium have been various—crop failures, sudden movements in the terms of trade, or changes in confidence in individual currencies. In those kinds of circumstances, the Fund must be able to give assistance promptly. Many countries, including certainly our own, have found it of very practical value to be able to call on the assistance of the Fund, but this has been possible only because the Fund has had substantial unused resources to date.
During last year it became clear that these resources were growing somewhat slender. The total holding of gold and United States dollars, for instance, which was 3,500 million dollars in September, 1956, were only 2,300 million dollars on 30th November last, and of that amount about 800 million dollars were committed in the standbys to which I have already referred, so that there were only about £1,500 million—
I am much obliged to the right hon. Gentleman. If he notices my making that mistake again, I hope that he will pull me up. It is very confusing when we are dealing with our own currencies and the currency of the Fund which is in dollars.
As I was saying, only about 1,500 million dollars were free for future calls by members, despite the fact that during the past few years there have been substantial repayments to the Fund by members.
38 I hope that the House will agree that in these circumstances, and bearing in mind the achievements of the Fund to date, it is a wise investment for us to increase our subscription in common with other members of the Fund. In this way, our own drawing rights, and the drawing rights of other countries, will be increased, and that will amount in total to a very substantial addition to international liquidity. I believe that with these increased resources we shall be in a much better position, all of us, to face with confidence the inevitable fluctuations in world trade and economic developments that may lie ahead in the years to come.
I should like to say a few words about our additional subscription. Our own additional gold subscription amounts to £58 million. The remainder of our increased subscription—that is another £174 million—is paid in sterling which is immediately lent back to us as an interest-free loan, so that this is for the time being something of a paper transaction. The sterling which is lent back to us interest-free would only be effectively drawn from us when the Fund came to need additional sterling, and the Fund would need sterling only because members wished to draw sterling from it.
Hon. Members will see from the table on page 13 of the White Paper that the Fund already holds the equivalent of 1,618.3 million dollars worth of sterling, or £578 million. Sterling would have had to be very strong for quite a time to stimulate drawings sufficiently for the point to be reached where the Fund's existing sterling was used up and any substantial call was made on this new amount of sterling we now propose to pay. So much for the subscription to the Fund.
Our increased drawing rights will be the whole of the increase in the quota, that is to say, £232 million or 650 million dollars, plus the amount of gold we pay in. As a result of this increase in our quota, we shall be able to draw, in all, an additional £290 million or over 800 million dollars more than we can at present. That is five times the amount of the additional gold subscription and is a very substantial reinforcement of our first line reserves.
39 Therefore, for reasons of self-interest alone, it would be well worth while commending this proposal to the House, but this is also a co-operative international project. We are investing further in the success of an established international institution which has already done a great deal for the financial and economic stability and progress of its members all over the world. So much for the Fund.
I now turn to the other part of the Bill, which provides for doubling the United Kingdom's shareholding in the International Bank as our contribution to the proposed doubling of the Bank's authorised capital. The present authorised capital stock of the Bank is 10,000 million dollars. The amount of our present shareholding is 1,300 million dollars. The United States are the largest shareholders, and we come next. The Bank, as the House knows, unlike the Fund, is concerned with long-term loans for development. We believe it to be of outstanding importance that the Bank should be enabled to maintain and, we hope, increase its recent high level of operations.
I am having to speak today in rather dry and technical terms. I have to mention articles of agreement, resolutions, called up and uncalled subscriptions, and so on, but the House will be aware that the end product consists of development schemes such as dams, power stations, irrigation works and railways, all profoundly affecting the lives of millions of people. Forty-nine countries have had International Bank loans so far, which is very encouraging progress. Countries of the Commonwealth, both independent countries and the Colonies, have benefited to date from one-third of the total amount of Bank loans approved up to last December. They have received 1,400 million dollars, out of a total lending of 4,200 million dollars. Those are quite large figures.
The work of the Bank has been a co-operative effort, but it will not be invidious if I mention two factors which have contributed substantially to its achievements. First, there was the action of the United States in placing the whole of the cash part of its subscription freely at the disposal of the Bank for lending from the outset. Secondly, there is the reputation for efficiency and sound objective judgment built up by the Bank's 40 management and staff, headed by the Bank's President, Mr. Eugene Black.
We are, indeed, fortunate in having him and Mr. Per Jacobsson, the Managing Director of the Fund, at the head of these two great international institutions. I should like to pay our tribute now to their energy and ability and to the efficiency of their international staffs. I have had the good fortune to meet them on a number of occasions and I have been immensely impressed. That sounds a little patronising, because each of them has about a hundred times the knowledge of these economic matters that I can lay claim to.
I am glad to say that the United Kingdom has played its full part. The cash part of our subscription is £93 million. Well over half of that has already been spent for Bank loans, and the rest is going out at quite a good rate. Cash subscriptions from member Governments, including ourselves, are one of the Bank's two principal sources of finance. Funds raised by the Bank through market borrowings—by public issues of International Bank bonds or by placings of bonds and notes directly with financial institutions—are the other principal sources, and one which is increasing in its relevant importance.
The Report of the Bank's Executive Directors to the Board of Governors about the proposed increase in the authorised capital is in Part II of the White Paper, to which I have already referred. Paragraph 15 of the Report states:It has thus always been contemplated that the bulk of the Bank's lendable funds would be derived from borrowings. The 80 per cent. unpaid portion of the Bank's subscribed capital constitutes in effect a guarantee fund for these borrowings and is an essential factor in the Bank's ability to borrow.So the object of the doubling of the Bank's authorised capital is to strengthen its guarantee resources, thus enhancing its ability to borrow, and not to add directly to its resources available for lending. That is made clear in the resolution set out at Annex B to the Report. There are five resolutions annexed to the Report, and I will refer to them Resolutions A, B, C, and so on, those letters being at the head of each resolution.
I fear I must become still more technical for one moment. Under the Bank's Articles of Agreement, the Bank may call 41 up only 20 per cent. of subscriptions for lending, made up of 2 per cent. payable in gold and of 18 per cent. payable in national currencies which may only be used for lending with the approval of the country concerned.
This is what has, in fact, happened with existing subscriptions. Twenty per cent. has been called, but no call has been necessary on the 80 per cent., which has, therefore, served the function of a guarantee. If ever a call became necessary on this 80 per cent. part of subscriptions, to enable the Bank to meet its obligations to those who have subscribed to its bonds, all member countries would have a liability under the call proportionate to their subscriptions to the Bank's capital.
However, as explained in paragraph 23 of the Report, although the guarantees of other members have been important, the existence of the United States' guarantee amounting to about 2,500 million dollars, is in many instances decisive. Today, the Bank's total funded debt, as quoted in paragraph 6 of the Report, is 1,800 million dollars. Thus the point is now foreseen at which, in the absence of the increase now proposed, the funded debt of the Bank would come fairly close, perhaps too close for comfort, to the existing United States uncalled subscription.
Therefore, the plan that has been decided on is as follows: the authorised capital and the individual subscriptions from members to it are to be doubled. As I have said, under the Bank's Articles the 80 per cent. part of subscriptions cannot be called to finance bank lending but only to reinforce the guarantee fund, as it were. Moreover, under Resolution B, the Governors are to rule that the other 20 per cent. of additional subscriptions should not on this occasion be subject to call for the purposes of lending, but only if required to meet the Bank's obligations to those who have invested in it or who have invested on the strength of guarantees which the Bank has given. This restriction is limited to the increase in capital and does not apply to the 20 per cent. part of the existing subscriptions.
A call on the new 20 per cent. subscriptions to finance lending will not be debarred by the Articles of Agreement themselves; it will be debarred just as long as Resolution B is in force and, as far as we can see, it is likely to continue 42 in force for an indefinite period.
That plan has commended itself to all the Bank's member countries. It is quite a significant thing and the Board of Governors, I am glad to say, has passed Resolution E unanimously. Resolution E amounts to a declaration on the part of members of their intentions to seek the necessary legislative powers for increasing their subscriptions, as we are now doing, and to vote on the other and more substantive resolutions in which the plan is embodied. Her Majesty's Government would not require these powers merely to vote on the resolutions. We could do that without them, though I understand that this is not true of all member countries. However, we require these powers to take up the additional shares.
May I say a word, in passing, about Resolutions C and D, though neither of these affects our own subscriptions in any way. Resolution C provides that Canada, Germany, Japan and certain of the smaller countries may have special increases in their shareholding in the Bank, broadly corresponding to the special quota arrangements I referred to just now in the case of the Fund. These are the only countries which will make an immediate additional cash subscription to the Bank in respect of the special part of their increased shareholdings, and these extra contributions, of course, will be welcome to the Bank.
Resolution D provides for a further increase of 1,000 million dollars in the Bank's authorised capital stock, over and above the doubling of the capital, which is the main object of this proposal. This further increase is to provide for new members coming along from time to time and for any special increases that may be made in individual subscriptions. We do not propose, and we are not seeking powers, to subscribe towards this particular increase in capital stock, which will be by way of unissued share capital for the time being.
What I have said already, will, I hope, sufficiently explain Clause 1 (b)of the Bill, which provides for payment out of the Consolidated Fund of such amounts as may become payable to the International Bank in respect of the United Kingdom's shares in the proposed increase of capital stock. I want to emphasise that no call on this increased 43 subscription, and, therefore, no payment, is foreseen at present. However, we incur a contingent liability to pay a proportionate part of any call which the Bank might have to make to honour its obligations to investors in the future, so we have to bear that in mind.
Bearing in mind, also, that so far the Bank has not suffered defaults from any country which has borrowed from it, that it now has substantial reserves, and that the 80 per cent. part of its existing subscriptions is as yet intact, I can fairly describe this contingency as remote. This does not in the slightest detract from the value or the need of providing the Bank with increased guarantee resources.
I ought to point out that if the Board of Governors—which, of course, includes the United Kingdom Governor—were, by a fresh resolution at some time in the future to rescind Resolution B, and if it were decided that the Bank should call up in full the 20 per cent. part of the increased subscriptions, then the United Kingdom would be liable to pay about £9 million in gold or dollars, and about a further £84 million in sterling.
If the House approves of these proposals, as I hope it will, we shall in good time before 15th September next take all the necessary steps to double our subscription to the Bank on the basis I have explained and in accordance with the terms set out in Resolution A. Under this resolution neither the increase in authorised capital nor any individual subscription can become effective unless and until member countries between them have subscribed 7,000 million dollars towards the proposed increase in capital stock; that is to say, 70 per cent. of the increase. This means, in effect, as a practical step, that the United States, among others, will have had to subscribe before the plan can become effective. We have every confidence that this will be done I have very little doubt that a number of countries will continue to look to the United States and to ourselves to give a lead in carrying these important measures to fruition.
As our sterling subscription to the Fund will be lent back, as I have described, and our subscription for additional shares in the Bank will be uncalled, hon. Members will see that the immediate demand on United Kingdom resources 44 will be limited to the £58 million gold subscription to the Fund, the figure I mentioned at the beginning of my speech.
I hope that the House will conclude, as the Government have, that this increase in the resources of these two international institutions, which have already done such good work, is clearly in the interests of the United Kingdom, indeed of the whole world, and should be supported with enthusiasm. I commend the Bill, therefore, to the House.
§ 4.8 p.m.
§ Mr. A. G. Bottomley (Rochester and Chatham)
The Chancellor of the Exchequer has explained the technicalities and the purposes of the Bill with his usual clarity. He has also quite rightly said that vast human problems are involved. I would like to join with the Chancellor in sending our thanks and congratulations for the work done by the Governors of the International Bank and of the International Monetary Fund and all their staffs.
As the right hon. Gentleman said at the Delhi Conference, the United Kingdom delegation gave its support to a 100 per cent. increase in the subscriptions to the International Bank and to a scheme to raise the Fund's quotas by 50 per cent. On this side of the House we give that our support, but we feel that the Government showed great reluctance to embark upon any further schemes to help the developing countries. It was not because nothing was proposed.
The United States proposed that there should be an International Development Association. I have quoted once before in the House, and I ought to repeat again, what the Chancellor said in respect of that proposal:If it emerges in concrete form we shall study it with care and interest. But they should be careful about the resources and functions of any new bit of international machinery. Our own resources are pretty fully strained by our recent commitments and those we have just taken on at the Conference, so we do not have much scope for an extension beyond what we are doing at the minute.This may be true, but to the extent that we cannot do more it is the Government's failure to use the productive capacity of the country to the full. The under-developed countries are calling out for machinery, our steel industry is working at only 75 per cent. capacity, at the coal pits there is £30 million worth 45 of coal lying idle, the metal industries are up to only 80 per cent. working capacity, and now, in some sections of the engineering industries, we are producing only 50 per cent. of capacity. The Federation of British Industries, which recently carried out an inquiry among 510 firms, found that 79 per cent. were not using their full capacity. So the Government's policy is responsible for our not being able to do more.
I have a powerful supporter in this respect in the Chairman of Lloyds Bank who, at the yearly meeting, said:The most disappointing feature of our situation has been the failure of production to expand.It is not accidental. It is not due to world causes. It is the failure of the Government to make full employment their first objective. The Government, now frightened by depression, say that we must have production at any cost. [Interruption.]Am I wrong in saying that?
§ Mr. Bottomley
I was not thinking in the context of the Chancellor's speech this afternoon, but the right hon. Gentleman seems now to have given an all-clear for production in industry in this country without any regard to whether it is the kind of industry which will benefit the economy or help the underdeveloped countries. If we are to help the under-developed areas of the world we must produce the right kind of goods which will enable that to be done.
The Government support private industry, and private industry works for a profit, which is the yardstick of its failure or success. I would say to the right hon. Gentleman that private profit is not a measure of the right policy from the public point of view. High profits which result in high productive efficiency are, of course, in the public interest, but high profits which result in monopolies exploiting either consumers or, in times of slump, workers, are not in the public interest.
I would ask the Chancellor whether we have not yet learned by experience. After the First World War we did not do the things that we should have done. The League of Nations, in its dying days, carried out a survey, and its report stated that the effort was piecemeal and 46 individualistic and there was lack of proper co-ordination, and that this led to the disaster of the 'thirties. At the end of the Second World War, as the Chancellor has said, we were all determined to do better. We recognised the need for a co-ordinated reconstruction of the international monetary system. The original proposals were drafted at the Bretton Woods Conference, which was in 1944. There were difficulties and delays, but eventually the World Bank for Reconstruction and Development and the International Monetary Fund came into being.
The purpose of the Fund, as we have been told, is to foster international monetary co-operation, to facilitate the expansion and balanced growth of international trade, to promote exchange stability, to assist in the establishment of a multilateral system of international payments in respect of current transactions, and, above all, to bring confidence to members. As a result, it was hoped to lessen the disequilibrium in the international balance of payments. As the Chancellor has said, a measure of success has met its efforts.
The World Bank itself was more circumscribed. Its purpose was to assist in providing capital for productive purposes, contributing thereby to economic reconstruction and development, to promote private foreign investment by means of guarantees and participations, and to ensure that the capital flowed into the most useful projects. I recall that in 1948 I was the United Kingdom Government delegate to the International Trade Organisation Conference, at Havana. The International Trade Organisation was a proposal made by the International Monetary Fund and the World Bank. I regret to this day that the nations of the world did not see the wisdom of having this international trade organisation, for it would have been one of the most effective ways of helping the whole world in its present difficult economic problems.
It has been established that the Fund and the Bank, doing their best, have had insufficient resources to bring about the development or the world-wide financial stability that was required. The Bill in part recognises that, and it is for this purpose that the proposed increases are made. But the new arrangements really will not help a lot, because we are all aware that what took £3 to buy a few 47 years ago now takes £5. So to the extent that we are increasing the contributions already by inflation and the eroding away of the value of money the Bill is not as useful as it might otherwise have been.
The Bill proposes, in Clause 1 (a), a standard increase in quotas in respect of the International Monetary Fund. As the Chancellor has said, the United Kingdom increase in contribution is to be 50 per cent. There is a substantially larger increase for Germany, Japan and Canada. The German contribution goes up from 330 million dollars to 787½ million dollars. This inevitably makes Germany one of the Big Five.
Until now Nationalist China has been one of the Big Five. She was placed third in order of position inside the Fund. But she paid up virtually none of her quota, so it is hard to see that she will be able now to keep up her contribution. All of this shows that we must look at Communist China in the present context. I am reminded of the Question which I put to the Prime Minister a few weeks ago, when I urged him to call a meeting of Commonwealth countries in Asia to talk about the expansion of trade with China. I thought that it was a very good counter to Mr. Mikoyan's visit to the United States, during which he suggested an increase of trade between those two countries. The Prime Minister did not see the wisdom of accepting my suggestion, but I hope that it will be possible to bring the People's Republic of China into world affairs, so that she can make her contribution towards helping the developing countries of the world. This has certainly not been done in the case of Nationalist China.
As the Chancellor said, Clause 1 (b) provides for the payment of any calls which may arise in respect of the proposed 100 per cent. increase in the United Kingdom's holding of shares in the International Bank for Reconstruction and Development. As the right hon. Gentleman said, the object of the proposed increase in the subscriptions of member countries is to strengthen the Bank's guarantee resources for the purpose of enhancing its borrowing capacity and not directly to add to its resources available for lending. In other words, 48 no call on the increase in subscriptions is at present foreseen.
It is said also that it may not be necessary to add directly to the Bank's resources available for lending. Earlier, the Chancellor very kindly told me that if there were any questions that I thought deserving of investigation or answer I should put them. As he will remember, the International Bank for Reconstruction and Development organised the Economic Development Institute. A member of the Civil Service, not a permanent Civil Servant, but someone who had worked in the Board of Trade during the time I was a Minister there, Professor Cairncross, was the first director. I can well remember the present director saying that at the Development Institute there were 22 earnest adult faces, pale olive, brown, and black, anxious to learn how to raise the per capita income of seven-eighths of mankind.
Is it possible for the Fund to give more money so that more can be done in this sort of work, because it is a valuable contribution in providing the technical assistance which is required by the less developed countries? The Government may say that they are doing all they can to help in the development of the Commonwealth and the Colonies since at Delhi they dealt with Bank and Fund matters and at Montreal considered the position of the Commonwealth and Colonies.
However, it is becoming clear that what was intended at the Montreal Conference was that the Colonial Governments should receive Exchequer loans under the expansion of the Colonial Development and Welfare Acts and that the Government would thus continue the present system of grants, while introducing a new system of direct Exchequer loans at favourable rates. Applications for loans from subordinate authorities in the Commonwealth would have to be made through the central Government of the territory concerned.
Since the object of allowing such authorities to borrow is to encourage further development in the less developed parts of the Commonwealth, I take it that the arrangements will apply only to India, Pakistan, Ceylon, Ghana, Malaya, Rhodesia and the Colonies. Any loans raised will generally take the form of private placings rather than public issues. 49 All the Government will do is to give their consent to the borrower, who will then have to make his own arrangements. Thus, the Government's intention in framing the financial structure of the Colonies as well as the newly independent areas of the Commonwealth seems to be to preserve the status quo.
This status quo has meant the concentration of all reserves in London and a severe limitation on the use by these countries of their own savings for their own development. We have to recognise, whether by giving grants or by the proposed system of cheaper loans to Commonwealth countries and the Colonies, that the fall in commodity prices and the loss of income has nullified whatever other benefits might otherwise have accrued. In addition, the terms of trade have moved against Commonwealth countries, as has the volume of trade. The factors causing that are partly due to the Government's giving up the Labour Government's long-term bulk purchase trading agreements and less discrimination against dollar goods—and to that extent the Government have made it much more difficult for the developing countries to be helped.
During the Labour Government, Commonwealth countries succeeded in increasing their share of world trade, but that has not been the case since the present Government have been in power. The Commonwealth share of world trade is now about 30 per cent. while in 1957 about two-fifths of the total Commonwealth trade was conducted within the Commonwealth itself. To break up those figures, Commonwealth imports from outside the Commonwealth post-war reached a maximum of 47 per cent. during the Labour Government, fell a little between 1951 and 1952, and fell steeply in 1957 to 40 per cent. The pattern for exports is similar. The peak was reached in the Labour Government, 50 per cent. From 1951 to 1955 exports fell to 45 to 46 per cent. and in 1957 were down to 41 per cent. As world trade has increased, the Commonwealth share of it has fallen.
The sad thing about all this is that the increase in world trade has mainly been between manufacturing countries, which have done less trade with the primary producing nations. It is a sad reflection that the less developed countries 50 of the world did much better during the time of Suez than at any other time, because everybody wanted their commodities. Since then, prices of primary products have fallen by about 6 per cent. and although other prices have fallen, primary producing countries have had to keep up imports and import prices have not fallen, so that the backward countries have been placed in a far worse position.
In 1957, the combined trade deficit of the primary producing countries was running at the rate of 1.3 to 1.4 billion dollars each quarter. They managed to cut down their imports and as a result the deficit in the first half of 1958 was reduced to 1.1 billion dollars a quarter. In other words, despite the aid and loans given to them, resources of the primary producing countries have been steadily falling. That has not only prevented those countries from buying the goods necessary to build up the standards of living of their people, but has also held up development plans.
It was hoped that the Bill would do more than it is intended to do, but if it enables a greater flow of capital aid it is to be welcomed. However, I want to give some idea of the problem of the fall in the value of exports in the primary producing nations of the sterling area. Because of the fall in commodity prices, the value of exports of the sterling area primary producing nations fell between the first quarter of 1957 and the second quarter of 1958 by 2,000 million dollars, at annual rates. In other words, that is much more than the grants in aid which have been flowing into the sterling area, not merely from ourselves, but from everybody, including America and, in the case of India, from Russia. In short, the loss which the under-developed countries have suffered as a result of the fall in commodity prices has been much greater than the amount of aid which they have received.
At the Commonwealth Conference in June, 1956, Sir Anthony Eden, referring to the serious nature of the economic challenge presented by the Communists, said:We are witnessing the start of a trade war, the like of which has never been known before.The Government have done perilously little to meet the challenge. The Government's policy of financial decontrol has 51 harmed the developing countries. Decontrol was responsible for the Government's dear money policy and its effect on the terms of trade and the value of the reserves, particularly of the less developed countries.
The time has come when there should be a greater study of the need for coordination of all the efforts which are being made by the free world to help the less developed parts of the world. The World Bank and the International Monetary Fund have worked in liaison with the various United Nations organisations —U.N.E.S.C.O., the World Health Organisation, the Food and Agriculture Organisation, I.L.O., the Technical Assistance Administration. However, they ought now to be brought under one umbrella. It is time to bring all our efforts together.
The developing countries need grants and not loans. Further loans will only increase their already heavy indebtedness. They need grants to enable them to undertake or advance their development schemes. For this reason, hon. Members on this side of the House were most anxious that the Government should do everything possible to push ahead with the promotion of S.U.N.F.E.D. Something has been done on American initiative but the present scheme to help development does not do nearly enough. My right hon. Friend the Member for Derby, South (Mr. P. Noel-Baker), who is to wind up for this side, feels very strongly on this matter and will, no doubt, have more to say.
We must face the fact that seven-eighths of the people of the world are undernourished, living in poverty. They are mainly non-white. These people who are not white will not, in time, distinguish between Russians, Americans or British if the standard we set is to improve our own lot and ignore the remainder. I am reminded of the book, "The New Dimensions of Peace", by that well-known American Chester Bowles, in which it is said thatToday, inside the City of the poor, the issues of war and class are underscored by the universal demand for rapid economic progress. Its achievement has become essential to political stability. Thus, a world-wide assault on this aspect of class is now an integral part of the solution of the problem of war.52 We are glad of what the Chancellor was able to do at Delhi. We do not think he did as much as he should have done in the interests of our country and the world.
§ 4.31 p.m.
§ Mr. John Biggs-Davison (Chigwell)
I am glad to follow the right hon. Gentleman the Member for Rochester and Chatham (Mr. Bottomley). I share his enthusiasm for the Commonwealth and his desire that greater priority should be given to Commonwealth trade and Commonwealth development. The right hon. Gentleman said that vast human problems were involved in any consideration of the two international institutions which the House is discussing this afternoon. He said also that full employment should be a first objective and went on to say that it was the fault of Her Majesty's Government that full employment in this country did not at present exist.
Later in his speech, the right hon. Gentleman ran through the purposes of the International Monetary Fund set out in Article I of the Final Act of the United Nations Monetary and Financial Conference of 1944. One of the purposes there mentioned isthe promotion and maintenance of high levels of employment".I should have thought that the right hon. Gentleman might have gone a little deeper into the system of which the International Monetary Fund and, indeed, the World Bank, is a part to see how far that system has a measure of responsibility for the unemployment which exists in this country today.
I do not share all the enthusiasm of my right hon. Friend the Chancellor of the Exchequer for the International Bank for Reconstruction and Development. Nor do I wholly recognise Mr. Eugene Black in the glowing paragraphs of the Observer "Profile". Some of the intrusions of the World Bank into the international politics of the Middle East have been unfortunate. Mr. Peter Sellers' "Brouhaha" was great fun, and hon. Members will recall that it has a Middle Eastern theme. I think that the "Smouha-ha" in Egypt at present is simply not amusing.
My right hon. Friend the Chancellor told us that Commonwealth countries have benefited from the operation of the 53 World Bank. When my hon. Friend the Economic Secretary replies to the debate, I hope that he will tell us to what extent the finance made available by the World Bank for schemes within the Commonwealth and the Colonial Empire—the great Kariba Dam project, for instance—has been reflected in orders for British firms.
This debate is more important than the numbers on the benches would suggest. Taxpayers' money is being committed under the Bill, as taxpayers' money often is committed, to international organisations and to agencies of the United Nations without any very penetrating scrutiny from the House of Commons. These agencies and organisations are often dominated by interests or influences which are not necessarily sympathetic, or may even be hostile, to the interests of this country.
I wish to devote most of my remarks not to the World Bank, but to the International Monetary Fund. The right hon. Member for Rochester and Chatham reminded us of the purposes of this organisation. I want for a moment or two to consider how far those purposes set out in Article I of the Bretton Woods Agreement have been fulfilled. How far has this permanent institution of international co-operation on matters monetary facilitated the expansion and balanced growth of international trade? How far has it achieved a multilateral system of payments and reduced the disequilibrium in the international balance of payments?
One thing which the I.M.F. has failed to achieve is the end of the United States embargo on the purchase of American goods for sterling or some currency other than the dollar. Sterling, after all, is a currency which finances nearly half the trade of the world. It is true that the United States, in recent years, has accepted some soft currencies and sterling under its surplus disposal programme, but that disposal programme has certain features which tend to expand American exports without a corresponding increase of imports into the United States.
Has the International Monetary Fund and the general system in the free world of which it is part established a reciprocal or multilateral flow of goods and services? It is certain that the I.M.F. and the consultations within that organisation have not succeeded in laying on a creditor 54 Power the obligation to accept imports or currency from a debtor or to reinvest its surplus for— I quote from Article I (ii) of the Bretton Woods Agreement—for the development of the productive resources of all the members"?The Bretton Woods Agreement, as I understand it— I am certainly not a professional economist—provided that, once the American quota had been "drawn down", to use the jargon, by countries in deficit with the United States, the gold they paid in would be sold to the United States. I hope that the Economic Secretary will correct me if I have it wrong, because these are difficult and complex matters for a layman like myself fully to understand, but the logic of that seems to be that countries with persistent adverse balances with a great creditor Power like the United States progressively lose all their gold to Fort Knox except for such part as they are wise enough to keep in their national coffers.
We have lately read in the newspapers and the City columns of various organs about the recent outflow of gold from the United States. It is difficult to be sure how much it is and where it goes, but, in general, since the establishment of the I.M.F., gold payments to the United States from other countries have been in the region of 25,000 million dollars a year. I should have said that the "Tales from the Bretton Woods" have a harsh metallic sound.
My right hon. Friend spoke of the achievements of the Fund. With respect, I am not sure that those achievements are really as great as all that. Why is this so? I think that the reason is that the I.M.F. has aimed mainly at stability of exchange. In this, the cart has been put before the horse. A balance of trade is much more important than stability of exchange. Currency adjustments can achieve stability among nations provided that those nations are reasonably competitive, but where there are wide differences and a permanent lack of balance it is not enough to do what Bretton Woods did, namely, stabilise the value of gold and fasten currencies to it.
Much more important than that, I should have thought, was the stabilisation of prices. Exchange stabilisation is desirable, but the failure to hold prices stable — and here I quote from the Macmillan 55 Report of 1931, which might be called the pre-war equivalent of the Radcliffe Report, which we have not yet received and to which we greatly look forward:… causes social as well as economic disturbances which leave no part of the national or international order unaffected. A study of history would, we believe, confirm the opinion that it is in changes in the level of prices, and in the consequential alteration in the position of debtors and creditors, entrepreneurs and workers, peasants and tax-gatherers, that the main secret of social trouble is found.I think, also, that I.M.F. was based on a misunderstanding of the true sources of economic activity and economic progress. We sometimes have to remind ourselves in this island, where we are so much dependent on imports from abroad, that international trade is only a small part of the economic effort of nations. There is a false distinction made between the international value of a nation's currency and its intrinsic value.
Sterling reigned supreme in the nineteenth century, as the name suggests, because of what could be bought for it, because of the skill of British craftsmen, the energy of British workers, the integrity of British capital. Even today, sterling is the real international currency and the dollar is not. There are still 3 dollars to to every £ and 5 in terms of prices. It was a former Executive Director of the International Monetary Fund, Mr. Thorold, who said in New York, towards the close of last year:If full advantage were taken of the facilities available, sterling could be used to settle nearly 70 per cent. of world trade.I am told that at present it settles 40 to 50 per cent. Mr. Thorold went to say:It is difficult to see how the post-war expansion of trade could have been so great if sterling …"—not the dollar—had not been available for making day-to-day payments required for its settlement.I think that the Bretton Woods Agreement was also based on another misunderstanding. Those who drafted the Agreement were obsessed with a "One World" dream, which to me is a nightmare and which, in any case, is not a reality. It ignored the deep desire of men and nations in every continent for sovereignty and nationhood and some control over their economic destiny.
56 If the House will bear with me, I should like to quote one more sentence from the Macmillan Report:It is no doubt true that the essential attribute of a sovereign state is the power at any time to alter the value of its currency for any reason that seems to be in the national interest.Of course, that is a power not to be used lightly without feeling or consideration for the interests of others. In any case, to damage the interest of another country in this world of ours today is to damage one's own country's interest. Sovereignty has to be used responsibly and I think that it is used responsibly in the sterling area. It is certainly the foundation of the Commonwealth. It should be the starting point for European unity and of all international understanding.
When we talk about interdependence we mean, I think, or should mean, the partnership of free nations and not servile dependence upon a cosmopolitan concentration of financial power. We have been told that some great merger of the national economies of the free world and the financial resources of the free world is the alternative to Communism. I think that that would be more likely to breed it from the resentment that it would inspire in free men. But this power, this essential attribute, in the words of the Macmillan Report, of a sovereign State was surrendered by the party opposite, a party which believes in national planning and it was signed away in return for a loan in an International Monetary Fund Agreement which was never debated in this House.
In the White Paper incorporating the Governors' proposals for increasing the resources of the International Monetary Fund, Cmnd. 652, on page 2, I read this:The largest single transaction in this period arose out of the Suez events which causes sterling to come under pressure. In December, 1956, the United Kingdom drew $561 million from the Fund and entered into a stand-by arrangement for $739 million—a total of $1,300 million. The assistance was granted on the basis of a declaration by the British Government that strict financial and credit policies would be pursued, that quantitative import restrictions would not be reimposed, and that the value of sterling would be maintained.
§ Mr. Biggs-Davison
That is beside the point. The point is that the party opposite signed away the fiscal freedom 57 of this country and signed an agreement whereby it is possible for the International Monetary Fund to impose conditions upon the economic and social policy of this country in return for what?
As I understand—and I hope that the Economic Secretary will put me right if I am wrong—in return for withdrawing our own subscription from this Fund; indeed, it is not so much a fund as a pool—we took our own money out and accepted humiliating conditions, derogatory to the sovereignty of this country. But I hope that I have got it wrong and that the Economic Secretary will be able to put me right. I am beginning to wonder whether we would not be better off if we kept our gold and dollar reserves here and reconsidered our position in relation to the International Monetary Fund altogether.
To turn for a moment to the Bill which is to vote the additional quota to the I.M.F., I would ask my right hon. Friend whether this step and that to be taken likewise by other members is considered adequate to meet the expected increase in world trade. I have seen a figure of 150,000 million dollars a year as the expected increase in world trade during the next ten years. I see that on 12th February, President Eisenhower sent his request to Congress for supplementary credits for the United States contribution to the expanding capital resources of the Bank and of the Fund. So far as I could understand from my right hon. Friend the Chancellor of the Exchequer, any payment to be made by this country will be dependent on payment being made by the United States of America.
To what extent will these additional credit facilities—and here I quote from Article 1 (ii) of the purposes of the Fund:… facilitate the expansion and balanced growth of international trade …"?Will it really do anything to bring exports and imports into a better balance as between the creditor and debtor countries of the world? I read in the first National City Bank of New York Monthly Letter, in October, that the United States insisted on expansion of United States exports before making its contribution to the liquidity problem.
One could not but be aware that the Commonwealth Economic Conference at Montreal, where much of value was 58 achieved, was overshadowed by the meetings of the Fund and the Bank which followed in New Delhi. Was there any connection between the liberalisation of dollar imports decided upon at Montreal and also the further advance towards convertibility at the turn of the year? Was there any connection between that and the American desire that her exports should be expanded before she made a contribution to the liquidity problem of the nations? Dr. Goldenweiser, of the Federal Reserve Bank, has said that the United States of America needs a surplus of 5,000 million dollars to absorb savings.
I do not really think that the sort of system set up at Bretton Woods can work under present conditions. What are those conditions? The various "buy American" measures from which the English Electric Company has suffered; the insistence of the great creditor Power on non-discrimination abroad for others while protecting its own market by tariff and other devices; the discrimination of the United States through the Export-Import Bank; and the discrimination of the United States through the surplus disposal programme under which funds made available may not be used to develop products competitive with American products.
In this situation the International Monetary Fund cannot do much to achieve stability for the free world in face of the Communist challenge. Fortunately, I do not think that it will be necessary for the free world to submit to its straitjacket indefinitely. The German miracle, the remarkable recovery of France, the recovery of Britain under Conservative administration and the revolt in Canada all show that there is a powerful movement in the free world away from the financial domination which has oppressed it.
As a result of the war. Western Europe became the largest customer of the United States' production of foodstuffs and manufactures and ran an annual deficit of 4,000 million dollars on its trading account. That situation, I believe, may come to an end. It is certainly no longer so necessary to get dollars because of the capacity of the other countries of the free world to manufacture the goods for themselves.
There is, I suppose, a short-term need for American grain. I think that the 59 Commonwealth, including Canada, could make that good. It is rather interesting to reflect when there is all this talk of East-West exchanges that 30 per cent. of Europe's wheat was at one time imported from Imperial Russia. The British and European nations are becoming strong enough to set the free world on a less erratic course.
I do not believe that the United States has enough dollars with which to finance the world for ever, even if that were necessary, desirable or possible. I wonder whether that was one of the reasons why the gentlemen from Wall Street were in conference with Mr. Mikoyan. Perhaps my right hon. Friend the Prime Minister will be able to find that out.
We in our island and we in the Commonwealth cannot afford to be dragged down in an economic conflict between two continental autarchic producers, both largely self-sufficient, and able to export or to dump the overspill from a vast protected internal market. Between Europe, the greater Europe overseas and the newer, less developed nations there is the need and the possibility for a partnership for the exchange of goods and services in balance and reciprocity. Use could then be made of an I.M.F. modified so as to provide some sort of automatic clearing system and machinery, so that when there is a persistent creditor the debt can be cancelled under appropriate conditions and safeguards.
I wonder whether one of the tasks of the new Commonwealth Economic Consultative Council might not be to consider how the Bretton Woods Agreement could best be modified so as to meet the needs of the present-day world. In its present form, the International Monetary Fund is too rigid to be useful. It typifies the dirigisme of an international bureaucracy. It is the product of Burnham's managerial revolution on a world scale, an international bureaucracy or technocracy not responsible to the peoples or Parliaments affected by its decisions.
While they are bound to the dollar, wicked nations—if I can adapt a Gallicism—which defend themselves resort to restrictionism and become converts to the doctrines of Dr. Schacht; the rising nationalities of Afro-Asia, forced to add crushing international debt to the heavy cost of advancement, and compelled to 60 borrow to pay the interest on the loans with which to eat and live, are driven closer to Communism; and economic rivalry and aggression frustrate an easement of the conflict between two competing systems of expansion for control of the world economy and the mastery of mankind.
§ 4.58 p.m.
§ Mr. A. E. Oram (East Ham, South)
The hon. Member for Chigwell (Mr. Biggs-Davison) spoke, as he said he would, largely on the International Monetary Fund part of the Bill which we are now considering. I am sure the hon. Gentleman will understand that since my thoughts have been running more along the path of the Bank I shall not wish to follow him too far in which he had to say. He will not be surprised to learn that with a good deal of what he said I find myself thoroughly disagreeing.
I found myself in agreement with the hon. Gentleman, perhaps for other reasons, in what he said when dealing with the stringent conditions which arose out of our drawing upon the International Monetary Fund. It was rather unfortunate that to make that point the hon. Gentleman had to quote from the very paragraph in which the lesson of Suez was particularly highlighted. If I understood his position aright at that time, the cost of Suez might well have been considerably more and the conditions that would have been imposed upon this country would then, possibly, have been more stringent.
§ Mr. Biggs-Davison
I do not wish to raise the question of Suez, but does the hon. Gentleman accept the situation where the control of the economy of this country is in the hands of these people?
§ Mr. Oram
No. In my earlier remarks I said that I agreed to a large extent with the hon. Gentleman's point about the conditions governing the International Monetary Fund being too stringent, but I was merely making the point that it was coincidental with Suez in his speech. I would agree with the hon. Gentleman, though—and I am sure that all hon. Members present would agree, also—that the importance of this debate is far greater than the interest in the debate as evidenced by the presence of so few Members in the Chamber.
61 In discussing the structure and the scope of the work of the International Monetary Fund and of the World Bank we are dealing with a most important part of the battle against world poverty, one of the greatest crises of our day. The Bill will undoubtedly have its Second Reading, but I hope that it will not be assumed that the scope and structure of the I.M.F. and of the World Bank are thereby being passed without criticism from this side of the House.
As we see it, what the Bill proposes is perfectly good but it is too little. The operations of the Bank have been too little when measured against the vast problem of world poverty which it is intended partly to alleviate. When we consider the problem of the world economy we are looking at a creaky old structure, a piece of machinery which is moving all too slowly. The machinery needs oil, both as a lubricant and as a fuel. The most that can be said on behalf of the International Monetary Fund and the Bank is that since they have been in operation they have contributed a little lubrication to international trade, but have not begun to contribute any of the fuel which the machine needs if it is really to work.
The White Paper which accompanies this Bill explains the need for the increased quotas as arising in the one instance from a doubling of world trade since the Fund started its operations, and also from the fact that world prices, including dollar prices, have increased since that time and, therefore, the real value of the original quotas has declined. I would suggest that there is another outstanding reason why the Bank and the Fund need to have their quotas increased and that the decision to make this increase, is rather late. The population of the world has increased considerably since the Bretton Woods Agreement. If we take the example of India, its population has increased by 50 million since that time. More people in underdeveloped countries mean that more food is required. That means a constantly greater demand upon the resources for investment. It also means that the requests to the Bank will be constantly increasing because of the increased population and the investment resulting from their needs.
Let us bear in mind, in connection with the newly developing countries, that 62 so often it is not so much an increasing birthrate as a declining deathrate which is causing the increased population. It is perhaps a little ironical that the great success that the World Health Organisation and other specialised agencies have in their work is outpacing the resources of organisations providing the economic basis, such as the Fund and the Bank which we are now discussing. There can, therefore, be absolutely no doubt that these increases are necessary; nor, if we look at the other side of the picture, can there be any doubt about the increased capacity of the Western nations to provide the wherewithal for these funds since the Bretton Woods Agreement.
I think it would be true to say that our own domestic product has increased by something like a quarter over that period. That is also true roughly of the United States. In our case it probably means an annual income of £3,000 million more. We have accumulated that additional amount of resources since we entered into the Bank's operation. Throughout that period our obligations as a member of the Fund and of the Bank have remained static until the point of the introduction of this Bill when it is proposed to increase them by 50 per cent. in the case of the Fund and 100 per cent. in the case of the Bank. There should be no doubt about our capacity to provide the wherewithal.
My right hon. Friend the Member for Rochester and Chatham (Mr. Bottomley) quoted the Chancellor of the Exchequer as saying that this sort of added contribution would lead to difficulties for us and that we were rather strained in our resources. That ought not to be the case. As I have said, the production is there and the resources are there. If there is any strain, my right hon. Friend suggested that it comes from the fact that our economy is running at a lower level than it ought to be running. I would suggest to him and to the Economic Secretary that another reason why the West may find it difficult to increase its contributions for international aid is the fact that so many of our resources are being used up in armaments.
We are indebted to my right hon. Friend the Member for Derby, South (Mr. P. Noel-Baker) for an important piece of research in his book "The Arms 63 Race." In looking at the figures which he gave there, one gets some staggering contrasts, some staggering figures of the amounts which the arms expenditure of the Western nations has in recent years reached. Whereas, in 1949, 10 Western powers were spending between them £3,800 million on armaments, in 1955, according to the figures which my right hon. Friend gives, the figure had risen to £17,800 million, four and a half times as much in that period.
Now after a longer period we are being invited to authorise a modest increase of 50 per cent. for the Fund's resources and 100 per cent. for the Bank's resources. There is a staggering contrast between the puny amount that the world, including the West, are prepared to spend on international co-operation and the amount that is spent in international rivalry. It brings vividly to mind how much more we could provide for investment in underdeveloped countries if only we could find ways of making even marginal economies in arms expenditure.
I know these are sentiments which are very often expressed, and frequently expressed far better than I could hope to do, but it is worth reiterating that what is holding up developments in the countries where poverty is the dire problem of the age is the fact that the world, for all sorts of reasons which it is not our purpose to examine this afternoon, is using up a vast, a mad, amount of its economic resources for unconstructive purposes.
Pandit Nehru has frequently pointed to this dilemma. It was he who, at the opening of the World Bank meeting, in Delhi, last October, not only called attention to Asia's desperate need for economic aid, but also made what seems to me to be a most significant point when we are considering the operations of the Fund and of the Bank, namely, that their operations should not be governed by political motives. He warned the delegates that that was treading the wrong path.
I was reminded of what he said when yesterday in the Observer, I read a news item about General Franco's hopes of receiving massive aid from the International Monetary Fund. According to the report in that paper, it appears that Franco, despite the desperate situation in which, apparently, Spain is at the 64 moment, may feel himself able to reject the quite reasonable conditions put forward, or likely to be put forward, by the delegates from the International Monetary Fund, because he is convinced that the Americans cannot afford to let his régime founder. It seems to me that our country's influence within the counsels of the Fund and the Bank ought to be used against considerations of that kind.
The test for the provision of aid or not should be an economic test, and not a political test, and the economic test, I suggest, should be twofold: in the first place, obviously, what is the need of the recipient country, but also, and equally important, what is the recipient country itself doing to get itself out of its own economic difficulties. Obviously, under the one test, Spain could make out a very great case for itself, but I very much doubt whether it could make out a very impressive case about the amount of effort which it is putting into its own economic recovery.
Also in the recent Press, I think The Times on Friday last week, there was a news item about certain potential applicants for aid from the International Monetary Fund. The Times tells us that India is sending its delegates, via Moscow and London, to Washington, seeking a loan of 600 million dollars. I suggest that, if we apply the two tests which I have suggested to India, there we have an applicant whose claims ought to be treated with the utmost generosity. India's needs are crucial, and there is no need, in these circumstances, for me to explain what they are or why they are so crucial.
On the second test, whether she is doing her utmost on her own behalf, the criticism that is applied to India is rather the other way—not that she is doing too little, but, because of her desperate situation, she is too often trying to do too much. In The Times today—since I have mentioned the Indian population problem— I notice that Pandit Nehru said that the Indian Government is the only Government in the world officially to take up family planning as national policy. That is recent evidence of the way in which, in the economic sphere as well as in the social sphere, India, it seems to me, is doing her utmost on her own behalf, and that is why I hope our delegates within the councils 65 of the Fund, are going to see that India receives the maximum help.
I recall that just over a year ago, Mr. Krishnamachari, who was the delegate on that occasion, was finding not too generous a response to his request for aid. I was struck—I think I read it the same weekend, if not in the same newspaper—when reports were coming that he was finding difficulty in getting aid which India required from the International Monetary Fund, to find that the Soviet Union stepped in and made the offer of a grant. Surely, that is one of the urgent reasons why we should see that the International Monetary Fund and the Bank are as generous and as dynamic in their operation as they possibly can be, because there is this dilemma, for the under-developed countries that, if they cannot get aid from the West, and if offers come from the East, they feel that they must accept them.
In that connection, I would point out that loans which come from the Soviet Union are very often at a lower rate of interest as compared with the loans which the International Bank makes. On that particular occasion, it was 2½ per cent., with repayment over twelve years. I have looked up some of the projects which have been financed by loans from the International Bank, and I find that the interest rates are about 4¾ per cent., 5 per cent., and so on. I think this is one of the things which shows a weakness in the operation of the Bank, because the rates of interest are too high.
I am saying these things because I am conscious that we have representatives in the councils of the Bank and the Fund, and I am hoping that, as a result of this debate, and of the pressures which those who think as I do can bring on our representatives, they will not play just a passive role within those councils, but that they will regard the International Monetary Fund and the Bank as important instruments in the battle against world poverty, but only if we use them in an imaginative and expansive way. I therefore hope that all our efforts will be bent towards seeing that the Fund and the Bank become really dynamic and really expansive, and in that way, I think they will prove to be really worth while.
§ 5.17 p.m.
§ Mr. David Price (Eastleigh)
I do not mind confessing that, when I read the White Paper and studied the Bill, I did not feel that this was a subject which anyone should take up without having had many years' experience, if not of the International Bank, at least in our own banks or at the Treasury. However, I have been encouraged to speak by the speeches of the last two hon. Members who have taken part in the debate, on which I may be inclined to comment later, to feel that specialist knowledge of international finance was not a necessary ingredient to be bold enough to catch your eye, Mr. Speaker. I think I shall be able to take up a number of the points made by the hon. Member for East Ham, South (Mr. Oram) more logically in the course of my remarks than now, but there is one which I should like to take up with him at once.
That is the short-term advantage that the Soviet Union has in assisting countries like India in so far as—and I am sure the hon. Gentleman will appreciate this — it is a totalitarian country with a centralised economy, and can, at any moment in time, say that the extra production over any year will go where the State wants it to go, and that it is prepared, as it has done, to hold down the standard of living of the people, or not to allow the standard of living of the people to increase as fast as it would in a free economy, particularly an economy in which the trade unions are free to act as they do in the West.
I should rather like to hear from hon. Members opposite on the question of what rates of interest should be charged by the World Bank. If one takes the supply and demand of capital, which exists whether we have a Socialist economy or a more orthodox Liberal and Conservative economy, the demand for funds from the World Bank are so many times greater than it is able to meet. If we press that economic argument too far, we would get a state of affairs in which the rates of interest might be ridiculously high. If they were very low, say, 2½ per cent., and not allowed to rise above that, the Bank would be unable to select between its customers. I am not suggesting that the Bank uses rates of interest as the sole means of selection, but it does combine its personal judgment on the merits of a particular 67 project with a certain degree of use of the interest rate as the selector. I merely leave that thought in the minds of hon. Members opposite. If hon. Members should ask me at exactly what rate of interest we would get that balance, I could not give a figure, because it would vary from one year to another.
This Bill has two main purposes. The first is to increase world liquidity and the second is to increase the availability of capital for world development. We had a very interesting debate last summer on world economic development. On that occasion, I wearied the House with a long speech with many statistics, showing the relative standards of living in different parts of the world and giving some indication of the needs of the under-developed countries. I also made suggestions of what we might have proposed at the forthcoming Commonwealth Economic Conference. I will not weary the House today by going over the facts I gave on that occasion, but so far as I can gauge, those facts were generally accepted. I will take them today as my point of departure.
The subject of increased liquidity, which is a very technical term might sound to many people more like an elementary experiment in hydrostatics. It really means the amount of cash available in relation to the turnover of trade. The right hon. Member for Rochester and Chatham (Mr. Bottomley) mentioned the need to oil the wheels; liquidity is the oiling of the wheels of trade. The right hon. Gentleman will recall that the year before last, the Chairman of Lloyds Bank drew attention to the low level of liquidity in relation to world trade, and in that way he called attention to the importance of a larger supply of liquid funds. If this is important to us, as one of the richer countries of the world, and one of the more developed countries, how much more important must it be to the under-developed countries.
The concomitant of that is that we, with our more advanced economy should try to encourage other economies to become more efficient and to raise their standards of living, but, also, we must be prepared to help them. Without becoming involved in a debate on the Lancashire cotton industry, I think that we have to think out our position a little more clearly, with a view not only to 68 protecting our own position but at the same time to realise that we cannot expect under-developed countries to be able to pull themselves up by their own boot-strings. The thing that will help India as much as more capital is a greater overseas market for the output of her growing textile industry. This sort of problem is very germane to our discussion of what we can do to help the underdeveloped countries to help themselves.
The second object of the Bill is to assist in providing an increased contribution to the World Bank from contributor countries. These contributions are, as it were, a catalyst and by doubling the catalyst we can double the amount of capital that can be secured by the World Bank. I would remind the House that economic stability does not come out of the air. The World Bank is not like the widow's cruse in the Bible. For this widow's cruse one must have savings out of current economic resources. Out of the year's production, a certain section has to be set aside. It cannot be consumed, but must be preserved for the future, as a farmer holds back part of his crops to use as seeds next year.
When we look at the under-developed countries, it is obvious that they cannot be expected to produce sufficient savings out of their own resources. People who support the old-fashioned Manchester school point of view under-estimate the capacity of the under-developed countries to save! In India, the total average income per head of population is about £20 a year. He would be a bold man who would say that an Indian should be able to save enough out of that to provide for his capital needs. It is therefore natural that countries such as India should look outside their borders for capital and should appeal to other people to lend from their own accumulated savings. I want to complete the circle and say that in this country, like all advanced industrial economies, none of us feels that we ever have enough personal resources and that there seems no limit to the British public's capacity to consume within the foreseeable future. We can see almost unlimited opportunities for expenditure at home.
We have to ask ourselves why we in this country should give or lend some of our savings to the under-developed countries. I think there are very good reasons 69 why we should do so. The first argument is the moral one. I know there are hon. Members who feel that the moral argument is sometimes overplayed, but we are our brothers' keepers. If we are to have a reasonably orderly world we must play our part as citizens of the world as well as citizens of our own country.
There was a time when local loyalties were very strong and people did not feel the same loyalty to the central government in London as to their own parish. Today we have a position in which people recognise their responsibilities to the community as a whole. Just as a village which once was a social unit became too small and the unit became the nation, so in many respects the nation itself is too small. We are living today in one world and should have loyalties to it.
The last time I spoke on these matters I gave examples of how in my view science had made the world so small, through the increased speed of communication and, above all, through development of methods of mass communication of ideas and the consequent realisation of how other people live. In these circumstances, I believe we have a direct duty to assist in the economic development of the world. I should not have thought there was very much difference between the majority of right hon. and hon. Members in this House about that. The argument, the very proper argument, would come as to how much at any moment and by what means our savings should be transferred to the under-developed countries.
My second reason is that we in this House have a direct responsibility politically for some of the under-developed countries, namely, the Colonies. I believe our first priority in assisting the underdeveloped countries of the world must be to our own Colonies because we are directly responsible for them. I suggest that our second responsibility must be to the Commonwealth countries because, although they have sovereign Governments, they are within this family of nations, this mystical partnership which we call the Commonwealth. If the Commonwealth is to mean anything, they should be able to get priority over those countries which are not members of the Commonwealth. If we had a vast source of savings, great largesse to give to the world, it might be different, but when there is so little to go round they should 70 have a prior claim over other countries upon our resources.
Thirdly, I suggest to those hon. Members who feel I may have been a little idealistic, that there is a very good material reason for helping these countries. It is one of self-preservation. We know from our political and social history in Western Europe that when the disparity between rich and poor becomes so great as to appear to many of the members of the community intolerable we have a potentially explosive situation. I need not bore the House by going over the history of the eighteenth and nineteenth centuries in Europe. Hon. Members are familiar with it. I believe that sort of situation could arise and may even yet arise between the under-developed economies of the world and the more highly developed ones. I think it is only when one has travelled round some of these countries that one realises how desperately poor many of these people are.
The fourth argument is, I believe, an economic argument for the advanced industrial economies. I am thinking now a little into the future. The maintenance of full employment and the full employment of our domestic capital resources in manufacturing industries, particularly if we are to have a reasonable rate of economic expansion, inevitably demands a similar rate of economic expansion in markets. I question how far that can be sustained purely by the domestic markets of the Western world. Certainly it can for the moment, but I am looking to the end of the century, as is proper for a young back bencher to do, although certain of the older hon. Members may feel that I should do better to address myself to the more immediate prospects. That is an argument which has been developed by Professor Galbraith when he discussed the future prospects of what he called our acquisitive society.
Coming to the more immediate problem, I believe that assistance to the underdeveloped countries will help to preserve peace. We can argue our heads off as to the theoretical causes of war. I think there are many, but I think we would all agree that poverty tends to breed war. I would not put it more strongly than that. It is not necessary for my argument to put it more strongly, but there is more than ample evidence that it is one of the causes of war. Therefore, it would 71 seem reasonable that part, as it were, of our defence budget should be considered in the form of assistance to the under-developed countries.
Sixthly, there is the current reason of competition between the free world and the totalitarian world. I have already pointed out the short-term advantages that a totalitarian country has in the competitive export of capital where politically desirable, but, none the less, that competition is there and it is a challenge we have to meet.
I think these six reasons are strong reasons for us in this House to take this problem very seriously. We should then ask ourselves from what sources can these savings come? The only source from which they can come is British industry and the British people. How are they to be deployed? What instrument should be used for directing into the under-developed countries? The first and most obvious is the World Bank. That is the second object of today's Bill. The second instrument is Government to Government loans, credits and the like. The third in relation to our own responsibilities in this country consists of the twin sisters, the Colonial Development Corporation and the Commonwealth Development and Finance Corporation.
If ever we have time I should like there to be a technical discussion on those two bodies because there are a number of us who feel that the boundaries between them are not drawn correctly. I think there might be a case for amalgamation of the two. The distinction in title between Commonwealth and Colonial reflects a political distinction, but the economic problems of a territory like Ghana, which has already got independence, a territory like Nigeria, which is about to get it, a territory like Sierra Leone, which will not get independence for many years, are very much the same. The experience and expertise which can be applied to one can be applied to another. We have to think of these two bodies much more in terms of the job they are asked to fulfil than of this political division which has led to the existence of two separate bodies.
The fourth source is private enterprise. If private enterprise is to provide capital, either through loans, through a direct participation in equity or by British 72 companies going out to these territories and establishing branches and subsidiaries, there has to be reasonable treatment of capital. We all know that in some under-developed countries there is a political antagonism against private capital. That antagonism is stupid because there is so little capital to go around that those countries which treat foreign capital unreasonably will not get any more. My advice to them is not to kill the goose that lays the golden egg because there are not very many such geese about. They should make it as attractive as possible for those geese to go to their countries.
It is for that reason that a number of us, of all parties, are at this moment considering whether the world would benefit by the establishment of an international code or convention for the fair treatment of foreign capital. I know that some of the Germans at the San Francisco convention a year ago, run by the Time-Life organisation, put up proposals which stand in the name of Dr. Hermann Abs for a world code of the fair treatment of foreign capital. Those proposals struck many of us as being too extreme. They seemed almost to infringe on the sovereignty of the recipient country and clearly would be unacceptable. But there would be benefit to both sides of the partnership—because it is a partnership—by a reasonable code of fair treatment, with some recourse in time of dispute to international arbitration.
At the moment, we suffer from the fact that international law is only the law between sovereign nations. They are the only bodies that have juridical personality. If there is a dispute between private companies, even one as big as Shell, and a foreign Government it is doubtful, unless they have been operating in that country in consequence of treaty rights between the British Government and that country, whether they can appear at the International Court at The Hague.
I am no lawyer, but I have a great respect for the rule of law. It seems to be the only intelligent method so far devised by the human race of enabling people to solve their disputes peacefully and without wrecking their neighbour's peace, livelihood and lives. As the House knows, I have spoken on this matter before in the context of disarmament. I am anxious to see an extension of the 73 rule of law in every field. We should consider whether it is not possible to give private organisations juridical status so that in disputes, either between themselves or between themselves and Governments, they can have those disputes settled by a new commercial division of the International Court at The Hague.
Obviously, if companies were to get juridical status they would have to pay a price for it, in exactly the same way as a company which wishes to enjoy the benefit of joint stock companies' status has to fulfil certain requirements which Parliament thinks right to demand of such an association if it is to get the benefits of limited liability and the protection which we give it by law. I cannot help feeling that something on those lines would be a useful addition to the rule of law and would enable companies to go more willingly into areas which have a great need for capital and foreign industry but where the political future is, to say the least, doubtful. I admit that I have gone a little wide of the Bill in throwing out those ideas to the House.
I end by saying a word about the political problem that we as Members of Parliament all experience. We have to find a way of showing to our own electorate that money spent on Colonial development, Commonwealth development, increased contributions to the World Bank and indeed Government to Government aid, of which we all agree we want to see more and on a larger scale, is a proper use of our resources. This must be done in a manner which will appeal to our constituents so that they will not say, "Why are you advocating in Parliament doubling our contribution to the World Bank and making a 50 per cent. increase in our contribution to the International Monetary Fund while my post-war credits have not yet been paid? "I could imagine a situation where but for increased assistance to the Colonies and Commonwealth a particular tax, say Income Tax, could have been reduced by 3d. or 6d., to which our constituents might reply, "You should not have done that. You are sent to Parliament to preserve our interests and not to use our money to finance the Africans."
We must find a way, not merely intellectually, but emotionally to identify our own people with this problem. If we look at the problem in the same way as an economist would look at it—at one 74 end of the scale the relatively small population of the developed Western economies, their very large resources and a high level of production; and at the other end the vast millions of the underdeveloped world— I do not believe that that sort of comparison will appeal to people's emotions.
I suggest, although this may be a little quixotic, that we might learn from our experiences during the war, when we tried to raise money for the R.A.F. and for the Navy. Towns adopted a ship or squadron. There was interchange between them. They got to know each other so that the art of giving became personalised. I wonder whether there is some way by which we could personalise the relationship between parts of our own country and parts of the Colonial territories and of the Commonwealth. For instance, perhaps a town in the Midlands could adopt a town in central India, thereby achieving a closer relationship and a closer understanding.
Let us take our experience in our own family. If our own relations are in difficulties, we feel more concerned than if we hear that 100,000 people are starving in Calcutta. In such cases, we feel our obligations more closely. Therefore, we must use more imagination in the new craft or, if one likes, in the science of communication. Although we are using mass media, the trouble with mass media is that it is mass, so we must find a way of personalising it and getting it on a much more of a person to person basis.
As usual, I have spoken far too long. Like everyone else, I naturally support the Bill and regard it as a continuation of the good work which this country has started. However, it is far from being the end of the road.
§ 5.47 p.m.
§ Mrs. Eirene White (Flint, East)
I can only suppose, from the relatively sparse attendance in the Chamber, that the names of the Ministers promoting the Bill have frightened away hon. Members on both sides who might otherwise have taken part in the debate. As the hon. Member for Eastleigh (Mr. D. Price) remarked, it looks at first glance as though one has to be an expert in finance to discuss these matters and I am sorry that only Ministers concerned with finance are on the Government Front 75 Bench, although I recognise that the Economic Secretary, in his earlier capacity, had an interest in the problems of under-developed areas, but that was purely personal and was in no way connected with his present office.
I am sure that we were all greatly interested in the speech of the hon. Member for Eastleigh. I am only sorry that he did not listen to the quite contrary jingoistic speech of the hon. Member for Chigwell (Mr. Biggs-Davison) and that the hon. Member for Chigwell has not been present throughout the liberal-minded speech of the hon. Member for Eastleigh. I dare not praise the hon. Member for Eastleigh too much, however, in case he should ever find himself in Bournemouth or North Belfast.
§ Mrs. White
I do not say that it will.
I do not propose to discuss the first part of the Bill, which deals with the International Monetary Fund, because I do not profess to be an expert in liquidity, either alcoholic or monetary. I therefore propose to deal mainly with the part of the Bill which concerns the World Bank. If things go in future as they have gone in the past, this is not likely to cost us anything. These provisions are primarily an ingenious way of obtaining more money from investors in bank securities.
Paragraphs 20 to 23 of the White Paper make it quite clear that the greatest proportion of the investors in the World Bank's securities are, as one would naturally suppose, in the United States—particularly those willing to take up long-term investment. In the United States, one has to be very careful to persuade persons and institutions—and it is largely institutional investment—that it is proper for them to invest in something with an international character because, as is pointed out, their experience has hitherto sometimes been entirely domestic.
It is essential, therefore, to induce those investors to invest, to obtain the guarantee of the United States Government for a very large proportion of the money. By this ingenious device, we are obtaining that guarantee, although, to keep it on a proper international basis, all the other countries must give a 76 guarantee as well. However, it is quite clear that it is the United States Government's guarantee that is the really important one.
We should not fail to approve the fact that some countries are now to be asked to increase their obligations to both the Bank and to the I.M.F.—Japan, Canada and West Germany. That is only right because, if one looks at the proportions of subscriptions to the Bank by member countries, one sees that that of the United States is, virtually, 30 per cent., and that of the United Kingdom just over 12 per cent. On the other hand, West Germany's is a little more than 3 per cent., Canada's is similar, and Japan's proportion is about 2½ per cent. of the total. When one takes into account the relative positions in the world of West Germany and this country, it seems right that the West German contribution should be increased. That is a very desirable aspect of this Bill.
The hon. Member for Eastleigh referred to something of very great interest and importance—the rates of interest charged by the Bank to the countries obtaining assistance from it. This concerns me very much. The rates vary according to what it costs the Bank to borrow the money, and have varied from, I think, about 4¼ per cent. at the lowest, to about 6 per cent. at the highest during the period of the Bank's operations. That is a very high rate to pay for certain kinds of projects that are absolutely essential in the under-developed countries, and I should like to look at it from two points of view.
The Bank charges 1 per cent. above current market rates in order to create a special reserve, and it is stated that this special reserve is meant to provide a fund against potential loss. The White Paper tells us that that reserve now amounts to about 377 million dollars. I am not quite clear whether or not all of that reserve has come from this additional 1 per cent. Perhaps we could be told.
In any event, the Bank has taken such extreme care over its lending that, so far, it has not had a single failure to repay principal, interest or other charges. In other words, its lending policy has been so conservative that it has virtually taken no risks. If that is so, is it really essential, or even desirable, that the Bank should have this extra 1 per cent. on 77 interest rates for a special reserve against loss?
In dealing with affairs in the underdeveloped countries, I think that there is something to be said for being not quite so cautious—a complaint frequently made against the Bank, which, in many respects, is a most admirable institution. I know quite well that its terms of reference lay down that the Bank has first to satisfy itself that the capital required is not obtainable from other sources and that, therefore, one can say that the bankers are fulfilling a very useful function. But surely the Bank should be able either to make loans for some projects that are not quite 100 per cent., copper-bottomed, and so on, or lower its interest and not take this 1 per cent. for contingent loss.
There is no doubt of the need for greater development in many of these countries, and towards the end of paragraph 9 of the White Paper there appears the particularly interesting remark that not only have capital requirements increased both in money terms and real terms, but the ability of the under-developed countries to absorb capital has improved.
That is extremely important. In the early days after the war, when the Bank was established, there was probably some truth in the assertion that there was a limit to the capacity of countries to absorb investment, because they had not the resources of manpower, organisation and the like. It is partly due to the work of the World Bank and other like organisations that, in the ten years or so since the Bank started, more has been learned about how to manage investment and development. There is, therefore, a greater field for intelligent development than there was earlier, and there are also far more people who have had training and experience in these matters, so that one has some assurance that the funds supplied will not be wasted or mis-spent.
That is a very strong reason for increasing the Bank's activities. I should like to ask the Economic Secretary whether any further thought is to be given to the scheme touched on by my right hon. Friend the Member for Rochester and Chatham (Mr. Bottomley), which is very much under discussion in certain circles in the United States. I will not pretend that the Government circles appear to be 78 looking at it very favourably, but the Economic Secretary will know that in New Delhi there was again discussion of the proposed International Development Authority, the purpose of which would be to lend money for periods longer than the Bank normally lends.
The Bank's average loan term is about thirteen and a half years, but, as we know from local authority experience here, there are kinds of development that need a very much longer term. It is also proposed that for the longer-term loans there should be a rate of interest lower than that currently charged by the Bank, and that there should also be, of course, provision for repayment in soft currency, if required.
These three changes in conditions would open up a very much wider field of possible development in many of those countries. I had a very interesting talk in Washington with Senator Monroney a few weeks ago. The Senator, as the Economic Secretary will know, is very much a protagonist of this idea.
I recognise that there is the argument that in any case it is not easy to obtain adequate funds; that we in this country deal with that type of investment largely through colonial development and welfare funds, and that, therefore, one can pour some cold water on the idea of the I.D.A. However, I feel myself that the Bank at the moment, through following the policy we have previously discussed of extreme caution, is not really doing as much as should be done for countries, possibly outside the Commonwealth, which do not have the advantages of C.D.W., and I should very much like to know whether we have dismissed this idea out of hand or whether we are still prepared to discuss it.
I should like to say how much impressed I was by the quality of the training work which the Bank carries out. That seems to me, as my right hon. Friend the Member for Rochester and Chatham said, one of the really very valuable things which the Bank has done. I had the pleasure of meeting the members on the present course of the Economic Development Institute, people of high standing in the Administrations of their own countries. I felt that it was a most stimulating group of people and that they were probably learning a good deal from this kind of staff college experience 79 in the study of development in underdeveloped territories. That is not the only kind of training of administrators and economists which the Bank undertakes. It will provide an almost tailor-made course for any person of standing who comes along and who wants to learn more about the procedures and problems of economic development.
Having said that, I should like to know what the attitude of the Government is to this increasing proliferation of initials. During my few weeks in the United States recently I tried to obtain at least some superficial acquaintance with the various agencies there, the United Nations agencies and the United States own agencies in this sphere of development in under-developed areas. One finds that not only have we the International Bank and the United Nations agencies, including the Technical Assistance Agency, of course, but also the International Co-operation Administration, the Development Loan Fund, and so on and so forth, and side by side with these Government institutions one has the great charitable foundations, the Ford and the Rockefeller Foundations, in particular, which make grants sometimes for purposes similar to those for which grants are made by the official bodies.
In the Technical Assistance Agency, for example, one has a number of groups of persons all prepared, apparently, to go out and work in any part of the world, and one cannot help thinking, when one puts oneself in the shoes of the recipient country, especially of some of the smaller countries, how bewildering it must be to have this multiplication of agencies, and to know to which one ought to go with one's cap in hand, and to know where one begins and another ends.
It was put to me, about the United States agencies, that there is some political benefit in having more than one agency through which to channel funds, because one can manage Congress rather better in that way; if there should be any cuts they are likely to fall less heavily if there are several bodies than if there were only one. I can see the force of that, but I should very much like to know whether the Government are giving any attention to this problem of the ever-increasing number of organisms dealing with this matter.
80 The United Nations itself has a number. While I was in the United States I saw the beginning of yet another body, the Economic Commission for Africa—whose secretary I was glad to meet—which was just about to set up his headquarters in Addis Ababa. I am sure that it is most desirable to have an Economic Commission for Africa, but it just adds yet again to the groups of persons who are studying and talking and writing reports about all these things.
§ Mrs. White
And using initials, as my hon. Friend says.
So one must ask oneself whether there is not now too great complexity, whether one ought not to bring into the orbit of the United Nations some more of the work which is being done. The Bank itself, of course, is an appendage of the United Nations, and it is working very closely indeed with the specialised agencies. I think that it would have been very interesting if we could have had a rather wider speech from the Chancellor of the Exchequer today. I appreciate that his concern with the Bill is primarily a financial one, but there are all these other questions which, after all, come within the scope of the Bill, and I hope very much that in replying to the debate the Economic Secretary will feel able to deal with some of them.
§ 6.6 p.m.
§ Sir Peter Roberts (Sheffield, Heeley)
I wish to detain the House for only a short time. I should like first of all to take up one of the points with which the hon. Lady the Member for Flint, East (Mrs. White) dealt, and that is the past record of the International Bank itself. I rather feel with her that those of us who looked upon it when it was first founded as a great hope for expansion have been a little disappointed over the years. Caution and the solid backing of the American dollar with very little backing by anybody else can be blamed for it. Therefore, I am very grateful for this Bill and for the discussions and negotiations which went on before it was presented.
However, there is one problem which I should like to put to the Economic Secretary. It arises out of what the hon. 81 Lady said. She said that the average length of years of the terms of loans was 13½ years and quoted rates of interest from 4¼ per cent. to 6 per cent. As she said, those who are dealing in that sort of term can go to quite a number of places to get their money. I am not complaining at the 4¼ per cent. or 4½ per cent. rate of interest, but I have found that at the present time the difficulty is shorter-term borrowing than for, say, 13, 14 or 15 years. At present, as I am sure hon. Members know, under export guarantee loans it is reasonably easy, if the proposition is a sound one, to get money on five years' credit.
What I find is generally happening is that whereas we in this country are tied to a five-year credit period our competitors abroad are going farther and farther along the road of competitive years' bidding. We find that the Germans or the Americans can elongate credit from five to six, seven, eight or even ten years. Having listened to what the hon. Lady has said, I am wondering whether there is not a function for the World Bank to manipulate funds in a form of two-tier financing. It is easy enough, as I say, to get one's finance for the first five or six years to back a big project, but over credit for such amount of time as the hon. Lady was referring to there is, as she said, great caution, and I am wondering whether, in order to stop this international competition in credit, it would not be possible to bridge that gap between the longer terms and the Government guaranteed five-year period.
I am very doubtful about the efficacy or the wisdom in the long run of a credit race. I congratulate the Government on the stand which they have taken in not encouraging such a race. It seems to me that in the negotiations with the World Bank and the International Monetary Fund it might be possible, if a new approach could be made, to institute some form of two-tier financing so that the ordinary finance of industry, backed by Government guarantee, could carry the first five or six years and it might then be possible for the World Bank or the International Monetary Fund, through the Government, to come in and take some risk beyond that, and to take this competition which at present we in this country are not standing up to very well. I appreciate that he cannot reply 82 this afternoon, but I ask the Economic Secretary to consider whether it might not be possible to encourage the World Bank to take the back-end period of loans of this kind, which carry more risk, it is true, but with which the Bank may now have funds to deal.
My second point arises out of the interesting speech made by the hon. Member for East Ham, South (Mr. Oram), who was talking about the principles on which these loans should be made. He said that they should be economic, but I thought that he then brought in some political reasons. In so doing he referred to India, as did my hon. Friend the Member for Eastleigh (Mr. D. Price). It is important to realise that these vast loans which the Americans, ourselves and the World Bank are making to the so-called under-developed countries should be directed towards the development of exports. I do not see how the vast financial loans of capital which have been and are being made to places like India, Ceylon and Indonesia can be repaid in the period stipulated unless those countries can increase their exports and thereby earn the currency which will repay the loans. Otherwise, the loans will become debts, and once that happens confidence in currency will begin to be shaken.
Speaking of India, I should like to remind the House of the enormous iron-ore deposits in that country. Some of them are of up to 55 to 65 per cent., which, if developed, could be exported to this country where at present we are importing about 18 million tons of iron ore annually. It is to that sort of development that we should put our loans, rather than to developments which in themselves do not bring in exports. Those are the two points to which I should like to draw the attention of the Economic Secretary. I will not take further time from the right hon. Member for Derby, South (Mr. P. Noel-Baker), who was kind enough to allow me to speak. The Bill will be a step forward in international finance which is badly needed at present.
§ 6.14 p.m.
§ Mr. Philip Noel-Baker (Derby, South)
I am very glad that the House has heard the hon. Member for Sheffield, Heeley (Sir P. Roberts). I do not agree with him about exports. The vital thing is to raise the 83 standard of living of these countries. That, indirectly but quite soon, will also increase the volume and value of their exports. I have great sympathy, although I do not want to say much about it now, with what was said by my right hon. Friend the Member for Rochester and Chatham (Mr. Bottomley) and by my hon. Friend the Member for Flint, East (Mrs. White) about co-ordinating and canalising the work of international development through the institutions of the United Nations.
Nevertheless, as my right hon. Friend said, we shall vote for the Bill, and vote with great good will. Both the Bank and the Fund are outstanding examples of succesful international co-operation. With staffs drawn from more than 50 different nationalities they have worked over a long period of years with efficiency, economy and a very notable degree of zeal, and they have achieved results of which hon. and right hon. Members have spoken with appreciation today.
I expect that a good many hon. Members had not realised until they read Command 652 that the Fund, from its foundation until now, had made available to its members financial assistance amounting to almost £1,500 million; that the transactions which involved about two-thirds of this great total were arranged during the last two years; and that although what the White Paper calls… the extreme tensions that gripped the major exchange markets in 1956 and 1957 …have now abated, the Fund is still receiving requests for assistance from its members almost every month. Nor may some hon. Members have recalled that by far the largest of the Fund's transactions was for us, in 1956; a drawing of 561 million dollars and a standby arrangement for 739 million dollars, a total of 1,300 million dollars amounting to nearly a third of the Fund's total operations since the start, it was carried through for the benefit of this country after the disastrous Suez war in December, 1956.
I should like to ask the Economic Secretary some questions about this Suez war transaction. I gather that we shall have paid back 200 million dollars of our 561 million dollars drawing before April this year, and will pay the rest in 1960 and 1961. I gather that we are paying no interest on this amount. I 84 should be glad of an assurance that that is so. But I also understand that we paid a "service charge" of ½ per cent. on this drawing when it was made; a charge which, on 560 million dollars, if my arithmetic is right, is almost exactly £1 million. I further understand that on our standby arrangement for 739 million dollars we pay an annual charge of ¼per cent., which is approximately £660,000.
If we keep our standby arrangement until we have repaid our drawing, that is to say until 1961, this charge of ¼ per cent. will have cost us well over £3 million and, with the other £1 million of which I have spoken, the total cost to us of this operation with the Fund will have been about £4½ million. That is a trifling sum, of course, compared with the other direct and indirect costs of the Suez war; but it is not a negligible sum. It would pay for almost three years our British contribution to the budget of the United Nations, against which criticisms, if I understood an hon. Member aright, have been made today.
The £4½ million is also, of course, a trifling charge in comparison with the service which the Fund rendered to our country in 1956. We did not need Mr. Randolph Churchill's book to tell us that without the help of the Fund the £ sterling would have suffered a devastating blow. The Directors of the Fund do not overstate the truth when they say that the Suez war createdan emergency situation in which the massive use of the Fund's resources was required to prevent a major crisis in the international exchange structure.That was not only a great service to us but a great service to the world as well — perhaps the Fund's greatest service.
But the Fund has done much else beside. I remember that in its very early years, a number of European countries suffered from severe shortages of foreign exchange and the Fund helped powerfully to pull them through. The same thing has happened in the last two years. But although the credits provided by the I.M.F. before 1956 have all been repaid, and although this means that the resources form a rapidly revolving fund, nevertheless it is clear, on the figures given by the Chancellor this afternoon, of a fall in uncommitted resources in gold and dollars from 3,500 million dollars to 85 1,500 million dollars in the last two years, that the Fund's resources must be quickly increased. By passing the Bill we shall help to increase them by 50 per cent. of the 9,000 million dollars at which the members' quotas were fixed in 1944. That sounds a formidable increase, but the Directors point out in their Report thatthe rise in dollar prices by at least 50 per cent. since that date has correspondingly reduced the real value of the Fund's resources.That means that the proposed increase will just about put the Fund back, in real resources, where it was when it began.
Before I finish with the Fund, I want to urge on the Minister that that may not be enough. It has been most cogently argued in Lloyds Bank Review, October, 1958, p. 18, by the bearer of a very famous name, Mr. Maxwell Stamp, and it has been argued this afternoon very powerfully, that international trade has been grievously restricted in recent times because so many nations, like ourselves, have had balance of payments difficulties, shortages of gold and dollar reserves. Mr. Stamp, who served on the staff of the Fund for a period of years, urges that the Fund should be empowered to accept the pledge of commercial bills which have been re-discounted by a central bank; or to accept a pledge of certain tax revenues of the kind which I remember Greece used to hypothecate to the holders of the British-French-Russian loan many years ago; or that the Fund might accept a mortgage on a State-owned industry, as indeed Greece did on the lands and houses given to the refugees in 1922. Mr. Stamp said:It should not be beyond the wit of man to find assets other than gold the security of which would 'protect the Fund's interests', and enable it to grant credit much more easily than it does at present.The House will remember that Lord Keynes wanted the Fund to be able to create a new international paper currency, to which he gave the name "Bancor", as a means of settlement among the member States. Sir Oliver Franks recently has been suggesting that the Fund should be used more as a world central bank to mobilise the liquid resources now locked up in currency reserves and use them to finance a lot more trade, as a national central bank does with its reserves.
86 The increase in the Fund's quotas, to which we shall today agree, is a step in the right direction, but I believe it is not adequate in view of the dangerous world economic situation which we face.
In our view, the same is true of the proposed increase in the reserves of the International Bank. Like the Fund, the Bank has a splendid record. I remember all too vividly in the days before the Fund and Bank were created, the difficulties of raising loans for nations that required capital for reconstruction or development. I was Lord Salter's colleague when he put through the first League of Nations loan for Austria in 1922. I was with Dr. Nansen in Athens in the autumn of 1922 when he proposed the refugee loan for Greece. Greece had suffered a major disaster in the Asia Minor war. She had been fighting for ten years. Her population was only 4½ million. One and a half million refugees came flooding in from Eastern Thrace and Asia Minor, without money, clothes, animals or tools. The Greek drachma fell in six weeks from 18 to the £ to 360.
It took Dr. Nansen and Lord Salter nine months to get the first instalment of the League of Nations loan, which in the end reached a total of £14 million. That loan saved Greece from social and economic disaster, but it came only after very great suffering had been inflicted on the people of Greece and on the refugees. Greece bad to accept a League of Nations Commission administering it on Greek soil. The lands and the houses given to the refugees were mortgaged to the lenders and the Greek Government had to pay interest at 7 per cent.
The International Bank works better. In its twelve years of existence it has made loans, as the Chancellor said, to forty-nine countries or territories to a total value of well over £1,500 million. The first £200 million were for reconstruction in Europe. I recall the point, for a reason which will later appear. The rest has gone for development, mainly in the under-developed countries of the world. Such investment is, ex hypothesi, a difficult and hazardous affair. It was not rendered easier by the fact that, after the second World War, what the Directors call the "investment community" was extremely distrustful of international lending and very ill-informed about the International Bank.
87 Mr. Eugene Black's achievement in creating confidence among investors has been very remarkable. And he has shown his statesmanship even more strikingly in his relations with the governments to whom he lends. Some years ago he wrote an article in which he set out the principles on which he and his co-directors work. He said:They seek to apply their capital creatively and efficiently, and where it makes its most immediate contribution to increasing production, raising living standards and opening opportunities for further investment.They have often declined to make loans which would have earned a profit but which would not have served these wider economic ends. They have sought to finance, not an isolated project, but, if possible, a group of projects which together will have a cumulative effect on a nation's economic life—for example, in Ethiopia roads, telephones, and a development bank to promote the output of Ethiopian agriculture, and in Siam irrigation, railways and port facilities to increase the export of agricultural products.
They have succeeded in creating trust and mutual respect between themselves and the recipients of their loans to a very remarkable degree, so much so that the recipients take their advice about other investment and, indeed, about economic policy in general. They have trained local people how to operate their projects when they have been completed. For example, in the Ethiopian road scheme they had a provision for training local management and labour in the maintenance of roads. They have rendered technical assistance which has gone far beyond the scope of an individual loan. In many cases they have made a comprehensive study of a country's resources and have drawn up a general plan for its economic advance. Sometimes the general results of this planning have been more important than the direct consequences of a loan which the Bank may have made.
The directors found that one of the greatest difficulties in their development investment was the inexperience of receiving Governments in economic and financial policy problems. They therefore set up in 1956, with the help of two American foundations—the Bank now carries it on itself—the Economic Development Institute in Washington, where 88 they train senior officials from National Ministries, central banks, development corporations and so on. That has proved to be a great practical success, but it has worked on too small a scale. Mr. Gordon Evans has proposed that it ought to be supplemented by other regional institutes for the same purpose, where costs would be smaller and where greater numbers could be trained. I hope the Chancellor will note the suggestion, for it might lead to great results.
I am trying not to be unnecessarily controversial, but I must ask the House to note this important fact. It has been much easier for the Bank to work on these principles, to establish this kind of relation with those to whom it makes its loans, because it is a public institution which is not primarily concerned with making profits.
It has worked on what we call sound commercial principles. It has never lent more than it believed the countries could afford to pay. But, nevertheless, the directors have always accepted the basic maxim that their task is to raise the standards of living of the nations they serve, and much of what they have done has transcended the limits of ordinary commercial practice or of what a commercial bank could justifiably do. They have been rewarded by the fact that they have built up adequate reserves, and as my hon. Friend the Member for Flint, East said, they have never had a single failure to pay principal, interest or charges on bank loans. I have great sympathy with what she said about the Bank's rates of interest. A strong case can be made for its present practice, but I look forward with keen anticipation to the day when its rates of interest are divorced from, not dependent upon, the rates of interest in the United States, and when it will be able to make much longer term loans than it has made up till now.
In spite of their caution—perhaps because of it, the Directors would argue—the scale of their work has, as the Chancellor knows, continually, and now in recent years rapidly, increased. They made loans in 1953–54 to the value of 324 million dollars, in 1957–58 to the value of 711 million dollars, more than twice as much. Already this year they are running at an annual rate of 900 million dollars, and no doubt the figure will go on increasing.
89 It is that development which has caused the Directors to ask for the doubling of their authorised capital to the figure of 20,000 million dollars. That sounds a lot, but it is less than half the annual expenditure of the United States on national defence; less than half one year's expenditure. Is that figure adequate to meet the need for world development, to combat the grinding poverty in which the great majority of our fellow human beings are born and live today?
The Bank Directors say in their Report that their task is "staggering." Mr. Hammarskjöld goes further. Last year he said that two trends in world affairs are, in the long run, more dangerous than the ideological conflict which now divides East and West. One is the continued tendency for population to increase faster than production in those areas where the standards of living are lowest. The other is the fact that the gulf separating the standards of living in those areas from the standards of the economically advanced regions continues to widen. He also says that—… no attack on these trends can be successful without a combination of measures of an order of magnitude far beyond what has so far been undertaken.He calls thisthe greatest economic challenge to all nations, both individually and collectively,and adds that its great urgency has not been understood.
Let the House reflect on the Bank Directors' word "staggering", and on the Secretary General's declaration that the measures needed must be "far beyond anything so far undertaken."
A recent publication by the Bank shows that in Mexico the population is increasing by 1 million a year, but that the standard of living is rising slightly more, in great part due to large loans which the Bank has given. The case of Mexico is very rare. The United Nations Commission on Population, now sitting in Geneva, said the other day that it estimates that the increase of population in the under-developed countries will be 2,000 million within 40 years from now. The balance against the advanced West will increase by 2,000 million, more than two-thirds of the present population of the world, within 40 years. India is at present a bulwark of democracy in Asia; but the average income in India is about 90 25 dollars a head per year. There are 200 million Indians who have less than 20 dollars on which to live. It is a kind of poverty we cannot imagine.
The other day in The Times Sir Herbert Broadley gave us a picture based on U.N.I.C.E.F., the United Nations Childrens Fund. Since U.N.I.C.E.F. began its operations 1,000 million children have been born into the world. Between 150 million and 250 million of them died in their first year, which is an infant mortality rate of 250 per 1,000. Ours is 23. Between 150 million and 250 million of the children probably got a fair start in the advanced Western countries, leaving 600 million who were born in dirt and squalor, condemned to life-long hunger, subject to trachoma, leprosy, yaws, malaria, tuberculosis and other diseases, mostly without education of any kind.
It is long years since Mr. Eugene Black said that disease and illiteracy hold down productive ability. Of course it is true: one cannot start any large scale work until there are clerks who can write and add well enough to keep the wages sheets. We could not begin to build the Panama Canal until yellow fever had been wiped out. Trachoma may blind its victims, leaving them a burden on their nation's economy for all their lives. It can be cured by a few applications of an ointment. There are 400 million people with trachoma in the world and only a small proportion are getting the treatment they require.
Yaws is a hideous disease which cripples people for productive work. One dose of penicillin cures it—14 cures for five English shillings. There are 50 million cases of yaws in the world now and a large proportion have little hope of help. Malaria kills 3 million people a year. Much worse, it reduces the productive capacity of scores of millions more. If 1,000 million dollars were now forthcoming, the World Health Organisation would be able to wipe out malaria for good and all. U.N.I.C.E.F. spends 66 per cent. of its meagre income in combating disease—half of that on malaria, 25 per cent. on maternity, 9 per cent. on nutrition; nothing on constructive, educational development work.
Measure the Bank's work against these figures I have given. Measure it also against the urgent economic needs of the 91 under-developed countries and the kind of thing that happens to them. As my right hon. Friend the Member for Rochester and Chatham argued so well this afternoon, they are almost all in the category of nations who produce the primary products on which our Western industrial system depends. A fall in the price of those products, their only exports, hits them a devastating blow.
Mr. Hammarskjöld declares that—… a fall of only 5 per cent. in the average of their export prices is approximately equivalent to the entire annual inflow of capital which they receive not from International Bank loans only, but from all other public and private loans and Government grants.Five per cent.; and my right hon. Friend showed that the fall in 1957 had been 6 per cent. Let us take a few of the specific figures. Between the first and last quarter of 1957, the price of cereals fell from 104 to 93, a difference of 11 per cent.; sugar from 144 to 97, a fall of 47 per cent.; fats and oils from 106 to 94, a fall of 12 per cent.; wool from 125 to 93, a fall of 32 per cent.; metal ores from 101 to 92, a fall of 9 per cent. We have benefited by these falls; but as a result the under-developed countries are in a far worse situation than they were before. Their loss on their export prices much more than swallowed up all that they got from the International Bank and other sources.
In no foreseeable future can the work of the International Bank compensate for price fluctuations like these. If the under-developed countries are to make steady progress in their war on want, the other nations must help them by commodity agreements, which will in some degree stabilise the prices of the primary products which they sell. Everybody knows the difficulties of making such agreements; but every nation has a common interest in seeing that it is done, and not least Britain, three-fifths of whose exports go to the countries which produce the primary products.
No less important—perhaps more important—is the provision of capital to the under-developed countries in the form of grants in aid or non-interest-bearing loans; in other words, the creation of S.U.N.F.E.D. or something more ambitious still.
I have quoted Mr. Eugene Black on illiteracy, lack of administrative ability 92 and disease. One cannot provide education or a health service or basic rations by means of commercial interest-bearing loans; but these things are vital to the economic progress of these countries and, therefore, of the world. Without them the International Bank cannot really do its work. Its clients cannot usefully absorb the capital which they ought to have.
Let us remember the recent history of Europe. I spoke of the £200 million worth of loans given to Europe for reconstruction after 1945. At that time U.N.R.R.A. provided for Europe £1,400 million in grants in aid. I doubt whether the Bank loans would have been viable without the U.N.R.R.A. help. U.N.R.R.A. was followed by Marshall Aid of nearly £5,000 million, more than 12,000 million dollars, three times as great as the aid given by U.N.R.R.A., and going right on till 1952.
S.U.N.F.E.D. was intended to do the same thing for the under-developed countries, in the much more tragic circumstances in which they live. The first target proposed was 250 million dollars, a small sum compared with the colossal need. Our Government, alas, helped to kill it on the grounds of expense. They set up the International Finance Corporation instead to encourage private investment. I say nothing against it, but in the first two years of its work it has done business to the tune of 10½ million dollars only, and it is said that some of its charges may work out at up to 14 per cent.
The Government have now set up the Special Fund, another sop to take the place of S.U.N.F.E.D. The Special Fund has an initial sum of 25 million dollars. The Government have helped to keep the income of U.N. Technical Assistance at about 30 million dollars a year. U.N.I.C.E.F. has an income of £8½ million. This is playing with the subject. These new schemes—I.F.C. and the Special Fund—may be admirable, useful and right, but they are not really even the beginning of "the combination of measures" for which the Secretary-General has asked, measures which must, he said, be:of an order of magnitude far beyond what has been so far undertaken.Yet these measures must be taken, and taken without delay.
93 There are three main reasons which in my view should appeal with special force to hon. Members of this democratic House. The first is the economic challenge of the Communist régimes. The nations of Asia, Africa and Latin America have their eyes on Soviet Russia and China. Forty years ago Russia was a backward country, poverty-stricken. Today it is one of the leading industrial nations of the world. Its living standards are still well below those of this country or the United States. But it has got rid of the worst poverty which it used to know. Already its people are better clothed, fed and housed than they have ever been before. Mr. Mikoyan told me when I was in Moscow that the Russians will by 1965 lower prices by 10 per cent. from their present level, raise wages by 40 per cent., build 15 million new dwellings for the people and take a further burden off the workers by providing meals and clothing for the children. The Russians tell the under-developed nations that their system is the right way to end the poverty which those nations now endure.
The second reason is that it is our own vital interest that this frightful horror of world poverty should be ended. We need the food and primary products which the under-developed nations can produce. The more they can export the better for us. We need the enlargement of their markets which higher living standards will bring about, because, as I have said, three-fifths of our exports already go to them, and they should take a much larger proportion still.
The third reason is that this is a moral question which deeply concerns us all. It is wrong that two-thirds of the human race should live in misery and squalor which it is within the power of the Western nations to mitigate and finally to end. The Chancellor will forgive me, I am sure, if I say that I feel a deep sense of shame that we helped to kill the S.U.N.F.E.D. plan; that our contribution to U.N. Technical Assistance remains at the paltry sum of £800,000 a year; that our contribution to U.N.I.C.E.F., to the children who so sorely need our help, is even less, only 3 per cent, of its inadequate funds; while to the malaria fund of the World Health Organisation we have given nothing at all.
We welcome the Bill. We send our hearty greetings and congratulations to 94 Mr. Jacobssen and Mr. Eugene Black. But this is a tiny part of what we ought to do. On all grounds of moral and material interest we should be leaders in a worldwide war on want, and the time is coming soon when Britain will take up that rôle.
§ 6.48 p.m.
§ The Economic Secretary to the Treasury (Mr. F. J. Erroll)
The debate, although somewhat sparsely attended, has been a most interesting and constructive one. The hon. Members from both sides of the House who have spoken have made contributions which, while I may not be able to answer them adequately in my short reply, will be studied most carefully by my right hon. Friend and myself.
I was particularly moved by the remarks of the right hon. Member for Derby, South (Mr. P. Noel-Baker) during his excellent exposition of the needs of the world and the inadequacy of our contribution. Like the right hon. Gentleman, I have seen many of the underdeveloped countries of the world, and I am always aghast at the gap which exists between the living standards of Western Europe and the grinding poverty of the many millions of Asia and Africa, together with the diseases with which they are, unfortunately, harried.
We must remember that not only is there a limit to the amount which we can give to the various international agencies, but that unless we maintain a strong £ and a strong balance of payments situation, we will be unable to continue to make the subscriptions and donations and to organise the loans to which we are at present committed. Our first requirement must be to maintain a strong £ and confidence in sterling, and a good balance of payments situation. It is that requirement which my right hon. Friend has constantly before him. It is only when that requirement has been satisfied that we can move, albeit slowly, along the lines suggested by the right hon. Gentleman.
The right hon. Member for Rochester and Chatham (Mr. Bottomley)— and other hon. Members referred to the subject—said that part of the trouble was that primary producing countries had suffered a severe fall in their income because of the fall in the prices of the commodities which they produced. He made the point that the fall in those earnings more 95 than outweighed the benefit of such loans and other aid as they had received. I do not dissent from that assertion, but one must remember that the one is a trading operation whereas the loans, particularly International Bank loans, are intended to be long-term capital financing operations.
In considering the changes in commodity prices, it must be remembered that some prices have fallen from excessively high levels, but, having said that, I must say that my right hon. Friend does not wish to see excessively low commodity prices prevailing. He does not believe that that is the best for Britain or for the countries concerned. He believes in a fair price and that reasonably stable prices are in the best interests of both the commodity producing countries and the highly industrialised exporting countries. Thanks to the improvement in our position, during 1958 we were able to make progress with the provision of Commonwealth Assistance Loans to Commonwealth producers.
The right hon. Member for Rochester and Chatham, the right hon. Member for Derby, South and the hon. Lady the Member for Flint, East (Mrs. White) all referred to the Economic Development Institute. The experimental period proved to be successful and the Institute was established in Washington on a semi-permanent basis in 1957. Students have been nominated by a number of Commonwealth and other countries and reports indicate—and the experience of the hon. Lady bears it out—that the Institute is establishing itself as a worthwhile activity. One difficulty is that the newly developing countries, naturally, do not find it easy to spare many of the sort of officials most likely to benefit from a prolonged course at the Institute. So far as I am aware, there is no suggestion that the Institute's activities have been in any way curtailed for lack of the necessary funds.
The right hon. Member for Rochester and Chatham also mentioned loans for Commonwealth countries, and my hon. Friend the Member for Chigwell (Mr. Biggs-Davison) referred to the same subject. The principal type of loan to independent Commonwealth countries is that from the London market, supplemented where appropriate by Commonwealth Assistance Loans, whereas for the Colonies there are various forms of assist- 96 ance, for example, the Colonial Development and Welfare Fund, as well as market operations and the proposed system of Exchequer loans.
The International Bank, however, lends quite independently, but part of the loans come from our own 18 per cent. sterling subscription. Incidentally, most of that goes to the independent Commonwealth countries. It is worth mentioning how much of the International Bank loans in 1958 went to Commonwealth Territories. For example, India received a loan of £9 million for electric power, £30 million for her railways, and £15 million for her ports; Pakistan received £5 million for electric power; Ceylon, for the same purpose, £2½ million; South Africa, for railways, £9 million; the Federation of Rhodesia and Nyasaland, for railways, £7 million; Malaya, for electric power, £13 million; and Nigeria, for railways, £10, million. Those are all International Bank loans to Commonwealth countries in 1958.
My hon. Friend the Member for Chigwell asked whether British trade was likely to benefit from these loans. The general principle of the Bank's lending operations is that borrowers should make the most economical use of the resources placed at their disposal. That leads the Bank generally to favour international tenders as the best means of deciding where contracts should be placed. Generally speaking, the Bank tries to lend currencies which the borrower is likely to require. In addition to the sterling released to the Bank from the United Kingdom's 18 per cent. Subscription—more than half of the total of the £83.6 million—and in addition to the £10 million raised in the London market by bond issue, the Bank has bought a cumulative total of £77 million with dollars and E.P.U. currencies in order to lend to its borrowers—that was up to the end of December last year. That means that United Kingdom exporters have enjoyed opportunities for exports far in excess of the amount of sterling released to the Bank by the United Kingdom.
My hon. Friend the Member for Chigwell also drew attention to page 2 of the White Paper and referred to the drawing of 561 million dollars. He suggested that that sum was all our own dollars which we were merely getting back, 97 although getting them back under conditions of stringency. The right hon. Member for Derby, South raised a somewhat similar point. The facts are that of the 1956 drawing, 236 million dollars was our original gold subscription. The remaining 325 million dollars was our first tranche of credit, that is to say, 1,300 million dollars—the amount of our quota—divided by four. In respect of this credit tranche drawing, we had paid into the Fund the equivalent in sterling of 325 million dollars, which had been lent back to us. What we got was cash dollars from the Fund, so the sum represented a valuable accession of dollars to us at a time when they were very much needed.
My hon. Friend also suggested that terms and conditions were imposed on us.
§ Mr. Erroll
I was trying to get to that point. Broadly speaking, the point made by the right hon. Gentleman is correct. The servicing arrangements are somewhat complicated, because the longer the loan is outstanding, the higher the interest rate becomes, in the case of the International Monetary Fund. When we repay the 200 million dollars by the end of April this year, that will substantially reduce our interest commitments.
§ Mr. P. Noel-Baker
I am sorry to interrupt again. Are we paying interest on the drawing of 561 million dollars? I understood that we paid a service charge of ½ per cent. when the drawing was made, but that we did not pay interest on that drawing unless the Bank held more sterling than our quota of 1,300 million dollars. However, I cannot find from the White Paper what the Fund does.
§ Mr. Erroll
I do not think that I can at this moment give an exact answer to the right hon. Gentleman's question, but I will see what I can do to help him.
The position is that we pay the charges annually, rising as the years go on. At present, we pay at the rate of 3 per cent. on the first credit tranche only. This means a charge of just under 10 million dollars, or £3½ million a year. This would gradually increase, but one advantage of repayment, as I said, is that 98 this will largely be removed. All will be removed when the quota is increased because the outstanding drawing will then be a smaller proportion of the quota as a whole.
As regards annual charges, the stand-by charge is ¼ per cent. on 739 million dollars. The initial charge on drawing was ½ per cent. on the 561 million dollars: this was a once-for-all payment.
§ Mr. Biggs-Davison
I am much obliged to my hon. Friend for the courtesy he has shown to my speech, but I thought that he did say he was going to deal with the question of conditions.
§ Mr. Erroll
I should like to have dealt with the conditions a little more, but I am just running over my time already, and I do not think that I shall be able to do so.
I did wish to deal with one point raised by several hon. Gentlemen about the interest rates charged. The rates are based on the current cost to the International Bank of borrowing, and they are at present 5¾ per cent., including the statutory commission, which is 1 per cent. The period of fifteen to twenty years is normal, but nothing is absolutely fixed. The right hon. Member for Derby, South admitted that he saw the strength behind the present system, but he suggested that there might be scope for some changes in the years to come. I am quite certain that those suggestions will be looked at with the care they deserve.
The hon. Lady the Member for Flint, East referred to the special reserve of the International Bank. There is not a great deal I can say about that. Obviously, the Bank must follow a fairly conservative policy in building up its reserves. Otherwise, it might fail to command the required degree of confidence in its potential lenders, without which it would be unable to borrow the very large sums of money required for the under-developed countries. The special reserve, therefore, seems to be a reasonable precaution to take in the circumstances.
I should not like to bring my remarks to a close without referring to the most interesting remarks of my hon. Friend the Member for Eastleigh (Mr. D. Price), who outlined in a wide-ranging speech the many facets of the problem of lending to the under-developed countries. He 99 very fully explained to the House a set of conditions which, I think, are well worth study. I found his remarks on publicity particularly worth while. We might all take those remarks away with us and, perhaps, remember to tell our constituents something about these larger issues which we have debated this afternoon.
My right hon. Friend appreciates particularly the helpful and constructive tone of the debate and he hopes that the House will accordingly give a Second Reading to the Bill.
§ Question put and agreed to.
§ Bill accordingly read a Second time.
§ Bill committed to a Committee of the whole House—[Mr. R. Chichester-Clark.]
§ Committee Tomorrow.