HC Deb 22 March 1962 vol 656 cc543-5
16. Sir C. Osborne

asked the Chancellor of the Exchequer what rate of interest per annum was being paid on the £75 million recently repaid to the International Monetary Fund.

Mr. Barber

Two per cent.

Sir C. Osborne

Is it not bad business for us to borrow hot money at 6 per cent. and repay a loan bearing only 2 per cent.? This seems to be crazy. [HON. MEMBERS: "Hear, hear."] Was today's reduction in the Bank Rate aimed at stopping the flow of unwanted hot money or in order to help the people at home?

Mr. Barber

The Fund drawings are not intended to be left outstanding beyond a period reasonably related to the payments problem for which they are taken. It would have been quite wrong to delay making the repayment solely on the ground that the I.M.F. drawing carries a comparatively low rate of interest. As to the interest of this country, I remind my hon. Friend that my right hon. and learned Friend the Chancellor of the Exchequer pointed out to him in a letter a short time ago that if at any particular level of Bank Rate the reserves rise there is obviously advantage in paying off a part of the I.M.F. drawing on which we are paying 2 per cent. interest rather than doing nothing.

Mr. Mitchison

As the last time the Government wanted to borrow money abroad they borrowed at a much higher rate from the Swiss, why did they not pay back the Swiss instead of paying this money back? What was the real reason for repaying this money?

Mr. Barber

The real reason is, as I am sure that the hon. and learned Gentleman knows full well, that when a drawing is made from the International Monetary Fund it is part of the general understanding and the general arrangements that it shall be repaid as and when the balance of payments position of the country which has made the drawing sufficiently improves. This is what has happened in this case.

Sir C. Osborne

Even though we were under a moral obligation to repay this 2 per cent. loan, is it not crazy to be borrowing at 6 per cent. to do so? Since that will be costing the country about £100 million in interest charges, surely it is a wrong policy and we should bring down the Bank Rate to make it less onerous.

Mr. Barber

My hon. Friend is wrong in assuming that the bulk of the funds which have come into London in recent months is what he calls "hot money". A good deal of it is of a very stable character.

Mr. Callaghan

Did the International Monetary Fund ask for this loan to be repaid? What rate of interest is now being paid on money coming into London?

Mr. Barber

I should like notice of the hon. Gentleman's second question. However, in case the hon. Gentleman does not know the answer, I will tell him that it is obviously higher than 2 per cent. Therefore, I appreciate the point made by my right hon. Friend. As to the hon. Gentleman's first question, so far as I know no particular request was made that we should repay the £75 million referred to in the Question, but it was decided that it was the right and proper thing to do and in line with our obligations to the Fund.