SAUDI ARABIA (CHANCELLOR'S VISIT) (Hansard, 13 December 1974)

§ The Chancellor of the Exchequer (Mr. Denis Healey)
I spent three days in Riyadh between 9th December and 12th December. I was received by His Majesty King Faisal and the Second Deputy Prime Minister Prince Fahd. I met leading members of the Council of Ministers. I had a number of meetings at the Ministry of Finance with Prince Musa'id, the Minister of Finance; the Minister of State for Finance and National Economy, the Governor of the Saudi Arabian Monetary Agency and officials of the Ministry of Finance were present.
We discussed international economic questions of common interest. I had an opportunity to tell the Minister of Finance about the initiative I took at the 983 annual meeting of the IMF for an enlarged recycling facility; and about developments on this since. I found him very receptive.
There was very positive interest in the development of closer economic and industrial co-operation between the Kingdom of Saudi Arabia and the United Kingdom. It was agreed that a committee of officials from the two countries should meet in Riyadh in February to discuss in detail plans for increasing cooperation and the means by which they should be implemented—including the possibility of a Joint Commission.
The discussions were very friendly and constructive.

§ Mr. Carr
Are we then to take it from the Chancellor that his discussions were exploratory and long term rather than about any specific and immediate problems? Have there been no new developments in the way in which Saudi Arabia will put its money in this country, either in the manner or term of putting it here? In particular cannot the Chancellor say something about the concern which was caused while he was away by the decision of Saudi Arabia, which, I think, followed a decision by Kuwait, that it would in future expect to have payment for oil entirely in dollars? While what matters in the end is what they do with the money when they have it, is not the right hon. Gentleman aware that this has caused a grave disturbance to confidence? If the reasons are purely technical, it is important that he should explain exactly what they are.

§ Mr. Healey
I am grateful to the right hon. Gentleman. First, the discussions we had on the International Monetary Fund facility were most urgent. They were about a plan which is to be discussed at the Interim Committee of the IMF in Washington in a few weeks' time. I was gratified to find that the Saudi authorities are in principle in favour of the plan, although they want to see the details before they decide to what extent and on what scale they co-operate.
On the question of bilateral relations with Britain, I can tell the House that the development of a medium-term programme for increasing trade will begin with the meeting of a joint working party drawn from officials from the two coun- 984 tries in February. I also arranged for Lord Ashby to visit Saudi Arabia in a few weeks' time to discuss with the Saudi authorities the development of university education in Saudi Arabia—something on which they wish to have the closest co-operation with the United Kingdom. They wish the two Governments to draw up a general agreement on co-operation in education.
On the question of investment in Britain, the Saudi Ministers made it clear that they intend not only to maintain but to increase their holdings of currency in this country and to develop investment in many fields.
With regard to the right hon. Gentleman's final question, the Saudi Ministers I met were as surprised and dismayed as I was by the reports which reached the capital on Wednesday that companies were selling sterling to meet tax and royalty payments in dollars. I was told that, as I think Sheik Yamani said in Vienna this morning, the decision was purely in order to simplify matters. As the right hon. Gentleman will know, the arrangements by which American companies pay some sterling for their oil dates back for many years.
The important thing is that the Saudi authorities plan to maintain and increase their investment in this country. The difficulty this week arose from the accident that Aramco was not given notice of the decision until it had already bought sterling simply for the purpose of paying these royalties. The result was that the company unloaded the sterling in a hurry when it received the information, and that led to the flurry we had earlier in the week.
But I am glad to tell the House that the knowledge that the Saudi Government intend to increase rather than reduce their holdings in this country has already led to an improvement in sterling on the exchange markets this morning.

§ Mr. Thorpe
Does the Chancellor agree that in the jittery state of world markets for all currencies, in so far as the Aramco suggestion can now be denied, it would have been helpful, and will be helpful in the future, if denials could be made more quickly than they were on this occasion, when we had to wait for some days, and the right hon. 985 Gentleman's return, before the position was put right?
Secondly, in the light of his talks with the Ministers in Saudi Arabia, does the right hon. Gentleman take the view that the case is strengthened for a meeting between the Ministers of the oil-marketing countries and the oil-exporting countries?

§ Mr. Healey
It would always be convenient if things happened with proper notice and rumours did not spread, but it is beyond the power of any Government or collection of Governments to ensure that things always happen in the best possible way. However, it was fortunate that I happened to be in the Saudi capital at the time, because I was able to obtain the assurances to which I have referred about the increase in Saudi investments in this country.
With regard to meetings between the oil producers and the oil consumers, I believe that if the Interim Committee of the IMF adopts the plan for recycling which I proposed, and on which its staff have been working, that will be by far the best way of starting this type of dialogue, since both producers and consumers recognise a common interest in establishing a secure location for part of the petro-dollar surpluses, from which they can be recycled to countries which will inevitably have oil deficits for the time being.
There are differences of opinion between the United States Government and some European Governments on the question how discussion between the producers and consumers should be achieved. But I hope that President Giscard d'Estaing's forthcoming meeting with President Ford in Martinique will achieve a meeting of minds and a programme in this matter.

Mr. Alan Lee Williams
On the vexed question of recycling the petro-dollars, does my right hon. Friend agree that Dr. Kissinger's proposals for a mutual arrangement through OECD has much to recommend it?

§ Mr. Healey
I think that there is a place for a proposal along those lines, although many Governments, not least the Governments of the oil-producing countries, have felt that the way in which the proposal was initially made smacked 986 too much of confrontation rather than dialogue between consumers and producers. Provided the IMF facility is launched in January, it should be possible to reach agreement on a plan for a common trust fund of the type that Dr. Kissinger has adumbrated. But I suspect that it will be some time before detailed agreement can be reached on that proposal.

§ Mr. Hordern
Is the Chancellor aware that whatever method may be selected— whether the Healey proposal as it is understood or Dr. Kissinger's proposals for the recycling of oil funds—it seems as if the country will be burdened with ever-increasing debt expressed in foreign currencies? Is he aware that that prospect is not one that appeals to the people of our country? Does he not now think that further measures are required, considering the trade figures announced yesterday, to put our house in order? When will he announce such measures?

§ Mr. Healey
On the question of debt, I must remind the hon. Gentleman that it was the last Conservative Government who started borrowing money on a large scale from the oil producers to finance a non-oil deficit. We have continued the arrangements they made in order to finance an oil deficit, from which nearly all countries are suffering. But I agree with the hon. Gentleman that the sooner we can dispense with the need for that type of borrowing, the better. One of the advantages of the agreement I reached in Riyadh is the prospect of a big increase in British trade with Saudi Arabia, which will reduce the size of the deficit requiring to be financed.

§ Mr. Lamont
Is the Chancellor aware that what he said about increasing trade is welcome? It is an important part of a solution, although not the most important part. But does he agree that British exporters have been very slow to get into the new market in the Middle East? Japan has increased its exports to the Middle East by four times in the past year. Will the right hon. Gentleman see that the matter is treated as one of great urgency?

§ Mr. Healey
I agree with much of what the hon. Gentleman said, although it is a creditable fact that we have maintained our share of Saudi trade in the past year. But we have not increased 987 our share as we should have been expected to increase it in view of our experience in the Middle East. Many British companies are achieving great success in their efforts to export to Saudi Arabia, but I think that many companies are not making the efforts they should be making. I hope that the establishment of an inter-governmental framework for encouraging and monitoring trade between our countries may be of some assistance.

§ Mr. Adam Butler
On the very important question of investment, is there not likely to be an increasing investment in real estate and industrial equity in this country? In view of the implications of that, will the Chancellor seriously consider taking action to prevent a majority shareholding by foreigners in major British companies? Will he at the very least make such moves subject to parliamentary approval?

§ Mr. Healey
I am well aware of the point the hon. Gentleman makes. I think he would agree that it is desirable that the funds of the oil producers should be invested not only in monetary instruments but in productive enterprise. At the same time, it is the responsibility of any British Government to ensure that industries of strategic or economic importance do not fall under foreign control. It is not possible under the existing regulations for a foreign body to acquire more than a 10 per cent. share in a British firm without specific authority from the Government. I recognise the anxiety that the hon. Gentleman has expressed. The Government intend to ensure that the matter is kept under review. I do not think that Parliament would wish me to consult it on every matter in which something over 10 per cent. was in issue. If there were any question of the Government's wishing to endorse a very large investment they would, of course, consider bringing the matter to the House.

§ Mr. Speaker
Was the hon. Member for Warley, East (Mr. Faulds) in the Chamber when the Chancellor of the Exchequer gave his original answer?

§ Mr. Faulds
I had problems with my taxi, Mr. Speaker.

§ Mr. Speaker
I have made it a strict rule not to call hon. Members if they have not heard the original answer.

§ Mr. Aitken
Is the Chancellor of the Exchequer aware that to some of us who visited the Middle East in recent months his statement sounds a little like too little too late? Is he aware that he is the first Minister to have visited the Arab countries since the Labour Government came to power in March? Further, is he aware that the French Government, for example, have had Ministers scouring the Middle East countries and that as a result the French have announced in the past year a series of deals of selling exports forward worth more than £5,000 million? We welcome the fact that an inter-Government framework has been set up. Will the Chancellor take this opportunity of implementing a crash programme to restructure the Development of Trade Overseas Projects Group and other institutions connected with exports to the Middle East so that we can catch up with other European countries?

§ Mr. Healey
As I have pointed out, we have more than maintained our share of trade with Saudi Arabia. I think that the complaint made by the hon. Member for Thanet, East (Mr. Aitken) is unjustified. I agree with the hon. Gentleman that, now that the inability of the private banking system to receive very much more than short-term money is being demonstrated the scope for more comprehensive agreements with the oil-producing countries, both on trade and on finance, is open. I can assure the hon. Gentleman that the present Government intend to maintain a programme of visits of the nature of the visit that I have just carried out.