INTERNATIONAL MONETARY FUND BORROWINGS (Hansard, 10 November 1975)

§ The Chancellor of the Exchequer (Mr. Denis Healey)
I have informed the Managing Director of the International Monetary Fund that the United Kingdom wishes to apply for a drawing of SDR 1,000 million—about £575 million—under the 1975 oil facility and for facilities up to and including the first credit tranche of normal IMF drawings, amounting effectively to a further SDR 700 million—about £400 million. Drawings are not expected until early next year.
The decision has been taken at this time because, in relation to the 1975 oil facility, it was essential for the International Monetary Fund to know now what United Kingdom application would be made, in order to plan disposition of the remaining resources of the facility.
The terms and conditions will be those normal for oil facility and first credit tranche drawings. Money drawn under the oil facility is repayable after between three and seven years and carries an average interest rate of about 7¾ per cent. Drawings on the first credit tranche are repayable after between three and five years, and the interest rate varies from 4 per cent. to 6 per cent. over time.
The Fund will require to be satisfied that United Kingdom policies are likely to achieve medium-term recovery of the balance of payments. I am confident that our existing policies will do this. [Interruption.] And so they will. In addition, in 921 respect of the oil facility, I shall be required to state United Kingdom policies in the field of conservation and new production of energy, and to undertake, in accordance with previous international agreements and pledges to avoid "beggar-my-neighbour" policies, to refrain from introducing any new, or intensifying any existing, restrictions on trade or payments without prior consultation with the Fund.
We have seen a substantial recovery in our balance of payments between last year and this year, but a deficit must be expected to continue for some time. We have used a variety of channels to finance it so far and shall continue to do so. The IMF oil facility, which I take some pride in having helped to establish, was designed as a recycling mechanism which would assist countries with substantial deficits wholly or largely due to increased costs of their oil imports. The United Kingdom would be in substantial surplus this year were it not for the recent increase in oil prices, and we are also covering a significant part of the increased cost of our oil imports. I am sure that it will be widely recognised as appropriate that the United Kingdom should itself now call on this facility, which will be an important supplement to other financing available to us.

§ Sir G. Howe
Does the Chancellor appreciate that the whole House will be understandably concerned about the implications for the Government's entire economic strategy of what he has had to say, since the sum being made available will meet only about six months' deficit on current trends? Does his statement mean that the Government have now given firm undertakings not to introduce import controls, either general or selective?
Are we right to understand that any further borrowing by the Government from the IMF will require the delivery of a letter of intent? Has the Chancellor had to give to the IMF his estimate of the public sector borrowing requirement for the current year? If so, will he now tell the House exactly what estimate he has given? If the present "Rake's Progress "—to use the Chancellor's phrase from his Budget Statement—continues far beyond the limits set out in that Budget Statement, when does the right hon. Gentleman 922 think there will be nothing else left to borrow?

§ Mr. Healey
The right hon. and learned Gentleman made some remarks about the size of our deficit. He will recall that before the oil price increase hit us the deficit was running at a rate of £4,000 million a year in the last three months when his party was in power. I should have thought that he, as an Englishman, would have taken some pride in the fact that not only have we wiped out the whole of that deficit on our non-oil trade but we have also, in the current year, covered a third of that part of the deficit resulting from the increase in oil prices.
On the second point regarding import controls, this borrowing does not rule out any import controls, but it does require consultation with the Fund if such controls are proposed.
On the right hon. and learned Gentleman's third question, it is, of course, the case that if the Government wished to withdraw further credit tranches they would be required to submit a letter of intent covering detailed quarterly targets for different aspects of economic performance, but such a letter is not required on this occasion and there is no monitoring of Her Majesty's Government's policies by the IMF as a consequence of this drawing.
On the last question relating to the PSBR, I am satisfied, from the informal discussions that I have already had, that the expectations and intentions of the Government as to both PSBR and domestic credit expansion are consistent with medium-term balance of payments recovery, and that is the essential criterion for the proposed drawings.
Incidentally, in case this question is of interest to the House, I propose to make available to the House in due course the letters of application and the memorandum which I shall be submitting to the Fund.

§ Mr. Horam
Is my right hon. Friend aware that most people regard this as a prudent alternative to further depression of economic activity, but does he not think that the IMF facility world-wide may now be too small for the demands upon it, particularly from the less developed countries? 923 Does he think that the developed countries have done enough to reflate their economies, and thereby reduce their surpluses, to meet the critical situation of world liquidity?

§ Mr. Healey
On the first question, the IMF's facilities world-wide may, indeed, prove inadequate to meet all the requirements of some of the less developed countries. This is one reason why I asked for a drawing on the 1975 oil facility, which is substantially smaller than the United Kingdom would be entitled to under the rules governing drawings on this particular facility.
On the second question, it is well known that the Government are concerned about the steps so far taken by those countries which are capable of reflating their economies, and this will, of course, be a matter for discussion at the forthcoming summit meeting.

§ Mr. David Steel
Did the IMF share the right hon. Gentleman's confidence in the present policies of Her Majesty's Government? Can he say whether he indicated to the IMF that import controls were under consideration by the Government? If these loans are available without conditions at apparently lower rates of interest than borrowing elsewhere, why did the right hon. Gentleman not have recourse to these funds earlier?

§ Mr. Healey
On the first question, I have discussed the Government's policies informally with the managing director of the IMF and my officials have discussed them at lower levels. I, personally, believe that they will obtain the endorsement of the International Monetary Fund. I hope that if and when they do so we shall no longer have criticism of our policies from the Opposition benches.
On the question of import controls, of course I drew the attention of those with whom I had informal discussions to statements in this area which had been made by my right hon. Friends and myself.

§ Mr. Powell
Does the right hon. Gentleman recognise that these borrowings necessitate a corresponding deficit on this country's current account, and will he therefore refrain from referring to the deficit on current account as though 924 it were somehow a reflection upon British industry and the British economy?

§ Mr. Healey
With great respect, I think it was the right hon. Gentleman's former right hon. and learned Friend, the Shadow Chancellor of the Exchequer, who made derogatory remarks about the performance of British industry in the balance of payments field. I myself drew attention to the fact that that performance has been remarkably good in the last 12 months and, as I say, we would now have a substantial surplus on our trade were it not for the increase in oil prices. We have already covered a substantial amount of the increase in oil prices. This is a startling contrast, if I may say so, with the record which the Conservative Government left us.

§ Mr. English
Since much of the country's present difficulties result from the inflationary policies of the previous Government, and since the adoption of those policies in relation to the money supply or deficits in the nationalised industries is incomprehensible save to speculators who made money out of them, will my right hon. Friend ask the consent of the Leader of the Opposition to reveal any personal dealings whereby, whether directly or indirectly, any member of the previous Cabinet made a capital gain under those policies?

§ Mr. Healey
I do not think that that is a matter for me.

§ Mr. Gordon Wilson
Will the Chancellor of the Exchequer, speaking as an Englishman, state where the money will come from for repayment of these borrowings? Secondly, will the right hon. Gentleman note the recent poll which showed that two-thirds of the Scottish people wanted most, if not all, of the oil revenues and, further, in terms of his own statement, will he give an assurance to the Scottish people that they will not be beggared by their English neighbours?

§ Mr. Healey
One the last question, I hope that the hon. Gentleman will draw the attention of the Scottish people to the fact that they are benefiting substantially from a higher level of public expenditure per head than the people of other parts of the United Kingdom, As I pointed out last Thursday, this is one reason why unemployment has not increased so much 925 in Scotland as it has in other parts of the United Kingdom in recent months.
I note what the hon. Gentleman said about polls, and I shall be interested to hear at some time whether, in view of his obvious attachment to polls, he would support a referendum in Scotland on the question of devolution.

§ Mr. Tugendhat
Is the Chancellor aware that we note the lack of apparent interest by his friends in the Tribune Group, after their strong statement last week? Can the right hon. Gentleman assure us that he will not be making statements or revealing at party meetings information that he is not revealing here? Would he not agree that his borrowing from the IMF makes it all the more necessary that the priorities stated at Chequers should be the priorities of the Government and not those put forward in the Tribune Group's policy statement?

§ Mr. Healey
Tempting as it is to allow myself to be dragged into some sort of confrontation with some of my hon. Friends, I shall seek to resist the temptation. I give an assurance, of course, that I shall not reveal information outside this Chamber which I have not made available inside it. However, I do not think that the hon. Gentleman would expect me not to make any statement outside this Chamber to another group of hon. Members or non-Members of the House which I do not make inside the House.

§ Mr. Wellbeloved
Will the Chancellor not be misled by the apparent silence in some quarters on the benches behind him in respect of the strong body of opinion in the Parliamentary Labour Party in favour of the imposition of some selective import controls? Will he assure the House that in his discussions he has made it clear to the IMF that he may well be operating the consultative process within the foreseeable future?

§ Mr. Healey
I have learned over the years to give as much attention to the silences of my hon. Friends as to their words.

§ Mr. Amery
For the sake of the record, may I follow up the Chancellor's reply to the first of my right hon. and learned Friend's supplementary questions? The right hon. Gentleman referred to the deficit we were incurring, as he said, 926 before the oil war. Is he aware that the Treasury forecast in the month before the oil war was that we should be in balance by the end of 1974 or early 1975? As patriotic Englishmen we now rejoice in the fact that the deficit is down to £2 billion instead of £4 billion, but we are sorry that it has taken the present Government nine months to a year longer than the Treasury forecast.

§ Mr. Healey
I am not clear whether the right hon. Gentleman is asking me to comment on the accuracy of Treasury forecasts or on any other matter. I was referring in my remark to the public statement of the then Governor of the Bank of England in February, before the 1974 Election, to the effect that in the preceding few months our balance of payments deficit had been running at an annual rate of £4,000 million, and that this was before the increase in oil prices had had any significant effect on our current account.