§ The Chancellor of the Exchequer (Mr. Denis Healey)I am glad to report to the House the satisfactory outcome of meetings of the IMF Interim Committee which I attended on 7th and 8th January in Jamaica.
With permission, I shall circulate in the Official Report the full text of the communiqué issued at the end of the meetings.
The Committee faced two tasks, and successfully achieved both. The first task was to round off the long and often contentious debate of the last few years about gold, exchange rate arrangements and other matters requiring amendment of IMF articles.
42 On exchange rate arrangements, on which agreement had hitherto proved unattainable, my American and French colleagues had found a basis on which to reconcile their differences of approach which was acceptable to all other countries. The new article on this subject emphasises the objective of stability and requires the collaboration of all countries with each other and with the IMF, and provides a framework for the possible reintroduction of a par value system in future, but it recognises in a realistic manner the need for individual countries to be able to choose, within the framework of international co-operation, the basic exchange rate system they prefer. These formal arrangements are to be supplemented by greater practical collaboration between countries with leading world currencies over the day-to-day management of their exchange rate relationships.
On gold, the agreements already reached provisionally at the end of August 1975 were confirmed. The rôle of gold as a central standard of value will cease and it will be replaced by the special drawing right. It will have no official price. Monetary authorities will be free to conduct transactions in gold on a market basis subject to voluntary undertakings by leading countries to refrain from actions which might result in price-fixing or which might add to the world stock of official monetary gold. One-sixth of the stock of IMF gold—about 25 million fine ounces—will be restituted to IMF members in accordance with their quotas; a further one-sixth will be sold over a period of four years, with profits being made available in various ways for the benefit of developing countries; there will be enabling provisions to permit disposal of the remaining two-thirds of IMF gold under future decisions.
A comprehensive set of amendments to the IMF Articles will be presented to IMF Governors shortly. I shall in due course seek the approval of Parliament for them, as a basis for ratification by the United Kingdom Government.
The second task faced by the Committee was to make an appropriate contribution from the IMF towards encouraging and sustaining world economic recovery during the coming year. In the Committee's general discussions of the world 43 economic situation, satisfaction was expressed over the growing evidence that activity in leading countries is beginning to recover, but this was tempered by fears that it might not be sustained and that the accumulated balance of payments deficits of some countries, particularly developing countries, could present financing difficulties which would in turn act as a brake on the pace of recovery.
Against this background, the Committee was able to note or take three important practical steps. First, it welcomed a recent decision of the executive directors of the IMF to liberalise the fund's compensatory financing facilities, which is designed to assist primary-producing countries suffering a loss of foreign exchange earnings. Secondly, the Committee agreed that the necessary steps to establish the proposed IMF Trust Fund, financed largely from profits of sales of IMF gold, should be taken without delay. Thirdly, the Committee agreed to increase forthwith by 45 per cent. the entitlements of all countries to access to normal IMF drawing facilities.
The additional funds actually made available through these different channels will depend upon many factors, including the circumstances of individual countries. But the three schemes together will add a very large amount—probably in excess of $5 billion—to the facilities of which developing countries as a whole could take advantage over the next critical year or so.
Although these measures are primaliy designed to help developing countries, other countries will welcome the reinforcement of their potential access to normal IMF drawing facilities. The House may like to know that the total increase available in the case of the United Kingdom, 45 per cent. added to our present quota, comes to 1,260 million SDR, which is more than £700 million, divided equally between the four credit tranches.
The issue of reform of the international monetary system has occupied the world's Finance Ministers and their officials, during my own time as Chancellor of the Exchequer and before that, in many laborious and often frustrating meetings. We have not achieved the kind of comprehensive reform which was at one stage envisaged. The outcome is more 44 modest; but it is also more realistic. I am sure the whole House will share my satisfaction that it has been achieved at last and my particular satisfaction that the set of decisions reached last week includes practical steps which are important and relevant to the task of sustaining world economic recovery.
§ Sir G. HoweIs the Chancellor of the Exchequer aware that we shall want to study carefully his claim that the long debate on the rôle of gold has actually come to an end, and that a number of us will view with extreme caution the prospect of an early return to more rigid exchange rates?
I hope that the right hon. Gentleman will not be too misled by the euphoric tone of some of his own new year messages. When he speaks of assisting world economic recovery, we welcome that, but will he bear in mind also the concern expressed by the West German Finance Minister, Herr Apel, about the entire future viability of the IMF and especially about the danger that measures of this kind could turn out to refuel a fresh round of world inflation, with a very real consequent threat to the future of jobs in Britain?
Can the right hon. Gentleman also cast some more light on his own somewhat mysterious and ambiguously reported rôle in the proceedings? On the one hand, he appears to have been leading the lobby of debtor nations in claiming much greater access to the fund for countries with balance of payments difficulties, and that is understandable. On the other hand, he appears to have been accusing the developing countries of blackmail. Was he on the side of the blackmailers or on that of the blackmailed? Was he seeking to run with the hare and to hunt with the hounds?
§ Mr. HealeyI do not blame the right hon. and learned Gentleman for the chagrin which he normally feels when good news is announced by this Government or because he seems to derive his opinions fairly equally from the Daily Telegraph, the Sunday Telegraph and The Times, and sometimes finds himself confused by the differences in reporting in the various newspapers. However, I am glad to say that the statement in The Times today that I accused the Third 45 World countries of blackmail is totally untrue.
As for my own réle in the proceedings, it was recognised in the newspapers of many countries that I put forward compromises which in the end proved acceptable to the generality of countries present.
As for the views expressed by the West German Finance Minister, I must tell the right hon. and learned Gentleman that I do not share them and that they were not shared by the overwhelming majority of Governments represented at the meeting or by the overwhelming majority of members of the EEC. I understand his feeling, but I believe that he is quite mistaken in thinking that the developing countries this year will be able to finance their likely deficits without the type of help that the IMF has now unanimously agreed to give them.
I note the suspicion with which the right hon. and learned Gentleman views the agreement on gold, and I look forward to hearing him develop his suspicions and to the opportunity of allaying them in future discussions in this House.
I share the right hon. and learned Gentleman's view that it is not possible for the world to return soon to rigid exchange rates, and that is the view of the overwhelming majority of other members of the IMF. The right hon. and learned Gentleman will see from the communiqué that no such return would be possible without an 85 per cent. majority inside the IMF for such a decision.
§ Mr. DuffyYesterday, on returning from Jamaica, my right hon. Friend claimed at Heathrow that his fellow IMF Ministers had given Britain the Good Housekeeping seal of approval. Can he say what features of his current policies and economic management appeal to them especially?
§ Mr. HealeyI am delighted to be able to tell my hon. Friend that, as I told the House in November, I am putting in the Library tomorrow the letter of application for the fund borrowing which received universal endorsement from the IMF. He will see there the Government's policies laid out in seriatim in ways in which I have often laid them before this House.
46 As for the matters which received particular approval, the impressive success of the £6 pay limit is now envied by a large number of Governments who wish that they could do the same. The substantial advance in solving our balance of payments problems has also been recognised with approval. Moreover, in view of the massive increases in unemployment in some other countries where output was thought to be increasing faster, there is a great deal of admiration that Britain so far has managed to ride through a world recession with lower levels of unemployment than most of her competitors.
§ Mr. PardoeIs the Chancellor of the Exchequer aware that we note his statement about the outcome of the meeting and that this indicates that his threshold of satisfaction is low in 1976?
Will the right hon. Gentleman say a little more about the contribution that this agreement has made to world recovery? How does he propose to ensure that British industry is not too weak to take advantage of the recovery when it comes? Does he not accept that the greatest danger for Britain in any world upturn is that we shall reach a 35 per cent. rate of inflation at the very least?
§ Mr. HealeyOlder Members on both sides of the House will know that the threshold of satisfaction which is reached by Governments tends to be somewhat lower than that reached by Members of Parliament who have never formed a Government and have no hope whatever of forming one.
On the specific question which the hon. Gentleman asked about the ability of British industry to take advantage of the recovery, there is far too much spare capacity in British industry at present, and the Government are currently co-operating with both the CBI and the TUC to remove the sort of bottlenecks which frustrated recovery during the last boom in 1973 and which were due in part to a very unwise monetary policy followed by the then Government.
I noted with interest the hon. Gentleman's prediction of the rate of inflation which he expects, but it is no surprise knowing its source.
§ Mr. HordernIs it correct that when these arrangements have been ratified 47 by the member countries the United Kingdom will have a smaller increase in its quota proportionately than that of any other country? Is it not the case that the increase will be of the order of 6 per cent. against the average of one-third for all the other member countries? Therefore, is it not the position that our access to the International Monetary Fund will be much more limited than that of any other major country? Will the Chancellor tell us exactly what is available to us now from the IMF in terms of dollars and pounds?
§ Mr. HealeyThe hon. Gentleman's arithmetic is right but all his conclusions are wrong. It is true that Britain and the United States of America received smaller quota increases than most other industrial countries because of the enormous changes which have taken place in the structure of the world economies and the relationship between them since the quotas were originally fixed in the postwar period. However, Britain emerges from the quota review with 2,925 million SDR as against only 2,100-odd for West Germany, 1,900-odd for France and 1,600-odd for Japan. In other words, Britain still comes a very good second to the United States of America with far greater drawing facilities than those enjoyed by any of the other countries which I have mentioned.
§ Mr. John MendelsonI did not take my information from the Daily Telegraph, and I do not customarily do so, but I listened to what my right hon. Friend the Chancellor said on television the day before he left for Jamaica. Is he now encouraged to begin to carry out his declared intention to bring forward encouragement to British industry, enabling it to have some investment to create new employment this year rather than next year, in view of the serious increase in unemployment indicated by the latest figures and the expected further increase towards the end of this month?
§ Mr. HealeyI am delighted to hear that my hon. Friend listened to my television discussion the day before I left for Jamaica. I hope that he found it interesting and educational. On the question of the steps which the Government can take to bring forward investment, I 48 point out that the Government have already announced facilities, amounting in sum to over £300 million, to stimulate early investment. We shall be announcing a further increase in that sum later this week. Reverting to the previous question from the hon. Member for Horsham and Crawley (Mr. Hordern) I answered my hon. Friend's other question in my opening statement. The United Kingdom quota at present is 2,800 million SDR divided into four tranches of 700 million SDR. The total United Kingdom entitlement will now be increased by 1,260 million SDR, which is over £700 million, as I said in my opening statement, divided into four tranches. However, this is a temporary increase in access for all countries until the new quotas come into force after ratification by all Parliaments, probably by the end of next year. Then the quotas of the various countries will be as they were distributed under the individual quota increases. The United Kingdom borrowing then will be 2,925 million SDR.
§ Mr. Norman LamontIs it not time that at these types of gatherings the Chancellor stopped lecturing countries such as the United States of America and West Germany about reflating their economies? Why should countries with strong currencies inflate in order to float us off the rocks? Instead of moaning, why does not the Chancellor study how the West Germans run their economy?
§ Mr. HealeyThe hon. Gentleman's devotion to his country is known to all of us. I shall continue to say at international gatherings and elsewhere what the managing directors of the IMF and the OECD both said—namely, that their estimates of the growth in output in Japan, West Germany and the USA is somewhat lower than those of the authorities in those countries. However, I totally trust the authorities of those countries to fulfil the undertakings which they gave at Rambouillet to take any steps which may be proved to be required to ensure that their own predictions are fulfilled. I think that the hon. Gentleman would be wise to support me in that respect.
§ Dr. BrayWhat discussions has my right hon. Friend had with his fellow Finance Ministers concerning the likely movement in interest rates?
§ Mr. HealeyI had no formal discussions with my colleagues on that matter although a good deal of postprandial and preprandial discussion in that area took place. My hon. Friend will have noticed, I suppose with the same approval as I, that there has been a recent fall in the minimum lending rate in Britain.
§ [For circulated communiqué see col. 91.]