HC Deb 31 January 1977 vol 925 cc48-159

Order for Second Reading read.

4.20 p.m.

The Financial Secretary to the Treasury (Mr. Robert Sheldon)

I beg to move, That the Bill be now read a Second time.

The Bill is concerned with increases in financial limits covering a variety of international activities, and there are a number of reasons why the increases in these limits are needed. First, there is the growth of the world economies. Second, there is the expansion of world trade that largely results from the increases in economic growth. Third, there are the increasing rates of inflation that we have seen not only here but elsewhere in the world at large. The financial limits that we see in the various parts of the Bill reflect these main changes as they have occurred throughout the world, especially in those parts of the world that are active in world trade.

The institutions concerned in this Bill and in so much of our international financial, trade and development activities are the International Monetary Fund, the Export Credits Guarantee Department in this country, and the Commonwealth Development Corporation. I should point out that since the last war we have been fortunate under a succession of Governments internationally who have accepted responsibility for a kind of development that has been almost unequalled in the history of the world.

As a result the means have been made available to feed the hungry and to help in the development of those less well-off countries and to promote suitable economic conditions. These are matters in which we in this generation should be proud to have played some part. The exceptional growth in world trade that we have seen is a reflection of the policies which have been pursued by the main countries. As a result, in post war years we have seen the trade in commodities multiply seven times and the increase in world trade in manufactured goods multiply 10 times: these are in real terms.

These are quite phenomenal increases which have been welcomed both as a cause and as a consequence of the economic growth to which I referred. They have been very much a cause of the economic growth because of the ability that they give so many of the countries concerned to increase their specialisation and to improve their standards of production and performance generally. Through the comparison which inevitably is made between the products of one country and those of another, they have led to competition in design, so that there has been this improvement in international standards not only in capital goods, which always existed previously, but more especially and more recently in the consumer goods of which shops throughout the world provide ample evidence. One further advantage that we have seen concerns the spread of international understanding as the products of certain countries become familiar in others.

The consequences of this economic growth following upon the increasing wealth that these countries have been able to acquire have led to increases in world purchases of manufactured goods steadily throughout the post-war years. Right up until 1973 it seemed that this process would continue indefinitely, with continuous expansion for the economic good of all. It was apparent that a number of countries were beginning to dovetail their contributions into the economic needs of the world as a whole, and there were signs that the changes in manufacturing output of very many countries were being geared in this way.

Then came the oil crisis and the consequential increases in the price of oil and commodity prices generally. The recession that that brought about was a profound one, and even now we see that recovery from that recession has still some way to go. This Bill is a modest but undoubtedly worthwhile contribution to the resumption in the growth of world trade which is essential to that recovery.

The Bill helps this in four main ways. First, we have the Export Credits Guarantee Department, which finances exports and the growth in exports and is crucial to our own recovery. But the financing of exports is not purely a matter for us. Though we see other countries undertaking the same arrangements, we must not think of these as purely competitive. They have a competitive aspect about which we have to be naturally concerned, but they also help to provide finance for the world exchange of goods, from which we all benefit.

This Bill provides for an increase in the financing facilities of the Export Credits Guarantee Department from the present maximum level of £18.2 billion to £25 billion. At present they are running at a rate of about £17.3 billion, and provision has to be made for the natural expansion that will come. There are other ways of financing to which I shall refer later.

The next aspect provided in the Bill for those basic requirements which I mentioned concerns the Ministry of Overseas Development and its assistance to developing countries. Under the Commonwealth Development Corporation, the increase in its limits in the Bill will be from £260 million to £500 million, or by order to £570 million.

The third aspect covers the IMF quota increase. This is designed to help the financing of the balance of payments and to take some steps to avoid some of the threatened deflationary actions which might have come about to the disadvantage of all countries. The deflationary actions could have included—and this was a threat which it was important to avoid—not only competitive deflations but increasing restrictions on international trade which could have succeeded them. The Bill increases our contribution to the IMF from 2,800 million SDRs to 2,925 million.

The fourth aspect concerns the amendment to the IMF articles. This places upon members of the obligation to make SDRs the principal reserve asset, and it requires the Fund as well, under these articles, to dispose of one-third of its gold holdings. I pick out those two main aspects of the articles.

These are important changes which have taken place in the IMF since the setting up of the Bretton Woods Agreement in 1944. It is worth remarking that this is only the second amendment to the IMF since that date. I consider this a measure of the value of the work done 33 years ago, and the fact that this is only the second amendment is a tribute to that work and a measure of the admiration and respect which I—and I am sure many others—would pay to those who set out to provide the international framework of the post-war years from which all of us have benefited.

In recent times, however, the Fund has had to contend with a number of new problems, not least of which have been the problems of the surplus funds arising from the increased price of oil. In these as in other matters the IMF has been an effective forum for international discussion, and it has been concerned with the introduction of the oil facility. Under this facility, $8 billion was borrowed and about $3 billion was obtained by the non-oil developing countries which otherwise would have suffered severely. This money has helped to prevent even heavier deflation with the consequential disadvantages to all the countries concerned.

The problem of dealing with surplus revenues acquired by the oil producers is still with us and is likely to remain with us for a long time. It will remain with us as long as those countries do not use this money, which comes from the sale of oil, for imports and their own development projects.

The counterparts of these very large surpluses of revenue which the oil producers are acquiring are balance of payments deficits of other countries of which we are one. The non-oil developing countries and the OECD countries have to bear the brunt of these deficits. It will be a long time before the oil producers import sufficient quantities of consumer and capital goods to offset these deficits, which are building up.

The big question here concerns the distribution of that deficit between the non-oil developing countries and the OECD countries. It also concerns the financing of that deficit. As long as some countries are able to ensure a balance in their balance of payments, the burden is not equally shared. This means that there is an even heavier burden for those countries which are not able to order their affairs in such a way as to produce a balance. This is still a subject of concern, and if the economic summit—about which much has been written today—takes place, this will be one of the main questions for discussion.

The decision to increase IMF quotas by one third will help considerably in financing these deficits. The quota increase will raise the Fund's resources to $45 billion and one of the problems facing the IMF is handling the difficulties arising from this. The main and newest problem is that of finding better co-ordination of floating exchange rates, which the world is learning painfully to live with. We must understand that floating exchange rates will be with us for some time and the problem, therefore, is how to get orderly variations in exchange rates and prevent the kind of competitive devaluations which were a feature of prewar Governments and which contributed markedly to slumps at certain periods.

Article 4(3) of the IMF places upon the Fund an obligation to exercise surveillance over exchange rate arrangements. This surveillance provides for the IMF to be informed of changes proposed by member countries and for consultations. Some people think that these provisions will be a long-term replacement for the Bretton Woods Agreement of 1944 concerning exchange rates. Personally, I believe that the aims are rather more modest than that and what we are seeing here is a basis for monitoring and co-ordinating exchange rates through the influence of the IMF. I would not wish to speculate on what it may lead to ultimately, and I do not think that such speculation is necessary at this stage.

Under this Bill the Commonwealth Development Corporation will acquire an increase in its borrowing limits. This is no more than a modest but valuable contribution to aid. Anyone who has taken part in our debates about the developing countries will know that there is an interdependence between developing and developed countries. This is something that we shall have to take more seriously in view of the present difficulties than we were prepared to consider in the past when the world economies were expanding continuously and were expected to continue doing so. This may lead to an extension of the Litvinov principle—that prosperity is indivisible.

At a time when our problems are great we must realise the problems of developing countries also and the dangers which a divergence rather than a convergence of living standards can cause to the relationship between different types of countries. We must continue our general aid policy of giving aid to the poorest countries and to rural development within those countries. This will help the poorest people in the rural areas to develop their natural resources. That is the best sort of help to give them.

The Commonwealth Development Corporation will continue to contribute finances as well as management of projects, and this is an area which the Parliamentary Secretary to the Ministry of Overseas Development will deal with when he winds up the debate.

Mr. Tim Renton (Mid-Sussex)

In view of the challenging remarks which the Financial Secretary has just made about the need for greater interdependence between developing and developed countries, could he tell us what attitude he expects the Government to adopt in March at the renewed common fund negotiations specialising in commodity prices?

Mr. Sheldon

I shall say something about commodity prices later. If the hon. Member is not satisfied with my remarks, he can take the matter up with me then.

The most encouraging aspect of the acceptance of international responsibility for development, which was a feature of the post-war world, was the number of institutions which were set up to provide practical assistance in this area. We know of the valuable work being done by the World Bank, which is concerned mainly with the big programmes of assistance. We know also of the work of the International Development Association, which is concerned with soft loans in these areas, and of the International Finance Corporation, which deals with the more commercial types of development. All these institutions have an important part to play, but the rôle of the IMF itself in the developing countries is not often mentioned in these debates. When one looks at the major contributions derived from the creation and liberalisation of the compensatory financing facility which finances fluctuations in the export earnings of primary producing countries, which were beyond their control, one sees that this was a major step forward in recent years.

Total drawings by the non-oil developing countries amount to $2.5 billion at low interest rates—about 4 to 6 per cent.—repayable over three to five years. The countries which have benefited from it include the Ivory Coast, Zaire, Tanzania, Peru, Kenya and a number of others. The money is used to finance export fluctuations due to changing conditions in the export potential for a wide range of primary products and has provided enormous help. It also signals some of the ways in which further assistance may be made available.

Mr. John Lee (Birmingham, Handsworth)

I do not want to be contentious, because the Financial Secretary is putting the case in a dispassionate and thoughtful way, but would he say what is being done to try to mitigate the damage caused by Common Market tariff barriers against the products of primary producer countries?

Mr. Sheldon

I do not think that my hon. Friend, who, I know, wishes to view these matters dispassionately, has taken account of the advantages that some of these countries have. The wide range of institutions and organisations that can tackle so many of these matters of concern and the substantial funds that have been made available have been of enormous value at a time when it is difficult for such funds to be spent in the way that have described.

Dr. Jeremy Bray (Motherwell and Wishaw)

Is it Government policy that the IMF facilities should be available to developing countries to pay contributions to commodity stabilisation funds which are established in addition to the present facilities which are almost unusable?

Mr. Sheldon

I do not agree that they are unusable. The compensatory financing facility deals with $2.5 billion, which is a substantial amount. There is always scope for development, depending on how these matters proceed.

Dr. Bray

The compensatory financing facility is designed to buffer countries against the overall fluctuation in their export earnings. There is a separate IMF facility for financing contributions by developing countries to commodity stablisation funds. That is a different issue, and the terms under which such finance is available are so restricted as to mean that the finance is hardly used.

Mr. Sheldon

I have already dealt with the details of many of the funds which are available in this respect. I see the point that my hon. Friend makes. He will know that funds are available to developing countries for assistance with their balance of payments difficulties in the same way that they have been made available before, except that when the quota increases—possibly as a result of the measures in the Bill—more funds are available for use in a number of ways, including those that my hon. Friend might have in mind.

Mr. Terence Higgins (Worthing)

Is the Minister sure that what he has just said is right?

Mr. Sheldon

The IMF can lend money to developing countries for assistance with their balance of payments difficulties. The increases in the quotas will help them to make arrangements to increase the amounts of money so available.

Let me say something about the IMF as it concerns the extended fund facility which was recently established and which is to finance medium-term development plans. There have been a number of agreed programmes, in particular those concerning Kenya and the Phillipines, and covering the longer term. The longer-term facilities cover a period of four to eight years and balance of payments assistance can be given under them. Perhaps I should explain that my hon. Friend the Under-Secretary of State for Trade is unfortunately absent this evening at a meeting elsewhere in the House.

Mr. Peter Viggers (Gosport)

Which Ministers will pilot the Bill through Committee? There are three quite separate matters in the Bill which should not be covered together. We hope that there will be sufficient Ministers present to advise the Committee on all aspects.

Mr. Sheldon

I can give the hon. Member an assurance on that. My hon. Friends the Under-Secretary of State for Trade and the Minister of State for Overseas Development will help to pilot the Bill through Committee. They have in common, however, those international aspects of the Bill which increase the moneys available.

Perhaps I may now deal with the export credit provisions. There is always the danger that the terms for export credit will be seen purely as competitive improvements between countries without attention being paid to the advantages which accrue to all countries from the terms of credit. We should like to see them all co-ordinated so as to avoid at least some of the frequently excessive competition in these matters.

The Bill deals with the medium and long term, and the length of term and the levels of interest are of course, major matters. An essential element in this trade is that Government involvement must always be present to support the efforts of our exporters in meeting the country's needs in the balance of trade.

The Export Credits Guarantee Department is nearly 60 years old and it continues to play a vital rôle. At present it insures about 35 per cent. of exports, totalling about £8.5 billion, of which three quarters is for cash for short credits. A number of changes in export credits have been in preparation for some time. On 15th December last my right hon. Friend the Chancellor said that it was necessary to reduce expenditure in this area. This will be achieved partly by an agreement with the clearing banks that they should provide more of the financing than they have previously.

Mr. Ian Stewart (Hitchin)

Will the Minister clear up one point which appears to present a conflict between what he said and what is in the Explanatory Memorandum? It says that the present limit is £12,200 million, to be increased to £25,000 million. Earlier the Minister mentioned the figure of £18,200 million and drawings of £17,000 million. Will he relate these last figures to those in the Bill?

Mr. Sheldon

Provision was made in the Act to increase the figures by order, and orders to increase the amounts were carried through the House. I was dealing with the position which obtained after those orders took effect.

It will be necessary for the clearing banks to provide more of this finance. There are savings to be obtained by switching to foreign currency financing ECGD will be providing improved support for contracts which are regulated in foreign currency. A number of details about this will be made available tomorrow. Details of increased premia are being notified to policyholders today. It is not expected that these will have any significant effect on the demand for ECGD services.

Mr. Cecil Parkinson (Hertfordshire, South)

Why are the details of the new arrangements to be made available tomorrow when the House of Commons is discussing the Bill today? Might it not have been more polite to the House to reveal the new arrangements today so that hon. Members have this opportunity to comment upon them?

Mr. Sheldon

I sought to give the House the basic information it requires in order to debate the Bill. The hon. Member will find that the details published tomorrow do not add much to the provisions which I have announced.

Hon. Members will want to examine a number of these details in Committee, and therefore I make the offer that if there is any particular area of interest upon which an hon. Member wishes information, I should be happy to make available whatever I can between now and the Committee stage. If I can be of any assistance, I shall be delighted to help.

I look forward to the measure being subjected to detailed discussion and to the scrutiny that, no doubt, both Members opposite and on my own side will wish to give it. I look forward to the passage of the Bill.

4.51 p.m.

Mr. Cecil Parkinson (Hertfordshire, South)

I thank the Minister for his financial tour d'horizon. I hope he will not take it amiss when I say that, following his speech, I now find an already complicated Bill even more complicated. I entirely agree with my hon. Friend the Member for Gosport (Mr. Viggers), who pointed out to the Minister that the measure is really three Bills rolled into one. Perhaps some of the Minister's difficulties in making a co-ordinated speech stemmed from that fact.

It is a pleasure to see Ministers from both the Treasury and the Ministry of Overseas Development on the same side for a change. It has been a long time since they have been prepared to share the Treasury Bench. I also thank the Chief Secretary to the Treasury for his non-attendance.

Mr. Deputy Speaker (Sir Myer Galpern)

I hope that the hon. Member will refrain from making remarks that could lead to Members leaving the Chamber.

Mr. Parkinson

Thank you, Mr. Deputy Speaker. I will do my best.

The Bill deals with three financial institutions—the International Monetary Fund, the Export Credit Guarantee Department and the Commonwealth Development Corporation. The smallest section of the Bill, in terms of financial implications, is that which deals with the IMF. The Bill simply increases our quota to the IMF by about —85 million, but in addition it ratifies the new articles under which the IMF will operate once a sufficient majority of its members has approved them. The Bill offers Parliament an opportunity to discuss the future of the IMF and the IMF's future ways of working.

The new IMF articles recognise that the old articles had gold as the principal standard of value, that fixed exchange rates were the other main feature and that this has been overtaken by events. It is significant that market forces have forced changes, and that the IMF has had to modify its rules in order to meet them and not the other way round. The Financial Secretary's speech gave the impression that this had been planned by the IMF and that the IMF had been in charge of events throughout, but that is not the case. The need for new articles has arisen because the old articles were overtaken by events. It has been demonstrated that the old IMF was not an instrument for controlling world monetary forces but simply an instrument that can be used to alleviate some of the more unexpected developments in world forces.

Many people feel that the new articles represent a temporary compromise and that they do not mark the end of discussion about the IMF's future but are simply a breathing space during that discussion. There are two main schools of thought on what the IMF will become and what its future will be. These were summarised recently in the Economist and the Financial Times.

There was an interesting article about the attitude of the new Carter Administration to the IMF in the Economist of 17th January, under the headline Do we Need an IMF? The article argued that the IMF no longer controls the world's money and that it is simply a bank that should be merged with the World Bank and recognised for what it is. Indeed the Financial Times on 15th July pointed out that it was possible to argue that the IMF must be seen from now on primarily a source of financial assistance and not as an instrument for world government.

On the other hand Jeremy Campbell, in an interesting article in the Evening Standard, recently reported on a series of interviews that he conducted in Washington with key members of President Carter's new Administration. He told of their great hopes for the IMF. Mr. Richard Cooper, who is the new Under-Secretary for Economic Affairs, was quoted as saying that he sees the IMF— expanding to become a central bank for the world, able to create money, not just to borrow it. Papers have been produced for the Trilateral Commission, of which no fewer than five of President Carter's Cabinet were members and of which the President was a member himself. Various papers foresaw a need for the power for the IMF to be expanded to make it less a follower and more a leader of the large nations.

I would not like to predict what the IMF will become, but I would have thought that past experience suggests that eventually it will have to react to events and that it will not be an instrument for moulding them. There is no doubt that the IMF's rôle has changed and that its future rôle remains to be decided. What is beyond doubt is Britain's changed situation within the IMF. Superficially, the change is slight.

Under the Bill, our quota is increased by $125 million of special drawing rights. That represents about £86 million. The new quota for the United Kingdom represents a small reduction in the overall quotas of the IMF and a small reduction of our voting powers within the IMF. This adjustment was in common with other developed countries. As the Financial Secretary knows, it was necessary to allow an increased share of quota for OPEC countries and to maintain the share for developing countries. We still have the second largest quota after the United States, and many people may feel that this is a slightly flattering reflection of our true standing in the financial world.

Our quota is 40 per cent. larger than that of West Germany and 80 per cent. larger than that of Japan, but he would be a brave man indeed who suggested that those quotas reflected the relative positions of the three economies. The superficial change conceals a massive change in our true position and standing within the IMF. In 1945, Britain's second place in the IMF represented its position as the second biggest country in the scheme of things. It represented our position as principal contributor to the Fund and our influence in it. Now it represents our position as the Fund's principal creditor and dependant.

The Labour Government see the Fund no longer as an organisation in which Britain can play a part in producing a more orderly world monetary system but as yet another source of credit and another place from which we can take out more than we put in. The truth is that we are pre-empting a huge slice of the IMF's resources, at a time of world recession, in order to prop up a standard of living that we are not earning. We are competing with the developing world for an ever greater share of the world's scarce financial resources.

There is another change in our circumstances which has been brought about by the Government. One aspect of the approach of successive Labour Governments to the IMF which many of us have resented has been their use of it as a sort of international monetary consultant for our country. I would not go as far as the American writer who said recently: In the last seven weeks you have seen Britain totally lose her sovereignty and surrender the management of her economic policy to the IMF", but our ability to influence them and our standing in the world's financial circles is not enhanced by our need to borrow.

The Government will have to learn that their policy of scraping the bottom of every credit barrel is doing immense damage to Great Britain's long-term prospects. No one needs to learn that more than the Chancellor of the Duchy of Lancaster—the arch borrower in the Government's scheme of things.

I was a chartered accountant in the City for nearly 15 years, and from time to time we had to buy companies "off the shelf" in an emergency. For £24 one could buy all the statutory books and equipment of a limited company. One of the best known firms selling such companies had offices in the Strand and, as a way of enticing people to buy its companies a slogan in the window stated: Directors of our companies have unlimited borrowing powers. I sometimes think that the Chancellor of the Duchy of Lancaster has bought one of those companies and is running this country's finances from inside it.

The next part of the Bill deals with the Export Credits Guarantee Department. It increases the Department's limits and introduces a new support facility for export contracts in foreign currencies. Anyone who examines the accounts of ECGD is struck immediately by the immense growth in its business. Barely two years ago its limit was £7 billion. Just two years ago the Government came to the House to increase that to an overall limit of £21.2 billion and expected it to last for at least five years. They are already back and extending the limit to £56 billion.

An even better measure of the rate of growth of ECGD business is the fact that since the Department went into credit insurance business in 1930 it has written a total of about £50 billion worth of business. We now expect current business to total £56 billion at any given moment within five years. That is more than all the business transacted by the Department since it came into existence 46 years ago. Even allowing for inflation, that is a massive increase in anticipated business and I congratulate the staff of the Department on the work they have done in making it one of the most admired institutions in this country.

I read with interest the last debate in Standing Committee on an allied subject when the Minister pointed out with pride that many major countries had sent people here to examine the workings of the Department and that they had learned a great deal.

The growth has been immense in cash and volume terms and has been notable for the variety of developments and the number of new schemes brought forward by the Department in recent years. The 1975 report alone contains details of three new schemes which had been introduced during the year and which were operating successfully. There is a further major expansion of the Department's business in the Bill.

Is the machinery of the Department capable of coping with such a huge anticipated expansion of business? There is a risk element in the Department's work, otherwise people would not need to go there for policies and help, and there is pressure for exports. Has the Department the facilities to maintain its high standard of processing and its low record of risk-taking which have been its hallmarks to date?

Can the Minister tell us whether he is satisfied with Parliament's control over Section 2 business—the so-called national interest business? It has already increased enormously. Has the Department the technical expertise to evaluate the huge projects which are tending to come forward under this heading?

The ECGD was recently involved in its biggest ever project totalling £212 million. Many of us feel that it is slightly incongruous that the Secretary of State for Industry must come here for approval of an investment of more than £5 million while the Secretary of State for Trade may, with the consent of the Treasury alone and with no consultation with the House, agree to underwrite business as big as a single item of £212 million.

Does the Minister agree that there is something rather strange about having a board to advise on credit insurance while having no formal consultative board to advise on Section 2 business? I appreciate the Department's problems, and we do not wish to hinder it in taking commercial decisions which have to be made quickly, but it seems strange that Parliament should demand such controls in one area yet apparently be quite happy with no controls of any kind in another sector.

I notice that in the last available accounts of the Department—for 1975–76—it is admitted that the Department is a little concerned that its reserves in the commercial part of the accounts are not as large as it would like. The Department says that it would like to have reserves of about 3 per cent. of the amount of risk cover, but that its reserves are only 2.4 per cent. That does not sound much until one goes into the figures involved.

The Bill envisages a fantastic increase in the amount of business in which the Department is likely to be involved being underwritten. The Department has already admitted that its reserves are not adequate to deal with the business which it is already doing. What plans has the Minister or the Department for improving the reserve ratio?

The other main change in the ECGD arrangements envisaged in the Bill is a brand new facility to cover commitments in foreign currencies. We understand the reasons for that. They relate more to the Government's public sector borrowing requirement and public expenditure problems than to the problems of exporters. The details will have to be discussed in Committee, because, by arrangement they will be available tomorrow.

The new facility suggests that the Government expect United Kingdom interest rates to remain well above the export rate. Will the Minister in winding up the debate confirm that that is so? If the Government do not expect United Kingdom commercial rates to remain well above the export rate, there would seem to be little requirement for this facility.

The industry is concerned and will be waiting to see the details of the scheme. The industry fears that the scheme could be more expensive than existing arrangements. Perhaps I may quote one example which has been given to me. Foreign currency loans usually give rise to an annual or even six-monthly commitment fee. Sterling loans usually have an initial one-off commitment fee. The Minister will appreciate that that could represent a substantial increased expense for the exporter.

Before ending this section of my remarks about the ECGD, I should like to return to a subject which has been raised at Question Time and was raised in Committee on the Export Guarantees Bill in 1975. I refer to exports to Eastern bloc countries. I notice that in the accounts of the ECGD, where the Eastern bloc Communist States are euphemistically called "centrally directed economies", there has been a substantial increase in business with Iron Curtain countries. In a very fine speech in the Standing Committee to which I referred, my hon. Friend the Member for Blackpool, South (Mr. Blaker) pointed out the implications of increasing East-West trade.

On every occasion when the subject has been brought up, in particular the question of the large line of credit—nobody is quite sure what the right hon. Member for Huyton (Sir H. Wilson) arranged with the Russians—had been the subject of fairly substantial discussion in the House. The Minister's answer is always the same, and I understand it. It is "If we did not offer the credit, somebody else would. We need the business. It is better to trade than to fight." The Minister could recite the arguments as well as I can. I appreciate the Department's difficulties.

I wonder whether the Minister saw the article in the Sunday Telegraph last week in which it was estimated that the Soviet Union now has a net indebtedness of $18 billion to Western countries and that the total indebtedness of Eastern bloc countries now totals $45 billion. Does the Minister recognise that, at a time when we are being forced to cut defence expenditure to release resources for industry and export, the West is offering huge credits to Eastern bloc countries which enable them to maintain their defence expenditure and arms programmes and to proceed with their industrial development at the same time?

After listening to Ministers explaining that defence cuts are necessary to release resources so that exports and industry can have a bigger share of the resources available, I find it strange that at the same time the West as a whole is making these massive credits available to Eastern bloc countries, thereby enabling them to have their cake and to eat it. Does not the Minister agree that it is time that Western countries got together to discuss the strategic implications of the trade race in which we are involved?

The third and final element in this part of the Bill is to increase the borrowing powers and scope of the CDC and to restructure its capital by writing off debts arising from projects which failed—many of them more than a quarter of a century ago—and deferred interest which will never be recovered. To introduce a personal note, I found it extremely interesting that the person who introduced the arrangements which we are in the process of writing off today was my predecessor at Enfield, West, the late Iain Macleod, whom everyone in this House greatly admired and misses.

Anyone who reads the CDC report and accounts cannot fail to be impressed by three outstanding features. The first is the CDC's support for a huge variety of less than grandiose schemes, the majority of which are successful. The second is the local participation, which is a regular feature of its activities. The third is the stress in its terms of reference that projects should not only increase the wealth of the territory in which they are located but yield a reasonable rate of return on the money invested. The CDC has an excellent record and, even in times of economic difficulty, deserves the continued support of the House.

I should like to put three questions to the Minister which relate to the work of the Department. First, will he tell us whether and to what extent the CDC will bear its share of the cuts in our aid programme which the Chancellor announced to the House in December?

Secondly, in Cmnd. 6544—"The British Aid Programme in 1975"—Her Majesty's Government reported to the OECD that it would increasingly seek to place its new commitments into the poorer countries, and into renewable natural resource projects—that is to say, in agriculture, forestry and fisheries—benefiting people living in rural areas. Will the Minister give us an interim report on how that programme is progressing? I know that the programme is to be reviewed in mid–1977. However, will the Minister give us a report on how the new emphasis in the CDC's work is working out in practice?

Thirdly, in the Second Report of the Select Committee on Overseas Develop- ment, House of Commons Paper 705, the Select Committee recommended that the CDC should not expand its assets in the Caribbean, but should seek an alteration to its charter which would allow it to operate in a limited number of countries in Central and Southern America. I appreciate that the Minister does not need to alter the charter for CDC to operate in that area, but I hope that he will tell the House of his Department's reaction to the Select Committee's interesting suggestion.

As I said at the beginning of my remarks, this is not one Bill but three. I must admit that during the past week there have been times when I have cursed that fact. Nevertheless, whether it is one Bill or three, the intentions behind this measure and the measures that it outlines are worthy ones that the Opposition will support, although we shall question them in detail in Committee.

5.20 p.m.

Mrs. Judith Hart (Lanark)

In his analysis of the Bill the hon. Member for Hertfordshire, South (Mr. Parkinson) said that the Bill is constituted of three parts, but I believe that it has four parts. There is a fourth aspect to which I shall refer.

I say initially that I wholly endorse almost everything that has been said by the hon. Gentleman and my right hon. Friend the Financial Secretary about the Commonwealth Development Corporation. It performs excellent work. I think that the House will be aware that in order to adapt its guidelines to those of the Government White Paper on poverty oriented aid strategy in 1974–75 there were slight changes made to make it possible for the CDC to play a more effective rôle in such an aid strategy so that the whole concept of the CDC paying its way and getting the best possible return did not necessarily have to apply to every individual project.

The changes enabled it, as in the case of nationalised industries, to pay its way taking one thing with another. That was the only way of making it feasible for the CDC to support certain projects in the rural sector of very poor countries which might not be able to achieve a commercial return.

A supplementary question to the question posed by the hon. Member for Hertfordshire, South, is to ask what projects the CDC has undertaken, has agreed to undertake, or is planning to undertake since the new guidelines emerged and since the White Paper was published, directed towards benefiting the poorest countries and the poorest people. It would be interesting to know how that is working out in practice. I entirely endorse all that has been said about the CDC being an efficient organisation. It is an extremely good organisation and entitled to the full support of the House.

When I said that the Bill has four parts I was referring to an element that has not so far been mentioned—namely, Clause 7, which permits the Overseas Aid Act 1968, under which payments can be made to regional development banks, to be amended so that international development banks not solely of a regional character may be supported. That seems to be an extremely sensible proposal but one or two questions have to be asked. I hope that my hon. Friend the Under-Secretary of State will be able to give us a clear picture when he replies to the debate. It would be good for the House to have explained to it exactly what is in mind. It would be good to have my hon. Friend tell us the recent developments in the regional and development banks that make it advisable to include such a provision.

There is a particular and specific point that I would like to put to my hon. Friend. I wish to be reassured that Clause 7 is not in the Bill conceivably to enable a British Government to give support to the so-called Kissinger international resources bank, should that ever get off the ground.

Perhaps I should explain what I have in mind. At the time of UNCTAD in Nairobi last spring Dr. Kissinger arrived hot-foot with a new proposal from the United States Treasury. The intention was to replace some of the new international economic order proposals of the group of 77 developing countries. It was a proposal for a new international development bank: I suppose it would be called that. It was a proposal that would come within the provisions of the Bill. It was proposed as a new international resources bank.

Nothing was known about such a thing in Nairobi at the time but it had been discussed in Paris. The weekend before UNCTAD began, I carried from Paris to Nairobi a copy of the international New York Herald Tribune which contained a report of a United States Treasury briefing in Paris about the Kissinger international resources bank proposal. It caused a great deal of consternation in Nairobi. It was subsequently made extremely clear by Dr. Kissinger that what he had in mind was a new development bank which would be financed primarily by private capital, which would provide investment for foreign firms and overseas companies investing in developing countries on condition that their security was guaranteed. In other words, it was clearly intended by Dr. Kissinger as a method of safeguarding the investment of multinational corporations in developing countries. He was quite frank and clear about that.

There can be different views about such a proposal but it can be said as a matter of fact and not as a matter of judgment that it was not received by the developing countries with great acclaim. When we consider the position we are bound to recognise that a greater transfer of resources to finance mineral, industrial and agricultural development in developing countries is required. We already have the institutions of the World Bank, which on a profit-making basis can operate through the International Finance Corporation and on a concessionary basis through the IDA, which we correctly cover in the Bill.

I want an assurance that there is in no one's mind the idea that by including Clause 7 we are paving the way for a possible resurrection of the Kissinger international resources bank. That is a concept that I doubt will be resurrected under the new Carter Administration, but I want an explanation of why it was regarded as necessary to extend the present provision so that it covered international banks.

My third point is not so much a matter of questioning but something that dismays and disappoints me. My understanding is that the 1975 Act, which is mentioned in the Bill and which the Bill amends, was in itself a consolidation measure, and that included in the Acts which were consolidated in 1975 was the Overseas Investment and Export Guarantees Act 1972. I do not know whether my hon. Friend is aware that the 1972 Act, which was introduced by a Conservative Government, was not enacted before the Labour Opposition had strongly urged certain amendments in Committee.

We tried extremely hard to have incorporated in the Bill codes of practice affecting overseas investment insurance, which is, of course, administered under ECGD. We were very anxious that, if we were extending the provisions of the ECGD to include this new element of insurance for British companies investing overseas, along with that should go a proviso that, particularly in relation to developing countries but possibly in relation to all countries, and certainly South Africa, there should be a code of practice as a condition of having the insurance cover.

I am very sorry to see that the Government have not taken the opportunity in this measure of introducing the idea of codes of practice, which we pressed so hard when in opposition and on which we were narrowly defeated. In Committee it was not a tremendous party-political battle. It was very much a matter of marginal judgment. Nevertheless, we did not win our amendment. It seems to me that all the experience since 1972 has underlined the relevance and the importance of covering codes of practice under the insurance provided through the ECGD to overseas investment.

Many countries have codes of practice. Indeed, I remember listing a number of countries which had a similar scheme whereby they offered official insurance cover for firms investing overseas. I remember citing a number of countries, including the United States, Sweden and the Netherlands, which actually took for granted that they had this code of practice provision as a normal condition of extending insurance cover and thought that there was nothing odd about it.

It covers various matters. One has in mind, on the one hand, developing countries, and, on the other hand, in very particular specific terms, the problems that have arisen in the last year or two in relation to British-based companies that invest in South Africa. One has in mind the codes of practice which perfectly normally govern, in relation to the investment of other countries, multinational corporations, such matters as the recognition of trades unions, a reasonable level of wage rates, hours and conditions of work, and training programmes for management. All those are items which have caused such great distress in relation to present practices of some British firms operating in South Africa. This matter becomes more and more relevant as trans-national corporations become the major overseas investors and as our own export of capital becomes more and more capital from British-based multinational corporations rather than capital from British-based medium-sized or small firms.

Therefore, I very much hope that the Government will themselves undertake to introduce the concept of codes of practice into the Bill. I should like to tell my hon. Friend the Minister where in the Bill, to the best of my advice, it could easily be included within the Long Title and the Financial Resolution. It is in Clause 4 as an extra condition applying to the Export Guarantees Act 1975. I hope that it will not be necessary to move amendments to that effect in Committee but that the Government themselves will tell us that they realise that this is an omission from the Bill and that they will ready themselves to introduce amendments in Committee.

Having said that, I completely support the general principle of the Bill. I think that the provisions in relation to the IMF and the CDC and the other matters that the Bill covers are perfectly reasonable and very well understood in the House, and one gives the Bill one's support.

5.35 p.m.

Mr. Reginald Maudling (Chipping Barnet)

I agree with the Financial Secretary that this is a useful measure which should be welcomed. I hope very much that the House will pass it.

I congratulate very warmly my colleague and parliamentary neighbour, my hon. Friend the Member for Hertfordshire, South (Mr. Parkinson), on what I believe was his first foray to the Dispatch Box. I shall take up with him later one tiny point about the trilateral commission in Tokyo, from which I have just returned. However, apart from that his speech was excellently thought out and very well documented. It was a model of the sort of speech that should be made from the Opposition Front Bench on an occasion such as this Bill.

I want to ask the Minister about three specific points that are not related to one another but are of relevance to the Bill. First, what has happened to the idea of surplus capacity aid? I am interested in that because it is an idea that I cooked up when I was President of the Board of Trade a long time ago. It was not very much favoured by the officialdom at the time, but it seems to me a good, commonsense idea by which one could provide, from a country with a difficult balance of payments situation, maximum aid to the developing countries.

The idea is roughly this. One says to a developing country that wants help, "If you want sterling convertible to hard currencies, we cannot do much. If you want sterling tied to British goods generally, we can do a lot more. But if you want sterling tied to a lot of goods for which we have surplus capacity already available, we can do even more to help you."

Under that concept we gave a great deal of aid to West Africa. I remember ships for Ghana and a large consignment of steel rails for, I think, Nigeria. That seems to me to be a sensible idea that might have relevance at present. If our desire is great to help developing countries but is constrained by balance of payments problems that are definite and severe, can we not arrange with them to give them more aid on condition that they take it in a form which we can easily provide, either from surplus stocks or surplus unused capacity here?

That is a concept that is of value. I do not know what has happened to it. I suspect that it may have been strangled over the last few years somewhere in the bowels of the Treasury. I should like to know from the Minister whether the general principle of development aid being taken in a form in which we can give it with the least cost to ourselves and, therefore, can give more of it is still acceptable to the Government as one of the principles for determining the quantum of the aid that we can give to developing countries.

My second point concerns the promotion of British trade overseas, particularly in what are called jumbo projects. More and more throughout the world, particularly in the Middle East, one sees enormous petro-chemical complexes and construction projects arising which could create for British exporters great benefits.

I have just returned from Saudi Arabia after another visit. I wish that I could declare an interest: I have been trying my best to promote British exports there but without much success so far. However, I was seriously talking to Ministers in the Government there, and they want to do much more business with Britain. They recognise, however, as we do, the very serious handicaps that fall upon our exporters when it comes to dealing with very large projects indeed, the jumbo projects, by reason of the problem of performance bonds and the problem of joint and several liability.

I know that the Government are well aware of these problems. They have been studied by many bodies. However, this seems to me a very urgent matter indeed. A great deal could be done here by collaboration among Government, the insurance industry, finance and British manufacturers. There is an enormous amount of business to be had in the next few years in the Middle East in these sorts of projects. I hope that the maximum effort can be put behind getting some arrangement between the Government and the other interests concerned to see that Britain gets its share of these contracts, which, on our technical and efficiency performance, we certainly could win.

My third and only other point echoes what my hon. Friend said about credit to the Soviet bloc. I find this a very difficult and an extremely important problem. I hope that we can have from the Government an explanation of their attitude to the principle involved. As my hon. Friend said, the Soviet bloc has in recent years borrowed over $40 billion from the West, and a large proportion has gone to the Soviet Union.

That is a vast transfer of capital which gives enormous strength to the Eastern economies through the acquisition of finance capital and the acquisition of technology. It means that their economies have grown stronger, and, because their economies are stronger, they can spend more on arms. If they spend more on arms, we have to spend more to defend ourselves against them.

Can that possibly make sense? I imagine that a visitor from another planet would think that we had gone mad. Probably, as my hon. Friend said, there is an argument for saying that the process is competitive: if the French do something, we must do something, or if the Germans or the Italians do something, we must do something. But cannot we get together on this matter? The totality of the transfer of resources in finance capital and technology from the West to the East has in recent years been so great as to add enormously to the burden of necessary defence expenditure that we in the West must carry.

Those are the three matters which I raise. What is happening about surplus capacity aid? What are the Government doing about jumbo projects, performance bonds and joint and several liability? Third, what is the Government's basic policy regarding what appears to be the lunacy of transferring capital to those who can use it so as to require us to build up our own defence expenditure?

5.41 p.m.

Dr. Jeremy Bray (Motherwell and Wishaw)

The right hon. Member for Chipping Barnett (Mr. Maudling) has referred to performance bonds, and I, too, have had the subject raised with me by several large contractors. I asked them whether they had been to the city. I knew that one of them was owned largely by an insurance company. Had that contractor been even to the insurance company which owned it? I was told that it had not. I wrote to the insurance company to ask "What about it?", and its reply was not very full or adequate.

I then raised the matter with the British Insurance Association, whose members have vastly greater capacity than has Lloyd's to take on new business, and I understand that some of the bigger companies are now beginning to look at the provision of performance bonds, wondering why no one had raised the matter earlier. It seems an extraordinary example of breakdown of communication between industry and the City, and even within the City, itself, as well as between the Government and the City. I very much hope that the Under-Secretary of State will be able to deal with these points and tell us what steps are now being taken by the big insurance companies on the provision of performance bonds, which, as the right hon. Gentleman rightly said, are a crucial element in promoting our exports to the Middle East.

I shall speak mainly about the International Monetary Fund. I have no objection to the Bill. As the Financial Secretary said, it presents only the second set of amendments we have had since Bretton Woods, and, although there have been other opportunities to review the workings of the Fund, this opportunity is none the less very timely.

Our direct experience of the IMF suggests to me that we need to look at its operations for more deeply than the Financial Secretary was able to do in his necessarily brief review. If we run a heavy deficit, and if we finance that deficit by heavy borrowing, mainly from OPEC countries, we can hardly be surprised if later on there is a collapse of the exchange rate, with consequent effects on our domestic economic policies and serious results not onlny for inflation but for our public expenditure plans.

Faced with domestic economic problems of that kind, we cannot seek a soft option from the International Monetary Fund, but I seriously question whether the particular conditions which the IMF has attached to its loan are not shortsighted, ineffective, misconceived and generally a bit masochistic. I discussed this question at length in an article published in the New Statesman on 14th January. Were this the Senate of the United States, I should read that article into the record, but, since we are not, let me state briefly my understanding of how the IMF works.

The IMF asks Britain, in the sort of state in which we are, what our expectation is for the balance of payments deficit and what are the assumptions on which that expectation is based. It then cuts the rate of growth of GDP until the cumulative deficit matches the amount of money which we are seeking to borrow. That gives a trajectory for the economy, a set of public expenditure projections, tax assumptions and so on.

The IMF then fastens on one aspect of that overall projection, taking the implications of that projection, which, if our expectations are fulfilled, will result in our being able to tide over the deficit in our balance of payments and repay the loan according to our commitments. It fastens on one aspect of that overall economic scenario, and that one aspect is what it is pleased to call the domestic credit expansion.

That concept is almost unknown in economic literature outside the IMF. It was, in fact, invented by Mr. Polak, who is—and has been for almost 20 years—the director of research in the IMF, and he published it in the IMF Staff Papers in 1957.

Mr. Polak made two very simple assumptions in justifying the concept: first, that there is a constant velocity in the circulation of money and. second, that there is a fixed ratio of imports to GDP. The idea is simple. If one wants to control imports, one simply cuts the money supply. There are no proper time lags in the system, there are no uncertainties, and there are fixed ratios. It is the simplest possible gold standard, fixed exchange rate, quantity theory of money model that anybody could conceivably dream up.

An argument may be put, as the Treasury put it in reply to the hon. Member for Hazel Grove (Mr. Arnold) last week, that Discussions with the Fund on economic forecasts are not conducted exclusively on the basis of any single economic model. In the case of the United Kingdom, full account is taken of the Government's own forecasts as well as of other relevant sources."—[Official Report, 24th January 1977; Vol. 924. c. 4091] Indeed, they are. As I have said, the original forecasts are provided by the Treasury. But the enforcement of them is entirely by the very crude instrument of domestic credit expansion. If it is said that it cannot possibly be as crude as that, why did the Chancellor say in paragraph 18 of his Letter of Intent that we accordingly, intend that domestic credit expansion should be kept to £9 billion in the 12 months ending 20th April 1977 and to £7.7 billion in the 12 months ending 19th April 1978. Not relying merely on that, I pursued the matter further. During the IMF negotiations, I visited Washington for discussions with people closely associated with the new United States Administration, and, with the good offices of the Government, I had discussions with Mr. Polak at the headquarters of the International Monetary Fund. Mr. Polak not only confirmed the principles as I have outlined them but said that the system worked and had worked in hundreds of cases over the past 20 years.

The reason why it works is the same as the reason why Procrastes' bed works: if people transgress their commitment, their money supply is squeezed and squeezed until they fulfil the commitment. If one's purpose is merely to achieve a positive balance of payments, even with zero growth in the economy, high unemployment and no investment, of course it works. But is that sensible?

What is the practical import of all this for our present situation? It is that we are committed to rates of growth below our productive potential up to 1979, and therefore to a level of unemployment which is likely to go on rising until 1980. Furthermore, if we try to improve on this, the DCE limit will force us back. If we try to increase our investment, it can happen only if it comes out of consumer expenditure. If we increase our investment while not damaging our balance of payments, which is plainly what we should like to do, the DCE limit will force us back and restrict our growth of consumer expenditure. If we try to achieve higher levels of productivity, the only effect must be to increase the levels of unemployment.

What kind of basis is that to give the Chancellor of the Exchequer to take to the leaders of the TUC tomorrow night? Will he be able to convince them of the continuation of a viable incomes policy?

Mr. John Nott (St. Ives)

Stop inflation.

Dr. Bray

The hon. Member says "Stop inflation". Does he realise that the IMF working to the Polak model is not interested in inflation? The IMF can happily cope with South American situations and their inflation. It does it by using the Polak model. That means that one can be totally irresponsible towards inflation in the running of an economy. The IMF listens politely when we talk about restraining inflation but it is interested only in our payment of cash back to it. It works to a simple rationale. The background is that the IMF has not been interested in the stabilisation of exchange rates. It believes that exchange rates will look after themselves.

Mr. Nott

I am not in a position to defend the Chancellor of the Exchequer, but if one were to use the M3 target, which is a possible alternative, one would have a less effective target than DCE with massive movements across the exchanges. DCE is much the best target for the Chancellor to have chosen. The hon. Member for Motherwell and Wishaw (Dr. Bray) has not sufficiently developed his argument.

Dr. Bray

The hon. Member is right to say that the balance of payments and money supply must be considered, but other things must also be considered—investment in manufacturing industry, inflation, the level of employment, and so on.

A better approach is for the debtor country to decide its domestic fiscal and monetary policies, and to declare to the IMF those policies and the trade-offs it was making and would continue to make between a limited number of objectives in implementing those policies. In the case of Britain, where the imbalance lies not only in the balance of payments, the objectives might include the balance of payments, the public sector borrowing requirement, money supply, investment in manufacturing industry, the retail price index, GDP growth, and unemployment. In pursuing these objectives, Britain would use its full range of fiscal and monetary policy instruments, and the IMF would monitor policies to make sure we stuck to our declared priorities.

Mr. Nigel Forman (Carshalton)

Is the hon. Member not exaggerating the power and malevolence and even the shortsightedness of the IMF? Has he taken into full account the principles in Section 3 of Article 4 of the second amendment which says: These principles shall respect the domestic, social and political policies of members, and in applying these principles the Fund shall pay due regard to the circumstances of members."? Does he not agree that the Fund has always paid due regard to the circumstances of its members? I do not see how he can argue that the Fund is being excessive.

Dr. Bray

I have read that section but that is a general declaration of principle. It sounds fine on the executive board, but not so fine when one is in the Treasury negotiating with IMF staff negotiating with necessarily dirty fingers a tightly defined deal. The IMF staff may be dealing with one country which has resources and is well served with statistics such as ours, but the same methods have to be used when dealing with developing countries and with countries which cook the books—not necessarily the developing countries.

Against that situation, I entirely respect what the hon. Member for Carshalton (Mr. Forman) has said. We have to see the difficulties in which the IMF staff find themselves. I say not that they are malevolent but that they are not pressed hard enough in the development of their technicaly methods. It is this curious method that the Treasury has accepted and indeed supported its application to other countries.

The House may well ask why, if that is so, we have put up with it for so long. Obviously, the answer is that there was no political alternative. I suggest that there is now an alternative because of the new Administration in the United States.

I draw the attention of the House to an interesting article in the Economist of 18th December by Richard Cooper in which he said: Governments will and should intervene to influence exchange rates … Private speculators cannot be expected always to smooth exchange rate movements adequately, and governments can help to form expectations if they intervene to smooth exchange rates and to brake rapid movements. The IMF rôle is to make sure that the intervention is not at the expense of other countries, or inconsistent with the action of other countries. Working out a modus operandi for exchange rate management will be the major task of the next few years in the international monetary domain. In working out the background of that, Richard Cooper firmly sets aside the Polak model. In the American Economic Review, of May 1975 he says of the simple Keynesian and monetarist models of the Friedman, let alone the Polak type: These models cannot ocmpete successfully with the more complicated models. Today most economists would probably agree there simply is not much empirical content in their approach.… Economists will want to know how specific components of demand are connected to money markets and the accuracy of predictions about the behaviour of the links in that chain. It is useless for us to go to the United States and say that we are glad that the new Administration takes a different point of view from the previous Administration and that it takes a different point of view from that handed on to us in the IMF conditons unless we are able to say that there are things that we can do about our domestic economy that would open up a different prospect.

It is no good going to the United States and calling for more favourable international arrangements unless we can show that we can develop particular aspects of industrial policy. But I shall not pursue that line as it goes outside the scope of the debate.

In the next year or so, we shall introduce three major developments into companies in this country that many hon. Members feel will be damaging, but that I think will have a constructive effect. The first is the Bullock Report on industrial democracy in which the new United States Administration is interested. It cannot understand our hang-ups with class in British industry. The German Government is also interested in it because of its own pioneering experience in the field.

The second development is the introduction of inflation accounting. The failure of British industry over many years adequately to renew its operational base will be highlighted in company reports and inevitably therefore in the internal operations of companies, in tax laws, and so on.

Thirdly, we shall be returning to freer collective bargaining, with the opportunities that that will open up for a major advance in productivity as well as the responsibility of coping adequately without excessive inflation.

How we hold those three together and develop them into a constructive industrial policy is the challenge facing us. In that New Statesman article I suggested how we might do it, but I cannot develop that theme now within the scope of the Bill. However, within the scope of the Bill, we must ask the IMF to review the basis of its operations and revoke the Polak model. We must ask it to find a wider basis than domestic credit expansion for the monitoring of the economies to which it lends money and to seek the balanced policies that I outlined. Embracing many objectives and using many instruments of government—indeed, all such instruments—to pursue those objectives is within the scope both politically of what the Government can achieve and technically of what economics can now do. But we should not underate the technical difficulties. I shall later suggest how we may tackle them.

Let me first deal with another aspect of the Bill—the overseas development element. My hon. Friend the Financial Secretary said that the IMF could make a further contribution to commodities policy in particular. Possibilities there have been very much delayed by what the United States Administration was prepared to put up with. The Kissinger initiative at Nairobi was one of those miraculous events that sometimes occur. Somebody managed to persuade Dr. Kissinger of the importance of economics in foreign policy, and of commodities to developing countries and he took that initiative. But my right hon. Friend the Member for Lanark (Mrs. Hart) can be reassured that it will not be the basis of the new United States Administration's policies.

In the United States journal Foreign Policy for the summer of 1973, Fred Bergsten, now in the US Treasury, wrote The United States must, in its own national self-interest, adopt much more co-operative and responsive policies toward the Third World. That was the main conclusion of his analysis then. In the same journal in the winter of 1974 he wrote: These considerations all point to the desirability of an international, rather than a purely national, approach to the commodity problem. That is such a major departure of United States policy that the Government, using their influence in the EEC, should be preparing a major initiative for the economic summit.

If we ask where the UNCTAD discussions on commodities have got to, the answer is that they are rapidly running into the sand. At the meeting of intergovernmental experts on copper, the first substantive test of the viability of concept of the common fund, the intergovernmental group wound up with a list of 27 technical problems which needed to be explored before the drafting of a serious commodity agreement. The group's questions are very sensible. They may have been put forward in an obstructive mood, but I do not think so. They include the capital requirements of new mining operations, the related cost of production, and substitution, including the relative supplies of copper and computing materials. These were all the most obvious questions.

In response, the Secretary-General of UNCTAD said in reporting on the meeting: It is premature to draw any conclusions of a general nature from the two preparatory meetings and the one expert group meeting so far held. However, while the Secretary-General of UNCTAD fully appreciates the importance which governments attach to detailed studies and the fact that the amount of relevant preparatory work done prior to adoption of the Integrated Programme varies from commodity to commodity, he would like to stress the need to balance requests for additional studies against the need to move expeditiously towards negotiations within the time-frame set by the conference. I have told the Secretary-General of UNCTAD that I do not see how it would be possible to reach viable agreements within the purely diplomatic negotiating framework and with the limited research resources available.

If we take the commodity problem together with all the other problems rightly identified by the experts, and the problem of exchange rate stabilisation rightly identified by Richard Cooper as the major problem facing the IMF, we see that we need to raise the technical level of international negotiations to match the enormous advances that have taken place in the design of policy. About 15 years ago the Social Science Research Council of the United States launched a project at the Brookings Institution which came to be called the Brookings Model and which led to the concept of the management of the modern national economy. The preface to the Institution's third report said: When the original large-scale system —of economic modeling— was first planned and constructed, there was no assurance (or knowledge from previous research) that the separate parts would fit together in a consistent whole. There was also no experience to suggest that the tremendous quantity of information required for such a system could be handled efficiently. Both efforts were successful". That had a major impact on the approach to economic policy in the United States, and, indirectly, in this country. But we are now at the stage where we need to go a step further in tackling the problem of using multiple instruments to pursue multiple objectives, allowing for time lags and the uncertainty of the system. The technical problems have been solved. But the answers have not got through to Government Departments in this country.

The Government had an opportunity to take a lead in this matter when I put down an amendment to the Industry Bill during its passage through the House in 1975, requiring the Treasury to undertake policy optimisation work. I traded in that amendment, which was passed in Committee, for a commitment by the Government to set up a committee of experts to advise them. I urged Ministers to appoint an international committee, firstly, because for sufficient experts on the matter one must go outside this country, mainly to the United States, but also to Sweden and France. The second reason was that the most important aspects of the application of policy optimisation would be in the international arena, not least in the international monetary world in dealing with the problems of monetary stabilisation, and in commodities.

Ministers could not face the prospect of saying that we in Britain seemed to need help from abroad, and they set up a purely British committee, which is at work under the chairmanship of Professor James Ball, of the London Business School. I wish it every success, but it will be handicapped by having to undertake a two-stage selling operation first within the United Kingdom and then internationally.

Because of the limitations of our imagination and technical competence in Britain in the management of these questions, and because of the far higher technical competence in the new United States Administration compared with the old, I suggest that we ask the United States to establish a comparable exercise to that of the Brookings Model 15 years ago, but applied to the concept of policy optimisation and its international development. The Brookings Institution would obviously be an admirable place to locate such a study, but I do not think that the United States would be bound to that. I know that many international bodies are interested. One is the Ford Foundation, which is organising a conference on commodities in Washington in April, when I hope to be present, and I hope the Government will send representatives.

The first major initiative should come with the economic summit, when the first meetings will take place on the new developments in economic policy. I plead with the Government to recognise the technical level of the argument which needs to be put to the new United States Administration. The Government have come nowhere near that level in their presentations to the House or in their arguments with the IMF. The country is paying a tremendously heavy price for that neglect. I hope that that omission will be repaired in the next few months.

6.10 p.m.

Mr. Peter Viggers (Gosport)

I congratulate the hon. Member for Motherwell and Wishaw (Dr. Bray) on his authoritative speech. I invite him and the House to reflect upon how much more authoritative it would have seemed if he had not been a member of the Government who have reduced our country to the state that it needs to apply to the International Monetary Fund for loans, when it needs to accept IMF terms by way of dictation and when it needs to prostrate itself to whatever dictation comes from the IMF. It is sad that we find ourselves in that position. Perhaps, if we can strengthen ourselves, the suggestions that the hon. Member has put forward will be accepted with even more alacrity by the IMF and those who are authoritative on these subjects.

The Benches below the Gangway on the Government side of the House are thinly populated today. The right hon. Member for Battersea, North (Mr. Jay) does not fully represent those who would normally be found there. It is right that those of us who accept the need for international trade and reference to the IMF should recognise, in the absence of those who put forward these arguments from time to time, that it is not possible to have an alternative strategy to that which we are now adopting of an IMF loan.

An alternative strategy would not work outside a siege economy. A flat statement that a trading nation needs to trade with its partners in the free world is necessary and should be on the record. The proper approach for this Government should be the Gaullist approach. We should work with Europe while the institutions there continue. We should express our support of international institutions and keep a prudent eye on our own position, because it is by being strong in trade and finance that we can help others.

The gap between the rich and poor nations seems to be widening. The gap between the rich and poor in the poorer nations also seems to be widening. It is increasing to the extent that more than 500 million people will go hungry today and about one-third of the children born in Africa and Asia today will die before reaching adulthood. That is an appalling state of affairs. We can best help ourselves by proper housekeeping, by prudence and frugality, increasing our self-reliance and financial stability and earning a surplus in conditions of increasing trade so that we may carry others with us to increased prosperity.

I back completely the remarks made by my hon. Friend the Member for Hertfordshire, South (Mr. Parkinson) when he said that the sad thing about the debate was that we should be standing as applicants to the International Monetary Fund rather than being able to debate in a more mature and positive way the manner in which the Fund might be altered. As supplicants we do not carry the same authority.

If we are not the sick man of Europe, at least our people have been treated by the Government as spoilt children. Encouraging the demands of people, encouraging them to make demands which have proved to be impossible, has been damaging. It is like encouraging spoilt children to eat chocolate. The Chancellor has now taken us to the IMF in much the same way as a child is taken to the dentist. The alternative to going to the dentist would have been to be taken to the cleaners.

It is right that we should pay tribute to the achievement of the Bretton Woods Agreement, which created the IMF and the World Bank. It is remarkable how successful these institutions have been. It is unrealistic of us to oppose what is effectively a ratification of the revisions to the IMF, although detailed points most certainly require attention in Committee.

It always seems that in a detailed Bill like this the parliamentary system stands revealed in all its nakedness as being most defective. We are debating the Second Reading of a Bill containing a large number of detailed points. In Committee there will be the opportunity to cross-examine Ministers on some of those points and, hopefully, to receive answers. It will only be towards the end of the Committee stage that hon. Members on both sides of the Committee will realise the implications of some of the points which appear in the Bill.

How much better it would be if, when a Bill first appears before Parliament, it came by way of a First Reading which could be taken in a Committee Room, where Ministers, draftsmen and the civil servants responsible for the Bill's preparation could be brought into the discussion and cross-examined. Alternatively—and this is the system I would prefer—once the Bill had appeared it could go before a Select Committee, when Ministers, draftsmen and civil servants would be invited to give their explanations of the various matters in the Bill. Opposition criticism is often based not so much on ignorance as on an inability to comprehend what is intended because Opposition Members have not been able to look into the minds of the parliamentary draftsmen. I feel strongly that the present system, which allows a Bill to receive a Second Reading and then go into Committee—where it is debated in ignorance by hon. Members—is defective and needs amending.

Mr. Deputy Speaker

Order. The hon. Member would be very much out of order if he were to begin dealing with the procedures of the House. I hope that other hon. Members who follow him will not pursue that line, because I should have to rule them out of order.

Mr. Viggers

I am grateful for your guidance, Mr. Deputy Speaker. It is difficult to deal with a detailed Bill like this without occasionally raising points on the way in which it is dealt with in the House.

The Government are now proposing that we should align ourselves with the new terms of the IMF, and they are doing so in a situation in which they have raised £7,250 million of gilt-edged stock since mid-September, all at about a 15 per cent. yield. Perhaps the Minister can comment on that. It seems remarkable that the Government should have found it necessary to raise so much gilt-edged stock at high interest rates and then allowed interest rates to diminish. I suspect that the answer is that it was a "Catch 22" situation and that the Government would not have been able to raise the funds unless the interest rates had been high.

On the export credits guarantee part of the Bill, I feel that I should acquit the Government of a charge I sought to lay in Committee during proceedings on the 1975 Bill dealing with export credits. I suspected then that the Government and the Minister were seeking to cover the difference between loans and guarantees made in the commercial interest to people in this country and loans and guarantees made in the national interest. It will be recalled that the 1975 amendment Act made it no longer necessary for separate limits to be adhered to in respect of loans or guarantees made for commercial reasons and loans and guarantees made in the national interest. These were amalgamated in the one limit of —12,200 million, which is now being increased to —25,000 million.

I remain apprehensive of loans and guarantees made in the national interest. It is so easy to talk of something as being in the national interest without realising that the national interest is intensely subjective. Different Ministers will have different ideas of what is in the national interest. I suspect that the right hon. Member for Lanark (Mrs. Hart) would have different ideas from me about what is in the national interest. I still feel it wrong to have one amalgamated limit for loans and guarantees made under both those headings. I feel that it is necessary either to have a better explanation from the Government or to have separate limits for these two categories.

The other point upon which I remain apprehensive is the new SDR limit. When the Chancellor referred on 15th December to the new proposal to finance export loans and guarantees by funding these overseas, he said: We believe that by funding medium and long-term export credit in foregin currency instead of in sterling we can reduce the burden which export credit imposes on public expenditure, the PSBR and the balance of payments."—[Official Report, 15th December 1976; Vol. 922, c. 1530.] This can be so only if it is expected that the interest and inflation rates in this country will be worse than the inflation and interest rates overseas. The logic that follows that statement must mean that the Chancellor thinks it better to borrow overseas because the United Kingdom currency will depreciate. This needs clarification, if not tonight by the Minister, at least in Committee.

It is an extremely important subject, particularly because the foreign guarantees will be in respect of buyer credits. One expects the buyer credits to be financed by foreign banks, which means a loss of business to British banks. Why should British banks lose business if it is worth having? If it is not worth having, one does not care, but presumably it is worth having and, therefore, some potentially valuable business is being lost to the United Kingdom sector. That aspect needs clarification.

I am surprised that the limit for special drawing rights on foreign borrowing should be so high, as it is essentially at this stage a pilot scheme. One is hesitant to see such a large scheme brought in at this stage.

My hon. Friend the Member for Hertfordshire, South referred to export credits to Soviet bloc countries. I was reminded of a comment by Mr. Bukovsky when he visited this country earlier this month. He said that he was in a labour camp working on timber and wood products. These products went from Russia to Iran. He found that Iran was financing the United Kingdom and that the United Kingdom was giving advantageous trade loans to Russia, the country which was keeping him in a labour camp. He felt that it was a small world and how closely related its peoples were. That feeling was reinforced when Mr. Bukovsky found that the handcuffs on his wrists on the way back from the camp were American.

By giving the Russians the money for export credits which enable them to buy from us, we not only finance them and give them capital in the long term but we give them prestige in showing that they are dealing with us and that we are prepared to deal with them. This is an important matter which should be probed. I remain apprehensive that the Government should have chosen the Soviet bloc, Russia in particular, as the subject of a major trade initiative which gives such benefit to those with whom we are trading.

I feel that the Commonwealth Development Corporation—not a subject on which I claim special knowledge—is a good example of Francis Bacon's saying, Money is like muck, not good except it be spread. It is necessary that countries in the Third World should have the opportunity of benefiting from trade with us, and to do that they need money. Is the Minister able to say whether progress has been or can be made on allowing loans and credits through the IMF to Third World countries? This could be done by an extra quota of special drawing rights going to them, thus giving them the benefit of soft loans.

I feel strongly that it is wrong of the Government to bring forward three Bills under the guise of one. The three subjects dealt with in this Bill are utterly disparate and should be treated in separate Bills. There is no direct connection between a revision of the terms of the IMF, a change and increase in the terms of credit guarantees, and an increase of the funds available to the Commonwealth Development Corporation. This is not a narrow political point which should divide the House. On the contrary I think that anyone, on whichever side of the House he sits, who has the interest of Parliament at heart should surely accept it.

Dr. Bray

The hon. Gentleman is inviting us to support him in this argument. But there is a strong argument for taking these three international problems together. Their interconnectedness is highlighted, as we shall find in Committee.

Mr. Viggers

I do not feel that to have the three subjects in one Bill is any more justifiable than to have had the aircraft and shipbuilding industries lumped together in one measure. I feel strongly on this point and I shall continue to urge it. I reserve the right to make a gesture on the Money Resolution in order to underline the point.

6.25 p.m.

Mr. Bruce Douglas-Mann (Mitcham and Morden)

I disagree with the hon. Member for Gosport (Mr. Viggers) about the interconnectedness of these measures. I hope that I shall not strain your patience, Mr. Deputy Speaker, by trying to demonstrate my concern about certain clauses of the Bill, particularly the inadequacies of Clauses 5, 6 and 7, in relating them to the conduct of the economy as a whole.

I, too, welcome the Bill, although I share some of the misgivings expressed by the hon. Member for Hertfordshire, South (Mr. Parkinson) about the extent to which we in Britain are drawing on the IMF. I accept that in present circumstances we have no alternative, but I am concerned that we should have put ourselves into an economic situation in which we had to draw on the IMF and are doing so at the expense of the availability of such credits to the developing countries.

I do not agree with my hon. Friend the Member for Motherwell and Wishaw (Dr. Bray) in another respect. I do not believe that we can seek or should be seeking to sustain our economy by dependence on growth in the economy. I believe that by pursuing the policies we have been pursuing we have been sustaining a living standard which we are not financing by our own production. I do not think it right to try to borrow until our growth catches up on us or to expand our consumptive capacity, because I do not believe that it is possible indefinitely to sustain a level of production and consumption on the scale envisaged as it requires continued growth in consumption in order to finance the production. I believe that we should be looking much more fundamentally than we have done at the basic structure of our economy and at the question of whether we should aim at a stable rather than a growth, economy.

The principal issues which I wish to raise have been the subject of two very important Government reports, neither of which has been debated. The first was the paper "Sinews for Survival", prepared by the Department of the Environment on the instructions of the then Secretary of State in 1972 for the Stockholm Conference on the Human Environment. It said: Many of the natural resources of the world, and particularly those that are peacefully available to Britain, are finite. Even with a static population they may well be insufficient to provide the raw material for the rate or the kind of economic growth and increased affluence which is almost universally assumed to be desirable for the next 100 years. If populations continue to grow as forecast, some resources are probably insufficient for the next 50 years; that is within the lifetime of most young people. It concluded: We have been driven by the evidence we have assembled to the conclusion that to devote our resources to the achievement of the highest possible growth rate, as conventionally measured, is no longer desirable. The message of that passage was strongly reinforced by a paper prepared by the Cabinet Office and published last March. That paper attracted almost no notice in the media and in this House. I saw a tiny paragraph about it on, I think, page 3 of The Times. I was able to obtain a copy of the paper only with some difficulty from the Library, which had not until then even heard of it. It is an extremely important document also. It contains the report of a committee set up by the Cabinet Office to consider future world trends in population, food, mineral resources, energy policy, and economic aspects, and it sought to draw conclusions and implications for the United Kingdom.

It is relevant to the Bill if I briefly draw attention to one or two passages in the document, because it considers the problems and prospects of world population. Paragraph 5 on page 21 of the conclusions states: On current demographic assumptions, and assuming that the world can be fed adequately, the population of the developing countries is likely to be 4½ to 6 billion by the turn of the century", to which we must add about 1 billion or 1¼ billion in the developed countries, making within 23 years a world population of between 6 billion and 7 billion people. There is considerable discussion in the document about the accuracy of those assumptions and the basis on which they are arrived at. It is a median assumption. Even the most optimistic assumptions are not very much smaller.

The document also considers how that expansion in world population—and the effect it could have on our own economy as well as on the economies of the entire world—might be contained. Birth control is one obvious answer, but paragraph 57 states: Experience suggests, however, that fertility regulation programmes become effective only when the expectation of life has risen significantly and living standards have started to rise. Thus, aid is needed first to relieve poverty and raise living standards and to help create a social framework which is conducive to the practice of fertility regulation. It is not enough to advocate a birth control programme. It is absolutely vital that we raise living standards so that people can see that there is a prospect of a better standard of living if they contain their families. It is essential for them to know that if they plan to have only two or three children the probability is that those children will survive, and that it is not necessary to have 10 or 12 children in the hope that a few will survive to give support in one's old age.

If we are to have the disastrous expansion that is envisaged in the document, and which is already taking place, the only prospect of our containing it is to raise world living standards. That depends on our expanding world food production capacity.

Paragraphs 16 and 20 of the Cabinet Office paper make quite clear that world food production could be expanded enormously. A vast amount of fertile agricultural land in the world is capable of producing food. At present, only one-half of the potential agricultural land in the world is cultivated and only one-quarter of the total is irrigated. With present technologies and resources, it is possible to expand world food production and capacity to a level that would be sufficient not merely to maintain existing living standards but to expand and improve them.

The document concludes, in paragraph 59: Although it should be theoretically possible to feed the world's growing population until the turn of the century, the undoubtedly severe problems of providing the capital investment needed both to increase food production to the necessary level and to distribute it have not yet been fully examined. There are also enormous political, social and economic problems involved in increasing food production to these levels. It is probable that market forces would work against the equitable distribution of food due to present income distribution. I take the point made by the hon. Member for Gosport that we should not only ensure that the living standards of the poorest countries in the world rise in comparison with those of the developed countries but, equally, that we should encourage a more equitable distribution of wealth within those countries. That, however, is not within our control. Where we can assist and contribute is through the nature and scale of the aid that we ourselves supply.

The paper goes on to say: The resource costs, particularly that of the energy needed to produce the necessary fertilisers and for transport, will be so large that without accelerated economic development the danger is that a major proportion of the world population will not have sufficient real income to buy food at prices which cover the costs of production. To combat this, massive transfers of resources will be necessary and particularly for the poorest group of countries (those with GNP per capita below $200), which includes some of the most populous countries, these transfers will need to be made on very concessional terms. The United Kingdom has recently decided that its future Government to Government aid to such countries will normally be in the form of grants. But the present evidence is that concessional capital flow as a proportion of the GNP of the developed countries as a whole is falling rather than rising. It adds: Much more still needs to be done, however, and without concerted help from those countries that can provide the resources, the world's population is unlikely to be adequately fed whatever the theoretical possibilities for increasing food production may be. An alarming final paragraph points out that Unless there are resource transfers on a scale many times greater than at present, the effective check to world population will be the Malthusian trilogy of war, famine and disease. This is an urgent problem, but at present aid and other capital flows are falling as a percentage of GNP of the developed world as a whole and it is by no means clear that those donor countries who can afford to do so would be prepared to provide aid on the terms and scale needed. As lower birth rates seem to result from increasing standards of living, failure to raise real incomes will militate against the success of population control measures and further exacerbate the longer term situation. I believe that it is possible for us to change this pattern and to change it within our own society. There is strong pressure from our constituents to sustain their living standards and not to worry about the problems of the rest of the world. We must get across to people that what we are talking about is not the dishing out of aid to underdeveloped countries. It is not a question of generosity or morals. It is a matter of our survival.

At the rate at which the world population is expanding, the developed countries of the world—which at present represent about 20 per cent. of the world population—will be down to about 10 per cent. of world population by the turn of the century. In that situation the prospects of our sustaining anything like the standard of living that we have at present, and of being able to trade on the sort of advantageous terms that we had, for example, prior to OPEC, will be very slim indeed. The prospects of our being able to avoid war or other conflict in that situation are very remote. Therefore, aid is not merely a question of morality or generosity. It is a question of survival for ourselves.

We can achieve a scale of aid far greater than we have been achieving. I was sorry that the Chancellor decided as he announced in December, to cut our aid programme by £50 million. The projections in the Public Expenditure White Paper look encouraging, but I am afraid that the achievements are still very much in the future. The actual spending on overseas aid in the period since the Labour Government came to office has been less in real terms than it was in the preceding year. Although it is projected that overseas aid in 1976–77 will be over the £1,000 million mark—rising to £1,252 million in 1977–78 and £1,380 million in 1978–79—it is still only a trifling contribution towards the level of expenditure that we ought to be making if we are taking a realistic look at the prospects that face the world.

Even without drastic changes in our living standards or ways of life, I believe that we can sustain stability. We can do it by seeking to limit our level of consumption, rather than constantly seeking to increase the level of consumption in order to sustain the level of production.

The way that our economy is organised, we have to have a steady growth in the level of consumption if we are to sustain full employment. I do not believe that that is necessary. The first and most essential means of achieving the objectives which I believe are vital to the survival of our children, and possibly of ourselves, is to put our own economy on its feet. I agree with Opposition Members in this respect. However, we must do it by curtailing our consumption, by sustaining the level of public services and by increasing the level of overseas aid.

I support the Bill, but I should have preferred to see it on a very much larger scale than it is.

6.40 p.m.

Sir George Sinclair (Dorking)

I support those of my right hon. and hon. Friends who have already given a welcome to the Bill. I want especially to congratulate my hon. Friend the Member for Hertfordshire, South (Mr. Parkinson) on the effective and engaging way in which he tackled this debate in his debut at the Dispatch Box.

While I share some of the general disquiet expressed by my right hon. Friend the Member for Chipping Barnet (Mr. Maudling) and my hon. Friend the Member for Gosport (Mr. Viggers) about the extent of credit now being offered to the Soviet Union, I welcome the statement by the Financial Secretary that the Bill is in general in support of an expansion of world trade for the good of all.

As a great trading nation we have a common interest with our trading partners all over the world in an expansion of world trade, but we have a very special interest in common with the Commonwealth and much of the developing world in the opportunities which we have there for increasing trade and for developing the political associations which stem from long ago and are maintained today. It is much in the centre of the thinking of the developing countries, as I believe it should be in ours, that the best sort of relationship between a developing and a developed country is one based on buoyant trade in which each has something to offer and something to receive. It is a far better relationship than one based on aid, however well intentioned that may be. I welcome the Bill because of the major impact that it aims to make on the expansion of our world trade.

The Bill's coverage of our relationship with the IMF has been discussed by other hon. Members. For my part, I shall concentrate on the Export Credits Guarantee Department and on the Commonwealth Development Corporation because they operate in spheres in which, over the years, I have had some personal experience.

The ECGD is rightly the envy of a great number of the industrialised trading nations. It has shown sensitivity in dealing with our trading risks in countries with swiftly changing economies. It has been of special assistance to those who often needed it most—not the greatest trading groups, but the middle-sized and smaller groups which could not afford to take some of the risks which the larger and wider-based companies preferred to absorb themselves. It has been a model of callaboration and confidence between the Treasury and the City. The marriage between the two has proved to be remarkably successful; and it has lasted for 60 years. This is a matter for rejoicing on both sides of this House. I am delighted that under the provisions of the Bill the ECGD is to be given greater scope. If we are to expand our trade with both industrialised countries and developing countries, many of our trading groups will need its guarantee as a net underneath them.

The Financial Secretary spoke of the rapid growth in the world-wide exchange of commodities which had taken place since 1945. One of the most important requirements of the developing countries is to have assured markets at reasonable prices for their exports, especially their natural products. One of the great limitations on their capacity to manage their own economies has always been the wild fluctuations in the market return for their commodities. I grew up in work in the Gold Coast—a country which suffered wild fluctuations in the price of cocoa, and I saw the dislocation which that could cause in all Government planning. Much the same happens with many other countries which are greatly dependent on the export of a single commodity.

For years Great Britain has led the attempt to establish international commodity agreements. They have been slow in emerging. The difficulty arises partly from fluctuating prices themselves. Often when an agreement was about to be reached, one of the main countries would say, at the last moment "The price is going up beyond any level that we shall get under a stabilised price agreement. Let us run the risk and go it alone." As a result, the commodity agreement failed to come into being. But, gradually, more countries are coming to accept the need for such agreements, and Great Britain has been the spearhead. It is in London that a number of the inter-Government commodity councils have their headquarters today. They are five—those concerned with rubber, coffee, sugar, tin and wheat, and there are four other international groupings in operation which are centred on London.

In support of all our efforts through ECGD in our trade with the developing countries, this Government could not, at this time make a more effective individual contribution than by helping to establish and develop an international commodity council centre in London. They have proposals before them at the moment from the interests concerned to set up such a centre in London. They have been presented with a good case, which has already some appeal to Members on both sides of the House. Such a centre would reinforce success, and develop further a valuable function which this country, and London in particular, is exercising on behalf of the whole trading world.

To turn now to the Commonwealth Development Corporation. I have seen it in action in a number of parts of Africa. I think that it is unique in its sensitivity as an instrument for the transfer of resources. It has a remarkable record of investment, allied with management. In spite of the fact that it operates in many of the most difficult and fast-changing economic areas of the world, it has had, except in its earliest years, a remarkable record of helping those countries and of passing on training to their people. It also has a record of turning a profit in the end and enabling itself to expand. I am delighted that the Bill is offering it an expanded range of operation.

The CDC has some special features. As I have said, it operates in difficult areas of developing countries with new and rapidly changing problems, political ideas and leadership, and does so with maximum acceptance. It has established for itself a reputation for detached professionalism and political sensitivity. It is remarkable that at a time when nationalist onslaughts are being made on any economic input from overseas—onslaughts of neo-colonialism—the CDC has been almost immune from any attack on these grounds. It has been operating with a remarkable range of local participation in association with Governments, local and overseas private enterprise, local co-operative movements and community groups. There is no pattern which is natural to that area which the CDC has not been willing to attempt to develop and make into a viable economic enterprise. It has often made important capital investments in areas where free enterprise risk capital would not go.

One of the things which have led to the maximum acceptance of the CDC's operations is its purposeful training of local staff at every level. All over the world it has been regarded as a model for the developed countries to adopt when assisting the developing countries. This has led to praise for the CDC from the IMF. The CDC has helped Britain greatly with investment and trade, and what is more it has for many years been able to carry out its services and make a modest profit. Last year it made a profit of about £40 million. Considering the conditions in which it operates, and the risks it has taken in new forms of organisation, this is a remarkable achievement, and we are right to reinforce its success.

There are other important ancillary supports for all our efforts in this field. I have mentioned the commodity councils in Britain which have been a great help to the ECGD and to trade generally, but the amount of good will which the CDC and the ECGD have in the developing countries is greatly increased by the work of the voluntary agencies, such as the Intermediate Technology Group and Christian Aid. I declare an interest, as I sit on the boards of both. In the work they do, and the people they send out, they are operating as the CDC is increasingly operating, at the grass roots in rural areas of the poorest of the poor countries. This does great credit to this country, and it is a credit which spreads not just to Parliament but to people all over the country at the grass roots—by Christian Aid in the Churches and by organisations such as Oxfam. Many more people are beginning to share in the awareness of the need, and the common interest which we have in the progress of the developing countries. I hope that the Government, in considering the overall pattern of overseas trade, will continue to give support to the voluntary agencies, which do so much to increase the good will on which so much of our success has turned and will turn in the future.

I welcome the Bill, and I hope that in Committee we shall be able to modify some of its excesses and reinforce some of the most promising lines on development.

6.58 p.m.

Mr. Frank Hooley (Sheffield, Heeley)

The main purpose of the Bill is to honour the commitments which the Government entered into in negotiations through the IMF. I welcome those commitments, and I welcome the general provisions of the Bill.

A few months ago a debate on the IMF would have been regarded as rather esoteric, but the IMF is now something of a household word because of the recent controversy. One might even say that the IMF is a household dirty word. I do not share that view. I regard the IMF as an enormously important instrument of international co-operation.

It is not a bad thing to remind ourselves of the purposes of the Fund. I quote from the IMF's annual report of 1976: The essential purpose of the international monetary system is to provide a framework that both facilitates the exchange of goods, capital and services among countries, and sustains sound economic growth. I hope that the Treasury takes that to heart. I get the impression that it is concerned with combating inflation and fiddling with public sector borrowing requirements and, as a result, is overlooking the main purpose of loans from the Fund. That purpose to facilitate economic growth in this country and elsewhere.

In the original Bretton Woods discussion, Lord Keynes was very keen to create an international currency. He even had a name for it; he called it Bancor. We had to wait until 1968 for an international currency to become available—the famous special drawing rights. I wish that we could find a pleasanter name for it. The first SDRs were created in 1968. They represented an important breakthrough in international monetary arrangements. The provisions that we are now discussing, to ratify what my right hon. Friend the Financial Secretary described as only the second amendment to the articles of the IMF, represent an even more drastic and far-reaching reform of the international monetary system.

Dr. Bray

Before my hon. Friend leaves the point about the name of the SDRs, he will see that in a recent IMF staff paper one of the chief legal advisers suggests the name "talent". The question arises whether a country should bury its talents, as some do, or use them, as we seem to be doing.

Mr. Hooley

That is a jolly suggestion. I hope that someone will follow it up, provided it is not suggested that this country should have only five talents and not 10 or 100 or whatever we need. Whatever the name, the concept is enormously important and has now been carried forward to make the SDR the international reserve unit. The function of gold as the unit of value has been eliminated and its rôle as common denominator of the par value of currencies has been ended. This is an important step forward in the management of international monetary matters.

The SDRs, the quotas of the IMF, as provided in the Bill, will be expanded from 29 billion to 39 billion. It is also interesting that the balance of the quotas will shift slightly to take account of the rising importance of the oil-producing countries. In future the oil countries will have about 10 per cent. of the total quotas, the industrial and wealthier developing countries will have about 69 per cent., and the remaining developing countries will have about 21 per cent. of the total. This represents not a large but a significant shift in the recognition of the importance of the oil countries in future monetary arrangements.

The agreement provides for the Fund to dispose of one-third of its gold holdings, about 50 million oz. I am glad to say that half of the money thus raised will go to create a fund for helping developing countries. The other half of the money will go back to the member countries in the proportion of their quotas.

The new agreement has something to say about fixed or floating exchange rates, and my right hon. Friend the Financial Secretary spoke briefly on this in his opening remarks. It is not a matter in which I wish to become involved, except to say that there seems to be some disenchantment with the regime of floating rates and some suggestion that perhaps we ought to move, if not right back to the Bretton Woods concept of fixed exchange rates, at least half-way back to some sort of managed arrangement and not the rather erratic arrangements which seem now to prevail. That, however, is a matter for a separate debate.

My main concern over the IMF is the value of the Fund as an instrument of aid to developing countries. It was not conceived as an aid instrument, and for many years, and still to some extent, its workings have been dominated by the rich industrial countries, perhaps without sufficient concern for the poorer countries.

In four important respects, however, the IMF has become an instrument for providing aid to the poorer countries. The first, which was mentioned by my right hon. Friend the Financial Secretary, was the oil facility under which 5 billion SDRs were made available as a fund to help the poorer countries which ran into extreme balance of payments difficulties because of the fivefold rise in the cost of oil in 1973–74. Forty-six members made use of this facility, drawing a total of 4.4 billion SDRs in 80 separate transactions. They included such countries as India, which drew 401 million, and Pakistan, which drew 236 million.

The facility was not confined exclusively to developing countries because Italy and the United Kingdom also borrowed from the Fund, but it had an important value for the poorest countries. Between September 1974 and May 1976, 55 countries took advantage of this oil facility to borrow the equivalent of 7 billion SDRs. The providers of the Fund were largely the oil-exporting countries—Iran, Kuwait, Nigeria, Saudi Arabia and Venezuela—although Germany and the Netherlands contributed to it. It constituted an important part of the recycling process which helped the countries which had suffered as a consequence of the petrodollar surplus.

There was a 7 per cent. charge on those loans from the oil facility, but a special subsidy account was created to ease the burden on the poorest countries that wanted to use it. This technique is important. I hope that if the world runs into further difficulties with a petrodollar surplus—as it may do—the IMF will be used as the instrument for recycling, instead of hot money floating in and out of London and causing enormous problems for our economy, as it has done over the past couple of years. The surplus petro-dollars could be channelled through the IMF to countries which, for balance of payments reasons, need temporary help of this kind. I believe that it is important that we should support international instruments of this kind rather than rely on the now outdated idea that London somehow is the centre of financial dealings.

The second important part of the work of the IMF which has a bearing on its development is the Compensatory Financing Facility. I gather that it was created back in 1963 but that it did not play a very important rôle in international monetary affairs until the oil price explosion and the general inflationary explosion which have taken place over the last three years.

Basically, this is a method of helping particularly the primary producing countries if their export prices fall or if the market collapses and they find themselves in serious balance of payments difficulties on account of wild fluctuations in the price of primary products. They are able through the compensatory financing facility offered by the IMF to draw between 25 per cent. and 50 per cent. of their quota to help themselves out of their difficulties.

There are technical calculations as to how countries qualify for that aid. Basically, what it amounts to is relating their earnings from primary produce to their average export earnings over five years. A record 825 million SDRs was used for this purpose in 1975–76.

The EEC has tried to set up a similar technique in the Stabex system of the Lomé Convention. I would very much prefer this country to support the IMF arrangements which take in a vastly wider range of countries than does the Stabex system, which operates on a simpler and more straightforward basis. The crucial point is that the IMF can dispose of resources which Western Europe, rich though it is in many re- spects, cannot dispose of. I very much hope that in formulating their policy the Government will pay more attention to the Compensatory Financing Facility of the IMF than to the Stabex arrangement under the Lomé Convention.

The IMF has set up what has been called a trust fund to assist developing countries with special balance of payments difficulties, the money deriving from the profit on the sale of gold. The possibility also exists of the making of voluntary contributions to the trust fund by means of grants or loans from different countries. There are 61 member countries of the United Nations which are eligible for help from the fund. A special feature is that assistance from the fund will be made available at a low interest rate—about ½ per cent.—and the repayments on loans will not begin until five years after the initial loan has been made. Payments can then he spread over 10 years. This should be an extremely useful policy for helping the poorest countries with balance of payments difficulties.

The IMF also provides training and technical assistance facilities in fiscal, monetary, banking and other matters, as well as advice and help on public finance and statistics. I would not be so unkind as to suggest that we ought to take advantage of the advice offered, but this possibility may occur to some hon. Members. During the last financial year 134 experts were sent to 45 countries, and training was provided for nearly 300 officials from 103 countries. During training, special emphasis is laid on the problems of developing countries.

The IMF makes a significant and important contribution to the developing world. One of the points in the Government document that I find curious is that the review of quotas which has recently taken place must be done all over again in 1978, just one year from now. It is not clear from the agreed revision of the articles or from the Government documents why it must all be done again in such a comparatively short time. I am not against it or against further expansion of special drawing rights—it would be a good thing and would have useful consequences for the world monetary system—but I am curious to know why the review will take place so quickly.

I hope that when the next review takes place more emphasis will be placed upon the needs of the poorer countries of the world and that in the allowances of liquidity quotas the needs of poorer countries will not be pushed to one side, as has been the case in the past. In 1978 there will be a splendid opportunity to increase the purchasing power of the developing world at no cost to ourselves.

I do not particularly wish to touch on the export credit guarantee aspect of the Bill, but I wonder whether the Government would like to take this opportunity to comment on the cost escalation scheme which was introduced a couple of years ago for the benefit of our heavy plant manufacturing industry and which has been criticised as being inadequate. The matter involves considerable technicalities since we are proposing that the finances available through the Export Credits Guarantee Department should be extended. This is a reasonable opportunity to inquire whether the scheme meets the needs of the companies that it was designed to help. I hope that the Minister will say something about this.

Another aspect concerning commercial guarantee is whether it should be used as an instrument to persuade British companies, when investing or undertaking commercial enterprises in the developing world, to observe certain basic standards in industrial relations and in their behaviour towards the local people. That could clearly be a controversial matter, and it might be more appropriate for discussion in Committee than during Second Reading. If, however, we are making backing available to private commercial enterprises, we as a parliament and the Government have a responsibility to ensure that when those enterprises operate in the poorest parts of the world, such as Africa or Latin America, they behave in a reasonable and fair manner.

The Commonwealth Development Corporation has been a remarkably successful public corporation and an indication of what can be done through a public corporation to help the developing world. The variety of its activities and their geographical dispersal is staggering. I recently read the Corporation's 1975 report and discovered that it was involved in brewing Guinness in Indonesia, steel rolling in Fiji, vegetable growing for export in Tanzania and cattle ranching in Botswana, not to mention hotels, harbours, sugar, tourism property development, citrus growing, mortgage finance, timber, farming, palm oil, rubber, cocoa, cement, spinning mills, tea, tanning, crop seeds, vegetables for export, tobacco, rice, wood pulp, iron ore, polyester fibres, and public water supply, and one or two other things as well.

Since the Corporation must be one of the most complicated conglomerates in the world, it is remarkable that it has such a good track record in financial matters. Its latest report shows that in 1975 it not only paid f11¾ million in interest charges back to the Treasury as well as £7 million in tax but also had a slight surplus.

Another part of the Corporation's report is even more intriguing. I quote from page 10, section 5, which refers to the joint working party of the Ministry of Overseas Development: The principal outcome of the Working Party recommendations was agreement that CDC would aim to place its new commitments during the five years 1975 to 1979 preponderantly into the poorer countries and into renewable natural resources projects, that is to say, agriculture, ranching, forestry and fisheries, including associated primary processing plants; the category of 'poorer countries' will be subject to such flexibility as the more urgent needs of marginal countries may dictate. It will be some considerable time before this adjustment of policies and priorities will show in practical results; natural resources projects have to be investigated at length and prepared in detail and, when launched, have to pass through varying periods of immaturity before the stage of exploitation or harvesting is reached and any financial return realised. For these reasons there is to be a mid-term review of progress towards the achievement of the new aims in the summer of 1977 and a further review at the end of 1979. I am not opposed to this new policy since the CDC has been involved in this kind of thing for a long time, but it might have an impact on the profitability and commercial viability of the Corporation.

I wonder what sort of tolerance the Treasury will extend to the CDC if it is to be involved in such long-term projects as timber and forestry. These are products in which one might have to wait 10 to 20 years for a yield. If more is to be done for agriculture and in the production of rice, palm oil or other agricultural projects generally, will a more tolerant allowance be made for such events as storms, hurricanes, droughts and failures of monsoon, which greatly affect agricultural production. I am also interested to know whether, in view of the explicit desire to help the poorest countries, there will be any moderation in the terms of interest or other terms according to which capital is made available to the CDC.

This is an extremely attractive and worthwhile Bill. It does not seem to have aroused a great deal of controversy in the House. I hoped that we might take this opportunity to have a wider debate on aid, but no doubt we can expand on these points in Committee. I wish the Bill a speedy and successful passage.

7.20 p.m.

Mr. Ian Stewart (Hitchin)

I start by adding my congratulations to my hon. Friend the Member for Hertfordshire, South (Mr. Parkinson), who, in his first appearance at the Dispatch Box with these responsibilities, achieved the notable feat of making a relevant, thorough and interesting speech, which is not easy on such a Bill.

As my hon. Friend the Member for Gosport (Mr. Viggers) said, this is three Bills in one and I have some sympathy with the Financial Secretary who tried adequately to cover all the topics in his introduction. I hope that he will accept my comments in that spirit.

It is not easy for hon. Members, faced with such a Bill at pretty short notice, to work out what it means. Even when armed with a battery of other Acts, Government publications on the IMF proposals and so on, it is not easy to discover the exact effects of the Bill.

I have to make some critical comments about the way the Bill has been presented, but I hope that they will be regarded as constructive. The latest sterling limit set out in legislation is £12,200 million, but increases of —3,000 million have been made on more than one occasion and the Financial Secretary told us that the limit is now £18,200 million. It is misleading for the Explanatory and Financial Memorandum Bill to talk of an increase from £12,200 million to —25,000 million because that gives the impression that the limit is being doubled when, in fact, it is not.

The memorandum says on foreign currency facilities that the limit may be exceeded where such excess is due solely to the calculations made at the end of any quarter. No excess can be due to such calculations; it may be thrown up when the calculations are made, but in ordinary language the excess arises from changes in the value of currencies. It would have been more helpful and comprehensible if the provision had been explained in that way.

It is difficult to work out when the new currency facilities come into existence. Clause 4 refers to arrangements which may be made in the period beginning 1st January 1977 and between that date and the enactment of the Bill. It would be helpful if we could have an authoritative statement from the Government about the position in the intervening period when the arrangements are not legislated for but when they may, apparently, be put into effect. My confusion on this matter may be due to my own ignorance, but the issue is not easy to follow from the wording of the Bill or the explanations offered so far.

It would also be helpful to have a comment on the trade implications of increasing the ECGD's limits. I understand that, with the growth and variation of international trade, it is necessary not only to increase the amount available but for the Department to take into account trade with different countries, and it may be that, quite apart from running down sterling as a reserve currency, there are trade reasons which would make the foreign currency facilities useful. I should like to know the Government's plans for providing ECGD facilities in the currency quota, as opposed to the existing sterling quota, as increased.

I had great difficulty in understanding what was meant by the reference in Clause 7 to payments to international development banks. The right hon. Member for Lanark (Mrs. Hart) seemed to have a similar difficulty and was not sure whether Dr. Kissinger's proposals would come under this arrangement. The clause refers to all types of payments which fall to be made to such banks in pursuance of arrangements by which Her Majesty's Government in the United Kingdom becomes bound. That conjures up the picture of the Government waking one morning and saying "Goodness me, we are bound by an international agreement. We had better make sure that we can make the payments." No doubt this is not the true situation, but it comes across in that way, and it would be a help if the Minister could comment on the type of payment involved and the nature of the international banks as opposed to the regional banks.

I thought that instead of substituting international banks for regional banks the Bill would have added the international to the regional banks. It may be that all international banks will supersede regional banks or that all regional banks will be consumed within the new international development banks, but it is not clear what the legislation is trying to achieve.

If I may turn to another technical comment on the presentation of these matters, paragraph 10 of the Explanatory and Financial Memorandum refers to the Overseas Development Act 1968. I have spent a great deal of time trying to discover what that Act does. There may be a misprint in the Bill, and it might be supposed to refer to the Overseas Aid Act 1968. If not, no doubt a number of other hon. Members will also have had some difficulty tracing the Act referred to and discovering its relevance to the Bill.

Despite the attention paid in this composite Bill to the affairs of the ECGD, the CDC and the development banks, the heart of the matter lies in the proposals for the IMF. I agree with the hon. Member for Sheffield, Heeley (Mr. Hooley) that it is surprising to have these proposals brought forward now when there is to be a review of quotas next year. I suspect that the reason is that it has taken such a long time to agree the last quotas that we are running into the time for their revision. It is rather like the workings of our own Boundary Commission. That might also explain why we have had only two amendments to the articles of the IMF since it was established. It may be that a great permanence was achieved originally, but the last and varied membership, often with divergent views, makes it difficult to achieve the unanimity required to put through amendments.

There is no doubt that the proposed amendments to the articles mark a major departure in the approach of the IMF. Floating exchange rates are recognised at last and the changing function of gold is also formally recognised. The rôle of SDRs, which have come forward remarkably satisfactorily, are built in more formally to the articles of the Fund.

Nevertheless, as my hon. Friend the Member for Hertfordshire, South said, the Fund is still reacting to events rather than having a creative rôle in international monetary affairs. I do not criticise it for that, because events have moved fast.

Looking at the impact of oil money, two or three years ago the most appalling upheaval in international financial markets was predicted. There were considerable strains. The situation has now subsided into a more orderly pattern, although it has caused great economic difficulties within many industrial and nonindustrial countries. This new realism of recognising the status quo is a step forward by the IMF, but it will be a long time before it acts as a leading force in these plans. I welcome the initiatives taken by the IMF in relation to the oil facility and various other technical arrangements which have been made in the last three or four years.

But a word of caution is necessary about the functions of the IMF. I do not believe that it ought to be combined or absorbed within the World Bank. It ought not to become an organ of international aid. It ought not to create credit by the issuing of SDRs to less developed countries. That does not mean that I disagree with those objectives. I merely say that it is hard enough for the world monetary system to sustain itself with a reasonable stability of exchange rates, of payments between countries and of convertibility of the increasing number of currencies which are now used in international trade, without the IMF essentially taking on different functions from those which it was set up to perform.

One of the objectives is to encourage growth in world trade and economy. That function of the IMF is embodied in its duty to try to provide a stable and systematic base from which this growth can take place. I do not believe that it exists to offer soft loans, free SDRs, cheap credit or anything else by which those objectives can be forwarded. Those objectives are much better handled by specialist agencies, which in many cases already exist, but which in future will need to be added to in order to fulfil our responsibilities internationally. By "our responsibilities", I mean those of this country and of the industrial world as a wholethe—major members of the IMF.

As it stands, the IMF is not a world bank. It is a monetary fund, and it is basically concerned with the monetary system. It should remain so, but it will have to learn to react rather more quickly to changing conditions and events in the monetary sphere. I do not think that 1974 was a momentary aberration in an otherwise smooth pattern of international monetary and economic development. I think that in the last quarter of this century upheavals are likely to be as much the rule as the exception.

When the Bretton Woods Agreement was originally signed—the British Government had an important part in setting it up—and in the following 15 years it was permissible to believe that the regime of stable exchange rates and a sustainable level of economic growth was more or less a permanent feature which would go on indefinitely in future so long as everybody continued to behave as before, but, with the benefit of hindsight, we all know that was not how it turned out. Events have moved so fast that the shape and balance of the IMF has been changed in the process.

Many hon. Members have referred to the fact that the oil-producing countries now have a more substantial quota within the total. That is absolutely right within the context of today's IMF, but it leads me to wonder on what basis these quotas are calculated and whether, for example, the United Kingdom's share is likely to go on shrinking at a fairly rapid rate even though absolutely it may rise. An increase of 4.5 per cent. against an average of 32½ per cent. is a considerable decline in our relative status.

Are these quotas settled in relation to the volume of overseas trade of the country concerned? Are they settled in relation to the amount of international reserves held by the country concerned at any particular time? Are they affected by the extent to which the currency of the country concerned is or is not an international reserve or trading currency?

We have recently negotiated a facility of 3.9 billion SDRs from the IMF. That was made available to us because of the 45 per cent. temporary increase in January 1976 to the then quotas. Each country is allowed to draw 125 per cent. of its quota. On the basis of the new quotas, 125 per cent. would take us to about 3.6 billion SDRs. In theory, at least, it seems that we shall have a lower borrowing power from the IMF when the new quotas are adopted than we had under the temporary increase available on the previous quotas. That matter was not mentioned by the Financial Secretary. If that is the case, the Government should make it clear that the quotas now proposed would give us a lower credit limit with the Fund than has previously applied.

When is the second amendment to the articles of agreement of the IMF likely to become effective? The Bill paves the way for our fulfilling the quota part of this agreement. The articles cover a wide range. For example, they lay down in some detail the IMF's functions regarding surveillance of exchange rates. I am left in considerable doubt as to what is meant by that. According to the text of Article 4 the Fund will be able to ask for information and members will have to provide it. When the Fund requests, members will have to be ready to discuss their exchange rate policies and so on. I wonder how that will operate in practice. Does it mean that, sitting at the elbow of one of the directors of the Bank of England when this country has an IMF facility, there will be somebody saying "No, you had better not keep sterling at 1.71. We think that you are getting an unfair advantage for your exporters. The true international competitive rate for sterling is at least 1.80." Will there be a dialogue of that kind going on all the time?

These are not theoretical questions. They are extremely relevant and important. If that article means anything it means that there will be some active influence on the exchange rate policies pursued by members of the Fund. I should have thought that that influence would be directed towards those members who may have drawn on the Fund at any particular time, because it would be those countries in which the IMF for the time being had the greatest vested interest.

I have no doubt that it will take a good deal of time for the pattern to develop under the new articles. I do not expect a system to spring into being the moment that the articles are adopted. However, I think that we should be aware of what we are doing. We are proposing to support a Bill, part of which is due to change the relationship of this country with others in international monetary affairs.

We have a considerable influence on the way that those changes are made. It is true that this country has been one of the leading advocates for a reduction in the rôle of gold internationally. Very few would quarrel with that as a general principle, or with the way in which it has actually been achieved, but I for one would be sorry to see gold completely removed from the system. That is not because I have a special desire to hold a form of precious metal that has appealed to man over thousands of years. It is a fact that the IMF includes only a certain number of the major countries in the world. There are many who would not be able to stick a SDR in their pocket and flee a hostile regime. There is no doubt that other forms of international currency will remain important, and it would be unwise if the reduced r rôle of gold in the IMF were to be carried to the extent where it would be eliminated altogether.

The system of SDRs provides something that is much needed. It is interesting to note that the Government have chosen to denominate the foreign currency quota in ECGD in SDRs instead of dollars, units of account or whatever. I suspect that that is indicative of Govvernment thinking. I do not think that there will be any harm in that. We shall have to allow for adjusting the exchange rate. I think that it is about 14 shillings for a SDR at present, but, no doubt, that will change. If SDRs are to develop in importance we must recognise them for what they are. They are drawing rights, and they can be transferred. In that way they have a certain currency value, but they are not currency in themselves. I see that the Exchange Equalisation Account is allowed to acquire SDRs and that they can be transferred from one country to another, but they do not have all the classic ingredi- ents of an international currency. We are a long way from a situation where that would be so.

During the 1960s there was a long debate about the functions of SDRs and the question of whether we were talking about a shortage of liquidity or a shortage of credit. The general argument for increases in SDRs was that there was a shortage of world liquirity, but I do not think that that has ever been true in the past 10 or 15 years when this debate has taken place. I think that there has been an acute shortage of credit internationally. That has appeared, particularly with the less developed countries in the past three years. It has appeared in our own case and with some industrial countries whose balances of payments have gone badly out of kilter but I am doubtful whether this is a chronic or serious problem.

Finally, I add a word of caution. There is no intrinsic merit in merely multiplying the number of SDRs so that we can put a larger quota opposite the name of each country in the schedule. SDRs are related to contributions to the Fund, and just in the way that by printing money domestically we can create domestic inflation, I believe that by increasing the number of SDRs without an increase in the resources of real funds available to the IMF we shall be in danger of creating inflation internationally with all the greater dangers that that would have.

It has been useful that the House has had an opportunity in the context of this tripartite Bill to range over related problems. In a Second Reading debate that is fair enough, but what I doubt is whether, in dealing with the technicalities of a Bill of this sort, it is convenient to have the different technical problems all thrown together. Many of us have found it difficult in making our comments to be as skilful as my hon. Friend the Member for Hertfordshire, South in covering the ground yet not getting too bogged down in detail. I am sorry that I have detained the House for so long but I have found it impossible to deal with all the aspects of the Bill in a few moments.

7.46 p.m.

Mr. Nigel Forman (Carshalton)

I begin, as all speakers have done, by paying due tribute to my hon. Friend the Member for Hertfordshire, South (Mr. Parkinson) for his excellent speech in opening the debate for the Opposition. I think that all my hon. Friends wish to support the Government in giving the Bill a Second Reading. It seems in principle to be largely uncontentious.

The Bill is obviously the legislative outcome in Britain of the package of agreements reached in Jamaica in January 1976. In turn, those Jamaica agreements seem to be part of the necessary adjustment in international monetary relations following the gradual breakdown of the Bretton Woods system in 1971 to 1973, that in turn following the American decision in August 1971 to end the convertibility of the dollar, and the rise of the OPEC countries in both political and economic terms over the years 1973 to 1975. In my view, we are now legalising or codifying the various changes in the exchange rate adjustment process and the creation of new international liquidity that have taken place over recent years.

Clause 1 has been commented on by a number of those who have preceded me and I have only one comment to add. It seems that this part of the general adjustment in national quotas that has become necessary is to take account mainly of the increased wealth and power of oil producers and, at the same time, the claims of the developing countries to have a greater say in the IMF.

It is interesting that the new arrangements still leave the United Kingdom in second place with a voting power of 7.49 per cent., roughly a third of that of the United States where there is a GNP and a per capita income much more than three times greater than our own. However, the real anomalies appear when we look at the list of proposed quotas and the new rank order. There are the anomalies between Britain and our partners in the rest of the OECD, many of whom have long ago surpassed us in wealth and power. I am thinking especially of West Germany, which is to have only 5.52 per cent. of the quota although it is a country with more than twice Britain's share of world trade. Japan will have only 4.25 per cent. of the quota notwithstanding its enormous and growing wealth and power. France is to have 4.92 per cent.

The quotas of some of the OPEC countries have been quadrupled, as in the case of Saudia Arabia, trebled, as in the case of Iran, or doubled, as in the case of Venezuela and Nigeria. However, if we put all the OPEC quotas together we still find that they fall quite a long way short of a 15 per cent. blocking vote within the IMF. It is significant that, even after all these changes have been pushed through laboriously and with great difficulty, we still find that it is Uncle Sam who holds the whip hand on all the big decisions within the IMF. There is a moral there somewhere.

The adjustments that have taken place bring the voting power in the Fund more into line with modern realities but they still do not go far enough to bring Britain itself and the British Government up against the realities and dimensions of this country's world position. I wish that they did. I say to the hon. Member for Sheffield, Heeley (Mr. Hooley) that one of the reasons that it is good to have frequent revisions of the quotas is that it is sometimes easier to drag nations and Governments into international reality by taking two or three bites at the cherry. It is sometimes easier to achieve that objective by the process of grandmother's footsteps, so that every time the Government look around, they do not realise quite how far they have been brought towards reality.

Clause 2, which in many ways is the most interesting aspect of the Bill, enables the United Kingdom to give effect to the proposed second amendment to the IMF articles. Probably the most significant aspect of this part of the Bill is that all the leading countries involved, and notably the two main protagonists in this great international monetary debate over recent years—I refer to France and the United States—have recognised their basic economic interdependence and the need for co-operation rather than conflict in this sphere of their activities.

In the Jamaica package it could be said that all the major parties secured at least partial satisfaction in the eventual compromise that was reached. On the vexed question of gold, for example, it could be said that the French secured a partial victory by getting agreement in August 1975 to a review of the arrangements then agreed within two years to see whether to continue, modify or terminate those arrangements. Therefore, one could say that final demonetisation of gold has been postponed and could theoretically be postponed indefinitely.

On the question of exchange rate adjustments, I suppose that it could be said that the Americans were more successful in getting what they wanted in that the proposed new Article 4 serves to codify and legalise the present wide variety of exchange rate régimes applied by the different member countries while at the same time erecting that significant barrier, namely, the 85 per cent. majority, to which I alluded earlier, against the reintroduction of the par value system.

As for the claims of the developing countries themselves, it seems that the negotiations in this package went at least some way towards meeting their claims also, in that we have seen a modest increase in their voting power relative to that of the industrialised countries, an increase in the Fund's total resources to 39 billion SDRs, the easing of the rules on compensatory financing, and finally, the rather hopeful establishment—I believe—of a trust fund to provide loans on soft terms to the poorest developing countries. Those countries are defined, as I understand it, as those with a per capita income of below 300 SDRs.

Therefore, Clause 2 is quite significant. It goes to the heart of the Bill. It is a subject to which we shall want to return in Committee.

It seems that Clause 3 is supposed to reflect the wider rôle that is planned for the SDRs in international monetary arrangements and, by implication, I suppose for the IMF itself. However, I believe that it is still legitimate for us to be sceptical about what all this will mean in practice, and it will be wise to hold to our provisional conclusions that the IMF is still something of a paper tiger, no matter what Labour Members below the Gangway may sometimes imagine, at least concerning the control of international liquidity.

Obviously one welcomes the commitment, in Article 8(7) to the objective of promoting better international surveillance of international liquidity and to making the SDR the principal reserve asset in the international monetary system. However, I must say that I believe that, notwithstanding that pretension, we are quite a long way from making that objective a reality. After all, it is true to say that from December 1969 to June 1975 international liquidity rose by some $150 billion—from $80 billion to $230 billion—but that controlled money creation by international agreement amounted to only about one-tenth of that total. The rest was done by other means.

Therefore, the fact is that full inter national control over international liquidity will require something much more ambitious than we have yet seen in this agreement. I believe that it will require something akin to a universal agreement on the part of all the member States to swap their present reserve holdings of currencies and gold for SDRs, and I am sure that that particular day is quite a long way off.

I believe that the real breakthrough on international collaboration, which is touched upon in the Bill, seems to have come from the basic realisation on the part of all leading nations, and, indeed, on the part of the more conservative members of OPEC as well, that exchange rate stability is best preserved not primarily through intervention or exchange control but rather through stable and mutually reinforcing domestic policies. That is the realisation that lies behind the four key obligations set out in Article 4(1) of the proposed new articles of agreement, and these obligations, if they really mean something, will, I think, prove to be quite significant in guiding the spirit and the broad purposes of the forthcoming international discussions on how to deal with and manage the international economy to which my hon. Friend the Member for Hertfordshire, South referred.

It is the hope that lies behind the more optimistic statement, equally, on par values in section (4) of the same article, which looks forward to arrangements under which both members in surplus and members in deficit in their balance of payments take prompt, effective and symmetrical action to achieve adjustment". Once again, that underlines how the IMF is rather long on the statement of fine objectives and rather short on its real political capacity to carry those things out.

None the less, we should pay tribute to it for having at least identified the ideal objectives, even if it would take something akin to a real world to realise them. That day might be a long way off, but it bodes quite well for the cause of international co-operation that the member States themselves should be aware of and be prepared publicly to subscribe to such ambitious long-term objectives.

I turn briefly to Clause 4 and Schedule 1, the part of the Bill dealing with the ECGD, to make just a few layman's comments. It seems to me that to allow the changes that are suggested here is a move in a sensible direction, so long as one is convinced that export credits in this form are both unavoidable and worth while. There was an interesting leading article in the Financial Times towards the end of 1975 which concluded with the rather pertinent observation that, It is questionable how far it is worth doing this"— the "this" concerned improving the United Kingdom current balance of payments with more exports— by borrowing short and expensively to lend long and cheaply to anyone who will buy our goods. That must be the reservation in the minds of all of us about the apparent rapid and almost uncontrollable growth in export credit guarantees.

I know that it has been argued—as it has been argued by the Government Front Bench—that we must do this to get our share of certain product markets, for example, large plant contracts in many parts of the world, and, equally, to to improve our share of certain geographic markets, for example, Eastern Europe, which is often quoted, and the Soviet Union, and our share of the kind of turnkey jobs involved in the Middle East. I realise that this is a newball game in trading terms to what it was some years ago. Nevertheless, we need to question some of the principles behind it.

I sometimes wonder whether the whole export credit guarantees system is really little more than an elaborate, indirect and disguised way of subsidising exports, preserving jobs and giving financial help to British companies, for those two very worthwhile priority purposes, but in a way which appears more acceptable and less obvious to the British taxpayer. After all, if one can give potential customers credit on easy terms and thus encourage them to buy British goods, this is quite a crafty indirect way of supporting one's own domestic industries without necessarily incurring all the opprobrium of direct expensive hand- outs to those industries, which in other terms or circumstances might not be so desirable.

In any case, I should like the Minister tonight—or perhaps one of his colleagues later in Committee—to comment on the present position which, as I understand it, is that export credit terms at least within the EEC are now legally a matter for the Commission and not for national Governments. I want to know whether that is true and, if it is, how it fits into the general scheme of things under the Bill.

The Commonwealth Development Corporation is dealt with in Clauses 5, 6 and 7. I am sure that all of us in the House support the activities of the CDC and pay tribute to its achievements over many years. I should like to know, however, whether the extended borrowing proposed will fall within the scope of our present aid programme or whether it will in some way be additional to it. Furthermore, can the Minister give us some examples—this is pertinent, I believe, to Clause 7—of the sort of international development institutions to which a Minister would be able to make payments if the British Government entered into appropriate international agreements in the future? Are we thinking about the IDA and the World Bank, or are there some other institutions in mind which do not occur to me at the moment?

In general, I am sure that all of us on this side of the House wish to support the continued activities of the CDC, which, as I say, has been most successful and whose programme seems to be absolutely consistent with the whole drift of our aid policy—which even for its logic, if for no other reason, must be regarded as admirable. The emphasis on help for the poorest people in rural areas and the so-called renewable natural resource projects, which now, I believe, account for about 55 per cent. of total CDC investment, must be regarded as good.

I have one small personal reservation about the activities of the Commonwealth Development Corporation, and that is with reference to the Caribbean, an area which I know and have visited a little. I see that quite a bit of the money invested by the CDC has been going into tourism of one kind or another and into traditional cash crops, notably sugar, and one or two other things as well.

I wonder whether in islands such as Antigua or St. Lucia—which I have visited and where I have spoken to the people—that is necessarily the most appropriate form of investment for Britain to make at this time when the consequences of long-term steady investment in tourism in such small islands may often be to generate greater inflation than would otherwise occur, greater expectations and considerable social and other dislocation. These matters were referred to, if I recall aright, in one of the reports of the Select Committee on Overseas Aid.

Will the Minister consider that aspect of the matter? Might it not be better to put the money into straightforward food production instead? This would achieve two purposes: first, it would lead to considerable import savings for the countries concerned; and, second, it would enable them to compete for themselves and put them on a basis far more favourable than being dependent on cash crops, often monoculture cash crops, which, as we have seen in previous years, can fluctuate greatly in price in world markets.

On the whole, this must be regarded as a sound Bill which we shall all wish to support, although the many points which have been raised today and which will be raised in the winding-up speeches will have to be pursued further in Committee.

8.4 p.m.

Mr. Terence Higgins (Worthing)

This is an important composite Bill, and it is interesting to recall that back in July 1965, when a much narrower Bill concerned only with the increase in the quota was before the House, the then Chancellor of the Exchequer, now Prime Minister, thought it right to open the Second Reading debate. That is an interesting comparison to draw, since I suspect that the present Government are in danger of getting into a rut, saying to themselves "Here is an increase of IMF quotas and so on. It is jolly useful to have the IMF, because we can borrow from it; it is nice to have the CDC and expand export credits because we are not actually reaching any agreement with our competitors on what to do about it; and it is good to provide for overseas aid as well", but I suspect that a good deal of it is mere lip-service, and in fact the amount of overseas aid which we ought to provide is being cut.

It is important, therefore, that we have this opportunity to debate the measures now before us. I join with all those who have congratulated my hon. Friend the Member for Hertfordshire, South (Mr. Parkinson), who made the opening speech from the Opposition Front Bench. It is not practicable for me in a short speech to cover all the matters dealt with in the Bill, since it includes not only provisions relating to the CDC and overseas development but the ECGD and the IMF. I shall say a word or two on the export credit guarantee side, and then concentrate on the IMF, taking up some of the points made by my hon. Friend the Member for Hitchin (Mr. Stewart), for example, in his excellent speech.

First, on the question of export credits, I reinforce what has been said already and re-emphasise what I have said on many occasions in the past few years about the danger which I see in relation to export credit. The truth is that we are giving export credit on very favourable terms in response to competition from other developed countries in the OECD and elsewhere. In my view, this is a matter on which we ought to reach a general international agreement, but the Government have shown less enthusiasm than they should in seeking such an agreement, with the result that in many ways we are giving our resources away for a much lower return than we ought to achieve.

In this connection, I stress a point which has been made both today and previously but on which we have had no clear assurance from the Government. I refer to the extension of export credit to COMECON countries. We all recall how the right hon. Member for Huyton (Sir H. Wilson), when Prime Minister, came back from Russia and, with great publicity, told us that a tremendous deal had been arranged and explained how we should extend export credit to the Russians. We all know, however, what a fiasco that has proved to be and the extent to which Ministers have since reserved themselves to making speeches saying how sad it is that the Russians have not actually taken our exports.

At the same time, however, in many ways this is a fortunate state of affairs because, although I believe profoundly that we must keep our export credit terms competitive, I am certain that we ought to consider whether they are so favourable to those to whom we export that we are virtually giving goods away. I see great danger here. In fact, as I have said, the amount of exports we have made has not been all that great, but the overall amount of credit which has been extended by the industrialised countries of the OECD to the COME-CON countries is now terrifyingly large. I hope that the Minister will give us some up-to-date figures showing precisely what the position is.

In October last year, I gave some figures which suggested that the credit extended to the Soviet Union from the industrialised countries totalled about $60 million in 1959, $1,000 million in 1972 and $1,500 million in 1973. I understand that the figure now is even greater—a great deal more than the last figure which I have just given. I hope that the Minister will give us an up-to-date estimate of the total credit which is available and the amount of it which has been taken up.

The present situation is very dangerous, not least because most of the credit is being used—this certainly applies to our exports—on buying capital goods, and those capital goods are then used to produce consumer goods which are re-exported back to the West. Many of them, I believe, are being dumped on our market. The classic example is the textile industry. We have been exporting—this is explicitly mentioned in the deal agreed with the Russians—a great deal of textile machinery, but adequate action is not being taken against dumped exports from Communist countries. The precise extent to which this has happened is difficult to ascertain, but it was certainly the intention of the present Government that such an export of capital goods should take place, and I hope that the matter can be clarified in the context of the present Bill.

I shall now turn to some of the other important points which have been raised about the International Monetary Fund and to take up a point made by my hon. Friend the Member for Hitchin. We welcome the increase in resources which is created in the Bill in connection with the IMF. I was puzzled when the Chancellor of the Exchequer came to the House to make his statement about the $3.9 billion loan for the reason which my hon. Friend the Member for Hitchin has already mentioned. What is the maximum amount that we can obtain under the present arrangements which includes the 45 per cent. temporary increase?

It has been said that we are to draw down this credit loan over a period of two years, but it seems likely that the new quotas will be ratified by the end of this year. We are puzzled about how we can proceed if the limit is reduced in the middle of this year and we are still drawing against the original limit.

I failed to get an immediate answer from the Chancellor of the Exchequer at a recent Question Time, but he courteously wrote to me and said that as we have negotiated ahead of the ratification we are able to carry forward the extended temporary limit beyond the period that the articles ratify. That is an extraordinary situation and shows the extent to which the Government are extending their borrowing and that it is above the limit that would otherwise apply if they had not managed to get in in time.

Can the Minister say how many other countries will be in the same position as this country? It would be interesting to know. Our borrowing is vastly greater than that of any other country. How many other countries have made arrangements to draw over and above that which will apply when the quotas in the Bill are agreed?

Dr. Bray

It is possible to put another interpretation on the two-year period and to ask why we could not draw the $3.9 billion over one year and thus manage to achieve a higher rate of growth in our economy.

Mr. Higgins

That is a good question which I shall leave to the Minister to answer. It is not clear why it was not suggested.

Dr. Bray

I understand that the reason was that we wanted to but the IMF would not let us.

Mr. Higgins

I leave the Minister to respond to that.

The Government are borrowing up to the hilt on every occasion. That brings me to my next point. What is the precise exchange rate policy of the Government? That is of vital interest to exporters and others. The surveillance of the IMF will operate under the Bill. It would be helpful to know what is the Government's intention, because the official forecast rate of inflation in this country is 15 per cent.—a great deal higher than that in a number of countries. Is it the Government's intention to maintain a present parity or do they intend that the rate should fall if there is a difference in the rate of inflation between ourselves and our competitors?

I now turn to the more technical aspects of the matter. But first I ask the Minister to tell us why we are not to be given the details of the new arrangements until tomorrow. The Financial Secretary flannelled about this but he did not say why the Government have been so discourteous to the House, or why the debate could not have been delayed. I see no good reason for that.

Some of my hon. Friends and, indeed, the Financial Secretary, suggested that this was only the second set of amendments to the articles and that this reflected the good job which was done at Bretton Woods. But I have a nasty suspicion that it also reflects the difficulties involved in reaching international agreements. However well or badly the articles were drafted it has been difficult to get the reforms carried through.

We should pay tribute to the work which has been done by many people. In particular I want to stress that the momentum to these matters was first introduced by the present Lord Barber when he was Chancellor of the Exchequer in a speech to the IMF in 1971. He put forward proposals for reform which form the basis of our thinking on this subject. It was also carried forward by Sir Jeremy Morse in his work as Chairman of the Committee of 20. In a lecture to Reading University he said that the picture now was like a kaleidoscope and that floating around in it were the terms of the previous Bretton Woods system, the Committee of 20 proposals, amid bits and pieces of international monetary reform but it had not shaken down to a fixed parity. That is still the case but the Bill will carry us forward to some extent.

The details of the articles have been drafted with care, as were the original articles, by the legal staff of the Fund and it is right to pay tribute to their work and the difficult task which they have done. The main argument of whether we should have a system of fixed or floating rates is in limbo. It is not clear what the future holds. Sir Jeremy said that we are in: a recurring cycle of exchange rate regimes. A fixed rate system is established; in the course of time it becomes unstable; when it breaks there may be a brief period of free floating, but this soon gives way to a mixed system with a large element of flexibility; this proves to be unsatisfactory and when conditions permit a fixed rate system is restored. One should carry through major reforms of the system which can use either the fixed rate system or the floating rate system as a basis.

I welcome the changes in the Bill. I welcome the change made in the rôle of gold, not only for political reasons but because technically there is a lot to be said for changing to that system. Lord Barber said that we should move towards SDRs. We are still a long way from having SDRs as a main asset, but that is a situation towards which we will move. There is much to be said for a floating rate system rather than a fixed rate system as the basis for international monetary reform.

There is also the problem of credit rate control. If it were uncontrolled it would have an inflationary effect throughout the world, although the mechanism by which it pervades the system is complex. We should have an SDR system because it enables us to control liquidity. If we rely, as we have in the post-war period, on the United States deficit, which is of uncontrolled magnitude, the chance of avoiding inflationary pressures and political tension is less than would otherwise be the case.

There are still some issues which have not been resolved in the amended articles. The valuation of the SDR is still put in slightly vague terms. Much of that problem has yet to be resolved.

I know that my next question is a matter of particular concern to the Minister. Does he now see any possibility of linking the creation of SDRs to overseas aid, the so-called link which was very fashionable some years ago? I still think that it has considerable merits. Have the Government any thoughts on that subject?

I turn from the problem of liquidity creation and the control of liquidity creation to the more difficult question of the so-called adjustment mechanism and the way in which the various changes in currency rates can be used to adjust international flows. Here the Bill and the corresponding White Paper, Cmnd. 6705, on the Second Amendment to the Articles of Agreement of the IMF, have interesting things to say. My hon. Friend the Member for Carshalton (Mr. Forman) was right to ask for a precise explanation of what is meant by "Surveillance over exchange arrangements" set out on page 10 of the White Paper.

Perhaps I may put the matter in a specific context. I was horrified by the way in which the Bank of England and the Treasury appeared to manage the country's affairs the day the sterling rate went through $2 to the pound. I had always thought of that figure as a psychological barrier, rather like the four-minute mile. To cut interest rates on the day we went through a psychological barrier of that kind was very strange. If the IMF had been overseeing us then, the suspicion that we did it in order to make our exports more competitive might have been very strong. As it was, a number of countries expressed doubts. Precisely how does the Minister envisage the surveillance arrangement will work for the United Kingdom? I see that he laughs. I can understand that, for I expect that the exact content of the clause will require considerable elucidation. I am not saying that it is necessarily bad, but I should like to know how it works.

As I understand it, the clause does not apply simply to those in debt to the Fund but will apply equally to those countries with a strong reserve position and perhaps a strong balance of payments. Apparently, they will also have the surveillance imposed upon them by the IMF. I am far from clear that that will necessarily be a bad thing, but if the Government are asking us to approve the Bill, we want some idea of how they see it working in practice.

Dr. Bray

With the hon. Gentleman's experience in the Treasury, would he expect it even to tell the Foreign Office, let alone expect a Foreign Office Under-Secretary to tell the House?

Mr. Higgins

I am relying on the fact that there are serried ranks of people who may be listening to the debate and may in good time provide suitable written advice. I know that I may be disappointed, but it is right that the question should be posed, even if we do not receive the answers straight away, because the Government should not put before us White Papers saying that this or that will happen if they have no idea how.

I turn to an even more complex matter, the whole problem of what in the Bretton Woods system used to be called the scarce currency clause, the original arrangement intended to bring pressure to bear on those countries which were not operating in the way originally envisaged, preventing suitable movement of exchange rates to achieve an adjustment when their rate should be appreciating. I have always been strongly of the view that it would be a good thing to have an automatic mechanism to bring that about. Keynes thought that he had it, but, alas, he was mistaken. It did not work out that way. Over the years, there has been an asymmetry, with the pressure on debtor countries to put their house in order being a great deal better than the pressure on creditor countries to do so. That has tended to skew the whole international monetary system.

I believe that the practical, political difficulties of reaching agreement on this matter are immense. I should like to see an automatic system, because that would remove from officials and Ministers the problems of negotiating each case individually, with extraneous factors being brought into play to persuade the IMF not to take the requisite action.

However, I think that the present proposals will do something to help get creditor countries to take suitable remedial action. This is not only a question of designation, so-called, but also a proposal that the Fund may issue a report setting forth the cause of the scarcity and containing recommendations designed to bring it to an end. A representative of the member whose currency is involved shall participate in the preparation of the report. I hope that the Under-Secretary will give some indication of how effective and determined he believes the IMF will be in applying that provision, because it is essential that we should bring into the system a degree of symmetry which has not been easily achieved.

These are all highly technical matters, but I think that we have been right to take up a number of them in this debate, and I hope that we shall receive an adequate reply. I should like to end by quoting from the speech of the present Lord Barber to the IMF in 1971, when he put forward the plans which have in many ways formed a basis for subsequent discussion, although by no means all have been implemented. He said: To the outside world our discussions here this week must often seem theoretical and esoteric". The same is true probably of our discussions this afternoon. yet there is a great responsibility upon us. For we know that our decisions vitally affect the employment and the well-being, the hardship or the prosperity, the happiness or the misery, of millions of people throughout the world. If I were to say that our decisions are a matter of life and death it might seem to some of my colleagues from the developed countries of the western world a mere cliche. To my colleagues from the Third World the life and the death are only too apparent. We must succeed. We are succeeding only very slowly in reforming the international monetary system, but I believe that we are now making some progress. There are still great technical problems to be overcome, but it is right that we should approve the Bill, which goes some way towards alleviating the problems and is not just a technical exercise but is something that will have an immense effect on the lives of people throughout the world.

8.30 p.m.

Mr. Tim Renton (Mid-Sussex)

I start with an apology and a tribute. The apology is to hon. Members for the fact that I had to be out of the Chamber for two hours this afternoon as I told Mr. Speaker earlier. I am sorry that I missed some of the earlier speeches.

The tribute is to my hon. Friend the Member for Hertfordshire, South (Mr. Parkinson) for the expert way in which he steered us through this trinity of a Bill. Trinities are believed in by many people but are understood by very few. My hon. Friend showed that he had mastered this trinity and has a great understanding of it. He showed, too, that he had astonishing expertise in pronouncing the letters "ECGD". I am sure you will agree, Mr. Deputy Speaker, that those words are rather a tongue-twister and that if one tries to say them fast after midnight one is apt to get them muddled up. But in the case of my hon. Friend the Member for Hertfordshire, South they tripped off his tongue as to the manner born.

I wish to congratulate the ECGD on the remarkable way its business has grown over the past two years and the way it has successfully, although as yet modestly, introduced a number of important new policies. I am also delighted to see that the new form of presentation of the ECGD's trading accounts shows its results much more clearly than did the old accounts. I am particularly pleased to see that the ECGD is still in profit although it is not such a large profit as the year before. It is, however, still a reasonable outturn for the year 1975–76

The Bill marks an important enhancement of the powers of the ECGD, not only in the additional limits but also in the foreign exchange insurance which it will now offer to exporters and merchants. This is a counterpart to the action of the Chancellor of the Exchequer in December in withdrawing permission for exporters to finance trade between third countries in sterling. It had to follow from that that the ECGD would provide foreign exchange cover for such transactions to exporters from this country, and, indeed, to all their exports if they so wished. This is an important enhancement of the ECGD's powers.

While shippers and exporters will now have the foreign exchange risk removed from their shoulders, it follows that the United Kingdom as a whole will be carrying a considerably greater volume of foreign exchange risk. Can the Minister quantify the extent of this risk and say how he proposes to deal with it? There is a further point of detail which I would like to have answered. I understand that in the gentleman's agreement reached last year an interest rate of between 7½ per cent. and 8½ per cent. for over two years' credit was generally agreed by the major exporting nations. This is very much in line with the current Eurodollar borrowing rate and, therefore, I understand that the need for what is technically called interest mark-up from the ECGD will largely disappear on contracts that are insured and covered in foreign exchange, because effectively the shipper will be able to borrow from his bank at approximately the 7½ per cent. to 8½ per cent. rate which ECGD has agreed with other nations as appropriate.

Is it not the case that the interest rate for the large Russian line of credit to which my hon. Friend the Member for Blackpool, South (Mr. Blaker) often refers is substantially below the 7½ per cent. to 8½ per cent. tranche? Does not that mean that the Government are breaking the gentleman's agreement to which they were a party last year by maintaining a lower Russian interest rate? The Under-Secretary of State for Trade shakes his head. I am glad he has done so, because so far we have been unable to find out what is the interest rate on the Russian line of credit. We would not need to ask these questions if the Under-Secretary would stand up and clear his chest on these matters. The hon. Gentleman remains silent.

There is little left for me to say about the IMF after the extremely comprehensive speeches of my hon. Friends the Members for Worthing (Mr. Higgins) and Hitchin (Mr. Stewart). I take advantage of the suggestion of the hon. Member for Sheffield, Heeley (Mr. Hooley) to broaden the remainder of my remarks to the rôle of official and private aid from this country. The CDC brief is a wide one and my remarks will come properly within the consideration of the additional borrowing powers being given to it under the Bill. My hon. Friend the Member for Hertfordshire, South rightly said that our drawings from the IMF decreased the resources available to the rest of the world, notably the less-developed countries. It is worth remembering that the OPEC decision reached on 17th December to put up oil prices by between 5 per cent. and 10 per cent. placed an extra burden of about £900 million on the balance of payments of the less-developed countries.

It is appropriate when we are discussing, international finance, trade and aid—which is the title of the Bill—to consider for a moment what this country's contribution to aid now is and to consider that in the light of remarks made by Mr. Robert McNamara at the World Bank meeting at Manila in October. He drew attention to the widening gap between developed and less-developed countries and to the fact that the rich were getting richer and the poor poorer. He particularly drew attention to the 750 million people in the world whose income is less than $100 a year and who, in his definition, live in absolute poverty. He went on to describe absolute poverty as an infant mortality rate eight times higher than in the developed countries, a life expectancy one-third lower, an adult literacy rate 60 times less, a nutritional level for one in two of the population below minimum acceptable standards, and for millions of infants less protein than is sufficient to permit optimum development of the brain. He pointed out also that not only did these 750 million people have an income of less than $100 a year but they had little promise of more than a $2-a-year increase in their income over the next decade.

Measured against such facts, we have to consider that our contribution to official aid in 1975 worked out at only 11 p per head of our population per week. Yet in that year we drank £1.35 per week, or about 13 times the amount of official aid, and smoked 77p a week. So we burn, literally, in nicotine seven times that which we are giving in contribution in official aid to the poorest countries.

Eleanor Roosevelt once said that no one could make one feel inferior without one's consent. I wonder whether the inhabitants of those poorest countries who are aware that official aid from virtually every rich nation is being reduced feel that they are being made more inferior with their own consent.

It is not for me, who have been strident in calling for cuts in public expenditure, to criticise the particular cuts in overseas aid that the Government have made. We cannot have sacred cows—"bullocks" would he the more appropriate word this week—in public expenditure, because we all have our own particular animal, be it education, housing, schools or official aid, that we would like to preserve. Clearly public expenditure has to be cut, and if that is the case the cuts must fall across the broadest possible spectrum in order to be effective.

Against that background of falling official aid, however, it is worth while to consider that increased aid not only is productive of increased trade for the donor country but has the benefit of helping manufactured exports to the recipient country. I go further and suggest a few specific problems and solutions that we should be looking at in 1977, when the whole question of the conflict between North and South, between the less-developed countries and the developed countries, is so much at issue. First, there is the common fund for commodity stabilisation. The Financial Secretary was extraordinarily evasive in answering my questions on it. I hope that the Minister who replies, who I am sure has the problem well on board, will be able to tell us how the Government's thinking is developing about the fund. Negotiations are to recommence in March, and I still have an open mind about it. Many questions remain to be answered. Is it really cheaper than 15 or 16 individual commodity agreements? Is it wise to tie up $6 billion—the estimated cost—in this common fund? Could not those dollars be better used in more direct aid to some of the poorest countries? Clearly, in any common fund there will be a great deal of conflicting national interest as to how it is to be used.

I should declare my interest as a member of the London Metal Exchange. As such, I am very concerned that at the moment one of the most successful commodity stabilisation arrangements—the tin buffer stock—is creaking at the seams. Bolivia has refused to sign the sixth extension of the tin agreement because it is a very high-cost producer and does not wish to sign unless all the price support levels are raised. That is typical of the individual commodity agreements that are in existence at the moment—conflicting national interests often take over.

Against that background, one wonders how a complicated agreement embracing 16 commodities can possibly ever work. None the less, accepting that these are valid difficulties, as a friend of mine from the World Development Movement said the other day the common fund is at the moment the only game in town that shows signs of getting agreement between the developed countries and the less developed countries. The argument which flows from that is that only if the common fund is agreed to will there be the impetus to make further individual stabilisation arrangements.

I hope that the Government, who made an appalling hash of the negotiations at UNCTAD in Nairobi last year, will be considering possible solutions to the common fund. It would be a pity if they went into this year's conference in the same state of unpreparedness as was revealed in Nairobi last May.

Secondly, I hope that both sides of the House will give thought to Dr. Kissinger's proposition about an International Resources Bank. I should like to see some flesh put on to the bones of that idea so that we can see whether the suggestion of an International Resources Bank, as an ancilliary of the IMF rather than the World Bank, should be pursued as a means of helping developed countries and developing countries to work together to develop mineral and raw material sources in the less developed countries.

I can understand that the old type of arrangement—under which the equity interest of a mine in, let us say, Indonesia always remained in the hands of the European nation—is no longer satisfactory. It is no longer possible to have that sort of arrangement for mineral exploration. We must therefore look for means by which, perhaps once the loans have been paid off, the equity in the mine returns to the host country over a period of years. That would ensure that while the original mining company and the original nation providing the capital get their loans back—and a fair return on their money—the equity would go back to the host country.

It is that sort of proposition that I am sure the International Resources Bank would look at. It needs to be examined, otherwise in five or 10 years' time we shall have a great shortage of raw materials and minerals in the Western world, because mining exploration opportunities are simply not being looked for in the less developed countries at present.

Thirdly, I believe that we must consider means of exporting technology for the further processing of their raw materials to the less developed countries. Finally, we must increase our attempts to help young people, trained scientists, engineers and agronomists, once they have left university, to take a worthwhile job in the less developed countries for a period of years.

That would be worth while not only for the young people themselves, because of the experience they would gain, but also for the developing country itself. Our efforts in this respect do not have the impetus that they should have. Perhaps the Minister can comment on whether this is because it is an area that falls between three stools—between the Ministry of Overseas Development, the British Council and the CDC.

I note from the official statistics that the number of people working overseas financed by the ODM has, in the case of those partly financed, fallen substantially from 14,000 in 1970 to only 8,000 in 1975. The number of volunteers reported on in these statistics has remained static in those years at about 2,000. That does not seem a great many.

In the director general's introduction to the last report of the British Council, he hints that there could be better participation by private firms and by Ministries in working together to help young people to go from this country to take part in education, agriculture and public health work in the less developed countries. There is an implication in the report that there is not as much co-operation between Ministries as there could be. I hope, therefore, that this is an area that the Government will look at closely. It is not expensive in terms of public funds, and it would fulfil a crying need to provide education for the young who have been trained here and to help them do a worthwhile job overseas.

The problem of diminishing aid is one of which every Western country is guilty at the moment. None is doing well. To solve the problem, there is a need not for long-sounding titles about new economic organisations but for good will and courage. Above all it is people themselves, especially young people, who will show the good will and courage from which in the end we can start to aim towards some of the goals that Mr. McNamara suggested in his World Bank speech.

8.46 p.m.

Mr. Peter Hordern (Horsham and Crawley)

This has been a most interesting debate upon a complex and sometimes very technical Bill. As my hon. Friend the Member for Hertfordshire, South (Mr. Parkinson) said in his enlivening maiden speech from the Opposition Dispatch Box, it is really three Bills in one, and that factor has made consideration of the Bill extremely difficult. My hon. Friend the Member for Worthing (Mr. Higgins) pointed out that when we last debated these matters in 1965 the Chancellor of the Exchequer opened the debate. Then we had one Bill for the price of one Chancellor of the Exchequer. Today, we have three Bills for the price of a Financial Secretary. We do not seem to have come out of this very well

The hon. Member for Motherwell and Wishaw (Dr. Bray) spoke of the need to change the IMF rules. The hon. Gentleman may not appreciate this fully, but the trouble is that on the whole banks do not generally adjust their rules to the policies of their debtors. It is usually the other way round.

The right hon. Member for Lanark (Mrs. Hart) said that the Kissinger proposals for aid that were produced at Nairobi had turned out to be unacceptable. This seems to be the fate of Dr. Kissinger's latest proposals, and I am sorry that that is the case. But a discussion of the rôle of the IMF has been a feature of previous IMF Bills, and it has generally allowed the debate to range widely over the pet solutions of hon. Members for the reform of international currency arrangements and those for gold. It is very unwise to make any prediction about the future in these debates, and I shall avoid the temptation. But I cannot help reminding the House of two predictions made from the respective Dispatch Boxes in the debate on 28th June 1968. I refer first of all to the speech of my right hon. Friend the Member for Wanstead and Woodford (Mr. Jenkin) who said: I refer here to my own experience of talking to many American bankers. In the course of the last two or three months I have spent five weeks in the United States doing almost nothing but talking to American bankers. I have come away profoundly convinced that it is a firm political and psychological fact that the Americans will not do that. There is a firmly held conviction that to revalue gold at this juncture would be tantamount to a surrender. These are not public utterances of politicians which must be taken at their appropriate value. These are the privately expressed opinions of bankers. The second reason why it would be wrong to pin one's faith on this is that the consequence would be irrational."—[Official Report, 28th June, 1968; Vol. 767, c. 1015.] He was immediately followed by the Chancellor of the Duchy of Lancaster who said: The main effect of a doubling of the price of gold would be to increase world reserves and liquidity in a spectacular, unorganised and often irrelevant way."—[Official Report, 28th June, 1968; Vol. 767, c. 1025.] Well, it was spectacular, it was unorganised, but it certainly was not irrelevant. We have it with us today. It has been a chastening experience to look back on our previous debates. No one could possibly have forecast the events that have occurred.

The last time we discussed this, in 1968, we had the categorical statement that fixed exchange rates were here to stay and that the United States would never allow the price of gold to be increased. This Bill represents a belated coming to terms with reality. There is now no fixed exchange rate and there is no fixed price for gold. Instead we have exchange rates which will not be fixed unless a large majority are in favour—about 85 per cent. majority is needed in order to obtain a fixed rate règime once more. We now have special rules in Article 4 covering the exchange arrangements, a point which was made by my hon. Friends the Members for Hitchin (Mr. Stewart) and Worthing. I ask the Minister winding up to reply to this point about Article 4(1)(iii) which says: In particular each member shall avoid manipulating exchange rates or the international monetary system in order to prevent effective balance of payments adjustment or to gain an unfair competitive advantage over other members. As my hon. Friends rightly mentioned, in section (3) there are arrangements for surveillance over exchange rates. I ask the Minister how the Government can sign these articles in the light of the present exchange rate policy which is being pursued by the Bank of England under the authority of the Government. He must know that the rate of exchange is being held down at present and a large inflow of money is coming into this country. Are these articles meant to mean what they say? If so, what is meant by surveillance? I understood that the arrangement was that regular information must be given to the IMF about exchange rate policy and the mechanics of that policy. I can only assume that the IMF is not being told what is happening.

Another point was raised about the prospect of European monetary union. That seemed to many in this House to be a great prospect, but now it seems to have withered away completely. Under the present règime and the IMF arrangements in the Bill there is no early prospect of European monetary union.

The hon. Member for Sheffield, Heeley (Mr. Hooley) was the only Member to mention the rôle of gold. However, it is a most important factor. Of course the Americans never liked it and for a long time the dollar was the reserve currency. But gold was written into the original Bretton Woods Agreement and it now is being written out.

As I understand the arrangements, the IMF is to restore one-sixth of its gold—that is 25 million oz—to countries in accordance with their quotas. As the Minister knows, our quota is rather a large one. Have we agreed to buy this gold? If so, how much? To what proportion? How will our reserves be made up; in what proportion as to gold and SDRs? I hope that the Minister will be able to answer these important questions.

The remaining one-sixth of the gold sales will go to a special fund for developing countries. So far there have been five sales of gold and they all appear to have gone off quite well. I understand that there is some feeling that for the sake of developing countries these gold sales may be held more regularly than at present. It has been suggested that they might be held as regularly as once a month. Perhaps the Minister will comment on that, too.

There seems to be quite a healthy appetite for gold, despite official discouragement. About $320 million has now been raised for the trust fund for developing countries. I agree with my hon. Friend the Member for Mid-Sussex (Mr. Renton) that it is not nearly enough to help materially a deficit on a current account of $31 billion for the developing countries last year.

In Manila, Mr. McNamara, President of the World Bank, said that the poorest nations, excluding the oil exporters, would have a total medium and long-term debt of $49 billion in 1980, and my hon. Friends the Members for Gosport (Mr. Viggers) and Mid-Sussex made this point. Mr. McNamara also said that the resources of the IDA would come to an end by 1st July this year without the fifth replenishment—that is to say 900 million people are now in absolute poverty in the developing countries.

Mr. McNamara hoped that the fifth replenishment might amount to $9 billion. As my hon. Friend the Member for Worthing asked, what about the common fund for commodities? Is it of the order of $6 billion? What is the news about that? I am sure that the Minister will be able to tell us. Here we are talking about a $9 billion replenishment for the IDA in July—the fifth replenishment—yet this country has borrowed more than that since March 1974, since this Government came to power.

I do not think, therefore, that the rôle of gold will be diminished as a result of the action of Governments or as a result of the IMF. The value of gold will be just what the creditor countries attach to it. If I had to make a prediction, in spite of all that I have said about past predictions, it would be that gold will have a long and flourishing existence ahead of it and that its value will tend to be greater the more that SDRs are created.

That is not to say that it will achieve much official recognition. There have been too many alarms and upsets in recent years for there to be much confidence in any artificial SDR system. Of course, that system will have to do for the time being, but I do not think that this arrangement that we are debating will be a permanent one, and nor do I think that it will be left unmodified. I dare say—and I hope—that it will be substantially improved. For the moment, however, SDRs seem to be the best system we have of SDRs.

Since 1945 the quotas in the IMF have been increased three times—in 1959, 1965 and 1970.

Dr. Bray

Is the purport of the hon. Gentleman's remarks that the Opposition now support a return to the gold standard?

Mr. Hordern

The hon. Gentleman quite misunderstands me. I do not think that there is any prospect of a return to the gold standard. I am saying two things; gold will not decline in value as a commodity and the SDR is not the final solution to the problems of international currency. I am sure that the hon. Member for Motherwell and Wishaw will agree. I do not think that it is necessary to have perfect faith in SDR or to proclaim it. If one read past debates in the House one would find predictions of what would happen with a system of SDRs, but that would not be a happy experience.

Dr. Bray

The hon. Member appears to be saying that although everyone accepts that the SDR system will evolve, the system is unsatisfactory. His remarks appeared to build up the rôle of gold. It sounds as though the Opposition are inching towards a return to the gold standards.

Mr. Hordern

I have spoken before in these debates and I have always held that gold will have an increasing value because no man-made paper system can for ever attract and command the confidence of the whole world. But I am sure that the SDR system is the only one that is possible in present circumstances. I see no hope of the use of gold as international exchange, much though I might personally wish it. I go so far as to say that.

But, speaking as Opposition spokesman tonight, I agree that there is no prospect of going to gold and I have confidence in the SDR system. It is not perfect and we shall find improvements to make in it as time goes on.

There can be no doubt that the present arrangements—and we have had three reviews during the last 12 years—will be insufficient. Perhaps the Minister will tell us when the next round of increases of SDRs will take place. I know that it will be within his compass to do so. It seems that neither the United States nor West Germany favours substantial increases in SDRs, but the rest of the world does. That was the point of the remarks that I was making earlier in which the hon. Member for Motherwell and Wishaw was so interested.

This will not be the final arrangement and I am sure that we shall be asked for increases in SDRs before much longer. Unless quotas are increased, it seems that there will be substantial and intolerable strains on the present Eurocurrency market. The market has done its own recycling from the oil surplus countries very well. It successfully recycled $40 billion last year. In the banking system there has not been, as predicted, a problem of liquidity but of credit, particularly with countries such as Brazil and Mexico and, to the extent that the IMF may relieve the strain now borne by the banking system, an increase in the quotas is to be welcomed. I hope that will satisfy the hon. Member for Motherwell and Wishaw.

In practice, there has been no need for an official safety net. The Eurocurrency market has taken the strain remarkably well, but what is now required is for the OPEC countries to take their proper share of the new quotas. A banking system cannot be expected to support the imbalance between the rich and poor countries. As much as 40 per cent. of the European currency business has recently been concerned with either developing non-oil countries or the COMECON countries, whose major demands on the market have been considerable and growing.

No banking system wants to be too involved with persistent debtor countries and it is wrong that it should be. The banking system can decline to get involved, although that ignores the extent of existing commitments to countries with seemingly permanent balance of payments problems. It would be foolish not to take into account the effect of a major failure in the banking system. That is why it is right to enlarge the quotas of the IMF.

That is also why the OPEC countries should take up a share appropriate to their resources. The present position is absurd. Our quota is to go to 2,925 million SDRs, while Iran's will be 660 million, Saudi Arabia's 600 million, and Kuwait's 235 million. Our quota is nearly double that of the three major oil producers. What can be the sense in that?

It is a far cry from 1945 when we had a quota of $1,300 million compared with quotas for the United States of $2,750 million and France of $450 million. Now we are to have 2,925 million SDRs against the 8,405 million of the United States, France's 1,900 million and West Germany's 2,100 million.

Of course our figure greatly overstates our position relative to France and Germany, let alone to the OPEC countries. It is a reflection of our present weakness that, while there is a general increase of more than 30 per cent., our quota has increased by only 4½ per cent. There should have been a cut in our quota if our real position was to be recognised, but it is just as well that there was no cut, because if there had been, the Government would not have been able to carry out the enormous borrowings which they have inflicted upon the country.

The Government have borrowed so much that it is difficult to keep track of it all. What is the latest score? I make it £6.8 billion since 1st March 1975, but I am sure that the Minister will have the figure at his fingertips.

In December the Chancellor of the Exchequer wrote the second Letter of Intent to the IMF and the Group of 10 had to meet especially to authorise the extra currency required for the standby of 3,360 million SDRs—that is $3.9 billion available over two years. In addition, we have the $500 million swap from the United States Treasury and the $350 million swap from West Germany as well as the $3 billion as a special standby to fund the official sterling balances. Only last week we had a new currency loan of $1.5 billion. No one has said what that is for, but I guess that it must be to allow the private sterling balance holders to withdraw money at will and to have some sort of facility available if they so wish.

There has been a considerable flow of funds into this country in the last few weeks attracted by exceptionally high rates of interest. It is extraordinary that in this period the Government should have been pursuing a policy of overseas aid to Swiss bankers. They have been allowed to withdraw money at any time and have seen here enormous rates of interest compared with other countries. I do not know how much they have made, but it must be many millions of pounds. It is fitting that in a Bill that deals with international aid and trade we should be discussing international aid to Swiss banks, though this would hardly appear in the Bill's Long Title.

Mr. Viggers

The Government appear to have sold £7,000 million of gilts at an interest rate of about 15 per cent. and then cut the interest rate. Can my hon. Friend comment on the competence of that exercise?

Mr. Hordern

I am afraid that I am not consulted on these matters, so I cannot give my hon. Friend a proper answer. It was as plain as a pikestaff that interest rates in this country would be very attractive after the IMF arrangements were concluded. So it has proved and it has meant that the Government have had to finance at very high rates of interest a substantial flow of funds into this country.

Of course, we made the largest ever single borrowing from the IMF. It is the same with every Labour Government in this country. There is literally no end to it. There is no interest rate that they will not pay. Apparently, there is nothing that they will not sell—even BP.

The Chancellor barges in through the front door borrowing directly, and sends the nationalised industries, the local authorities, and even the water boards, round to the back door. Whenever there is a Labour Government in this country the cry goes out round the world "Bankers of the world unite. We have nothing to lose but our cash." The Government have given a new meaning to the Socialist idea of the outstretched hand of friendship. It is the outstretched palm.

I do not think that developing countries can possibly regard what is going on with much admiration. So much of their debt is interest. When they see vast sums of money being appropriated by Britain, they must wonder how genuine we are in trying to help the Third World. There is a great deal of aid to the Third World. There are ample soft loans.

But soft loans are not confined to the Third World. A considerable part of the trade between the developed countries is carried out by soft loans as well. What are export credits if they are not soft loans? What are the special credits, such as the one between Russia and Britain, worth £900 million to which my right hon. Friend the Member for Chipping Barnet (Mr. Maudling), my hon Friend the Member for Worthing and others have referred? What is the justification, moral or practical, for giving preferential treatment to Russia rather than to the developing countries?

The Under-Secretary of State for Trade (Mr. Michael Meacher)

Give it to them both.

Mr. Hordern

The Minister suggests giving it to both. There is a good reason for it. It is the policy of mutual attraction. The Russians also borrow a great deal of money. They have managed to borrow even more money than we have borrowed on the Euro-currency markets, and that takes some doing.

Under both GATT and IMF rules, import restraints are regarded as contrary to the interests of free trade. But where lies the difference between a tariff barrier on imports and a subsidy on exports? What is the difference between making importers pay a fine for bringing their goods to this country and charging our people more and making them pay a fine for exporting our goods to other countries?

It can be argued that export credits are virtually universal and that we should be foolish not to use what our competitors use. That may be so. But we should exert as much influence as we can to obtain multilateral disarmament in export credits. Otherwise the whole concept of free trade is but a mockery.

We seem to discover new twists and variations of the theme of export credits the whole time—for example, the costescalation system and the system of performance bonds, which have been mentioned, and the clause which deals with the national interest. We shall examine these systems more closely in Committee.

I should like to know how many contracts have been concluded using the cost-escalation system. I think that there have been two. Perhaps the Minister will tell us when he replies to the debate. There was an estimate of £7.8 million for 1977–78 in last year's public expenditure White Paper which was supposed to tail off to £1 million in the following and £2 million the year after that. How long is that cost-escalation system now supposed to last? What representations have the Government received from the EEC and GATT about it?

I understand that the European Court has decided that export credit terms between European countries are a matter for the Commission. That point was made during the debate. Therefore, what representations have the Government received and how long is this cost-escalation system likely to last? Exporters would like to know.

Exports covered by export credits have soared. They rose last year by nearly 30 per cent. The reason for the export credit part of the Bill is that the level of public expenditure tied up in these credits has become far too large. We have not got detailed estimates for this year, but I believe that the cost to the Exchequer of the interest rates subsidy alone was £400 million. I am glad that the Chief Secretary is present, because he will know exactly what the level was. Perhaps the Minister will tell us what it was.

The estimate in last year's public expenditure White Paper was £337 million for the current year, £394 million for the following year and £454 million for the year after that. That is for the interest charge alone. I believe that I am right in saying that that is only one side of the equation. We must also take into account the cost of the refinancing of the fixed rate export credit. That may amount to a great deal more money. It might represent as much as £500 million.

It is important that the Minister gives us the figures when he replies. We want to know what the cost of export credits has been for 1976–77 and what it is likely to be during the course of 1977–78. I ask these questions because the Bill provides for the most formidable increases in export credit cover.

Schedule 1 indicates that the present sterling limit of £21.2 billion may be increased at once to £25 billion and that that sum may itself be increased by £5 billion three times. That is a total of £40 billion. If a cost of £900 million is being incurred, I should like to know how much more we shall have to provide on the new limits partly through subsidising the interest rate and partly through subsidising existing credits that have to be refinanced as they fall in. If that is what we are spending now on public sector expenditure, what shall we spend as export credit trade expands? How much more sterling will be involved?

Nobody knows the answer to that question because it depends entirely on the difference between our interest rates and those of other countries. That is the cause of the problem. That is what has helped to make public expenditure accounts so large. I refer to the difference between our long-term interest rates and those that apply in other countries. In the United States the long-term interest rate is now 6.7 per cent. In Germany it is 6.9 per cent., in Japan it is 8.6 per cent. while in the United Kingdom it is 13.1 per cent. My hon. Friend the Member for Mid-Sussex said that there was a gentlemen's agreement about allowing a 7½ per cent. or 8 per cent. rate to be mutually agreed. That is exactly what the average rate of long-term industrial rates is in other countries apart from the United Kingdom.

We must recognise that the cost of our public expenditure is likely to continue so long as the high rates of interest continue. That is another reason for reducing the rate of interest as quickly as possible and not merely thinking of attracting funds from other countries as rapidly as possible. From every point of view it is essential to reduce our interest rates as soon as we can.

Why are we increasing sterling limits if the cost of export credits is scheduled to go down? We were told by the Chancellor in his December statement that there was to be a saving of £100 million in the public expenditure cost of export credits in 1977–78 and £200 million in 1978–79, but nobody is suggesting that the level of support funded by ECGD will decline. No one is suggesting that, yet the public expenditure element is due to decline. Is it suggested that the rate of interest will decline so markedly that the public expenditure element will not be so expensive? I see that the Minister is shaking his head. Indeed, I do not think that that is suggested. I think this is why the new system of the SDR element is in the Bill. Indeed, that must be so.

I turn to a new item in the Bill namely, the terms of the SDRs. There are to be 10 billion SDRs with three separate tranches of 5 billion each. I believe the position is that Treasury consent has to be obtained when each of the tranches of SDR is applied for. When has there ever been such a large contingent liability? Certainly this must be a matter for the Public Accounts Committee to examine.

The potential liability is quite enormous. Last year developing countries other than oil-producing countries took nearly 30 per cent. of our ECGD business. The COMECON countries took 12 per cent. What we are doing is borrowing short and expensively to lend long to countries with existing enormous if not paralysing debt to the tune of some 10 billion SDRs if the new quotas are fully taken up.

Therefore, what we are doing is transferring a potential sterling liability into a potential foreign currency liability of quite stupefying proportions. It is no good saying that it will not happen. We have no idea what will happen in these countries. Many of these contracts, of which many of my hon. Friends have experience, take place over a long period. Some of the turn-key contracts take as long as 10 years. I do not believe that there is any market in operation at present in Eurocurrencies for longer than five years, so that is the only time that can be insured. There is a risk.

Furthermore, financing Eurocurrency loans is much more expensive than financing sterling loans. I believe that the rate of financing Eurocurrency loans is½ per cent. more per annum over the life of the loan. It is much more expensive than the present rate.

It is said that all this is designed to save public expenditure. No one is keener on that than those on the Opposition side of the House, but surely it would have been better to cut other public expenditure and to follow the policy that we have sought to present to the Government of reducing all interest rates. We should not then have had to create these liabilities to anything like the extent to which they appear in the Bill.

I have not so far mentioned the CDC provisions in the Bill. But, I would give them a warm welcome. It is true that there is a substantial increase in the borrowing limits, from £260 million to £570 million. Many hon. Members must have come across the good work that the CDC does in various parts of the world, as I came across it in Mauritius last summer when I saw the work of the housing corporation there and understood that that was financed by the CDC. That is just the sort of grass roots development that should surely be encouraged in our overseas aid programme, and I am very glad to see how successful it has been. It is quite right, therefore, to write off the old interest loan and the old capital position, which amounts to £26 million altogether, because it has been held in a special account and no one really expected it to remain there for ever. The Chief Secretary came to terms with reality—no one is quicker than he is in doing that—and he struck it off the books.

Yet how does it look when one compares the increased use of sterling for this development and the CDC with forbidding our banks to finance trade between different countries? That is the extraordinary thing. We are allowing much more sterling to be used for the CDC but disallowing it for financing genuine trade between third parties.

As I say, there are too many things in the Bill, and too many things upon which we have to comment, and very many more questions will be put to the Government in Committee. All these matters are important and should have been separately dealt with. However, we look forward to hearing what the Minister has to say on these most important questions about SDRs, the rôle of the IMF and the rôle of gold and many other matters.

9.23 p.m.

The Parliamentary Secretary to the Ministry of Overseas Development (Mr. John Tomlinson)

There have been few participants in the debate, but I think that everyone present during the afternoon would agree that we have had a stimulating, very wide-ranging and very informed debate. Never have so many people solicited my views on so many issues before. I say in advance that if there are particular points that I overlook, perhaps that will have been at the end of a speech in which I tried to deal with as many detailed points as possible while working within the twin constraints of time and my personal capacities on the very wide-ranging comments that have been made.

First, I think it is unfortunate, perhaps, that there has been so much criticism of the fact that the three different aspects of the Bill have been put together. A number of hon. Members have asserted that there ought to have been three separate Bills. I agree entirely with what was said by my hon. Friend the Member for Motherwell and Wishaw (Dr. Bray), that the fact that we have a single Bill demonstrates the interconnectedness of of the particular aspects with which we have been dealing.

It is an unusual Bill, but it recognises the common link, the interrelationship between the economic, the financial and the aid aspects of international trade. The virtues of multilateral aid are made quite clear and are supported by the Bill. Necessary and crucial support for exports is permitted by the Bill, and the Bill's IMF provisions are not only essential for the proper working of the international monetary system but are clearly advantageous to the interests of the United Kingdom. In terms of the exchange of goods and services, we are no longer an island but are an active partner in promoting a more vigorous and prosperous state of world trade.

I shall not dwell—I am sure that the House would not wish it—on the objectives of the various international institutions with which the Bill is concerned. My right hon. Friend the Financial Secretary covered those matters admirably in his opening speech. However, I compliment hon. Members on the relevance of their comments on the important principles underlying the technicalities of the Bill, and I shall deal with as many matters as I can in the limited time available.

The hon. Member for Hertfordshire, South (Mr. Parkinson), in opening for the Opposition, my lion. Friend the Member for Sheffield, Heeley (Mr. Hooley) and the hon. Member for Hitchin (Mr. Stewart) spent a large part of their time on the rôle of the International Monetary Fund. In his opening speech, my right hon. Friend the Financial Secretary drew attention to the enormous growth in world trade which has occurred since the war, and he pointed to the considerable benefits that the world derives from greater interdependence. But interdependence carries costs, too. In the United Kingdom exports now constitute more than one-fifth of output, and the corollary of this is increased exposure to fluctuations in international demand for the goods which we produce. There has been a similar increase in the proportion of output devoted to trade in all other industrialised countries.

In the early years of this decade, the world experienced one of the effects of this increased interdependence. For reasons which are not yet fully understood, the economic cycles which all countries experience appeared to become synchronised between 1971 and 1975. As we know, this led to a combined surge in world demand, a boom in commodity prices and accelerating inflation. Similarly, following the increase in oil prices, the industrial countries moved into a synchronised slump. I do not pretend that it will be easy entirely to avoid a recurrence of these events, but with increasing interdependence the only route by which the possibility and the consequences may be modified lies in discussion and greater co-ordination of policy.

In the context of the Bill, the implications of the International Monetary Fund also should be stressed. With its regular discussions on the world economic outlook, based on detailed consultations with every member about its economy, the executive board of the Fund and the annual meetings of the board of governors provide occasions for useful discussions on the economic outlook and of member countries' policies, based on detailed and extensive knowledge.

The activities of the Fund in providing finance are important, but I suggest that when hon. Members refer to the IMF as being only a bank they tend to underrate the less tangible contributions made by this and other international organisations.

The hon. Member for Hertfordshire, South went into some detail with his analysis of the IMF and its rôle, and I am sure that all the details of his speech were noted by my right hon. Friend the Financial Secretary. The hon. Gentleman dealt in particular with the problem of the size of the quota and referred to the reduction in the quota as "marginal". By my calculation, a reduction from 9.58 per cent. to 7.49 per cent. is more than marginal. However, I should say that if the Fund were being set up afresh the United Kingdom would certainly not have so high a proportion.

When the hon. Gentleman went on to some of his criticisms, I felt that we had from him a tired, dreary and worn-out polemic—a note which, happily, was not present in the rest of his speech. In many of his criticisms of Government policy, we had the same worn-out repetitions as we have heard many times before and I felt that he would have done much better if he had maintained the rather more harmonious note introduced in his useful and helpful comments about the ECGD and the Commonwealth Development Corporation.

Mr. Parkinson

I am sorry that the Minister found my remarks rather tired and worn out. I must tell him that many of us do not find it a matter of great pride that Britain is the IMF's biggest debtor, and we do not see it as something to be admired that, at a time when the world is short of liquid resources, Britain is pre-empting a major slice to prop up a standard of living which we are not earning and we are competing with the Third World for scarce resources.

Mr. Tomlinson

Many of us on this side, in company with, I am sure, many hon. Members opposite, find no cause for pride in the monetary profligacy which led to the situation which the present Government inherited in 1974. However, we could pursue this exchange to the detriment of consideration of the Bill, and I say only that the hon. Gentleman's more constructive comments in his otherwise admirable speech struck a far happier note than did his carping and, I thought, uncalled-for criticism.

I turn now to some of the specific questions that the hon. Gentleman put. In particular, he referred to the ability of the ECGD to handle increased levels of business and increasingly complex business. While foreign currency financing is a new departure for the Department, it is closely allied to the techniques developed by ECGD, and, with the intro- duction of new facilities, the cost escalation scheme and support for exporters in raising performance bonds, for example, show that the Department's staff is able to respond to the challenge. I am confident that the Department will be able to handle the increased business. The ECGD is constantly simplifying its procedures to enable business to be dealt with more quickly.

The hon. Member for Hertfordshire, South raised the problem of reserves being too low for current business and asked what funds we have to improve the reserve ratio. He said that the 3 per cent. reserve target is not being met. But this applies to the Department's Section 1 commercial business. The primary intention of the premium rate increases is to improve this reserve ratio and to make adequate provision for the expected level of claims.

The hon. Member also asked whether we are satisfied with the parliamentary control of Section 2 business of ECGD and asked why there had not been consultation. The comparison that he makes with the Industry Act is misleading. Section 8 of the Industry Act requires parliamentary approval for Government assistance. The ECGD powers are not comparable when dealing with Section 2 because ECGD has the benefit of expert advice from Government Departments and other sources. In accordance with undertakings given to Parliament, separate figures for liability under Sections 1 and 2 are published. The Bill clarifies this position in relation to returns.

I shall now deal with the detailed questions, and because of the time I hope that hon. Members will forgive me if I do not deal with them all. The hon. Member for Hertfordshire, South and others referred to the CDC's share of aid. Perhaps they will be reassured by some detailed figures. The provision is £29 million for the year 1977–78 compared with only £18 million in 1975–76 and £20 million in 1976–77. I am sure hon. Members will agree that those figures fully recognise the need to maintain a momentum.

I turn to the contribution made by the right hon. Member for Chipping Barnet (Mr. Maudling) about trade with the Soviet Union. When dealing with that I shall reply also to the hon. Members for Worthing (Mr. Higgins), Gosport (Mr. Viggers), Hertfordshire, South, and Dorking (Sir G. Sinclair). It remains Government policy to ensure that United Kingdom exporters can compete for worthwhile export business. We cannot ignore what others are doing. If we did, we should lose business. Are hon. Members suggesting that we should not enable our exporters to meet international competition with adequate credit terms?

My right hon. Friend the Chancellor of the Exchequer has already announced the intention to reduce public expenditure on refinancing sterling export credit, but I am sure that both sides of industry will agree that the balance lies in providing comprehensive competitive facilities that enable exporters to compete for such business, whether in Russia or in other countries.

I can confirm that the Government are aware of the level of Eastern European indebtedness and that the situation is kept under review by us and other Western countries.

Mr. Hordern

That was not quite the point that we made. We sought to draw a distinction between the type of trade financed by the ECGD and the special facility made available by the £900 million credit for Russia. We also asked what rate of interest was being offered to the Russians to buy British goods.

Mr. Tomlinson

As the hon. Gentleman well knows, the rate of interest is the subject of confidential contracts and I am not in a position to give that information.

Mr. Maudling

One takes the point about competition between this country and France and Italy, but our point is whether it is sensible for the West as a whole to give this capital contribution to Russian expansion. If it is not sensible, what are the Government doing about it?

Mr. Tomlinson

The Government's policy follows the competition. Our practice was already being followed by competitor nations.

Mr. Higgins

I am grateful to the Minister for giving way again, because this is a major point. It is all very well following the competition, but is it not possible that that will result in the goods being exported on terms which do not give us an adequate profit or, probably, any profit? Can the Minister give us the figures for which we asked? What is the total amount of credit now being extended to the COMECON bloc by the ECGD? How much has so far been taken up? The hon. Gentleman says that the Government are aware of the position. Let him tell us.

Mr. Tomlinson

I must ask the hon. Gentleman to put down a Question on the detail. In reply to him and the right hon. Member for Chipping Barnet I repeat that I can confirm both that the Government are aware of the level of Eastern European indebtedness and that the situation is being kept under review by other Western countries.

Several extraordinary comments have been made. For example, the hon. Member for Gosport made the extraordinary statement that trade with the Soviet Union gives it prestige in so far as it is seen that we deal with it and it deals with us. What is the logic of that statement? Surely he is not suggesting that we should not engage in any trade with the Eastern European countries or with the Soviet Union. If he is saying that, I should like him at some time to tell us what that means in terms of detente. If he is not saying that, other hon. Members would appreciate hearing exactly what he is saying.

Mr. Viggers

if the hon. Gentleman had been with the Prime Minister, and the Prime Minister had agreed to meet Mr. Bukovsky, they would both have understood that I was quoting Mr. Bukovsky. That was the point of my remarks.

Mr. Tomlinson

That was not the context in which they were made. If Mr. Bukovsky had accepted the invitation by Foreign Office Ministers to meet them, he would have had a chance to tell us direct rather than second-hand. Many hon. Members are in danger of trying to have it both ways on the question of trade with the Soviet Union. On the one hand hon. Members complain that credit is too cheap. On the other hand hon. Members complain that the credit is not being taken up.

I turn now to the remarks of my right hon. Friend the Member for Lanark (Mrs. Hart) who asked what projects of the CDC are directed towards the poorest. By far the greatest part—possibly as much as two-thirds of the new commitment over the current five-year period up to 1980—is being directed towards the poorest. My righ hon. Friend also asked about problems concerned with the Export Guarantees Act 1975 which she thought consolidated the measures incorporated in the Overseas Investment and Export Guarantees Act 1972. The problem is slightly more complicated than she suggested. I have drawn her remarks to the attention of my hon. Friend the Under-Secretary of State for Trade, who has taken full note of what she said about the need for a code of practice and her suggestion that this could be included as an extra provision under Clause 4 of the Bill.

My right hon. Friend also asked an important question, echoed by the hon. Member for Mid-Sussex (Mr. Renton), about the development of regional banks and asked for an assurance that there was nothing in the Bill to assist Dr. Kissinger's proposal for an international resources bank. I share the doubts of my right hon. Friend the Member for Lanark about whether the concept of an international resources bank as floated by Dr. Kissinger will be revived by the Carter Administration. We took note of the views of developing countries about a world resources bank at UNCTAD IV. There is probably a good chance that we already have the institutions available to meet the needs of the developing countries, especially through the three bodies of the World Bank—namely, the IBRD, the IDA and the IFC. The Bill contains provisions to allow us to support the work of the World Bank, and these provisions are adequate.

Mr. Tim Renton

Is it not true that the World Bank does not want to take on the work proposed by Dr. Kissinger for an international resources bank because it feels that it is already over-extended and too involved in the less-developed countries? That is why it gives support to the idea that if another institution were developed it should not be under the aegis of the World Bank.

Mr. Tomlinson

I have no basis for confirming the hon. Gentleman's view.

Mrs. Hart

Can my hon. Friend confirm what the hon. Member has said, that the World Bank would not have been ready to support the Kissinger proposals for an international resources bank?

Mr. Tomlinson

That is what I was saying, that I have no basis for confirming what the hon. Member has said.

The right hon. Member for Chipping Barnet raised the question of surplus capacity aid and invited me to comment on what had happened to that concept. I am familiar with the general aim of the right hon. Member's suggestion and in principle I am sympathetic to it. I agree that it would overcome part of the problems we face in increasing our overseas aid. But the overriding constraint imposed by the undesirability of adding to public expenditure and to the public sector borrowing requirement still remains.

The right hon. Member for Chipping Barnet also dealt with performance bonds. I assure him that ECGD is playing an active part in negotiations to provide performance bonds for British exporters. This has taken the form not only of the ECGD's new bond facility but the extension of its basic insurance cover against the unfair calling of bonds. Discussions on these special problems are continuing, with the Government taking an active part in them.

My hon. Friend the Member for Motherwell and Wishaw made an interesting speech on many detailed technical points, to which the Financial Secretary and I listened with interest. He raised in particular the question of the IMF buffer stock facility. He asked about the availability of finance under the buffer stock facility to help with the financing of commodity agreements. In general, there should be no problems about the use of this facility. So far it has not been much used, but that is because at present there is only one buffer stock—tin—in existence. If and when new buffer stocks are agreed to, IMF members would be able to draw on the buffer stock facility to finance their contributions to the agreements. Such drawings would not affect their right to draw down other fund facilities because they would in practice be disregarded in calculating the overall amounts they could draw.

Dr. Bray

This marks a significant development. So they will not be calculated for general drawing rights?

Mr. Tomlinson

I am advised that such drawings would not affect members' rights to draw under other fund facilities because in practice they would not be calculated in the overall amount.

The hon. Member for Gosport raised the question of foreign currency buyer credits which had to be carried out by foreign banks. He suggested that our banks would therefore lose business. That is not so. Our banks can provide foreign currency to finance buyer credits. The ECGD has been in detailed touch with British banks, which have made clear that they hope to be able to play a full and active part in the new arrangements.

The hon. Gentleman made some play of his concept of the national interest when talking about the national interest Section 2 commitments. Listening to someone being as cynical and sceptical about the national interest as he was, I recalled past legislation. For example, in the Industrial Relations Act code of practice the national interest was placed firmly as the criterion against which everything should be judged. I am glad now to see a healthy scepticism in the hon. Gentleman about that sort of concept, even if that scepticism was not there in 1972.

The hon. Gentleman asked whether the ECGD should have two separate limits. It was explained during the passage of the 1975 Act that separate figures for Section 1 and Section 2 liabilities would be maintained and published. That has been done. The Bill formalises the position.

Mr. Hordern

These new Eurocurrency arrangements must take up a considerable part of ECGD business. What proportion does the hon. Gentleman expect them to cover, since the Treasury is looking for reductions in public expenditure on sterling ECGD limits? What proportion will now be acceptable in the new Eurocurrency loan?

Mr. Tomlinson

I cannot give an estimate. It is too early to say.

The only speech I was unable to hear, unfortunately, was that of my hon. Friend the Member for Mitcham and Morden (Mr. Douglas-Mann), but I understand that it was admirable. He dealt with the need for a world programme of birth control and spoke passionately, I understand, in support of the overseas aid programme. I look forward with interest to reading his speech in Hansard.

The hon. Member for Dorking raised the question of the World Commodity Centre in London. Ministers were agreed that, though they were sympathetic to the aims of the promoters, public expenditure would not allow the Government to support the project financially in the current economic climate. Having said that, however, I welcome and share the warm words he spoke about the work of the voluntary aid agencies.

My hon. Friend the Member for Sheffield, Heeley raised the question of the cost escalation clauses, as did the hon. Member for Horsham and Crawley (Mr. Hordern). My right hon. Friend the Chancellor of the Exchequer announced on 15th December that cost escalation cover would be renewed for a further year from March, subject to the approval of the House of Commons. The necessary order will be laid in the near future, and some improvements have been made to the scheme, since it was first introduced in order to meet some of the points that have been made by industry.

The hon. Member for Hitchin asked a number of detailed questions, to two of which I would like to respond. The hon. Gentleman asked about the position of the timing of the ECGD's foreign currency facility. The introduction of new cover from ECGD in support of export contracts in foreign currencies was announced by the Secretary of State for Trade on 4th August. It was explained that for buyer credit arrangements a temporary arrangement had been set up involving the Exchange Equalisation Account which would be used until ECGD had new powers relating to commitments in foreign currency. The powers are set out in the Bill. While no such guarantees have been issued by ECGD, the reference in Clause 4(2) is designed to cover the period between 1st January this year and the date on which the Bill passes into law.

The other particular question that the hon. Gentleman raised was the important one of the Bill providing for special drawing right limits being exceeded during the period of operation. This matter will no doubt be examined in detail in Committee, but I note that, if exporters are to be given the protection they need, once foreign currency commitments have been taken on there is no way of preventing quarterly revaluations resulting in their SDR equivalents exceeding the SDR limits.

The provisions permitting the limit to be exceeded ensure that in these circumstances existing commitments are not affected and that ECGD would not be prevented from fulfilling undertakings given at the time to provide when there was room in the limits. Only in exceptional circumstances would the limit be exceeded. The ECGD would aim to take account of likely changes to keep commitments within the SDR limit.

The hon. Member for Carshalton (Mr. Forman) raised the question of export credits now being within the province of the Commission. I would say to him that export credit and related official support are provided by institutions in the member States and will continue to be administered on a day-to-day basis by national authorities. The Commission can put forward proposals for regularising the principles and practices governing export credit, but any Commission initiative is subject to the control of the Council and, therefore, to the Treaty's voting provisions.

I turn briefly to the hon. Member for Worthing, who asked a number of detailed and specific questions. The hon. Gentleman raised the need to control export credit competition, to which I have partly referred. The Government accept the desirability of rationalising competition on the terms of export credit competition. It is for this reason that we play an active part in international negotiations to achieve agreement. These discussions bore some fruit last year with the consensus which agreed guidelines for maximum credit lengths, minimum interest rates and down payments. The Government hope to see further progress in this area.

With regard to ECGD premium rates, clearly my right hon. Friend's opening speech could not cover all aspects of ECGD but he has informed the House that premium rates are to be increased. The increases are necessary to make adequate provision for expected future claims and to move to restore the ECGD reserve position to which I have already referred. The Committee stage will no doubt give all hon. Members the opportunity to discuss any issues which arise from these changes.

The other problem with which I should like to deal concerns exchange rates surveillance. The principles and procedures on surveillance are a matter of continuing pragmatic discussion within the IMF. The main procedure will, as at present, be through the regular annual consultations which the Fund holds with member countries on the state of their economies generally.

From that, the hon. Gentleman went on to ask about exchange rates. He asked what Government policy was. All I can say is that our general aim is set out in the Letter of Intent to the IMF and that it is to minimise disruptive short-term fluctuations consistently with maintaining our competitive position.

The hon. Member for Mid-Sussex asked about common fund negotiations. Because of the constraints of time, I am afraid that this is the only question of his on which I can promise a specific reply. The United Kingdom is playing an active and constructive part in the international meetings in preparation for the forthcoming conference on a common fund. I am sure that the hon. Gentleman is not surprised that that is my answer, even though he may have been looking for one which went somewhat further.

The hon. Member for Horsham and Crawley asked specifically about the restitution of one-sixth of the Fund's gold to members in proportion to their quotas. We shall be buying back our share of the Fund's gold at the official price of $42 per fine ounce. The first instalment has just been returned to us. At the official gold price, it is worth some $24 million.

Finally, perhaps I might say a few words about the work of the Commonwealth Development Corporation, which has received extensive praise from hon. Members in every part of the House. It is of special interest to my Department. In this connection, I want to quote some remarks by the Opposition spokesman on the last occasion when we discussed CDC borrowing limits. The then hon. Member for City of London and Westminster, South, Mr. Tugendhat, said that the CDC showed clearly how effective an aid programme could be for a country such as Britain with limited resources, how quite small sums of money could go a very long way, and how the fulfilment of very small and specific tasks which enabled much bigger projects to take place could have a profound effect on the infrastructure of the areas in which it was operating. I am sure that those are words which every hon. Member will echo, especially those who have taken the opportunity to read the annual report of the CDC.

Although we may not agree on many other matters, fortunately there is a substantial measure of agreement on both sides of the House about the effectiveness and value of the work of the CDC in the developing world. I applaud the fact that CDC investment is providing employment in many underdeveloped areas on an extensive scale and that it is growing the food and developing the resources that are in such demand.

I congratulate the chairman, Sir Eric Griffith-Jones, who is currently in South-East Asia visiting Corporation projects there, the Board of the CDC and all the staff at home and abroad on their determination to extend the CDC's activities in the development of renewable natural resources.

On that harmonious note of universal praise for the CDC, I am sure that I command support in commending the Bill to the House.

Question put and agreed to.

Bill accordingly read a Second time.

Bill committed to a Standing Committee pursuant to Standing Order No. 40 (Committal of Bills).