§ The Financial Secretary to the Treasury (Mr. Nigel Lawson)
I beg to move,That the draft International Monetary Fund (Increase in Subscription) Order 1980, which was laid before this House on 4 July, be approved.The purpose of the order is to authorise payment by the United Kingdom of our share in the International Monetary Fund's seventh quota increase. This follows a decision by the Governors of the IMF in December 1978 that all members' quotas should be increased by 50 per cent. This will raise the IMF's general resources from 39 billion special drawing rights, or about £23 billion, to 59 billion special drawing rights, or about £35 billion. This decision will come into effect once members of the fund holding three-quarters of the quotas have ratified the increase.
This moment is still some way off. At the last count, members representing 34 per cent. of the fund's quotas had ratified the increase. As our quota ranks second after that of the United States at just under 7 per cent., this House's approval of the order will take the fund some way further towards its target.
The United Kingdom's present quota is 2,925 million special drawing rights, about £1,630 million. The increase authorised by the order before the House will take this to 4,387½ million special drawing rights, about £2,450 million.
I should explain that, because of the nature of the IMF's operation, the payment for the quota does not add to public expenditure. Twenty-five per cent. of the increase will be paid for with SDRs. Incidentally, this will not affect the overall level of the reserves since we shall simultaneously be increasing the so-called reserve position in the fund, that is to say, the amount that we ourselves could draw automatically on the fund by exactly the same amount. Since 1972, as the House will be aware, this reserve position has been counted as part of the United Kingdom's reserves.
The balance will be paid in non-interest bearing notes that will be re-deposited by the IMF at the Bank of England for possible use at another time.
1663 When the IMF needs to use some of this sterling to make up the currency package for another member country's drawing, our reserve position in the fund will again increase by the same amount. In other words, the fund would owe us money and our claims would be increased. We obtain one asset in exchange for another. Again, this does not score as public expenditure.
The House may be curious as to why it has taken until now for the fund to implement a decision taken at the end of 1978, but it was always expected that the legislative procedures in so many member countries would take the best part of two years. The fund planned on the basis that the quota increase would be implemented towards the end of 1980. I cannot yet guarantee to the House that the quota increase will be in place this year, but the Government hope that it will. The Government intend to play their part in this process as we and other industrialised countries committed ourselves to do at the recent Venice summit. I pay tribute to our predecessors, who smoothed the way for us by providing powers in the International Monetary Fund Act 1979 for the Treasury to make orders subject to the affirmative resolution of the House increasing our IMF quota. Previously each such increase had to be ratified by primary legislation.
The extra resources will now arrive at an opportune moment. The Government are keenly aware of the implications of the latest round of oil price increases for the balance of payments of a large number of countries, including the developing countries. A series of inter-related problems are involved. They will continue to be the subject of intensive public debate, as the interest of the House in the Brandt report showed recently.
Estimates of the OPEC balance of payments surplus for 1980 amount to over $ 130 billion. Non-oil exporting developing countries, on the other hand, may have a collective deficit of about $ 55 billion. Much of this will be concentrated in a few relatively advanced countries which will be able to arrange most, if not all, of their finance on the markets. However, other countries are less fortunately placed and will need official balance of payments assistance, mainly from the IMF.
1664 It is common ground, in the words of the Venice summit communiqué, that private lending will need to be supplementedby an expanded role for international financial institutions, especially the IMF.Up to now the fund has got by on the basis of its existing resources, consisting of members' payments for their quotas, supplemented by borrowing under the so-called special supplementary financing facility from the richer OECD and OPEC countries.
The fund is possibly in a lull before what might be a storm. It will need substantially increased facilities to meet the needs of its members once the impact of the oil price increases is fully felt. The quota increase will make a sizeable contribution. Nevertheless, the fund will need to add to that by borrowing. That was also endorsed by the Venice summit. The fund management has started discussions with potential OPEC lenders. The Government welcome the discussions.
Within the IMF the United Kingdom's representatives are participating in the work which has been set in hand to improve both the size and the quality of the fund's contribution to the recycling process. I am well aware of how heavily the fund is criticised. Perhaps we shall hear some criticism this evening. Some of the critics do not fully understand the nature of the fund and its operation, and the delicate part which it has to play.
The fund is not an aid-giving institution. The essence of its lending and borrowing arrangements is that they are intended to lubricate the process of changing domestic policies so as to find a more sustainable balance of payments. The fund's resources are not unlimited. They are meant to revolve. As each member country recovers and repays, money becomes available for others.
The fund must be responsive to its members and to their social and political backgrounds. It is. However, marrying those requirements has never been easy. It is harder than ever in the difficult world economic environment in the wake of recent oil price increases. Indeed, countries face painful choices. The fund must continue to be able to influence its members to adjust their economies in the 1665 light of unfavourable economic developments. Such developments might frequently be outside the individual member's control, but they must be tackled.
The fund's effectiveness as a balance of payments financing organisation would be prejudiced, and nobody would be advantaged, if it were drawn into areas which are more properly the responsibility of individual aid donors and multilateral aid-giving institutions such as the soft loan affiliates of the World Bank. There are hard cases. However, the House will not wish to dwell too much on matters which are the subject of delicate negotiation between the fund and Governments.
I can assure the House that the fund's management and its executive board are very much alive to their responsibilities. The fund has fully recognised that the economic policy terms that it negotiates with borrowers under its main facilities must reflect the change in world circumstances and particularly the length of time that is necessary to adapt to the oil price increase and the likely duration of the OPEC balance of payments surplus.
§ Mr. Tam Dalyell () West Lothian
Would one be wrong in assuming that this represents a change of philosophy in relation to the Third world from the days of Pierre-Paul Schweitzer when certainly some of us understood that the IMF thought that it had rather special obligations to the Third world? Is the Financial Secretary trying to tell us about a change of policy?
§ Mr. Lawson
The fund has obligations to the Third World as it has to all its members who have recourse to it. But there is no change in the fund's role—the reverse is the case. It is those critics who are trying to turn it into an aid-giving institution who are suggesting that it should have a different role. The role that I am outlining is the one that the fund has always performed, and with a considerable record of success. Of course, the Labour Government, of which the hon. Member for West Lothian (Mr. Dalyell) was a supporter, had particular reason to be grateful to the fund, both for the facilities that it made available to them and also for the policy prescriptions which it imposed upon them.
1666 For the reasons I have given, the fund is implementing or preparing significant changes in its arrangements. The first is to make regularly available significantly greater sums in proportion to quotas than has up to now been the case. The second is to make assistance available over longer periods by arranging for a succession of annual standbys for making loans under its extended financing facility. The third is to allow more time for adjustment, given the nature of the structural changes now needed in many countries to reflect the higher oil prices about which I spoke earlier. The fourth is to concentrate more on fixing its lending and conditionality policies on vital supply side factors such as energy measures and import substitution. One example of this is the IMF's co-operation with the World Bank in Guyana in order to finance hydroelectric investments which would make that country virtually self-sufficient in energy.
In order for the fund to play its proper part, it needs this quota increase, and I ask the House to make its contribution by approving the order.
§ Mr. Denzil Davies () Llanelli
This is an important debate which is being conducted fairly late at night. It may seem on the face of it to be a rather insignificant order. However, the factors behind it are extremely important. There are big questions to be asked about the role of the IMF and our subscription to it.
I could not follow the Financial Secretary's figures as well as I should have, but I understand that our contribution to this increase in the fund's assets is about £800 million. The hon. Gentleman went to great lengths to show that this was not an increase in public expenditure. It seems that even if the fund were to spend the money it would still be a loan by the British Government to the fund. I do not quite understand that. I accept that technically it may be that, if the money is spent it has been spent, and I do not suppose that the IMF would ever repay it. To that extent, therefore, it is an increase in public expenditure.
We on this side certainly have reservations about the role of the IMF. The Financial Secretary was very negative in his response to that. He seemed to suggest that all was well, that the IMF did 1667 not need to. change. But it was set up a long time ago in world conditions different from those now obtaining. I certainly argue that it needs to change and to fulfil a different role today. There is no need for it to be an aid-giving institution, but there is a different role for it and I would like to see a change in its role. I do not oppose this order, but, subject to certain conditions and reservations, the Government must press for a change in the composition and statutes of the IMF and the way in which it operates in order to take into account the changing world situation.
The House will agree that there are two major problems facing the international community in terms of monetary matters. Both are difficult problems, and they were touched upon in the Brandt report. The British Government and other Governments must address their minds to those problems.
The first problem, and perhaps the more difficult to resolve, concerns the reform of the international monetary system and the role of special drawing rights within that system. I hope that the Government will try to press for a change so that the SDR becomes an alternative reserve asset in the international monetary system, thus creating stability. The Brandt report recommended that the SDR should be used for asset settlements between central banks, and to some extent replace national currencies in those reserves. That could be done by means of a substitution account. I hope that the British Government will try to press for that.
I understand that the Americans do not wish the dollar to lose its reserve currency role. My fear is that sterling will then become a reserve currency. One of the dangers of the Government's policies and of the oil surplus is that sterling will become a reserve currency, with all the problems that that entails.
But the world has changed. We do not want one or two large reserve currencies. National economies cannot support that. It is not easy, but we must constantly press for some sort of change so that an asset such as the SDR can gradually take over national assets and provide the reserve backing that the world needs. Part of the problem of the last few years stems from the fact that President Nixon closed the gold window. One can argue about the position of gold, 1668 but at least there was some backing for the currency. When the dollar was no longer backed by gold the world had a reserve currency without economic strength and backing. We had the same problem with sterling, certainly after the end of the war. I hope that the Government will try to push forward the idea of that sort of reserve currency.
The second problem, which is more pressing and perhaps easier to solve, is the need to channel the OPEC surpluses to the non-oil exporting, less developed countries. The Financial Secretary said that the figure for 1980 for the OPEC surpluses would be $130 billion. I thought that it might be about $100 billion, but these are difficult matters, and they are related to the price of oil. The deficits of the non-oil exporting countries amount to between $45 billion and $60 billion. There is a great need for an international mechanism to channel some of that money to the less-well-off countries rather than to allow it to stay in bank accounts in New York, London or wherever.
Until now the commercial banks have not done a bad job in channelling that money. The multinational banks are in business to lend money, and the salaries of their managers are paid as a result of lending money. But we are now approaching a different situation. More and more frequently those banks are facing reserve asset requirements. Margins on lending are getting smaller, and the banks are becoming worried. If one or two banks collapse and one or two countries are unable to repay the money, part of the multinational banking system could collapse.
There are many multinational bankers—[Interruption.] I certainly believe that the system could collapse. I thought it would have happened before now and I think the possibility is even greater now. The Governor of the Bank of England and other central bankers are, as their speeches show, very concerned about it. There is a definite possibility of this happening, and if it were to happen the repercussions would be considerable.
I do not believe that permanently this is the role for the commercial banks. I recognise the problems and the very great difficulties. I think it should be done by an international institution. Some of my hon. Friends may say that it is not for 1669 the IMF, but the IMF is there, and provided that it can change its attitudes—and possibly even change its statutes—I believe that it should take on a greater role in channelling this money to help the poorer countries.
§ Mr. Stephen Dorrell () Loughborough
Does the right hon. Gentleman agree that the point he is making has nothing to do with the argument that my hon. Friend the Financial Secretary was putting forward about the IMF being used as a quasi-aid organisation? If I understand him aright, he is suggesting, not that the money should go to the Third world as a form of aid to the Third world and the less developed world but that it should go—as is clearly in the economic interests of the West—as credit to them to enable those countries to buy the goods that we need to be able to sell to them if we are to secure an economic recovery for ourselves.
§ Mr. Davies
I think that the Financial Secretary was using the word "aid" in contradistinction to loans at a proper commercial rate of interest, with all the conditionality involved. That was how I understood him to be using the word "aid". I think he was drawing a distinction which perhaps we should not draw any more.
The IMF should possibly change its statutes, because it has been a balance of payments organisation, if one may put it that way. The whole basis of the IMF was that it merely provided room for balance of payments adjustments. That may be all right for Western industrialised countries, but, if the IMF is to play a role in channelling OPEC surplus money to countries that are too poor to operate in the same way as Western industrialised countries, it will have to change its statutes, if necessary, and its whole attitude. That means, not that it should not apply normal prudent yardsticks, but that it must change the way in which it lends money.
After the war we seem to have set up the IMF, which is on one side of the road in Washington, as the bank for the rich, and the World Bank, on the other side of the road, as the bank for the poor. I do not think that that sort of arrangement should continue in the present international monetary world, 1670 with all the problems that exist. We have to look again at those institutions. As the hon. Member for Loughborough (Mr. Dorrell) said in his intervention, it is in the interests of the West to ensure that this money is channelled to the poorer countries so that they can buy our goods and build up their own industries and therefore contribute to the health of the international economy.
It was pointed out recently in an article in the Financial Times that the IMF has only about $8 billion outstanding to the non-oil less developed countries. If we take repayments into account, we find that it has lent very little to these poorer countries because, as I have said, it has been a kind of bank for the rich Western countries and is not really geared to do what has to be done.
There are two criticisms to be made of the IMF, although I accept that they have restraints in their statutes. Its only policy is to apply a deflationary policy. If there is a problem, its policy is, first, to cut public expenditure; second, to devalue; third, to have tight targets for M3; fourth, to cut food subsidies; and, last, to have no import controls. That is the classic—almost monetarist—way of approaching the problem.
That might or might not be all right for a developed Western economy, but it makes no sense at all for the poorer countries. These monetarist policies mean nothing to the pooorer countries, especially to those which are primary producers. Looking at the examples of Jamaica, of Bolivia and of Ghana over the last few years, we can see that the IMF has been completely insensitive and quite incapable of understanding the real problems of those countries. Not only does it often apply classic monetarist policies; it does not differentiate between different economies. The economies of those three countries are completely different and the same orthodox economic solutions cannot properly be applied to all of them. That, again, is what has happened and that is the problem with the IMF.
We would put forward two conditions and qualifications. First, the IMF must look to its status. It must cease to be a balance of payments organisation mainly helping the richer countries to adjust their balance of payments between 1671 one and the other. It must try to develop to help the poorer countries. It must raise its own capital and try to channel some of the money in commercial banks in the interests of the world economy. It must look at import controls not as being terrible but as a partial solution sometimes to the problems of the lesser developed countries.
Secondly, the Foreign Office, which seems to be more progressive than the Treasury in this matter, in its commentary on the Brandt report, recognised that the IMF must change the way that it chooses staff. It must look elsewhere for recruits. It is no use recruiting staff from the Chicago Business School. They may be all right to deal with various orthodox economic problems. Conservative Members shake their heads. This paper has been produced by the Government and it clearly states that the IMF must take into account that there are different problems in developing countries and that its staff must understand them. If it recruits staff from the universities and business schools, which often do not teach them about these problems and deal only with classic economic problems, they will not be as sensitive to the problems of the poorer countries as they should be.
Those are the two conditions and qualifications.
The Financial Secretary was rather negative. He did not recognise that there was a problem. My hon. Friend the Member for West Lothian (Mr. Dalyell) mentioned Pierre-Paul Schweitzer, but the hon. Gentleman did not think that there had been a change. I think that there has been a change. This depends on the personality of the managing director. It may be that the present managing director looks at things differently from his predecessor—I do not know—but there certainly has been a change.
I hope that the Government will recognise, as the Foreign Office did to some extent in its memorandum on the Brandt report, that there is a problem and that it is necessary for institutions to change. Institutions ossify and conditions change. It is for the British Government, and other Governments, to try to change the attitude of the IMF to ensure that it is in tune with the problems of the international monetary system, especially the problem of channelling these vast surpluses to help the poorer countries.
1672 We shall not officially oppose the order, but I hope that in future we shall hear something positive from the Government on their approach to these matters, not the negative approach that we have had from the Financial Secretary.
§ Mr. Stuart Holland () Vauxhall
Many of us are deeply concerned about the current activities of the IMF for a variety of reasons. One is its economic rationale, precisely because it is operating on criteria which are more relevant to the developed than to the less developed countries.
Another reason is the alleged neutrality of the intervention of the fund. The Financial Secretary said that the fund has to take account of economic and social circumstances, but in reality many of us are concerned that it does more than that and directly intervenes in the political process in individual countries and discriminates between those countries in the allocation of funds.
The first analytic point, which has been made by implication by my right hon. Friend the Member for Llanelli (Mr. Davies), concerns the general philosophy of monetarism in relation to financing by the fund. Many Government spokesmen now pride themselves on the fact that we have avoided beggar-my-neighbour protection, on the model of the 1930s. But, in practice, the standard fund formula of a domestic deflation of demand, coupled with devaluation, as a policy for rectifying balance of payments deficits has now been imposed on so many countries on such a scale that it is contributing not to beggar-my-neighbour protection but to beggar-my-neighbour deflation. In other words, the contraction of spending by several countries on which the International Monetary Fund has imposed deflationary policies is restricting world trade. Thereby, that falsely-based monetarist philosophy is actually aggravating the level of trade, and aggravating not only the exports of the less developed countries, but those of the more developed countries. It is a beggar-my-neighbour syndrome, as serious as in the 1930s, and even more serious in respect of one crucial aspect of the fund's intervention, namely, the attack on public spending programmes. Whether that country is Egypt, Tanzania, Portugal or Jamaica, there is a 1673 clear and explicit bias in the fund's programme towards individual countries.
Many hon. Members on the Labour side of the House, when considering whether to oppose the order, should take account of a current position of great seriousness—the relation of Jamaica with the IMF, which throws gravely into question the rather bland statement from the Financial Secretary about the relative neutrality of the fund's intervention. For example, the Financial Secretary said that the fund's managers take into account changing world circumstances including the OPEC price rises. If the fund takes them into account, what sense can be made of the IMF internal memorandum of November last year, which admitted in respect of Jamaicaa number of events—severe flooding, sluggish mining (bauxite) exports, and a sharp increase in fuel prices and foreign interest rates—mostly unforeseen and outside the control of the authorities—have worsened the balance of payments prospects for 1979 in spite of a better than expected performance with respect to tourism and non-traditional exports and an import level somewhat below the original forecast.Granted that Jamaica was performing somewhat better than expected on its import level and tourism earnings, and granted the admission of drought, disaster and external factors involved one could expect the fund, in those circumstances—if we are to take the Financial Secretary seriously—to have done precisely what he now says the fund is doing, namely, to extend further finance so that, on the second of his criteria, Jamaica could have longer assistance for stand-bys, to give, on his third criteria, more time for adjustment, and to relax his fourth criteria of conditionally—that is, the conditions for lending. In practice, that was not so.
The fund claimed that since Jamaica had fallen short on one of its performance criteria by less than 10 per cent. it could not support it. In practice, that means that it forecloses on the country. It means that the country is thrown into a position virtually equivalent to bankruptcy. For a country with very primitive resources that means not only taking oil from the transport on the roads but, in a country like Jamaica, taking the oil from the oil lamps on the tables by which many homes are lit.
§ Mr. Frank Hooley () Sheffield, Heeley
On a point of accuracy, my impression was not that the fund would not support Jamaica, but that Jamaica would not accept the fund's support on the conditions that it wished to impose. That is somewhat different.
§ Mr. Holland
I am grateful to my hon. Friend for his intervention.
If we look at the conditions on which the fund is offering that intervention, we see that they range far wider than its own test of purely economic criteria. For example, the internal memorandum of the fund claimed:The Government is not seriously committed to its economic programme, judging from perceived inconsistencies between its foreign policy and domestic political stances on the one hand, and the dictates of the programme on the other.What does that mean in practice? Does it mean that Mr. Manley's Government happens to be avowedly Socialist? Does it mean that Jamaica has contacts with other countries in the Caribbean such as Cuba?
The key test which the fund was making here was political, not economic. We know, in practice, that on many missions which the fund makes to Latin America, it first clears its brief with the State Department, and that this is an area of intervention where it is clearly within United States influence and is not the neutral technical instrument which we are led to expect. This is of very considerable significance, granted that not only is the United Kingdom paying towards the IMF funding but also that we have a United Kingdom director on the fund.
The Jamaican example is significant. When the fund found, in April this year, that the Jamaican Government would not accept the scale of the deflation demanded by the fund, it claimed that to complicate matters for itself
the balance of power within the ruling party shifted decisively in favour of those who opposed the basic tenets of the programme, viz., reliance on the market mechanism and on the private sector to effect recovery.This is what the fund is actually about. It is a very serious situation indeed, not only for Jamaica but also for a country such as Tanzania.
The irony is that when the fund negotiates with a country such as Poland, 1675 it does not, in this sphere of influence, actually insist on thereliance on the market mechanism and the private sector to effect recovery.When it was lending to certain other countries, for example, to Egypt, although the terms of the fund's loan to Egypt were enough to cause riots in the streets, it did not insist on the wholesale change of the Government's social priorities because that country happens to be in a different sphere of influence and because of wider and quite clear United States interests in relation to a Middle East settlement.
I shall not elaborate these specific cases further, but I want to underline the point that the Jamaican Government are in the front line not only of a fight against the pressures from the IMF, not only against the principles of monetarist policy, but also pressures of United States foreign policy.
It is improbable that hon. Members on the Opposition Benches—although I cannot commit them to this—will oppose the order. If we do not oppose the order, it will be because we are concerned that more funds should be made available on a major scale to increase international liquidity. But if we do not oppose the order, it will be with the most major misgivings on the policies of the fund.
We are concerned about the nineteenth-century ceteris paribus reasoning of the fund, its assumption when it deals with an individual country that the rest of the world economy basically stays in some kind of equilibrium rather than the fact that, as the Financial Secretary has admitted and as the fund formally admits, in practice everything is changing. We are concerned about the fact that the fund's reasoning on exports, devaluation and internal deflation—the same package as it recommended for this country—assumes that trade on a world scale is predominantly between different companies in different countries, whereas in fact it is now predominantly within the same companies in different countries. The global dimension of multinational companies' production is now greater than the total volume of world trade.
In key cases in Latin America, and in Jamaica, for example, where an individual commodity such as bauxite, subject to the pricing of multinational companies, pre- 1676 dominates and in the export trade, the activities of these companies and non-price factors are more important than the devaluation itself. To impose a devaluation, as the fund has done on several of these countries, in practice means raising their import prices without increasing their external export revenues.
I therefore urge Opposition Members, in considering whether to support the order, to urge on the Financial Secretary and the Government the case for challenging the beggar-my-neighbour deflation policies of the fund and the case for saying—as my right hon. Friend the Member for Llanelli argued—that if, in practice, we are to support the fund we must do so in terms of a transformed role not only for the fund itself, but also for other international agencies. There must be a recycling of OPEC surpluses and an extension of credit and aid to less developed countries.
It used to be argued that the less developed countries benefited from trade more than from aid. They now need both aid and trade. The IMF is not the most appropriate instrument for the job. It was originally tailored to the needs of the more developed countries and it is not serving the interests of the less developed countries. In many cases it is damaging their interests. We must strongly support the Brandt proposals for a world development fund within the context of not only pushing for a recycling of OPEC surpluses, but also of a higher aid content.
In addition, we must endorse a framework by which fund policies do not mean that individual countries are subjected to the trading and pricing decisions of multinational corporations rather than to those of their Governments. These practices can and should be restrained by both borrowing and aid-receiving countries without imperilling aid finance and transfers. For example, in the Portuguese case the Government, in negotiation with the fund, argued in favour of tougher policies towards foreign multinational capital. It was made effectively plain that aid would not be forthcoming if that policy was pursued.
Further, we must ensure that the Governments of recipient countries decide how to mix their economies between public and private enterprise, and in what way they distribute reflationary spending between their social and personal sectors.
1677 Not least, we must demand the joint reduction of interest rates by central banks and donor agencies, which would be justified by a higher volume of lending and sales on a global scale. I stress that I am recommending a "no holds" policy in fund lending towards the less developed countries. It does not mean blank cheques for the Mobutus and Somozas of this world so that they can squander funds as they think fit. It means recognition—as stressed in the Brandt report—that there is a genuine mutuality of interest between the less developed and more developed countries.
On several estimates, the sheer scale of the under-utilisation of resources is massive. It has been estimated in the Brandt case that that amounts to $200 billion in the developed countries.
The programme in favour of the less developed countries on both an aid and trade basis should be far in excess of that now being considered. We must insist that any further finance for the fund or major extension of its international financial role must be on the basis of "Keynes plus" rather than "Friedman minus". We must transcend this beggar-my-neighbour deflation of trade with a commitment to reflation of world trade through the channel of development in the context of a transformed fund.
§ 11.3 pm
§ Mr. Frank Hooley () Sheffield, Heeley
The debate is becoming extremely interesting. A little while ago I was concerned about it, particularly—to be candid—in relation to the Labour Party. It seemed that we were in danger of attacking the concept of international mechanisms as regards co-operation in monetary and aid methods. I want not to destroy the IMF but to reform it. That is important, and needs to be said from this side of the House.
I am aware of the various criticisms of the IMF. The criticisms of individual cases and of its overall attitude to balance of payments problems over the past decade are justified. The IMF is becoming aware of those criticisms and is endeavouring to respond.
It has been said that the IMF has two roles. First, it has a traditional role within the OECD and the industrial 1678 North. Indeed, it was largely designed for that purpose. Secondly, it has a developing role—I take issue with the Financial Secretary for suggesting that it is not a proper role—in those Third world countries that run into difficulties.
I welcome the new idea of the substitution account, which was referred to by my right hon. Friend the Member for Llanelli (Mr. Davies). It is rather ironic that the Americans have been opposed to the account. Had it been established and had it existed, it would have saved President Carter a considerable amount of trouble.
If we can bring into effect an effective substitution account using the SDRs, that will take the pressure off a major reserve currency. It will save the United States, or possibly sterling should it become a reserve currency again, heaven forbid, pursuing deflationary policies for balance of payments reasons. That will be the effect if the strain can be taken by an international subsitution account. I welcome my right hon. Friend's comments.
I hope that we shall have a positive and energetic policy within the IMF in support of the idea from Her Majesty's Government. I hope that it will exercise some persuasion on the foot-dragging of the West Germans and the Americans, who do not seem so far to have grasped the importance of the concept.
It is not correct to say that the IMF should not have a role in aid for the Third world. The compensatory financing facility and the oil facility—there is a third factor that I cannot call to mind—were specifically designed within the IMF to help to meet the problems of the Third world. It could be said that it was not aid because it related to balance of payments, but we are drifting into a grey area if we try to divide what is aid and what is balance of payments help because both are inevitably interlinked.
In the broad sense it is not true to say that the IMF does not have and has not had an aid role. How has it exercised that role? We run into the conditionality argument, which has been so well spelt out by my hon. Friend the Member for Vauxhall (Mr. Holland) and illustrated by the various examples that he mentioned. I do not need to go into that in great detail.
1679 It is interesting that the IMF is becoming extremely sensitive in its published statements about that problem. It is getting neurotic about the statements that the IMF kills or starves babies.
§ Mr. Hooley
I hesitate to say that. However, there is a school of opinion that claims that the IMF's rigorous conditionality has done serious social and economic damage to some Third world countries that have asked for its aid. Undoubtedly, there are indications—I do not know whether they stem from the change in managing director—that the IMF has become sensitive to such criticism and is endeavouring to do something about it.
The Financial Secretary mentioned Guyana. That is an interesting example, although it is regrettable that the exercise in respect of Guyana, sensible as it is in itself, where we have had a marriage of effort between the IMF and the World Bank, should have been in favour of a Government who seem to be killing the leaders of the principal opposition parties. That is a somewhat separate issue. Nevertheless, the concept of marrying up the efforts of the IMF to deal with the balance of payments problem of a Third world country to those of the World Bank to do something about the real resources of wealth of that country is a sensible and good idea. I hope that it will be developed, although perhaps in happier circumstances than in Guyana.
My fourth point concerns the control of the IMF. It is dominated by 20 of the wealthiest countries in the world, and particularly by the United States. It has been argued that the articles of agreement should be amended to allow Third world and OPEC countries to have a much more direct say in how policies are formulated, so that the IMF is not felt to be the preserve of the rich but a genuinely international institution in which North and South, and, if necessary, East and West, can combine for the benefit of the whole world.
This is an important debate. The debate on the role of the IMF is part of the fundamental debate about the international mechanisms, including GATT, that have served us reasonably well for two and a half or three decades, but which 1680 now need re-examining. However, in our enthusiasm for perfectly proper reform, we should not undermine the immensely important and sophisticated mechanisms that mankind has developed for itself over the past 30 years simply because they may have gone down a road that we do not care for.
§ Mr. Frank Dobson () Holborn and St. Pancras, South
When I first read the title of the order—International Monetary Fund (Increase in Subscription) Order"—I thought perhaps the Chancellor of the Exchequer had received one of those letters that members of organisations these days receive, saying: "Dear Member, Owing to unforeseen circumstances, the present rate of inflation and the disastrous demands for wage increases by our members, unfortunately it has been necessary to call upon you once and for all to make an increase in your subscription." If there are unforeseen circumstances, and the world economy and trade are in such desperate straits, the IMF, as one of the primary monetary and financial organisations that the world has established to make things better, has been failing badly in the role that it was given in 1945.
It is worth reading two of those famous articles that set out the purposes of the IMF when it was established in order to see how far it has moved away from them. I do not know whether I agree that it is a body worth preserving if it can move so far away from its clearly enunciated purposes. One of its purposes is:To facilitate the expansion and balanced growth of international trade, and to contribute thereby to the promotion and maintenance of high levels of employment and real income and to the development of productive resources of all members as primary objectives of economic policy.That the IMF has not done. It has acted contrary to that article on many occasions. It may not have intended to do so, but the practical effects of its intervention have been contrary to that article.
A further purpose enunciated in 1945 was:To give confidence to members by making the Fund's resources temporarily available to them under adequate safeguards, thus providing them with opportunity to correct mal- 1681 adjustments in their balance of payments without resorting to measures destructive of national or international prosperity.That sounds sour to many poor people whose countries have been visited by the hatchet men from the IMF. Those people have suffered as a result. I make no mention of the adverse effects on the standard of living of ordinary people in this country that resulted from the IMF's most recent foray into the British economy.
The general approach of the IMF to underdeveloped or developing countries is to insist on domestic deflation, and cuts on welfare provision for ordinary people and public expenditure generally. It has always set out to frustrate the efforts of member Governments to redistribute the wealth of poor countries in favour of the worst off. It has insisted on the introduction of anti-strike or antitrade union legislation.
It has also set about promoting the role of the multinational companies in international trade. Consequently, many of its policies have smothered locally based industry and put it at a disadvantage in relation to the multinationals. It has insisted on the member country offering tax benefits to foreign investing companies which are not available to domestic companies and has also insisted, on occasions, that the country guarantees remittance of profits back to whichever country the multinational decides is convenient to own the multinational when sorting out how to minimise tax payments by shuffling their profits round the world.
These policies have been pursued unremittingly in the developing world. Generally speaking, the IMF has forced countries to adopt policies which put those countries increasingly at the mercy of the IMF and the richer countries rather than allowing and encouraging them to promote their own independence instead of dependence on the developed West. This can only be described as a long history of undermining democratically elected Governments by deliberately frustrating the aspirations of the ordinary people of many underdeveloped member countries. That has happened recently in Jamaica. It has occurred in many other countries.
1682 Sometimes, when the IMF has finished its process of undermining democracy, by imposing politically unacceptable solutions on the democratic underdeveloped countries, it has moved in like a vulture following the military coup that the fund itself has precipitated. A wonderful example is Chile. Not long after the generals had overthrown the democratically elected Government the IMF was picking up the pieces and praising the generals. Seen in the terms in which the IMF views Governments, economies and societies, that is right. The generals are its sort of people. Generals, armies and those possessing no democratic relationship with their populations are the people who can keep down the aspirations of their poor populations. The IMF has promoted such people.
In such circumstances, I cannot bring myself to say that we should not vote tonight. I believe that we should divide the House and vote against the order. The phrase "IMF riot" is used in the underdeveloped world. The IMF has often insisted on policies which have so depressed the standards of living of ordinary people that riots have resulted. It is unlikely that we can transform the organisation. It would be better if it were scrapped and replaced.
Someone who is more familiar with the issue than myself, and who is more familiar with the IMF's activities in the underdeveloped world than any hon. Member, is that good Socialist the president of Tanzania. He stated:The problems of my country and other Third world countries are grave enough without the political interference of IMF officials. If they cannot help, at the very least they should stop meddling.
§ Mr. Tam Dalyell () West Lothian
I do not know what conclusions to draw, but I suspect that if this debate had taken place 15 years ago there would have been a full House of Commons to hear it. Those of us who remember that incredible night involving George Brown, the then Foreign Secretary, and his ramifications of IMF prejudice must reflect that something has changed in the nature of British politics when the IMF attracts so comparatively few people to a debate, in spite of the deeply interesting speeches of my right hon. 1683 Friend the Member for Llanelli (Mr. Davies) and my hon. Friend the Member for Vauxhall (Mr. Holland).
I should like to ask one specific but long question arising out of the Brandt report. On page 255 of the report, recommendation 6 states:The use of IMF gold reserves either for further sales, whose profits would subsidize interest on development lending, or as collateral to borrow for on-lending to developing countries.I should like to ask a question about the collateral that can be provided for gold reserves. The matter is mixed up with aid-giving.
There is a strong impression that in the days of Pierre-Paul Schweitzer there was a different concept by leading members of the IMF of its role. It had a great deal to do with Third world aid. Over the years, I do not say that it has become harder, but the concept of function has changed.
It is stated on page 246 of the Brandt report:There are ways of raising more automatic resources through the monetary system … These measures could be implemented relatively quickly. The continued creation of Special Drawing Rights consistent with the total reserve needs of the world economy and a more equitable allocation of SDRs to developing countries would be one such measure. Another measure lies in the use of gold holdings with the IMF. One possibility would be to use these gold holdings as collateral for raising resources in financial markets which can be re-lent to developing countries.Do the Government agree with that? It is a great pity that in neither of our debates on Brandt—both the Friday debate, in which I took part, with a number of my hon. Friends, and the major Monday debate—was there any reference by the Government, as far as I know, having checked, to their attitude to these propositions.
The report goes on:The profits from the progressive sale of the remaining two-thirds of the IMF's gold holdings—about 100 million ounces—could amount, on the basis of a market price of $300 to $400 per ounce of gold, to a sum in the order of $30 to $40 billion over a period of time. Such a sum could yield annual revenues in the order of $2–4 to $3–2 billion, assuming a return of 8 per cent. If these resources are used to subsidize interest, they could enable a substantial volume of semi-concessional finance to be made available to developing countries.That would do a heck of a lot. 1684Members could decide in negotiation the proportion of the profits which would be devoted to development lending as well as the purposes for their use. Even if member countries insist on keeping a part of these profits, they might agree to keep their share of the profits on deposit, and to permit the annual return from these deposits to go to development uses.That was the considered view of the Brandt committee.
At a meeting upstairs, the right hon. Member for Sidcup (Mr. Heath) was asked whether he was serious about this recommendation. He very honestly and candidly said that there were certain proposals that he would find it very difficult to agree with and sustain an argument about. The arms tax, about which I asked him, was one. But the right hon. Gentleman made it quite clear that he and his colleagues were absolutely serious about this recommendation.
Therefore, I ask the Government what study has been made of Brandt's views on the whole question of gold and the collateral use of gold for development finance. If they do not accept it, will they use this opportunity to say why they do not?
It is a great pity that Brandt has been discussed in such general terms. Certainly some of us in the coming Session intend to go through the recommendations point by point. It may not be very sensible to suggest that any Government would accept every recommendation simply because it is enshrined in Brandt. I do not think that anyone would be so silly as to suggest that. But at least on this kind of recommendation, and many others, there comes a point when the Administration of the day must give good reasons why they are not acceptable.
I should like to hear the Financial Secretary say a word or two on the whole question of gold and the nature of the collateral benefits that could accrue to developing countries and—as is taken for granted by some of my hon. Friends, particularly my hon. Friend the Member for Sheffield, Heeley (Mr. Hooley) and others who also know a great deal about the matter—the consequent advantages to British and other Western European industry.
§ Mr. John Browne () Winchester
Unlike the hon. Member for Holborn and St. Pancras, South (Mr. Dobson), I 1685 believe that the International Monetary Fund, together with its sister organisations—the World Bank, the International Bank for Reconstruction and Development and the International Finance Corporation—has done, given the circumstances of the world, a very good job. Over the years since those organisations were formed we have had a time of unparalleled economic growth, unparalleled financial prosperity and unparalleled international peace, on a major scale. For those three matters we owe a great deal to the efforts of the IMF and the World Bank and their member nations in sticking by their original principles, which grew out of the Bretton Woods agreement.
Not everything has been perfect, and I have a number of criticisms. They are important criticisms when we come here to vote an extra 1½ billion SDRs in our subscription. The responsibilities of the IMF were to encourage healthy economic growth, as we have been told by the hon. Member for Holborn and St. Pancras, South. That is true and it has happened. Whether, in latter years, growth has been so healthy is an open question.
Secondly, the aim was to discourage economic instability by reducing extremes of surpluses and deficits. The IMF has been fairly successful in controlling, and influencing for the good, reductions in deficits. Where it has failed has been in reducing surpluses. This has been a special problem since 1973, with the vast OPEC surpluses. One Opposition Member mentioned those who control the IMF and the World Bank. Originally the IMF was very much a United States-influenced body. In those days the United States ran gigantic surpluses. There was very little effort, as far as I can see, to reduce surpluses. All the effort was to reduce the deficits. Now, the United States is running deficits and the situation has changed. This will be a good thing.
The United States, with its large shareholding in the voting sense, has started to support a policy of equality. I ask whether it is not too late, when we have these gigantic OPEC surpluses, to stop now using only our old mechanisms. We have to try to achieve a balance rather than just hitting at deficits. I hope that 1686 our officials will press for such a balance now that they will get the agreement of at least the United States.
A third aim, or responsibility, of the IMF was to maintain international monetary liquidity by making facilities available to member countries. It has succeeded very well in this—one might say too well. The fourth, and, I believe, the most vital, of the responsibilities of the IMF was to maintain international confidence in money. I believe that the IMF, not alone but together with its member Governments, has most certainly failed in that, especially in recent years.
I want to spend a short time dealing with the issues of excessive liquidity and lack of confidence in money, illustrating what I mean. International liquidity has certainly been increased. We are increasing IMF liquidity tonight. I wonder whether past increases have been a camouflage for various nations which have not accepted monetary disciplines or faced economic reality. If they have, such increases in liquidity have largely been a disservice to the world because the basic problems have grown and grown whilst the IMF and other world organisations have pushed more and more dollars after the problems without solving the underlying problems. This is similar to the problem we now have in our own economy. The Government should be pressing for the same sort of monetary discipline for the IMF and the World Bank as they are pursuing at home. It is important that tonight's 1½ billion SDR increase in our subscription—with which I agree—should be accompanied by a demand for a much more serious and disciplined approach to its spending and the granting of liquidity to member nations.
It is appalling when we think that $450 billion a year is spent on armaments in the world. I am not saying that the IMF is to blame for this. The big super-Powers account for a huge chunk of it. But I am sure that member nations and recipient nations which benefit from the World Bank spend undue amounts of the money they receive on armaments. This is not a good use of proceeds, and we as a member nation must be much more strict in demanding a proper use of proceeds from the IMF and the World Bank.
My final point is about confidence in money. This is one of the five classic 1687 duties of any Government, and, therefore, it must be one of the five classic duties of an international government organisation, particularly one involved in finance. At birth, all these sister organisations were founded when the United States dollar was king and there was universal confidence in it. There was no real monetary problem for the world. However, with the massive deficit financing of the Vietnam war, because the United States Government would not face their population with reality and demand extra taxes to pay for the war, people began to get suspicious of the United States dollar.
The deficit financing of the United States ran up large surpluses in other countries. One of those countries, France, started to ask for the conversion of its dollars into gold. But the most important fact about the United States dollar was that, as a last resort, it was convertible into gold. The late President de Gaulle started to convert his French national dollar surpluses into gold. Confidence in the dollar was maintained. But in November 1971 President Nixon closed the "gold window" and with it the last link of any major trading currency with gold. Since then, we have had international monetary chaos largely because monetary confidence has evaporated. It has been salvaged partially and temporarily by all sorts of swap arrangements—this deal and that deal. There has been a tremendous financial massage to try to get—
§ Mr. Browne
The hon. Gentleman refers to the gold standard, but he must realise that there are four grades in the gold standard. I am not talking about going back to a full gold standard. I am talking about the gold exchange standard, where one deals and trades in normal money, but the paper money is itself convertible into gold.
I ask my hon. Friend the Financial Secretary to press, in the IMF and the World Bank, for the reinstitution of the gold exchange standard. If the United States is unwilling to have the United States dollar itself again convertible into gold, as it was until 1971—I see some Labour Members smiling. They should remember that there was relative international monetary stability until 1971. This was the great growth phase. The chaos has happened since 1688 1971, a time of no gold-currency convertibility. I believe that confidence will be restored only if, somewhere along the line, gold convertibility is restored. SDRs are virtually mere accounting transactions. I have yet to see a paper SDR—even a piece of paper. I think that even if the SDR is adopted, somewhere in that SDR there must be a gold convertibility clause. I believe that we should press for that at the IMF. I ask my hon. Friend to consider that and press for it in future negotiations, particularly as we are being asked to ante up our IMF subscription. This is the very time when we can ask for certain conditions.
§ Mr. Anthony Nelson () Chichester
I am interested in my hon. Friend's suggestion. Does he agree that one thing that has changed substantially in recent years is that the holdings of gold are more widespread than used to be the case? Whereas they were predominantly in the coffers of national Governments, notably in Europe, in recent years the removal of convertibility and the free exchange market in gold has meant that the ownership of gold has been much more widespread. I mention this because the result has been that gold has become a much more volatile commodity on the international market. Therefore, I—and, I suspect, others—question whether it is right that it should be restored as a basis for the value of the funds to which my hon. Friend is referring.
§ Mr. Browne
That is a most interesting point, and basically I agree with my hon. Friend. I would solve the problem by having gold convertible but not at the free market price. There is indeed a real risk that gold has catapulted itself out of the monetary system and out of its stabilising role. Governments must start clawing it back. The prime reason for this volatility in gold price is the lack of confidence in paper money. It is the duty of Governments to restore that confidence, and it is they alone who can solve the problem with gold. If they do not solve it, we shall end up on the full gold standard. People will not take money. They will accept only gold bars and gold coins. There will then be a world recession that would make 1939 look like a picnic.
The solution that I suggest is that the members of the IMF should agree a pre- 1689 mium conversion price for gold. For example, the price of gold today may be $650 an ounce. A new international currency should be created. I suggested such an international currency for Europe in 1972 and called it the Karl, because Karl der Grosse-Charlemagne was the first unifier of Europe. Also the K was a new monetary sign. None the less, if we create a new international currency to be used only by central bankers, not even used by the banking system—it could not be successful without all economies being the same—and convertible into gold not at, for example, $650 an ounce but at a premium of, say, $850 an ounce, people would not immediately convert into gold without a sound reason. This would start to restore confidence in the paper Karl currency because it would be convertible, not at the market price but at a big premium.
When I originally put the idea forward in 1972, gold was standing at less than $100 an ounce. I said that the conversion premium should be $200 an ounce. In those days that could have been done, but $200 an ounce is out of the question now. Some thought must be directed to restoring gold-currency convertibility while at the same time deterring a rush to convert the currency into gold. This could be done by creating a premium conversion price.
Of course, the selection of a specific but adjustable premium would be up to the members and the experts in the IMF and of the member Governments. With closer co-operation in the world, discount facilities could be allowed in the new currency. As a second phase, banks other than the central banks could then be allowed to use it if it were a success in its first phase as a central bankers' currency. I think that it would be a great success if we had the courage to implement it on a central banker basis. I hope that that answers the question by my hon. Friend the Member for Chichester (Mr. Nelson).
With that I should like to close and to ask my hon. Friend the Financial Secretary if he will consider my suggestions seriously.
§ Mr. Lawson
In the few minutes that remain I cannot do justice to the many important issues that have been raised in 1690 the debate. Perhaps, therefore, it will be appropriate for me to begin by replying to some of the points made by the right hon. Member for Llanelli (Mr. Davies). He seemed to wish to merge the IMF and the World Bank into a single institution. I think that that would be a great mistake. I think that he was wrong to characterise the difference between the fund and the bank as the fund being for the richer countries and the bank being for the poorer. That is not the case. The difference has been much more accurately described in the rubric that the bank is a fund and the fund is a bank. They have very different roles.
The right hon. Gentleman was on to a better point when he asked what the fund was doing to help the developing countries that have been hit by the oil price increases. The International Monetary Fund fully recognises the difficulties of the less developed countries, and it is currently examining ways of making an increased contribution to the recycling process. Various measures, apart from the increase in quotas that we are now discussing, such as direct borrowing from the OPEC countries by the IMF, are under consideration.
The right hon. Gentleman was widest of the mark when he suggested that the fund had no interest in the less developed countries. The fund's operations are geared extensively to the needs of the developing countries. Until a few years ago, most of the standby arrangements were for 12 months or less. The fund has now recognised that, given the changes in the economic environment, many members cannot be expected to correct their balance of payments in so short a period. As a consequence, many arrangements now provide for longer adjustment periods.
The fund also has an extended financing facility providing enhanced credit over three years, with repayments staged up to 10 years. A supplementary financing facility, to which the hon. Member for Sheffield, Heeley (Mr. Hooley) referred, provides extra and substantial credit for members with standby and extended arrangements whose financing problems are large in relation to their quota. Of the $10 billion available under this facility, nearly $4 billion has so far been committed, all of it to less developed countries.
1691 The compensatory financing facility—the so-called CFF—provides credits virtually without conditionality to members at 100 per cent. of their quotas. The quota increase that we are now debating will increase the sums available under this heading by 50 per cent. Fifty-two less developed countries currently have drawings amounting to $3–4 billion on facility, which is nearly 40 per cent. of the fund's lending to the less developed countries.
Following a disposal of one-sixth of the fund's gold holdings—this refers to some extent to the point made by the hon. Member for West Lothian (Mr. Dalyell), although the Brandt proposal on gold is under discussion and is being considered by the IMF and the World Bank—about $1–3 billion of profit has been distributed directly to 104 developing countries. A further $2–6 billion has been lent to the poorest less developed countries at a ½ per cent. interest rate, with a maturity of six to 10 years. That gives the lie to much of what has been said by Labour Members, including the right hon. Member for Llanelli. The total lending to less developed countries by the fund currently stands at $11 billion—86 per cent. of total fund lending. Concessional lending to the less developed countries stands at $7–8 billion and constitutes 60 per cent. of total lending to all its members.
The fund insists on certain economic policies, in the sense of conditionality, which will lead to the recovery from the problems from which the countries are suffering. The hon. Member for Vaux-hall (Mr. Holland), with his infantile
Leftist economics, supported by the hon. Member for Holborn and St. Pancras, South (Mr. Dobson) and the right hon. Member for Bristol, South-East (Mr. Benn), suggested policies which would be disastrous if they were imposed in this country, and which would be equally disastrous if they were imposed in the less developed countries. Therefore, it is not surprising that the International Monetary Fund has no wish to see those policies followed in the countries concerned.
§ Mr. Stuart Holland
Rather than launching into elaborate adjectives, will the Financial Secretary answer a simple point? If there is a joint deflation in main trading countries, does it or does it not reduce their import trade from each other, and does it or does it not reduce their export trade to each other? When he argued that the sums he mentioned give the lie to arguments of Labour Members, is he not aware that the Brandt report reckoned that the total trade deficit for less developed countries this year would be $60 billion as opposed to the $7 billion or $8 billion about which he spoke?
§ Mr. Lawson
I hardly have time to reply to the hon. Gentleman. I entirely repudiate the suggestion that the policies of sound economics—
§ It being one and a half hours after the commencement of proceedings on the motion, Mr. DEPUTY SPEAKER put the Question, pursuant to Standing Order No. 3 (Exempted business):
§ The House divided: Ayes 75, Noes 14.
|Wakeham, John||Watson, John|
|Waldegrave, Hon William||Wheeler, John||TELLERS FOR THE AYES:|
|Walker, Bill (Perth & E Perthshire)||Whitney, Raymond||Mr. Tony Newton and|
|Waller, Gary||Wickenden, Keith||Mr. David Waddington.|
|Ward, John||Winterton, Nicholas|
|Browne, John (Wincheser)||Evans, John (Newton)||Roberts, Alan (Bootle)|
|Campbell-Savours, Dale||Faulds, Andrew||Soley, Clive|
|Cook, Robin F.||Hamilton. W. W. (Central Fife)|
|Cryer, Bob||Haynes, Frank||TELLERS FOR THE NOES:|
|Dalyell, Tarn||Holland, Stuart (L'beih, Vauxhall)||Mr. Frank Dobson and|
|Duffy, A. E. P.||Parry, Robert||Mr. Joho Home Robertson.|
§ Question accordingly agreed to.
§ That the draft International Monetary Fund (Increase in Subscription) Order 1980, which was laid before this House on 4 July, be approved.