HC Deb 24 March 1983 vol 39 cc1135-51 12.36 am
Mr. Frank Hooley (Sheffield, Heeley)

We are all in the same boat, and the South end of the boat is sinking. The North end is not too buoyant either. That is at the centre of the assessment by Brandt 2 of what is happening in the world at the moment. I shall quote more precisely from page 16 of the new Brandt document, which, throughout the debate, I shall refer to as Brandt 2. It says: The world economy faces its fourth consecutive year of stagnation. It could well contract further. The great majority of the world's countries, North and South, are deliberately restraining activity … But they are mainly communicating to each other the ill effects of their policies. We were warned of all that three years ago. We had the first document from the Brandt commission, entitled: North-South: A Programme For Survival. It proposed a wide range of measures, finance, aid, food, energy and institutional reform to bring the world's economy out of crisis with particular relation to the Third world.

The Government's response was set out in the Foreign Office memo in July 1980, and I quote a little of it: The Government believe strongly in the merits of the present world economic system … open markets for trade and financial flows. The Government soon began to demonstrate, and they have demonstrated further, their beliefs in what they thought aid should be by claiming that aid should be determined, not so much by the needs of the recipients as by political, commercial and industrial considerations".—[Official Report, 20 February 1980; Vol. 979, c.464. That was the considered opinion of the right hon. Member for Banbury (Sir N. Marten). Monetarism flourished at home and abroad and we see the consequences all around. There is mass unemployment—in the EC 11.5 million, the United States 12.5 million and in the OECD countries 30 million.

There has been industrial stagnation, a fall in living standards, the collapse of commodity prices, high interest rates and economic ruin for the poorest countries whose exports can no longer buy the imports that they need to survive. Brandt 1 suggested that a summit of world leadership might help. Cancun came and went and the opportunity to do something constructive was lost.

Then, last year, something happened that shook even the complacency of the North in relation to the terrible plight of the South. I refer to the debt crisis. The crisis of debts owed by Mexico, Brazil, Argentina and other countries such as Poland and Yugoslavia suddenly concentrated the mind of the North, which began to look more seriously at what was going wrong with the economic structure of the world and what was happening in the Third world countries, admittedly some of the bigger ones, such as Mexico and Brazil, which were getting into a position that threatened the whole banking structure around which the economies of the industrial world revolve.

Against that background, Brandt tried again. One of the features of Brandt 2 is that it recognises, as did Brandt 1, that the world has one great asset that did not exist in the 1930s. That is the immensely sophisticated machinery of international co-operation that has been built up over the past 40 years. We have the World Bank, the International Development Authority, the IMF, GATT, UNCTAD and a whole range of technical agencies of the United Nations—FAO, UNDP, WHO, IMCO, UNEP and all the rest. Brandt asks that these should be used more vigorously with greater and more determined political will, vision and imagination. The institutions are there. The experience is there. They have been built over a long period, and countries are accustomed to dealing within the framework of these institutions. What is required is the political will and the vision to make them work and to adopt policies in concert and individually that carry the world out of the slump and recession and back on to a more reasonable path of economic growth with benefit alike to North and South.

Of the more specific proposals contained in Brandt 2, I start with the volume of aid. The commission reiterates the commitment to the 0.7 per cent. target which the United Nations laid down. It seems so long ago that it was set that I forget the date. Brandt 2 asks that aid should be doubled in real terms to the poorest countries. The commission suggests that there should be more bilateral programme lending. It condemns the use of aid simply to finance the exports of donor countries. In this respect, it is regrettable that the aid and trade provision within our own ODA budget has been expanding and used increasingly for the benefit of large and powerful British companies to subsidise their exports, not always—although I accept it is sometimes the case—with regard to real developmental needs of places where some of the exports were going.

Brandt 2 asks that we should waive all official debt of the poorest countries. In this respect, the United Kingdom has a reasonably good record. I fear, however, that the Government's record on the volume of aid is not remotely good enough. I am bound to draw attention to page 15 of Volume One of the White Paper "The Government's Expenditure Plans", Cmnd. 8789, which sets out, at constant 1981–82 prices, Government expenditure in a range of categories over the past seven years.

The Government's figures, published just before the Budget, show that at 1981–82 prices the volume of aid under the Labour Government was £1,015 million in 1977–78, £1,108 million in 1978–79, and £1,031 million in 1979–80, the transition year from Labour to Conservative Government. In the period for which the Government are directly responsible the figure fell to £983 million in 1980–81, £960 million in 1981–82 and £892 million in 1982–83. For 1983–84 a slight upturn to £936 million is projected, but with the proviso that most of the extra money will go to make good the appalling damage of the Falklands fiasco.

Between 1978–79, the last year of the Labour Government, and the current financial year, 1982–83, aid expenditure has fallen in real terms by £216 million or 19 per cent. If the Government are to take Brandt 2 more seriously than they took Brandt 1—assuming that they stay in office, which I think is unlikely—they will have to reverse the disastrous trend in the volume of aid. The Labour party is pledged to reverse that trend and will restore and indeed improve on the level of aid between 1977 and. 1979.

Mr. Christopher Brocklebank-Fowler (Norfolk, North-West)

At what rate would a Labour Government propose to move towards achieving the 0.7 per cent. target? Is there a fixed period over which they would hope to achieve that?

Mr. Hooley

We should certainly aim to achieve it within the lifetime of the next Parliament. I say that from memory, but I will check it in the official Labour party document if necessary. Certainly we intend to pick up the pledge that we made shortly before leaving office, that under a Labour Government there would be sustained growth in real terms in the aid budget.

Brandt is scathing about spending on armaments and its impact on world development and poorer countries. The commission points out that in 1980 $450 billion was spent on armaments worldwide. By 1982 the figure had shot up to $650 billion—an incredible waste of resources. Brandt states categorically that military expenditure is very much more a part of the world's economic problems that its solution and that higher spending on weapons does not produce additional employment commensurate with the spending.

Here, too, the Government's record has little to commend it. Volume I of the White Paper, Cmnd. 8789, shows that £11.5 billion was spent on defence in the last year of the Labour Government. By 1983–84, according to the Government's own figures, the amount will have shot up to £14.2 billion—an increase in spending on armaments of £2,700 million or 23 per cent. in real terms in the Conservatives' period of office. A tiny fraction of that diverted to aid would at least maintain the level of aid programme that the Government inherited. Had they been even slightly more ambitious, they could have surpassed that level without difficulty. It is no use arguing that the resources were not there. They were there, but they were diverted and are still being diverted to massive expenditure on armaments, while the aid programme has been neglected. One of the lessons of Brandt 2 is that this is a wrong, misconceived and misbegotten use of resources.

The report expresses great anxiety that there should be a substantial replenishment of the IDA at the seventh replenishment. I congratulate the Government on their attitude to the sixth replenishment and compliment the right hon. Member for Banbury on his efforts. When the United States was being particularly obtuse, difficult and unco-operative, the Government were willing to make their own contribution and encourage other contributors to do likewise. I trust that that attitude will be maintained when the negotiations take place on the seventh replenishment, which will be vital to the poorest countries, because it is grant money and not a loan.

The report is concerned that the World Bank should increase substantially its available resources. It asks for an increase in the capital subscription and an increase in its borrowing power by doubling the existing gearing ratio. It is urging that instead of being able to borrow on a ratio of only 1:1 on its present capital it should be able to do so on a ratio of 2:1. I hope that the United Kingdom will support these proposals.

It is suggested also that the World Bank should give more money to structural lending—that is, lending not for particular projects but substantial sums that are geared to a country's economic structure and which, to some extent, overlap the IMF's functions. At present the bank's structural lending is about 10 per cent. of its total effort, and the Brandt report suggests that in future it should be 30 per cent.

It is interesting and coincidental that the hon. Member for Hertford and Stevenage (Mr. Wells) introduced a discussion on the IMF while not knowing that I was proposing to introduce a discussion on aid. In fact, the two subjects overlap. Brandt 2 says a great deal about the necessity to enlarge the IMF's resources and give it greater capacity to deal with balance of payments problems, the debt problems of developing countries and the general world shortage of reserves and liquidity. We have had an hour and a half's discussion on exchange rates and I do not propose to go over that ground again, except to say that it seems strange that the Prime Minister talks so glibly about sound money when presiding over a Government who have seen the pound lurch in less than two years from $2.42 to the pound to $1.48. Indeed, the pound is still lurching.

The report identifies a gap of $85 billion between the resources that Third world countries are likely to be able to obtain as a necessary continuing requirement of their economies and what they will actually need. It identifies a number of resources, such as private lending, public lending, the World Bank and the IMF, but comes to the conclusion that when all these resources have been tapped there will remain a gap of $85 billion. That sum will be required if the economies of Third world countries are to function satisfactorily.

According to the report, a major solution to the problem would be a new allocation of special drawing rights designed to meet the poorest countries' needs. Brandt 2 states on page 57: We are convinced that present circumstances demand the use of SDRs. The level must be very large and related to the extent of the declines in international liquidity and the level of deficits which must be financed if contractionary forces are to be reversed … Besides the quick provision of relief, an SDR allocation has other advantages at this time. SDRs have declined considerably as a proportion of non-gold reserves. An allocation of about SDR 10–12 billion per year for the next three years is required merely to restore this ratio to about the level it held after the first period of allocation which ended in 1972. A further advantage is that SDR allocations do not create repayment obligations, a particularly important feature. Brandt suggests that the IMF quotas should be doubled. A recent agreement raises them by 50 per cent., but that is nowhere near enough. The general arrangement to borrow should be improved. Again, there has been some action recently. More gold sales should take place to provide the IMF with more resources.

Brandt emphasises the need to expand the compensatory financing facility, which has been a feature of IMF lending in the past few years, to countries which have run into serious balance of payments problems because of the fall in the value of exported commodities.

On the vexed question of conditionality—the conditions laid down by the IMF when lending to the poorer countries—Brandt is severely critical of the monetarist approach by the IMF and says that in future the IMF should look at its objectives in making and coming to agreements to assist poorer countries under the terms of its charter and that its objectives should not be just the curbing of inflation and dealing with balance of payments problems, but real economic growth, fuller employment and the equitable distribution of incomes. It says that the IMF should also take into account the need to adjust to a reasonable pace the rate of change and adjustment of economies.

The report discusses other matters such as trade. It comes out emphatically in favour of making the common fund an effective instrument for modifying fluctuations in the price of commodities. It suggests that there should be much closer consultation between GATT and UNCTAD and calls for determined resistance to excessive protectionism.

On energy and food, the report asks for a new energy agency—repeating the proposition in Brandt 1 that an affiliate of the World Bank should be designed to deal with world energy problems—and calls for a dialogue between oil consumers and producers. The report states that measures should increase food security and production and the international reserve of food. That is strikingly and tragically opposite, in view of what has happened in Ethiopia.

The United Kingdom could not unilaterally operate some of the recommendations in the report. We could increase the volume and quality of our aid. We could cut out spending on armaments and sign the United Nations treaty on the law of the sea. We could reduce the ridiculous fees charged to overseas students. We could make available to developing countries our enormous expertise, particularly in relation to gas and oil exploration, coal, and solar and wind power. We have the capacity to do those things and there is no reason why the United Kingdom should not adopt such policies.

There is a clear case for using our influence in the IDA, on the resources of the World Bank and in the IMF. Brandt makes the important point that it is essential that like-minded countries, which are anxious to see progress and some effective dealing with the terrible problems of world poverty, get together to help push the dialogue forward so that we do not perpetually stand around waiting for the United States, West Germany or Japan to do something, but form a coalition for action.

The United Kingdom is especially well placed to take such an initiative as we have connections with Europe, the Commonwealth and north Africa. The forthcoming UNCTAD 6 meeting this year gives us a great opportunity, if we choose to take it, to push forward on some of the fronts that are ably and well set out in this important document.

I shall conclude with a quotation from the document, which is not written by the Brandt commission but is drawn from a statement by the leading American delegate at the original Bretton Woods conference, Mr. Harry Dexter White. He said: Where modern diplomacy calls for swift and bold action, we engage in long drawn-out cautious negotiation; where we should talk in terms of billions of dollars, we think in terms of millions; where we should measure success by the generosity of the government that can best afford it, we measure it by the sharpness of the bargain driven; where we should be dealing with all-embracing economic, political and social problems, we discuss minor trade objectives, or small national advantages; … we must substitute, before it is too late, imagination for tradition; generosity for shrewdness; understanding for bargaining; toughness for caution; and wisdom for prejudice. We are rich—we should use more of our wealth in the interest of peace. I entirely endorse those sentiments.

1.1 am

Mr. Christopher Brocklebank-Fowler (Norfolk, North-West)

The House is indebted to the hon. Members for Hertford and Stevenage (Mr. Wells) and Sheffield, Heeley (Mr. Hooley) for enabling us to debate these matters. It is an extraordinary aspect of our parliamentary system that it is the luck of the ballot in the late middle of a Thursday evening that decides that the House should discuss an issue which is relevant to the international economy and the fortunes of developing countries and which directly affects problems in Britain.

I still look forward to the day when a Treasury Minister who has dealt with one half of the debate can spare the House the time to listen to another part in which it is more likely that we shall concentrate on trade, aid and foreign affairs. It is a remarkable inconvenience of our system that we never seem to get the right bunch of Ministers in the House at the same time to listen to the broad debate that is central to Britain's future and, some would say, the peace of the world.

In a foreword to a book called "EEC and the Third World: a Survey" Willy Brandt wrote as follows: The world economic crisis is deepening and by the end of 1982 no major internationally co-ordinated effort was visible which might alleviate the problems besetting all countries. Recent suggestions for change and even promises contained in the communiques of summit meetings at Versailles and Cancun have not led to any concrete steps. National governments seem to become more and more concerned with internal difficulties and look for domestic solutions to their problems, particularly that of unemployment. They are not yet ready to accept the thesis that internationally co-ordinated action and greater support for the developing countries might provide the real way out of the crisis. I agree with that, and I believe that the majority of those who have taken part in or listened to all or part of these two debates must agree with him. The world is experiencing the deepest slump for 50 years. The SDP believes that the United Kingdom should take the lead in calling for a rejection of the restrictive economic policies which, together with the oil crises, have driven the world into a slump. We must work towards a replacement of those policies by policies of joint expansion on a coordinated and co-operative basis to chart a course out of world recession.

During the past few years the world has squandered the remarkable achievements of the quarter century between 1948 and 1973, when greater prosperity and unity were achieved than had ever been seen before. The world needs imaginative and constructive statesmanship, yet Western leaders have concentrated on the problems of their countries with little regard to the repercussive attempts of their attempted remedies.

The foreword of the second Brandt report states: Everybody should know what immense dangers the present international crisis holds, and that only a new relationship between industrialised countries and developing countries can help overcome this crisis. There is a clear common interest. This, of course, does not reduce the moral obligation of the rich to the poor, in particular towards those whose situations have become more desperate in the last few years. The Government have not begun to recognise that we not only suffer the results of a world slump—on many occasions Government spokesmen have referred to how Britain has suffered—but that, because of their narrow vision, we have contributed substantially to that slump. The time has come when the United Kingdom should combine with her allies to reject devaluation and protectionism and work with them for the expansion of world trade ad a revival of growth in our domestic economies. Co-operative action should encourage countries to expand together to avoid disruptive balance of payments difficulties and the inflationary pressures that follow a collapsing exchange rate.

In the previous debate this matter was mentioned by hon. Members on both sides of the House. However, it was a major disappointment that the Economic Secretary to the Treasury, although he recognised the importance of exchange rate stability and said how much this would contribute to an expansion of world trade and an improvement of international economic conditions generally, went on to show that the Government have no policy for solving the problem. We accept that no single national Government can solve the problem, but, more importantly, the lacuna in his argument was that he and the Government had no intention of making a contribution to a broader-based international attempt to introduce exchange rate stability. If that is the attitude of the Treasury, so soon before the Williamsburg summit, some of us can look forward to this summer with the regrets that all of us had following the lack of progress at the previous series of summits that climaxed at Cancun last year.

Co-ordinated expansion will not succeed unless exchange rates are stabilised. While fluctuations in exchange rates are the enemy of world trade and international investment, they also encourage a damaging protectionist reaction. Here again there are signs in part of the House that protectionism is not yet rejected. There are elements here who seek protection as if that in some way can secure jobs in this country. It is our view that the reverse is the case and that the United Kingdom and the world economy have much to gain from a world expansion in trade and much to fear from the creeping protectionism that has been a feature of too many of the international discussions that have taken place in past months.

Stabilisation of the exchange rates does not mean a return to Bretton Woods and fixed exchange rates, which are wholly impractical. We advocate that the United States, Japan, and members of the European monetary system—which should include the United Kingdom—should work together on a trilateral basis. Each bloc should define a target zone for its currency, within which the value should be free to vary. This new tripod between the three groups would form the basis of a new, stable but not rigid international monetary system to coordinate action for expansion, and should include finance for the developing world, in particular, a doubling of IMF quotas, to which the hon. Member for Heeley referred, and a major issue of SDRs angled in favour of the developing world. These actions should be accompanied by a major extension of co-finance and co-operation between the official institutions and private banks.

We advocate an expansion in world trade. Greater priority should be given to the management of commodity markets, encouraging the developing world to build up appropriate industries, working within the GATT to bring the more advanced countries into a more equal partnership, and wider agreement on a system of short-term safeguard measures in cases of market disruption. These should be accompanied by enlightened adjustment assistance for companies and industries in Britain faced by increasing competition from overseas.

Another element of Brandt 2, as the hon. Member for Heeley has called it, is aid. We advocate an increase in official aid to 0.7 per cent. of GNP by annual increases in real terms during the first five years of an SDP-Liberal alliance Government. We wish to improve the quality of aid, giving a higher priority to programme aid and making provision for more recurrent and local costs in those countries which have difficulty in mobilising local resources. We wish to concentrate our aid in a smaller number of countries and stand ready to increase the ratio of finance between Government and voluntary agencies from 1:1 to 1:5. We believe that voluntary agencies play a particularly useful part in getting small quantities of aid, precisely targeted, to some of those who suffer in the poorest countries. There is much more flexibility in the pound to pound scheme, and we want to increase the capacity of the charities to spend a higher ratio of public money in that activity.

We also place a high priority on including technical cooperation components in project and programme aid. We wish to give greater support for development education in the United Kingdom and for overseas students studying here and in third countries.

We stand ready to increase our contribution to the multilateral agencies, although we wish to see improvements in the operations, particularly of the European development fund. These should be brought within the Community budget, and come under the scrutiny of the European Parliament. It is unsatisfactory that the British aid programme should be varied substantially by decisions about the level of the contribution to the EDF. We believe that the British contribution to the Community aid programme, through the budget, should go direct from the Treasury and not be subtracted from the ODA allocation, which is scrutinised by this House.

We propose actively to promote developmentally desirable investment in the Third world. Much is said about the shortage of soft loans and grants in the developing world, and about the problems of debt, to which reference has been made in this debate, but the greatest shortage in many developing countries is that of equity capital—particularly equity capital—which requires a foreign exchange element to enable a company established in the developing country to import either capital equipment or management and other technical skills to get the company going. We believe that there is a role here for a new agency to bring together export credit functions and the related long-term finance. In particular, we want to consider the possibility of making available soft funds through that new institution for feasibility studies.

Finally, the SDP endorse the principal recommendations of Brandt 2. We are greatly concerned, as I said at the outset, that, although these recommendations appear to be taken a little more seriously than happened with the first Brandt report, as yet there is no sign that the Government have taken on board the urgency of the current situation. I hope that the Minister, in replying to this debate, will assure us that he and his Department, the ODA and the Treasury, will set out at the Williamsburg summit to play a constructive role, a catalytic role of the kind mentioned by the hon. Gentleman, in trying to persuade our major partners in world affairs, the Commonwealth, the Community, and the United States of America of the importance of making a concerted effort to expand the world economy, not only in the interests of other countries, but of solving our own grave domestic economic problems, particularly unemployment, which is the cause of so much distress in this country.

1.17 am
Mr. Guy Barnett (Greenwich)

The House will be grateful to my hon. Friend the Member for Sheffield, Hooley (Mr. Heeley) for raising this subject. It was appropriate that he should have the first word in the House about "Common Crisis", the second Brandt report, as it has been called. I have also heard it called the "Son of Brandt". It is appropriate, not least because of his interest in the subject and his fine record, but because of his chairmanship of the Overseas Development Sub-Committee.

This is a forerunner to the debate which has been promised and which I hope will take place as soon as possible after Easter on this document, "Common Crisis". The House will look forward to that debate. I am sure that the Government realise that it will be the beginning, not the end, of the matter. The Opposition expect a response in the form of a White Paper to the memorandum that we are now discussing. I asked the Minister for Overseas Development on Monday whether we would get such a response and he appeared to evade the question. I do not necessarily expect the right hon. Gentleman to answer it now, but I put it to him strongly that there are several reasons why the Government should produce a White paper in response to "Common Crisis".

The first reason why it must be done is that it is necessary to correct the appalling impression that was given by the memorandum which was issued in July 1980 in response to the first Brandt report. As the House may recall, at that time there was almost universal hostile comment in the press on that document.

The Sunday Times described it as follows: Britain has voted for poverty, inflation and unemployment. That is the effect of the Foreign Office White Paper last week on the Brandt commission. It is one of the shoddiest documents ever produced by a British Government. Those are strong words. The Government will want to expunge that record and redeem their reputation by producing a White Paper this time which is constructive and positive.

I have already welcomed the constructive remarks of the Foreign Secretary and of the Minister during Question Time about a month ago on "Common Crisis". We want that welcome response to be put into practical commitments by the Government. The Government's response to the first Brandt report contained statements which are on the record and therefore presumably regarded as Government policy or Government attitudes to international affairs which I should have thought they would now wish to correct.

For instance, do the Government still believe the following, which appeared in the 1980 memorandum: The Government believe strongly in the merits of the present world economic system, with its wide reliance on open markets for trade and financial flows. Or again: The system has regularly and flexibly adapted to changing conditions and can be adapted further. This gives the best hope of overcoming present difficulties and providing a firm basis for future growth. It goes on to say: The present system offers an opportunity to all those engaged in economic activity to contribute towards soundly-based development. Those remarks were written nearly three years ago. That is a cruel joke to the 4 million-odd people in this country who are unemployed and in view of the number of factories which are standing idle.

I have just returned from Kenya, a country with a massive trade deficit, a horrifying budget deficit, mounting unemployment and a growing army of landless, unemployed young people, lacking proper homes, schools and other services, standing at the gates of the capital, Nairobi, waiting for something to be done by a Government who lack the resources to respond to their needs. The Government of Kenya pursue policies with which I think our Government would agree. I can only record my admiration for the courage with which they are taking certain decisions.

I am not denying for a moment that the British Government have acted positively and constructively towards Kenya by convening the donors conference. Certainly the Government of Kenya were extremely grateful for the initiatives that were taken by Britain. Nevertheless, the problem for Kenya and for dozens of other Third-world countries is so great that we ought to expect something more than merely a fine-sounding speech from the Foreign Secretary.

The second reason why something must be done is that we did have a response to Brandt 1. After all, Brandt 1 covered a fairly broad canvas. It was a generalised statement on a number of major interlocking world problems, with many short-term and long-tenn recommendations. Even though the document which the Government produced in response in 1980 was inadequate, at least they produced a document. ''Common Crisis" is specific and precise about the need for an emergency programme, because it is an emergency that we are facing. It spells out what it believes is needed for immediate action.

I want to ask the Minister a number of questions. He may not be able to answer them here and now, but they must be asked. Do the Government agree that the world liquidity resources are inadequate to deal with the volume of world economic activity and that the world economy must be related as a matter of extreme urgency? Does the Minister support, as my hon. Friend has already asked, the demand made in "Common Crisis" that IMF quotas must at least be doubled, that the gearing ratio of the World Bank must be increased and that special borrowing facilities must be set up to meet the needs of developing countries?

Do the Government agree that IMF conditionality must be reformed? Do they agree that the IMF, in framing its programme, must—to quote "Common Crisis"— give greater weight to output, growth, employment and income-distribution considerations, relative to its past emphasis on the control of inflation and payments deficits, and to obey more fully its own new guidelines of 1979 which call for paying clue regard to the domestic, social and political objectives of member countries."? Last week at Question Time we were told that the Government remained committed to the target of 0.7 per cent. of the GNP for official aid, but there was no deadline. When do the Government hope that that figure will be reached? "Common Crisis" makes it clear that we are facing an emergency, which requires emergency action. I emphasise that the emergency programme described at the end is specific on that point—the need for the target to be raised to about 0.7 per cent. for official development aid within five years. Shortly we shall need some sort of commitment on that specific point.

We need to know a little more than we shall get from the speech after the Easter recess about what the Government propose to do in relation to Williamsburg and the UNCTAD conference at Belgrade. The Government ought to put forward the proposition at Williamsburg that the OECD Governments should be prepared to negotiate with the Group of 77 on the basis of the emergency programme contained in "Common Crisis". That would be a positive proposal which would be specific and relevant to the emergency that the world faces.

My hon. Friend rightly and properly drew attention to the remarks in "Common Crisis" about groups of like-minded countries. In the past, as "Common Crisis" points out, progress in the North-South dialogue has been hampered by the need to obtain global consensus. Backsliding by some countries or the adoption of rigid negotiating positions by others has a way of impeding any chance of such a consensus being reached. It also provides a convenient excuse for Governments who are being pressed by their electorate to do something constructive. Governments can always say, "Yes, in principle we are in favour of such and such a policy and have made our views absolutely clear, but unfortunately the American Government or some other Government blocked that particular proposal." It can provide a convenient scapegoat or excuse for doing little or nothing.

When we had a debate on Brandt 1 in 1980, I proposed from the Back Benches that the Commonwealth was an association through which something practical and useful could be done. What has already been suggested is close association with countries of the European continent. Relationships with both the EC and the Commonwealth ought to provide us with opportunities to take important initiatives on the world stage in relation to the ideas that "Common Crisis" puts forward, by groups of like-minded countries working together.

I wish to speak about the Commonwealth, because important initiatives have been taken. An important document has been issued by the Commonwealth Secretariat entitled "North-South Dialogue: Making it Work". If the Minister has not read the document, I hope that he will do so. He is nodding his head. I am delighted. It is an important initiative highly relevant to the problems of the ill-fated global negotiations.

There may be ways in which small groups of countries from both North and South can co-operate. For example, those countries already involved in the aid programme for Kenya—Germany, Sweden, Britain and the Netherlands are the main donors—working in concert with the World Bank and with the co-operation of the Kenya Government might find ways to assist that country on the road to economic strength and health. We are seeking such initiatives because global negotiations take a long time to be successful and we are facing an emergency. Such opportunities demand imagination and a certain amount of courage to be carried through. There are other countries in a far worse state than Kenya—for example, Tanzania. Positive initiatives need to be taken with the Governments of such countries to see what can be done through aid and trade and other methods to enable them to escape the appalling crisis that now faces them.

I put forward that idea, not as an alternative to global negotiations but as an important immediate serious step that could be taken by Governments of countries in the North. It would have two purposes: first, the immediate purpose of assisting those countries; and, secondly, such experiments might be helpful in the global negotiations. They will demonstrate what can be done and will inform people about what will or will not work. Other Governments might then try similar experiments.

Many of us were depressed by the Budget statement last week. The Government must rid themselves of the view put forward by the Chancellor of the Exchequer that the deepest economic recession since the war was caused by the 1979–80 oil price rise. I do not believe that that was the case. The recession was surely triggered by the decision of many Governments in the North, including the British Government, to adopt restrictive economic policies at the same time as the rise in the price of oil. There must be a fundamental change in those policies and attitudes for the sake of Britain and other countries in the North and for countries such as Kenya and many others in the South. We need steady and sustained reflation. If the Government and the Chancellor of the Exchequer cannot agree with such policies, we shall have to find another Government and another Chancellor of the Exchequer who are prepared to do just that.

1.34 am
The Under-Secretary of State for Foreign and Commonwealth Affairs (Mr. Malcolm Rifkind)

I congratulate the hon. Member for Sheffield, Heeley (Mr. Hooley) on raising this topic. As has been said, my right hon. Friend the Leader of the House has said that he is sympathetic to the proposal for a proper debate on the second Brandt report. That was clearly not possible before the Easter recess and it is helpful that the hon. Member for Heeley has given us this opportunity to comment on that report.

All hon. Members will want to congratulate the members of the Brandt commission, including my right hon. Friend the Member for Sidcup (Mr. Heath). We are in their debt because they have made an outstanding contribution towards increasing the interest throughout the world in this vital topic. The very stature of the persons on the commission and the enormous amount of work both in the first and second reports has heightened the level of the debate and has had a positive effect which can only be for the benefit of the issues that they wish to emphasise.

As the hon. Member for Greenwich (Mr. Barnett) fairly commented, the Government have welcomed "Common Crisis" and recognised it as an important document which is a major contribution to the issue. It is a major document not so much because of its analysis as because it makes a series of practical proposals. It puts forward detailed ideas in the form of specific recommendations. It is also a timely document because it has been published—I am sure this is no coincidence—well in time for the Williamsburg summit, the UNCTAD conference at Belgrade and various other international conferences.

The Government happily accept the central theme of the second Brandt report, that the world is interdependent. Clearly, the interdependence between the Western world and the Third world is significant and obvious, particularly at this time of international recession. The House is often obsessed with the consequences of the recession to our economy but it is not a matter of controversy to say that the recession has undoubtedly had far worse effects on the poorest countries of the world than in western Europe and North America which clearly have a greater capability to deal with such problems and to respond to them without the enormously damaging consequences to their populations compared with the countries of Africa and Asia.

For the Third world the recession has undoubtedly been seriously affected by the substantial fall in commodity prices co-existing with the substantial increase in oil prices. We have seen the wild fluctuations in the exchange and interest rates that have also damaged them and, as has been mentioned by several hon. Members, we have seen the serious problems of debt that have mounted up in an unprecedented way in many Third world countries.

We in the United Kingdom can recognise and understand the problems of the Third world far more easily than many other Western countries. I say that, first, because as a major trading country we do a substantial amount of trade with the Third world. Fully a quarter of our trade is not with the developed world but with the developing countries of the Third world. Clearly, therefore, the effects of the recession on those countries have a consequence for our economy and trade.

Secondly, our banks and financial institutions, which are some of the most sophisticated around the world, are heavily involved in one way or another with the various aspects of development and trade with many of the Third world countries. We therefore have a personal involvement, experience and interest in those difficulties being resolved as easily as possible.

Finally, as the hon. Member for Greenwich rightly reminded the House, our links with the Commonwealth clearly give Britain not only an historical association but a continuing sympathy with and interest in the countries that have long been associated with us, and that are among those most seriously affected by problems associated with the recession.

The hon. Member for Norfolk, North-West (Mr. Brocklebank-Fowler) called for a reflation of the world economy as a major means of helping to resolve the problem. If he could confine himself to non-inflationary growth, he would certainly speak for the whole House. The Government would equally share that view. The major objective must be to seek a means of ensuring non-inflationary growth, as that is in the interests of the world as a whole. Inflation not only causes major damage to developed countries but can equally damage the economies of the developing countries of the Third world. There are several ingredients to non-inflationary growth.

I was interested to hear the hon. Member for Heeley make the specific point—in a sense he was contradicting his hon. Friend the Member for Greenwich—that the important point was to improve the existing financial institutions. Perhaps that was an appropriate answer to the concern of the hon. Member for Greenwich when he asked me whether the Government still believed that the existing international institutions could form the basis for the improvements that he sought.

The Government believed at the time of the first Brandt memorandum, and still believe—as does, apparently, the hon. Member for Heeley—that the existing financial institutions can be used for that purpose, albeit their efficiency and impact must be improved. Nevertheless, it is improvement we seek and not their replacement by some major new institutions of the type which have been contemplated in various areas.

Another major objective must be to manage the substantial debt problems of particular Third world countries in an orderly fashion and in a way that recognises the serious difficulties facing those countries.

I agree with the hon. Member for Norfolk, North-West that it is essential to preserve the open trading system and that any moves towards protectionism, as have been mooted in various quarters of the House as well as elsewhere, would do enormous damage to the world economy as a whole and would certainly guarantee that the existing recession would be prolonged far longer than would otherwise be necessary. An interest has also been shown in the stability of exchange and interest rates.

I come to the specific proposals and recommendations of the second Brandt report. The hon. Member for Greenwich read out a list of questions that he wished to put to the Government. Other hon. Members implied or gave the impression that while the Government had made various general noises of support for the second Brandt report, they were anxious to see whether those statements of support were going to be matched by support that mattered and which resulted in the implementation of many of the recommendations. I believe that a considerable number of the recommendations of the Brandt report have either been implemented by the world community or have been implemented in a way that the United Kingdom can carry out. I shall give some examples of that which I think are important.

Reference was made to the need to increase the available resources of the International Monetary Fund. As the House should know, the recent meeting of the interim committee of the IMF under the chairmanship of my right hon. and learned Friend the Chancellor of the Exchequer resulted in a substantial increase in the available resources of the IMF. In addition it resulted in a decision to bring forward the date of the increase in the quotas by a full two years, thereby recognising the urgency, and realising that the original proposed dated 1985 could not be maintained if one accepted the sense of urgency which hon. Members have noted.

Reference has been made to special drawing rights. The interim committee of the IMF accepted the need to review the possibility of a further allocation of special drawing rights. That is something that the Government will examine with an open mind.

The hon. Members for Heeley and Norfolk, North-West referred to questions of conditionality and the assistance that the IMF can give. This is an area where a balance has to be set. We must ensure that conditions which are laid down by the IMF are relevant to the problems of the individual countries, and will, if implemented and accepted by them, result in an improvement in their economies and not a continuation of the problem that brought the IMF in in the first place. Clearly, that is necessary. At the same time I accept, as do the Government, that the IMF must also recognise the social and political realities in individual countries, and that there are inevitable constraints that vary from country to country on the extent to which they can, even with the best will in the world, respond to the conditions laid down by the IMF. Of course, it must be recognised that social and political restraints may inevitably act on the Government in question.

Ultimately, it is a question of the good faith of the recipient Government. If it is seen that they are seeking to do their best to put their house in order with the assistance of the IMF, it is only right and proper that the IMF should recognise that in some of the conditions that it insists on. That is the appropriate balance. I am grateful to the hon. Member for Heeley for the way in which he congratulated the Government on their response to the need to make a full contribution to the sixth replenishment of the International Development Authority. As the hon. Gentleman graciously recognised, the Government accept the enormous importance of the IDA. Our view is that the American Government and Congress should recognise the similar response that is required. That is important.

Considerable mention was made of the level of aid to Third world countries. The Brandt report "Common Crisis" recommended something to which hon. Members did not pay sufficient attention—the desirable need for private investment as well as public flows of funds to developing countries.

Mr. Brocklebank-Fowler

On the contrary, I made that point in my speech. I had hoped that the Under-Secretary would elaborate a little on the general sympathy expressed for private investment by the Foreign Secretary in a major speech to the Royal Commonwealth Society. The House would like to know what specific policies the Government have in mind to promote private investment in developing countries.

Mr. Rifkind

I have made the unforgivable mistake of lumping the hon. Gentleman in with other Opposition Members. The hon. Gentleman is quite right, and I accept that he made that reference.

However, private investment is certainly recognised by the Brandt report as being of equal and substantial importance to developing countries. Indeed, the combined public and private flows of financial resources to the Third world from the United Kingdom add up to a total of about £4,980 million, which represents 2 per cent. of our gross national product, which is in turn double the United Nation's target of 1 per cent. Perhaps the hon. Member for Heeley will concede that the present British position represents double the United Nation's target, and that is something in which we can all take great pride and satisfaction.

Mr. Hooley

I have asked the Treasury once or twice where the outflow of investment has gone since the abandoning of exchange controls. It has repeatedly told me that it does not know. How can the Under-Secretary be so confident that all that private investment is going to the poorest developing countries? The Treasury said that it did not know where it went.

Mr. Rifkind

The hon. Gentleman has restricted his question to the poorest developing countries, and I am not in a position now to say how much goes to each country. However, the figures I have mentioned reflect the flows of public and private financial resources from the United Kingdom to the developing countries as a whole. That is in line with the proposals and recommendations in the Brandt report in favour of a United Nations target of 1 per cent. The United Kingdom has more than matched that by almost double the amount.

It is worth remembering that although we, like previous Governments, have not met the United Nations' 0.7 per cent. target, the figure in 1981 of 0.44 per cent. of gross national product compares with the average for the development assistance committee countries of OECD of 0.35 per cent. Therefore, we can take some satisfaction in that figure. I accept that the target remains unfulfilled. Opposition Members find it easier to give commitments when in opposition than they were able to implement when they were in government.

I move on to debt, which was identified by the Brandt memorandum. Perhaps to a better extent than most people expected, both the IMF and the Bank for International Settlements have responded and co-ordinated their efforts well, as have central and commercial banks, in seeking to assist many of the countries that have debt problems. There was serious doubt about 18 months ago whether that would be within their capabilities. In fact, the world has coped considerably better than many expected in seeking to assist those countries with major debt problems. The financial packages provided for Brazil, Mexico and the Sudan, as well as a number of other countries, have been a major achievement.

Free trade, to which the hon. Member for Norfolk, North-West referred, is essential and at the recent GATT ministerial meeting the Government supported fully the efforts being made to ensure the continuation as far as possible of an open trading system.

In other aspects of trade we have also recognised and accepted the importance of some of the Brandt memorandum recommendations. For example, we have ratified the common fund on commodities and encouraged other countries to do so. We are participating at present in no fewer than six commodity agreements. We have contributed to the STABEX fund of the European Community and to the IMF's compensatory financing facility.

The hon. Member for Heeley referred to an interesting and important report produced by a Commonwealth study group. Its recommendations, which I have read, are similar in many respects to those of the Brandt memorandum. If I remember correctly, the Brandt memorandum quotes the recommendations of that Commonwealth study group with favour.

I believe that a number of the proposals are important—for example, the advice to developing countries to try to think in terms of single-issue conferences; to try to operate in smaller groups rather than be attracted to full plenary conferences, which look grand but rarely achieve what their aspirants hope they will; and to try to avoid the sterile communiques which may look good on paper but produce little practical benefit.

The United Kingdom will adopt, as has been requested, a positive attitude at UNCTAD, Williamsburg and the OECD ministerial meeting. We shall seek to build in other ways upon the practical implementation of Brandt to which I have referred.

I shall make a point that has not been made during the debate. We have had a number of references to the North-South dialogue. As the Brandt memorandum implies, and has been said more explicitly by others, in many respects the North-South dialogue is not that; it is a West-South dialogue. There are many countries, the Socialist countries, the Soviet Union and eastern Europe which, by world standards, are developed and wealthy, and yet make very little contribution, and for all practical purposes play no part in assisting Third world problems except by the provision of armaments, as the hon. Member for Norfolk, North-West pointed out, and yet continually mouth the language of assistance to Third world countries and the end of exploitation but do not match their words with deeds.

I understand that, during the current year for example, the Soviet Union will be a net beneficiary from Third world countries. It will receive more from the repayment of previous loans than it will be paying out. The Brandt memorandum is correct to point out that the Soviet Union and the Socialist countries of eastern Europe have a contribution to make which, to use the euphemistic words of the Brandt memorandum has been "somewhat modest" until now. That puts it mildly.

I hope that the House understands that the Government do not welcome "Common Crisis" with grand statements of support, but that already in a number of important ways some of the recommendations have either been implemented by the United Kingdom as part of the international community or by acting in its own right as a Government required to take decisions on specific matters. We shall continue to look upon the report as an extremely important contribution to the development of policies assisting the Third world. It will be of value during the current year at various international conferences. In that spirit, I welcome this debate.