World Debt (Hansard, 17 April 1986)

§ 3. Mr. Skinner
asked the Chancellor of the Exchequer what recent discussions he has had with the Governor of the Bank of England and others regarding rescheduling of world debt; and if he will make a statement.

§ The Economic Secretary to the Treasury (Mr. Ian Stewart)
The Governor of the Bank of England and my right hon. Friend the Chancellor of the Exchequer discussed the question of debt at last week's IMF and World Bank interim and development committee meetings in Washington. The meetings welcomed the progress that is being achieved in strengthening the current debt strategy tailored to individual cases and aimed at promoting durable growth in debtor countries.

§ Mr. Skinner
Is it not true that the strategy about which the Minister talks has resulted in the debts of Third world countries getting higher and higher as each year passes? Is he aware, for instance, that the debt is about $900 billion? Is it not also true, as the "War on Want" publication issued today asserts, and as hon. Members have done in the House, that Western, Latin American and Nigerian bankers have been living like fat cats while the people in their countries are getting poorer. Is it not time that we changed a system that allows British banks to write off their bad debts against tax while those poor people are getting poorer?

§ Mr. Stewart
The hon. Gentleman has overlooked the fact that the fall in the dollar interest rate in particular, and in interest rates generally round the world during the past year, and especially in recent months, has had a beneficial effect on the problems of debtor countries. I do not deny that there is a heavy burden of debt and that it is difficult for many countries to service it, but the fall in oil prices will have benefits other than the reduction in interest rates. Many oil importers, such as Brazil, which is the largest debtor in the world, will benefit substantially from that change.

§ Viscount Cranborne
My hon. Friend referred to the effect of the decline in the oil price. Does he accept that that shows that it is universally to be welcomed and that it will help the Third world as well as ourselves?

§ Mr. Stewart
Yes, I endorse what my hon. Friend has said. Indeed, the communiqué of the interim and development committee referred to the improved outlook for sustainable growth in the world. Of course, that applies to developing as well as industrial countries.

§ Mr. Duffy
What has the Chancellor of the Exchequer done to fulfil the high hopes raised by the Baker-Darman plan, to which, incidentally, his right hon. Friend was party at last September's World Bank and IMF meeting? The House wants to know what are the realistic prospects for that growth-oriented adjustment, about which Mr. Baker had so much to say all winter long.

§ Mr. Stewart
The prospects for the Baker plan are good, contrary to much of the public comment about it 995 after the meetings, which, as the hon. Gentleman said, I attended last year, and the recent meeting in Washington. The World Bank has approved higher lending limits. It has decided to increase the amount of structural adjustment lending and policy-oriented lending, and there is already greater co-ordination between the IMF and the World Bank. There has also been agreement in those committees that lending by export credit agencies should follow much more closely upon agreement of a programme with the IMF. That initiative was proposed by my right hon. Friend the Chancellor at the 1984 meeting. I am glad to say that the agreement on the multilateral investment guarantee agency, which was initiated—[Interruption.] I am trying to give a comprehensive answer to the question. The United Kingdom was the first of the G5 countries—the Group of Five—to be signatory to that agreement. That is a welcome development.

§ Mr. Beaumont-Dark
Does my hon. Friend accept that although the fall in inflation is good news for Third-world countries, the most important single achievement would be to nudge the Bank of England to get interest rates down more quickly? A little risk at home on interest rates would benefit us a little, but would it not benefit even more those who need to have their world debt rescheduled?

§ Mr. Stewart
The decline in interest rates around the world has been extremely helpful for debtor as well as industrial countries, such as the United Kingdom. However, significant reductions in interest rates have already taken place over the past few weeks, not only here, but in the United States, Japan, Germany, and, this week, in France. I welcome that development. So long as the inflationary pressures generated by high oil prices continue to abate, that prospect can continue.

§ Mr. Blair
I congratulate the Government on embracing so heartily in Washington last week the principle of Government intervention in the economy to stimulate growth. However, the hon. Gentleman is ludicrously complacent about the Baker plan and the position of Thirdworld debtors. Debtors hit by falling commodity prices and by the need to adjust to the United States budget deficit have no prospect at all of increased living standards for their people unless the European and Japanese Governments adopt policies of greatly increased growth—in other words, practise at home what they preach abroad.

§ Mr. Stewart
The prospects in Europe and Japan for increased economic growth are encouraging. Indeed, they are part of the basis on which the countries exporting primary products will need to base their plans.
It is wrong to suggest that the Government are complacent about the Baker plan. Much progress has been made in implementing those measures. Colombia has recently had a loan, which was completed in accordance with the principles of the Baker plan, and I welcome that.