Debt Crisis

HC Deb 07 May 1986 vol 97 cc132-4

2. Mr. Home Robertson

asked the Secretary of State for Foreign and Commonwealth Affairs what recent discussions have been held in the European Economic Community Foreign Affairs Council concerning the debt crisis; and if he will make a statement.

The Minister of State, Foreign and Commonwealth Office (Mrs. Lynda Chalker)

I attended the Foreign Affairs Council on 27 January, at which we discussed debt. We recognised the seriousness of the debt problem and endorsed the case-by-case approach as the right response.

Mr. Home Robertson

After all the self-congratulation at Tokyo, is it not time that the Minister addressed herself to the growing problems of those countries which cannot service their overseas debts without making their impoverished people even poorer? Should there not be some action on the state-sponsored terrorism of the international banking system?

Mrs. Chalker

The hon. Gentleman is in a slight muddle. We have already given grave consideration to the problems of the poorest countries. That is how we came to give £987 million in retrospective adjustments to 21 of the poorest countries. Only the Federal Republic of Germany has a better record.

We have ensured that grant-aid to countries with an income of less than $790 per capita per annum is given in each and every case. In the light of the Baker initiative, on which good progress is being made, we shall consider all that we can do to help those countries which are prepared to put their own houses in order.

Mr. Watts

Did the Foreign Affairs Council discuss the impending debt crisis within the European Community following the failure of the budgetary discipline arrangement? Will the Government exercise the United Kingdom veto on any proposal to raise the 1.4 per cent. VAT limit?

Mrs. Chalker

It is fair to say that when we speak of the debt crisis we mean nations which are far poorer than any single nation of the collective entity of the European Community.

There is no provision under the Fontainebleau agreement for any increase in the 1.4 per cent. ceiling before 1988. Any proposal for such an increase would require the unanimous agreement of the member states, including the United Kingdom, and approval by national Parliaments. I see no sign whatsoever of that happening.

Mr. Foulkes

I suggest that the Government do not understand the urgency of the problem. Has the hon. Lady seen the report last month by Morgan Guarantee, which showed that the net outflow of funds from Latin American countries alone was £123 billion? Does that not make a mockery of the aid that we give them? Will the Government suggest to our European partners that there should be some sort of collective action, such as interest capping, so that this problem can be dealt with properly?

Mrs. Chalker

I assure the hon. Gentleman that not only do we constantly consider in the margins what can best be done to help, but that we have especially been considering the oil exporting debtors who become major beneficiaries under the Baker plan.

It is essential to keep a sense of balance and to persuade those debtors to pursue sound economic policies and to manage their internal strengths in such a way that the International Monetary Fund and the International Bank for Reconstruction and Development can help them in the best possible way. We are certainly a full party to that.

Mr. Marlow

In view of the deliciously forthright answer that my hon. Friend gave to my hon. Friend the Member for Slough (Mr. Watts), will she confirm that if the European Community were to come up with a budget that reached the 1.4 per cent. ceiling, and then asked for a supplementary budget, the Government would turn that down flat, too?

Mrs. Chalker

Once again, my hon. Friend is dreaming dreams of things that he might like to happen, but which we intend to ensure will not happen. If, beyond the supplementary budget proposed, which is the 1.4 per cent. ceiling, a further supplementary budget were to come forward, it would depend on exactly why it had come forward. [HON. MEMBERS: "Ah."] I say that with sound advice. I must tell my hon. Friend that when there has been a 25 per cent. fall in the value of the dollar against the ecu, which could not have been foreseen, we must cope with reality, not blind theory.