§ Not amended (in the Standing Committee), considered.
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§ The Minister for Overseas Development (Mr. Chris Patten)I beg to move, That the Bill be now read the Third time.
This modest but valuable Bill was welcomed by both sides of the House on Second Reading. The discussions in the full and comprehensive Committee stage underlined the support for the measure. No amendments were tabled. In the circumstances I do not propose to take up the time of the House at this hour, which is rather later than we were anticipating, with a long speech. However, I shall gladly try to respond to any questions or points that have not previously been put.
As the House will by now know, the Multilateral Investment Guarantee Agency will stimulate private investment in developing countries through the provision of contracts of guarantee against defined political risks. It will also provide technical assistance for investment promotion. Therefore, it should help the social and economic development of developing countries. That is an aim which I know is supported by both sides of the House.
The purpose of the Bill is to enable us to give effect to the MIGA convention by ratifying it. On Second Reading I told the House that 20 countries with about 23 per cent. of allocated shares had ratified the convention. Since then, the number of countries has grown to 23, and their shareholdings to 25 per cent. Britain's allocated shareholding is just under 5 per cent. An early ratification by the United Kingdom would, therefore, bring the total shareholdings of the ratifying countries to the trigger level of one third which is needed for the convention to enter into force.
Once again I confidently commend the Third Reading and I express my gratitude to hon. Members from both sides of the House for the support which they have given the Bill so far, and which I hope they will continue to demonstrate at some stage tonight.
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§ Miss Joan Lestor (Eccles)Like the Minister, I have no wish to delay the House for more than a few moments on the Third Reading of the Bill and the ratifying of the convention. After the amicable Committee stage I should stress again that MIGA can play its part in offering a degree of confidence and security to investors in the developing world. However, poverty, hunger and disease are the main causes of the economic instability that investors fear. Although MIGA can definitely play its part, without a conscious and sustained effort by the international community to promote human welfare and economic development, the present decline in overseas investment is likely to continue.
As has been said, MIGA offers guarantees to private investors. As my hon. Friend the Member for Carrick, Cumnock and Doon Valley (Mr. Foulkes) mentioned in Committee, it is fair to ask what guarantee MIGA will offer the developing countries that accept investments. Guarantees on environmental matters were raised, for example, in view of Bhopal. Such guarantees are essential. 822 In Committee the Minister gave some assurances on those matters. It is those matters, in particular, that we will be watching, especially since the president of the World Bank has recently responded to criticisms about some of the environmental shortcomings of some activities and investments. Now it seems that the World Bank is willing to improve project appraisal and to take account of the impact on the environment. MIGA must follow ,:hat example and refuse to guarantee investments that fail to meet the stringent development and environmental criteria. With those few remarks, I hope that we can proceed fairly soon.
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§ Mr. Bowen Wells (Hertford and Stortford)Like my hon. Friend the Minister and the hon. Member for Eccles (Miss Lestor), I will not delay the House too long on this excellent measure, or attempt to make a Second Reading speech on the aid budget. I notice that many right hon. and hon. Members spoke on that on Second Reading from which I was unfortunately absent due to commitments at the Institute of Development Studies on that day.
Having read the reports of the Second Reading debate and the Committee stage, may I ask the Minister one or two questions? First, let me say that a measure that encourages direct private investment in Third world countries is to be wholeheartedly welcomed. I believe that the Minister deserves a great deal of credit for bringing this measure forward quickly. My right hon. Friend the Chancellor of the Exchequer also deserves credit for signing the original agreement. It is part and parcel of the extremely fruitful moves of the Minister and the Chancellor who produced the initiatives on debt and produced this excellent measure for our consideration.
May I ask the Minister about one or two technical matters? Will the cost of MIGA add to the costs of private companies investing in Third world countries and, therefore, to the cost of production in the countries in which investment is made? In the long run, will it add to the total indebtedness of, and the repayments due from, Third world countries as a result of investment by private companies in those countries? If so, is there any way in which we can ensure that those costs are minimised and that large overhead costs of running MIGA in Washington are not passed on to the impoverished Third world countries?
Will not MIGA compete with the private insurance market, which also offers political risk insurance? I hope that this international agency will act where the normal private insurance market declines to take a risk and that there will therefore be no direct competition between MIGA and the private insurance market, although I would expect MIGA to offset some of its risks in the private insurance market.
Will MIGA cover trade risks? If so, will that function be included in the total amount available under MIGA, or will it simply be capital risks? Many start-up trade-type investments in projects overseas could properly be entitled trade risks. I am anxious to know whether the new agency will cover the risks of the supply of initial products, raw materials, spare parts and so on to start-up projects.
If a host Government to a MIGA-guaranteed project of investment commits the type of political risk that we are discussing — restrictions on currency conversion or transfer, the possibility of expropriation by the host Government and the repudiation of risks where the 823 investor suffers a loss through breach of contract by the host Government were the principal categories to which the Minister referred on Second Reading — and thus undermines a MIGA-guaranteed investment, will that Government suffer in any way other than by being denied MIGA cover for further investment?
On the delicate subject of the cost to the aid budget, I welcome the dual responsibility of the Treasury, which, I understand, is to bear 50 per cent. of the initial costs of setting up MIGA, and the Overseas Development Administration which is to bear the other 50 per cent. Will the Minister confirm that what is in the aid framework to the end of March is a figure of $131,463? That is my calculation of the ODA's likely contribution from its budget, but I should not like to trust my interpretation of the figures. Presumably the money will not be disbursed this year but will have to be carried over to next year. The figure will, therefore, enter the element of the aid budget known as slippage and will be otherwise deployed for overseas development investment before the end of this financial year.
I also ask that this agency does not operate as the ECGD has operated, rationing the amount of cover which it will give to any particular country according to the overall sum available, and thus denying MIGA cover to some worthwhile investments and making it difficult for an investment to get other insurance from the private market for other elements of the package. I hope that such rationing will not take place because in the case of the ECGD it has been a serious disincentive to investment in many countries.
Those are my few remarks and questions on this excellent measure, and I hope that the House will vote unanimously for its Third Reading.
§ Sir Russell Johnston (Inverness, Nairn and Lochaber)I should like to restate Liberal support for this modest measure which is a constructive initiative to help investment in underdeveloped countries and so, perhaps, to reduce the immense problem of international debt.
Sadly, it is a fact that many still naively suppose that there is a positive flow from the developed to the poorest countries, stemming from foreign aid payments. The hard fact we must face is that the reverse is true and interest alone due on the developing world's debt is greater than the total amount of aid that it receives. Taking into account both aid and debt repayments, the developing world pays a net payment of $26,000 million per year to the developed world, which is about £14,000 million. That is the background to the Bill and the reason why it is of value. It does not go anything like far enough and what is urgently needed is a new initiative from the Group of Seven.
The striking feature about the passage of the Bill has been the almost total lack of dissent from any quarter both tonight and in Committee, which I unfortunately missed. Indeed, the Minister said that he was willing to answer any questions, and I am not sure that that is altogether normal on Third Reading.
But that same confidence has not been evident everywhere outside the House. I have received some correspondence from people who have drawn parallels between MIGA and the International Tin Council which 824 collapsed in late 1985. This is not the time to go into the details of that, and if the Minister has not read the document on that I shall certainly send it to him. I hope that he will confirm that there are significant differences betweeen MIGA and the ITC. I hope that the lessons of that experience have been learnt. Perhaps the most significant difference is that the MIGA convention is clear about the liabilities to which member states lay themselves open by joining. Some 80 per cent. of the subscription takes the form of money on call, held initially by member states, whereas the ITC did not explicitly limit liability in that way, which made the commitment conceivably greater, but in practice much less reliable.
I have three points to put to the Minister. First, in view of those who have experience of the ITC, no well advised company would insure or re-insure risks within MIGA without a cast-iron guarantee from its Government. I question that, but perhaps the Minister will respond.
There is an interesting query about the fact that, apparently, no legal action to enforce a contract with MIGA could be brought in the country where it has an office, which presumably means Washington DC. I do not know about that.
A comparison is drawn between the voting structure in MIGA and that in the ITC. It is argued that the form is similar and could produce comparable paralysis in a crisis. I would be happy to have confirmation that such fears are not well founded. The commitment of the World Bank, its record in such matters and the fact that its president is to be the ex-officio chairman must provide confidence, and it is confidence about which we are talking and which the agency is designed to reinforce.
I happily give full support to this laudable, if limited, Bill and, naturally enough, I trust that the Government will keep a close eye on what is happening and ensure that it operates sensibly and prudently. If it does not, it will fail to win the confidence of investors in Third world countries, which, after all, is what it is all about.
§ Mr. Chris PattenWith the leave of the House, I should like to reply to this short debate. I start by taking up what the hon. Member for Inverness, Nairn and Lochaber (Sir R. Johnston) said. The debate is about giving the Multilateral Investment Guarantee Agency Bill a Third Reading. The hon. Gentleman referred to the correspondence, which many of us have had, about the affairs of the International Tin Council. With respect to that correspondence, it is somewhere between a googly and a red herring. It is a red googly. Perhaps I can turn it to leg relatively briefly, but I shall do so because I know that several hon. Members have received that correspondence.
The critique that has been circulated is based, as the hon. Gentleman suggested, on the hypothesis that MIGA will become insolvent. It does not talk about if it becomes insolvent. It is a spartan "if. For several reasons, I believe that such an event is improbable. First, article 22 of the convention places limits on the amount of contingent liability that the agency can assume, and it envisages risk diversification measures to limit the agency's exposure. Article 25 enjoins the agency to
carry out its activities in accordance with sound business and prudent financial management practices with a view to maintaining under all circumstances its ability to meet its financial obligations.It is inevitable that some of the agency's insured risks will become losses, but it is inconceivable that they will all 825 become losses. By spreading its business judiciously, MIGA should be able to minimise the risk of a heavy volume of claims straining its ability to meet its total liabilities. The difference from the ITC, which dealt with only one commodity, is fairly obvious.Secondly, MIGA will be part of the World Bank group of agencies, and the chairman of its board of directors will be the president of the World Bank. No member of the World Bank group, and no other international financial institution of which the United Kingdom has been a member, has ever become insolvent or even had to call on its callable capital. They all enjoy AAA rating by the major credit agencies.
Thirdly, the experience of ECGD's investment insurance scheme, which is similar to MIGA's, is that, with sound management and taking one year with another, such schemes will be viable.
Fourthly, MIGA will have a board of directors appointed by member countries which, under article 32(a), will be responsible for the general operations of the agency. I am confident that the hoard will ensure that the agency will discharge its obligations following prudent financial management practice.
The financial obligations of members under articles 7 and 8 will be to pay 10 per cent. of their share prices in cash and a further 10 per cent. in promissory notes. The promissory notes will be drawn down only if necessary and if approved by the board of directors. The other 80 per cent. of the capital is callable. The callable capital of the other international financial institutions has never been called. Similarly, there is no reason to expect that MIGA's callable capital will ever need to be called, but it is available in the last resort if needed.
Article 55 deals with the unlikely event of liquidation. It makes it clear that guarantee holders and other creditors would have priority over members in the distribution of assets.
Those are all points that I would have been delighted to make to those who have corresponded with hon. Members. I dare say that I could have saved a few postage bills had I been approached in that way.
The hon. Member for Eccles (Miss Lestor) mentioned the needs of the developing world and said that they would not be met even by an increase in private investment in response to this important measure. Of course, we must consider other ways of channelling and effectively targeting resources to the developing world. God willing, several of us will be here later in the week to discuss the 826 International Development Agency replenishment order, which is an attempt—I hope that it will be successful—.to do precisely what the hon. Lady and the hon. Member for Inverness, Nairn and Lochaber want.
The hon. Lady mentioned some of the warnings that she gave in Committee, and that the hon. Member for Carrick, Cumnock and Doon Valley (Mr. Foulkes) gave on Second Reading, about the acceptability and unacceptability of investment in developing countries. She drew attention especially to environmental concerns and paid appropriate tribute to the interest of the president of the World Bank in this issue and his determination that that interest should be reflected in the policies pursued by the bank.
My hon. Friend the Member for Hertford and Stortford (Mr. Wells), whom we missed on Second Reading and in Committee, and whose questions might have received even more comprehensive answers had they been put then, asked several questions. I thank him for his comments about the debt initiative which the United Kingdom has been pursuing, with some success, in the international financial forums. He mentioned the costs of investing in developing countries. Investors will have to pay premiums for insurance policies. I hope that administrative costs will be a very small part of the overall turnover. Any costs should be offset by the increased confidence that investors will have about the success of investing in poorer countries. My hon. Friend also mentioned private insurance. We hope that MIGA and private insurance companies will complement each other, with co-insurance and reinsurance. My hon. Friend also asked about coverage of risks. I draw his attention to article 11 of the convention, which I believe covers that point adequately.
My hon. Friend asked about the aid framework. I assure him that the figures that he mentioned are covered in the aid framework: half our initial subscription. The normal rules of rollover apply and are, as my hon. Friend knows from his experience on the Select Committee on Foreign Affairs, the subject of regular discussion with that important and wise body.
I trust that, on that bit of flannel, I can conclude this debate by commending this important measure to the House and looking forward to equally rewarding and uncontroversial discussions in the weeks, months and even years ahead.
§ Question put and agreed to.
§ Bill accordingly read the Third time, and passed.