HL Deb 21 June 1965 vol 267 cc326-31

4.50 p.m.


With your Lordships' permission, I should like to repeat a Statement by my right honourable friend, the Minister of Overseas Development, being made in another place on interest-free loans.

Her Majesty's Government have had under consideration for some time the terms on which aid is provided in the form of loans to the developing countries. The importance of the general question of the terms of aid was emphasised at the United Nations Conference on Trade and Development in Geneva last year, and one of the recommendations agreed without dissent was that in establishing repayment terms and interest rates, the overall repayment capacity of the borrowing country should be taken into account. Her Majesty's Government have had the opportunity, since the Conference, of discussing the problem with fellow members of the Development Assistance Committee of the Organisation for Economic Cooperation and Development.

The terms of aid provided by the United Kingdom have been progressively softened over the last few years. A substantial amount has always been provided in the form of grants. Since 1958 the maturity period of development loans has lengthened from a norm of 15 years to between 20 and 25 years. Grace periods on the repayment of capital during periods extending up to the first seven years of the life of the loan have been granted on a widening scale. In 1963 we announced our readiness to grant waivers for periods of up to seven years of the interest payable during the early years of loans by countries whose position justified such a concession. This has had the effect, in some cases, of reducing the effective rate of interest payable over the life of the loan by nearly half, compared with the normal rate, which is based on that at which Her Majesty's Government can itself borrow, plus a small management charge.

Her Majesty's Government recognise, however, that the value of the waiver is in some respect limited, and that some more flexible means are needed of giving relief in certain cases. They have decided, therefore, to make loans free of interest to certain developing countries. This concession, combined with appropriate arrangements for the repayment of capital, will give us greater freedom in the determination of terms, and, in particular, will enable us to lighten the burden of debt service in the middle and later years of the loan. The concession will be applied in selected cases, and with due regard to the economic position of the country concerned and to its capacity to achieve balanced and effective development. It will be understood that we naturally cannot afford to extend these very liberal terms to all developing countries. Since interest-free loans will take the place of loans which would otherwise be made under the waiver arrangements, there will not, of course, be any additional burden on Britain's balance of payments during the first few years of the loans.

When circumstances warrant it, countries which do not receive interest-free loans may receive waivers of interest for the initial years of the loan. We have decided to make a similar concession in appropriate cases to the Commonwealth Development Corporation. In order to help the Corporation to undertake a greater variety of projects, the Government has decided to waive the interest on selected projects during the period when the investment is fructifying, instead of merely postponing the interest as at present. This concession will apply to certain agricultural and local development projects. both in cases in which the Corporation invests in the equity and in cases in which it makes loans.


My Lords, on behalf of your Lordships I should like to thank the noble Lord, Lord Walston, for repeating the Statement which has just been made in another place. I am sure that noble Lords appreciate the greater amount of aid which has been made available to the developing countries of the world since the war. Therefore, we are all interested to learn what the Government are now proposing to do.

I should like to ask the noble Lord one or two short questions. Some of the announcements in the Budget and in the Finance Bill are designed to make British private investment in developing countries more expensive and more difficult. Why therefore are Her Majesty's Government now, at this time, proposing to make easier—indeed, interest-free—loans available to those self-same countries? Secondly, how can the Government at the present time afford to do themselves what they say they cannot afford to allow private enterprise to do? Thirdly, will not the pressure for interest-free loans of this kind increase the strain on our reserves? I am not here concerned with the interest crossing the exchanges, but with the fact that when the loan is made the money leaves the United Kingdom, and the pressure for these interest-free loans will, of course, be very great. Finally, could the noble Lord say whether these interest-free loans will be tied to the provision of British goods and services?


My Lords, I think I can answer the first three questions together. I should like to repeat what was in fact said in the Statement, and certainly what was implicit in it: that this does not in any way increase the total amount of aid which we are giving to developing countries. There will therefore be no additional strain on our resources at the present time. Secondly, these interest-free loans will replace to some extent loans for which waivers of interest have been granted in the past. Therefore, had we continued under the old system with waivers of interest we should have received no interest for the next five, six, seven years. So the strain on our balance of payments by way of giving extra loans now does not arise because there are no extra loans to be given. The sacrificing of rates of interest does not arise either, because that would be covered by waivers of interest. We hope that by the time those interest payments would have become due our balance-of-payments position will be very much more healthy than it is at present. I think that that answers the first question of the noble Lord in which he compares it with what he describes as the disincentives to private investments overseas, because there is no additional incentive and no additional outflow.

His final question was, are the loans to be tied? They are not in any way different from existing loans. The only difference is that interest rates will not be charged on certain selected loans. They will be selected very carefully with a view to our own economic position and that of the recipient country.


My Lords, on behalf of my noble friends on these Benches I welcome the statement from the Government on the initiative they have taken. Will the noble Lord bear in mind that there is usually a greater value to the developing nations where the investment of money is allied to management services and to scientific know-how?


That is very much borne in mind, and my right honourable friend the Minister of Overseas Development has it very much in the forefront of her mind and the activities of her Department.


My Lords, does the important Statement boil down to the fact that we are not going to spend any more money and we are not going to forgo any interest because we should not have got any anyway?


No, it does not. I will not suggest that the noble Lord did not listen carefully to what I said. I can only assume that it was either inadequately written or was not delivered as clearly as it might have been. What it means is that we are not committing ourselves to any more money being given, and for the next few years we shall not be losing anything by way of interest; but for the years thereafter—which are important, particularly with a developing country which is planning its develop ment programme—we shall undoubtedly be losing interest and the receiving countries will not be building up a burden of debt such as they had in the past.


My Lords, may I ask the noble Lord whether any of the other countries providing development aid are joining in this policy, or whether this is entirely a unilateral decision by Her Majesty's Government? What is the total sum of interest that will be forgone over future years, and what is the prospective cost to the Exchequer?


This is in one way a unilateral matter in that a decision has been taken by Her Majesty's Government alone. On the other hand, the other donor countries and also our other creditor countries have all been informed of it in advance and have all expressed their approval. The terms are complex and it is hard to balance up terms of loans from this country compared with those in the United States, France, Germany and so on. I cannot say whether this puts us in a position of giving softer loans on an average or not, but we are well in line with our fellow members of D.A.C. They are well aware of what we are doing, and are much in favour of it.

I cannot give a definite answer to the noble Lord's second question. In the first place it is not known how many of the loans will be given interest free. In the second place, and more important, it is not known, and never can be known, how many of the previous loans which we have given with waivers of interest will have to be renegotiated when the time comes because a recipient country has been unable to meet the accumulated interest.


My Lords, in view of the fact that charity is supposed to begin at home, perhaps the noble Lord could tell us when Her Majesty's Government will be suggesting interest-free loans for house purchase in this country.


My Lords, may I just ask the noble Lord this further question? Any selection of types of loan for special investment must give rise to discrimination, and a feeling of discrimination, between the recipients. Could the noble Lord say a little more about the criterion of such selection? Is the criterion to be the purpose of the loan, or is it to be the country concerned? Has this matter been discussed extensively with those who are recipients at the present time, and are those who are recipients themselves in favour of such discrimination? Also, is the noble Lord satisfied that the discrimination will not give rise to ill-feeling?


My Lords, I am afraid that I cannot answer that question as lengthily as I should like, as it would detain your Lordships too long. There will of course be difficulties, as there have been, with different rates of loan and waivers of interest. That we are not frightened of. The criteria are, roughly speaking, the need of the country, its ability to repay and the type of project for which the loan is required. Those are the three types of criteria which will be used.


My Lords, as the noble Lord knows, of course this is a practice which has been carried on for some time by the Communist Chinese in East Africa and Central Africa. May I ask him whether, in deciding to which countries these loans are to be made, the Government will have in mind the need for helping those countries in which the Chinese are making this particular effort through interest-free loans to undermine the sovereignty of the country?


My Lords, it is, of course, a practice which has been carried out by Her Majesty's late Government as well as by the Chinese. We certainly will take into account all the relevant factors—those which the noble Lord has mentioned, and many others also.