HL Deb 11 July 1968 vol 294 cc1199-210

9.17 p.m.


My Lords, your Lordships last debated the overseas aid policies of Her Majesty's Government on May 29, on a Motion moved by the noble Lord, Lord Barnby. Most of your Lordships on that occasion showed yourselves sympathetic to the aims of the Government's overseas aid policy. Most of us then expressed appreciation of the work which had been done by the International Development Association and the Asian Development Bank and showed a general sympathy for the multilateral and regional approach to the problems of foreign aid. These are the aims which three at least of the clauses of the present Bill are designed to serve.

In paragraph 3 of their Command Paper, published in August, 1965, the Government stated their policy on multilateral organisations in the following terms: We recognise the advantages of giving aid through international organisations and we intend to increase our contributions in common with other donors as the needs of these organisations grow and our own resources permit. Clause 1 of this Bill, which deals with the replenishment of the resources of the International Development Association, an affiliate of the World Bank, is probably the most important single step yet taken by Her Majesty's Government in implementation of this policy.

The International Development Association was set up as an affiliate of the World Bank in 1960. Its initial subscriptions from member countries totalled close on 1,000 million dollars. Its objects were to fill a special need in the provision of development finance by assisting a number of poorer, less developed countries, whose need for outside capital was greater than their ability to service conventional loans. I.D.A. development credits were designed to impose a far less burden on the balance of payments of borrowing countries than conventional loans.

The initial resources of I.D.A. were supplemented in 1964, following negotiations conducted while the Conservative Government were still in office, by the resources of the first replenishment amounting to a further 750 million dollars. The Bill which is now before the House will enable Her Majesty's Government to pay their proper contribution of 12.96 per cent. to the resources of the second replenishment amounting to 1,200 million dollars (or £500 million) spread over three years. The British share of this replenishment will amount to £64.8 million. The proposed arrangements, including full details of the contributions of the other 17 Part I donors, are set out in the White Paper, Cmnd. 3599.

My Lords, it may well be asked: why should Britain support this proposal at a time when we are ourselves facing economic difficulties? First, the economic difficulties which this country faces are as nothing compared with those of whom ultimately these funds will help. I.D.A. credits go to countries with a per capita income of less than £100 a year. Even more important is the fact that these development credits have not only been made available to the poorest countries on very soft terms, but also the International Development Association, with the full resources of the staff of the World Bank behind it, has administered the funds made available to it so far very wisely and well.

I believe that I.D.A. has been a success story. Some 118 credits, valued at over 1,700 million dollars, have been granted in 38 countries. I.D.A., however, now has virtually no more funds; hence the need for this second replenishment. The development programmes of a number of countries (especially India) will suffer seriously if they cannot speedily receive fresh I.D.A. credits. To implement the Resolution providing for this replenishment, the Government requires the authority of Clause 1, subsections (1) to (3) to enable them to make their first payment on November 8. But for the replenishment to go through, at least twelve contributing members, whose contributions total not less than 950 million dollars, must give the Association formal notification that they will make their authorised contributions. So far, at least six of the donors, including Germany, have given this notification and the approval of four more, excluding ourselves, is expected this month or may, indeed, have already been received. The replenishment, however, cannot go through without the approval of the largest donor of all, the United States, who will be contributing 40 per cent. of the funds, that is to say, 480 million dollars or £200 million.

Noble Lords will have seen Press reports last week about the situation concerning United States legislation to implement this replenishment. It would not be proper for me to comment upon what is happening in the United States Congress. We hope, however, for a speedy American ratification, so that the desperate needs of the poorest countries of the world can be met. The best contribution we can make to securing it is to set the United States House of Representatives a good example by passing our own legislation speedily.

While on the subject of the United States, I must draw the attention of the House to one feature of this replenishment which has never previously appeared in the I.D.A. arrangements. Hitherto, the arrangement for spending the donors' contributions to I.D.A. has been that when I.D.A. came to draw upon these contributions the cash was drawn down from I.D.A. funds proportionately to the size of the donors' contributions to those funds. Thus, if the United States provided 40 per cent. of the funds, then 40 per cent. of every disbursement would be made by drawing on the United States contribution. However, over the past eight years of I.D.A. operations, although the United States has provided nearly 40 per cent. of the funds, it has received orders for less than 20 per cent. of the goods financed by I.D.A. The position as far as we are concerned is quite the reverse; for every pound which we have provided to I.D.A., we have received about thirty shillings' worth of orders. Thus the balance of payments effect for the United States has been the opposite of that experienced by Britain.

The United States authorities felt that in their present serious balance of payments position they could not justify to Congress a continuation of this state of affairs. So a new arrangement has been arrived at in this replenishment whereby, broadly speaking, for a period of three years the United States contribution will be drawn on only to the extent to which orders are placed in the United States. This means that the contributions of other participants (including our own) will be drawn on during these three years more rapidly than would otherwise have been the case.

Disbursements on commitments entered into by I.D.A. naturally extend over very many years and the arrangement is that after the first three years the United States contribution, including that part which has been deferred, will become fully available as required and after the first three years the calls on other contributors will, of course, be correspondingly reduced. The essence of the arrangement is, therefore, one of timing. Free international competitive bidding under I.D.A. contracts has been fully preserved and the American contribution is not "tied". The American contribution will be fully available to finance I.D.A. commitments wherever the orders may be placed.

This arrangement is a regrettable departure from previous practice. Nevertheless, we have to fact the fact that if previous experience is any guide, the balance of payments cost of this replenishment to the United States might well have been anything up to £100 million. In present circumstances, this is not a negligible matter, and we, and most of the other donors, are willing to help the United States out of this temporary difficulty. The arrangement will, over the next three years, almost certainly reduce the balance of payments advantage which Britain has hitherto got from I.D.A., but, on the best calculations we can make, it will not eliminate it altogether and, at a later date, the balance of payments gain should be proportionately greater. While the arrangement, therefore, has disadvantages which we should have preferred to avoid, it nevertheless represents a comparatively small price to pay for an increased replenishment of I.D.A. funds at a level of some £500 million.

Turning to Clause 1 itself, I should point out to the House that its subsections fall into two parts. When I.D.A. was set up in 1960 and when the first replenishment took place in 1964, it was necessary for the Government to come before the House with legislation to secure the necessary authority. Subsections (1) to (4) give the Government power to implement the specific replenishment set out in Command 3599. Subsections (5) to (7), however, will enable Her Majesty's Government to implement future replenishments without coming back to the House for fresh legislation. All that will be required will be an enabling Order which, since it relates to a money matter, will require the approval of the House of Commons only. But clearly if noble Lords wish to discuss it, we have by the flexibility of our procedure ways in which the matter can be raised. The Government's view is that I.D.A. has now sufficiently proved itself as an established international organisation, the need for which will be with us for a number of years to come, that it will in future be sufficient to replenish its funds without recourse to a separate Act of Parliament each time.

Clause 2 relates to regional development banks. There has been a steady increase in the number of these institutions over the past decade. The three most important are the Inter-American Development Bank, the Asian Development Bank and the African Development Bank. Section 2 of the Overseas Aid Act of 1966 enabled the United Kingdom to become a full member of the Asian Development Bank.

Clause 2 is a general enabling clause which would empower the Minister, subject to the prescribed procedures, to make a subscription, or increase an earlier subscription, to any existing or future development bank. Although these powers are sought in general terms, the reason for seeking them at this time is a special one. Negotiations have been in train for some time for the setting up of a regional development bank for the Commonwealth countries in the Caribbean. Her Majesty's Government hope that these negotiations will be brought to a successful conclusion. This may, indeed, come about during the Summer Recess and Her Majesty's Government would wish in that event to proceed speedily with their implementation once agreement had been reached. For this reason, Parliament's approval is being sought to legislation which will put Her Majesty's Government in a position to confirm that they will be able to implement their part of the agreement.

The last two clauses of the Bill deal with more specific matters than the first two. Clause 3, however, is still related to the affairs of a development bank—the Asian Development Bank—of which the United Kingdom is one of the 32 members. The particular purpose of this clause is to enable the United Kingdom to discharge its responsibilities by enabling those countries in the area, for whose external relations the United Kingdom remains responsible, to join the Asian Development Bank. Hong Kong, as an associate member of the Economic Commission for Asia and the Far East, is eligible for Bank membership, and has indicated that it wishes to become a member, and by the terms of the agreement establishing the Bank, Britain must guarantee Hong Kong's subscription. In due course, Hong Kong, having become a member, may also wish to seek a loan from the Bank. The terms of any such loan and of any further guarantee required of Britain in connection therewith would need to be separately submitted for the approval of the House of Commons. The clause will also permit Her Majesty's Government to sponsor application for membership from Brunei and Fiji at a later date, should they wish to make them. Although the clause proposes a limit of £5 million to the British guarantee, it is difficult to envisage circumstances that would involve any payments of this order of magnitude. Indeed, the likelihood of any payment arising under this clause at all is very remote.

The subject matter of Clause 4 is quite unrelated to that of the first three clauses, but the Government are taking this opportunity to remove certain anomalies that have been discovered in Section 7 of the Overseas Aid Act 1966. and the operations of the Overseas Service Pension Scheme, which was introduced by regulations from the 1st January, 1967. The scheme was designed to help fill the void left by the cessation of fresh pensionable appointments overseas and the substitution of contract terms of service. It was hoped that by providing for comprehensive pension cover on a voluntary contributor basis, it would give additional incentive to service and re-engagement for future service overseas by providing additional security for the participants. Participation in the scheme is open to persons from the United Kingdom and the Republic of Ireland, serving overseas in temporary or non-pensionable employment of a public or social character approved by the Minister.

The amendments proposed by this clause are of a minor character and are intended to remove the anomaly of the 1966 Act which precluded persons from the Channel Islands and the Isle of Man from participation in the scheme. The clause would also extend the provisions relating to service which may qualify under the scheme so that participants who are employed by the Ministry principally for overseas service (for example, the Corps of Specialists) can count the whole of such service as qualifying for benefits under the scheme. It also extends the existing provisions relating to continuing participation in the scheme after leaving overseas service so that participants will be able to continue contributions not only when leaving for other employment, but also when they have no alternative employment to go to. These are comparatively small changes but, nevertheless, of importance to those participating in the Overseas Pensions Scheme and I am sure they will be welcomed by the House.

The main purpose of this Bill, however, as I said in my opening remarks, is to empower Her Majesty's Government to implement their international obligations towards multilateral organisations. Most important of all, it is to enable the British Government to play their part in the great international donor effort—the replenishment of I.D.A. There is need for fresh resources, and this need is urgent. I can assure the House, as in the past so in the future, they will be wisely and well spent. I therefore commend the Bill to this House. My Lords, I beg to move.

Moved, that the Bill be now read 2ª. —(Lord Shepherd.)

9.35 p.m.


My Lords, we are very grateful, again, to the noble Lord, Lord Shepherd, for having explained this Bill to us. As he reminded us, it is not very long since we had a debate on overseas aid, initiated by my noble friend Lord Barnby, who I am delighted to see is with us again this evening to give us his expert knowledge of this matter. We had that debate on May 29. It was a very good debate and well-informed, and I do not think therefore that it would be appropriate to go much wider than the Bill itself this evening.

As the noble Lord, Lord Shepherd, has said, the most important clause is Clause 1, which provides for a second replenishment of the funds of the International Development Association, to which our contribution, our second contribution, is to be in the same proportion as that previously agreed between the World Bank and all the other Governments concerned. Reading the debate of May 29, I did not think that any of your Lordships who were present on that occasion (and there were rather more of us here on that occasion) disputed the need for Government aid to some of the developing countries in present circumstances. There were those, of whom my noble friend Lord Barnby was one—and I would certainly sympathise very strongly with him —who thought that we should seek to expand private overseas investment and reduce Government overseas aid. But even they did not think that private sources alone could solve the present problem. I am sure that all of us would agree that the ideal solution would be one in which all countries were in a sufficiently healthy economic state to be able to trade at a profit and borrow their capital requirements in the international market. But certainly that is not the position to-day, and hardly seems likely to occur in the near future.

There is an anomalous situation al the moment. Every nation is in fact trying to seek to make a profit, to export more of its goods and services than it imports, although of course it is patently clear that the sum total of exports and imports must balance and that not every country can physically achieve an export surplus. And whereas institutions such as the World Bank and the International Monetary Fund can even out these ups and downs of exports and imports in the case of a developed country, it is very much a different matter with the developing countries, where, so far as one can see, for many years ahead it will be impossible for them to achieve a favourable balance of trade. So we have to find the money for them to purchase our exports, and then we have to lend them more money to enable them to pay us interest on the money that we first lent them. This is not, obviously, a satisfactory system, but for the moment it is the best that we can do if we are to provide funds for the developing countries.

Another theme that emerged from the debate of May 29 was that of the advantages if this help is given multilaterally by a number of countries acting together. Briefly, this has the benefit of taking politics out of the aid and of making sure that the recipient country is not embarrassed by being indebted to one single donor. On the other hand, I think we should remember that there are advantages in bilateral aid, if only because it is swift and sure, requiring the ratification of one country alone, instead of, as the noble Lord, Lord Shepherd, told us on this occasion, 12 out of 18 countries and a minimum subscription of 950 million dollars. This can lead to doubt and delay, as indeed it has at the moment in view of what the noble Lord said about the situation in America.

Multilateral aid can also raise doubts from a national point of view about the use being made of the available funds, but in the case of the I.D.A. I believe that the advantages of multilateral aid are accompanied by careful control of the use of the funds, as indeed one would expect of an organisation under the ægis of the World Bank. I believe that the criteria that the I.D.A. uses before granting a loan would satisfy even the strictly orthodox financial standards of my noble friend Lord Barnby—and of course I need only remind him and others that our first subscription to the fund was made by a Conservative Government in 1960.

I think it is worth remembering what those criteria are. The I.D.A. gives no aid to countries which default on their external debts or which expropriate foreign-owned property without full compensation; it gives no aid if other loans are available on reasonable terms; it gives no aid unless the project is economically viable; it insists that the bor- rowing country has to find an equal amount to the amount of the loan in its own local currency; and it is in no way inhibited from financing the expansion of private enterprise. I think those criteria would satisfy most people who might otherwise be critical of multi-lateral aid.

Moreover, as the noble Lord, Lord Shepherd, explained, it has operated to our considerable financial benefit in export terms, although this favourable situation will not continue to quite the same extent once the special allowance—


It will later, though.


Later, no doubt it will. My Lords, in conclusion I can only express the hope that the United States of America will ratify this arrangement for, as the noble Lord said, without agreement from the United States ratification is impossible because the 950 million dollar minimum is not achieved. We can only hope that the United States, which has such a magnificent reputation for its generosity in overseas financial aid, dating right back to the Marshall Plan, will on this occasion once again not disappoint its many admirers. The other clauses in the Bill, concerned with regional development banks and with pensions for members of the overseas service, seem to us to be sensible provisions and we support them. I hope your Lordships will give this Bill a Second Reading.

9.44 p.m.


My Lords, this subject was recently debated in your Lordships' House, and for that reason I was attracted here to listen to the Second Reading of this important Bill. In the event, we have certainly been treated to a generous explanation by the noble Lord, Lord Shepherd, who went into such great detail that it ought to satisfy the most exacting Member of the House, or indeed anyone who is interested in this subject. I am fully aware that it has been covered so fully that any tribute of mine should be much longer than I shall condense into these few words. I feel that this matter has been more generously dealt with than these things are as a rule.

The second paragraph of the Explanatory Memorandum refers to the Command Paper (No. 3599) to which the noble Lord, Lord Shepherd, referred several times. That Paper deals with such massive figures that it justifies the trouble the noble Lord has taken to help the House to understand them. The massive figure of £1,800 million, on being broken down, reduces itself to something of the order of £20 million sterling as the contribution to which the United Kingdom is committed. Taking those figures, and the other explanatory matter with regard to overseas aid, it is to be understood that this £20 million falls within the round figure of £200 million which has been referred to and is the Government's intended contribution.

With regard to this explanatory matter, it is interesting to see —and I do not think we have seen it before—that assistance is given from Switzerland of a substantial sum which is repayable over a period of 50 years without interest. That surely is an unusual thing. The other thing is the unusual position for the United States; that her balance-of-payments difficulties justify the special treatment which was pointed out by my noble friend Lord Aberdare in his most appropriate and excellent explanation. This is really the reason why I particularly have followed this question of overseas aid and want tonight to emphasise, as Lord Aberdare has already done, that there is strong feeling that, apart from the propriety of the assistance from Her Majesty's Government, which Lord Shepherd effectively presented, so far as possible there should be less help through Government agencies and more should he left to private and civilian loans. These are likely to be better supervised and policed, and this often means that they are less likely to be attracted in directions where insufficient attention is paid in the recipient countries to a proper economic procedure.

With those few words, I want to align myself with what Lord Aberdare has said and the views from this side of the House. I would again thank the noble Lord, Lord Shepherd, for the trouble he took to give a full explanation, and I give my support to the Bill.


My Lords, if I may, I would express my great thanks to the noble Lord, Lord Aberdare, and also to the noble Lord, Lord Barnby. As he knows, I did not agree with all ho said on a previous debate, but I had the feeling that in his own heart he would support us when the time came.

On Question, Bill read 2ª, and committed to a Committee of the Whole House.