HL Deb 16 November 1982 vol 436 cc418-9

2.47 p.m.

Lord Kennet

My Lords, I beg leave to ask the Question which stands in my name on the Order Paper.

The Question was as follows:

To ask Her Majesty's Government why the Treasury has "agreed to give the Bank of England an indemnity in respect of the Bank's "contingent liability for 140 million dollars under the IMF and the BIS arrangements to lend 1.85 billion dollars to the Government of Mexico," and whether this agreement implies Her Majesty's Government's satisfaction with the uses made of previous international loans to the Government of Mexico.

The Parliamentary Under-Secretary of State, Department of Health and Social Security (Lord Trefgarne)

My Lords, as explained in Cmnd. 8651, the Government's decision to support the BIS operation and to give the indemnity took into account that the Mexican Government had applied for assistance to the IMF and that the BIS loan was essentially of a bridging character. The decisive consideration was the Government's view of the importance of facilitating Mexico's economic adjustment and the contribution that a bridging facility would make towards safeguarding the health of the international financial system. The arrangements imply no judgment about the previous policies of the Mexican Government, but Mexico's right to draw on the BIS facility is linked to satisfactory progress in her current negotiations with the IMF.

Lord Kennet

If it was simply a bridging loan of very short term, my Lords, why did it need a Treasury guarantee?

Lord Trefgarne

My Lords, it was a very substantial sum of money, as the Question indicates, and that was the essential difference on this occasion.

Lord Bruce of Donington

My Lords, will this guarantee count as part of the public sector borrowing requirement, and will it be deducted from that? If not, how does it differ from those other guarantees that are made for the loan requirements of nationalised industries?

Lord Trefgarne

My Lords, it will become part of the public sector borrowing requirement when, and if, the guarantee is called, but of course we hope that will not happen.

Lord Kennet

My Lords, do all BIS bridging loans of this order of magnitude benefit from Treasury indemnities?

Lord Trefgarne

My Lords, I understand it is the first time that a loan of this size has involved the Treasury, and thus called for the guarantee to which the noble Lord refers.

Lord Bruce of Donington

My Lords, may I press the noble Lord further on that? I understand from his reply that the only occasion when this particular guarantee will become part of the public sector borrowing requirement is in the event of the guarantee being called upon. Is he aware that that is not the case when loans for nationlised industries are guaranteed by the Government, and may I ask him to explain the difference in treatment?

Lord Trefgarne

My Lords, another difference, apart from the one to which I referred earlier, is the statutory basis on which these guarantees are made. This latest guarantee has been done in accordance with the general arrangements for providing for public expenditure, which are different from the specific arrangements which lead to the guarantees to which the noble Lord referred.

Lord Kennet

My Lords, since we have now learnt that it is the first time that such an indemnity has been issued to back a BIS bridging loan, and since the amount is just about equal to the amount of Mexican capital which has left that country in the last year or two for the purchase of real estate in the United States, would the Government agree that it would be appropriate to pursue this matter further in this House at a convenient time?

Lord Trefgarne

My Lords, the question of whether or not the noble Lord wishes to pursue the matter further is one for him and the usual channels. As for the relations between Mexico and the United States, that falls rather wide of the matters for which I have responsibility.