HL Deb 09 February 1995 vol 561 cc308-11

3.25 p.m.

Lord Monson asked Her Majesty's Government:

To what extent United Kingdom taxpayers will be at risk if the International Monetary Fund and the Bank for International Settlements proceed to grant loans totalling 27.8 billion dollars to Mexico.

The Parliamentary Under-Secretary of State, Ministry of Defence (Lord Henley)

My Lords, the International Monetary Fund loan can be financed within the IMF's existing funds. IMF finances are sound and its resources are subject to rigorous and prudent management. We do not believe, therefore, that the exposure of United Kingdom taxpayers has been increased significantly.

Turning to the proposed loan from the Bank for International Settlements, neither the Treasury nor the Bank of England has yet seen any formal proposals. The Bank of England, as United Kingdom member of the BIS, would need to seek appropriate security before participating to ensure that the risk to the Bank of England and the Exchequer was minimised.

Lord Monson

My Lords, I am grateful to the noble Lord for his partly reassuring reply. However, turning to the second part, will he agree that there is no way in which Mexico can realistically provide adequate security for a loan of that magnitude? If Mexico were to default, that could only have an extremely adverse impact upon the British taxpayer, among others.

Lord Henley

My Lords, I would rather not comment on the position of the Mexicans. All I can say at the moment is, as I said in my original Answer, we have not seen any formal proposals and I think that it would, therefore, be wrong to comment in advance of any.

Lord Eatwell

My Lords, will the Minister tell the House whether Her Majesty's Government were consulted prior to President Clinton's announcement of his rescue package for Mexico? That package effectively committed Britain to supporting the rescue, particularly through the Bank for International Settlements. If the Government were consulted, what was the British position conveyed to President Clinton prior to his announcement? If the British Government were not consulted, what representations have the Government made to President Clinton since his announcement?

Lord Henley

My Lords, the important point to stress is that we support the IMF's involvement and its provision of substantial funding for a strong reform programme. We believe that Mexico has the appropriate track record of economic reform in conjunction with the IMF. I can say that we had some technical reservations, following the proposals, about how the IMF proposed to provide support. In particular, we believe that the initial finance should have been tranched so that a larger proportion of the fund's resources would have been disbursed, subject to economic policy remaining on track.

Lord Eatwell

My Lords, will the Minister answer my question? Were the British Government consulted prior to President Clinton's announcement which actually committed British funds?

Lord Henley

My Lords, I was trying to stress that the question of consultation is irrelevant. We are committed and we strongly support the IMF's involvement on this occasion. As the noble Lord will be aware, we normally do not reveal how we voted. However, the noble Lord will be aware that we abstained on this occasion, but that was for the technical reservations which I mentioned earlier.

Lord Stewartby

My Lords, the crisis in Mexico seems to have taken not only the US Administration but also the IMF and the BIS somewhat by surprise. Can my noble friend assure the House that the British Government will do their best to ensure that such situations are more closely monitored so that we are not bounced into making decisions at short notice?

Lord Henley

My Lords, it is always easy to say that we have been caught unawares and, with hindsight, easy to say that things should have been done somewhat differently. However, as my noble friend stressed, I believe that there are lessons to be drawn and we shall certainly consider them with other members of the IMF, as well as with the fund itself. I can give the assurance that my right honourable friend the Chancellor also considered them with his colleagues at the regular meeting of the G7 finance ministers last weekend.

Baroness Williams of Crosby

My Lords, while I deplore any possible lack of consultation, when the International Monetary Fund considers the restructuring proposals for Mexico, will Her Majesty's Government bear in mind that one of the reasons for the loss of confidence in the peso was the level of social injustice, which led to great political instability in Mexico, notably in the state of Chiapas?

Lord Henley

My Lords, I would rather not comment on internal matters relating to Mexico, other than to repeat that we strongly support the IMF's involvement in this loan.

Viscount Montgomery of Alamein

My Lords, is my noble friend aware that Britain is the second largest investor in Mexico and, secondly, that it is a very important trading partner for Great Britain? Does he agree that by supporting this endeavour to ensure that Mexico—which is a country of enormous economic resources—will continue to be operational Her Majesty's Government have taken action that is very worth while?

Lord Henley

My Lords, I can agree with most of what my noble friend said. Mexico has made good progress over the past few years on open market policies. I believe that her difficulties are possibly short-term. Very strong policy action is being taken to tackle them. Therefore, I believe that it is right for the United Kingdom to join concerted international support for them.

Lord Kennet

My Lords, was the collapse of the Mexican currency that gave rise to the need for this loan in any way directly or indirectly due to the action of currency speculators of the Soros type? If so, can the noble Lord tell the House in a few words what measures the international community is now taking to prevent that happening to country after country?

Lord Henley

My Lords, all that I can say is that the peso is now floating. The loan is not being used in any way to support the currency.

Lord Annan

My Lords, does the Minister recall that in the late 1970s this country was very grateful to the International Monetary Fund for its support?

Lord Henley

My Lords, the noble Lord is absolutely right. I remind the House that it was not a Conservative government that called in the IMF on that occasion; it was in fact a Labour government.

Lord Dubs

My Lords, is it not the case that, since the debt crisis of the early 1980s, the Mexican Government have pursued policies that were imposed upon it by the IMF, and indeed with the support of the British Government? Do we not therefore bear some responsibility for that country's present plight?

Lord Henley

No, my Lords, I do not believe that we do. But we are offering our support for this particular loan.