IMF and World Bank: Restructuring (Hansard, 13 October 1998)

§ Lord McIntosh of Haringey
My Lords, the Chancellor of the Exchequer has already put forward a wide-ranging set of proposals in his recent statement to the IMF's interim committee and his annual meetings speech, building on the ideas he had set out in his speech to the Commonwealth Finance Ministers Meeting in Ottawa. He emphasised the need to develop and implement new procedures and international rules of the game to meet the challenges of the new global economy. His proposals included the development of a new co-ordinating mechanism to ensure proper standards and effective surveillance of all countries, and identify systemic risk. This would be a new permanent standing committee for global financial regulation, bringing together not only the IMF and Bank, but also the Basle Committee and other regulatory groups. The Chancellor proposed also the development and implementation of four codes of good conduct: for fiscal policy, financial and monetary policy, corporate governance, and social policy.

§ Lord Renton of Mount Harry
My Lords, while I thank the Minister for that Answer, do I detect a note 781 of dangerous complacency in it? Indeed, the Chancellor made those proposals but is there any sign whatever of them being actively carried forward at a time of continuing great disquiet in the financial markets around the world? Is it not a fact that the events of the past three months have shown that the Bretton Woods system, which is based on fixed exchange rates, is now thoroughly out of date and the best brains around the world must get together and find a replacement to deal with a system which has billions of dollars sloshing in and out of markets? I appreciate that an answer to a Starred Question in your Lordships' House will not provide a full solution but will the Government find time for us to have a full debate on that vital subject?

§ Lord McIntosh of Haringey
My Lords, the noble Lord asked me whether the Government will put forward specific proposals and I answered that Question. I thought that was the least I could do in the circumstances. But, of course, he then goes on to ask a perfectly proper question about the reception given to those proposals. I must tell him that the reception given to the Chancellor's proposals, as indeed earlier to the Prime Minister's proposals in his speech to the New York Stock Exchange and to a very significant speech by President Clinton, has been broadly positive. Working parties are now going ahead to implement, with international agreement, many of the proposals which the Chancellor and others have made. The noble Lord is quite right that we have seen the testing of global financial markets in recent months. I am afraid that there is no reason to suppose that a speedy and ideal solution will be reached.

§ Lord Shore of Stepney
My Lords, new proposals are certainly welcome, but surely the overriding priority at present is new and extra resources for the IMF. It is the only world ambulance service that we have for sick economies and currencies. We all know that the new arrangement to borrow, which would put in its hands an additional £47 billion for lending, has yet to be approved and will not be approved either until the American Government provide their subscriptions or other countries, including our own, are prepared to increase their own subscriptions to bring the level up to the necessary threshold of 84 per cent. I hope very much that my noble friend can assure the House that the Government have fully taken on board the urgency of action in that regard.

§ Lord McIntosh of Haringey
My Lords, my noble friend is entirely right that extra financing for the IMF is essential. We have certainly played our part in that. This Parliament has passed legislation enabling us to increase our quota and to participate in the new arrangements to borrow. We have announced an increase in our quota from £5.8 billion to £8.5 billion, which is nearly £3 billion. In addition, we shall make available up to an extra £2 billion under the new arrangements to borrow. It is true that at this moment Congress is fighting a battle with the president at the 782 end of the session. We do not know what will be the result. There needs to be participation by all member states.

§ Lord Steel of Aikwood
My Lords, under the fourth heading which the Minister enunciated—that of social policy—is there yet any sign of being able to overcome the objection of the Japanese Government to further debt write-off for the heavily indebted countries? The noble Lord will be aware that a country like Tanzania spends 30 per cent. of GDP on debt servicing and others spend even higher percentages, particularly when the debt is incurred from previous dictatorial regimes. That is quite scandalous.

§ Lord McIntosh of Haringey
My Lords, there have been substantial advances in the international discussions on the HIPC initiatives in the past week or two. It has been agreed that there will be a review of the current debt sustainability analysis and a review of the exit ratios; that is, the targeted results of aid to the heavily indebted poorest countries. It has been agreed also that money provided for post-conflict countries may be included towards the track record. Therefore, the review which will take place early in 1999, together with other relaxations, should make a real difference within a very short period.

§ Lord Grenfell
My Lords, perhaps I may declare an interest, having been an employee of the World Bank from 1965 to 1995. Does my noble friend agree that one of the prime purposes of providing the funding for the IMF, which has been referred to by my noble friend Lord Shore of Stepney, is that it will take the pressure off the World Bank which at the moment is under pressure from both the IMF and the US Treasury to provide short-term liquidity financing for countries in difficulty? The prime purpose of the World Bank is to finance long-term development and it should be out of the business of providing short-term liquidity. Does my noble friend agree that that needs urgently to be done?

§ Lord McIntosh of Haringey
My Lords, there is no suggestion that the World Bank should be used to provide short-term liquidity. It has provided funding of something like 26 billion dollars in the past 12 months, but it is still acting within its prudential limits. The objectives of the World Bank remain as they always have been; that is, tackling poverty and promoting structural reform both in financial crisis countries and the heavily indebted poorest countries.

§ Lord Mackay of Ardbrecknish
My Lords, on the question of the IMF, are the Government satisfied that the IMF has always given sensible advice to those countries whose advice has had to be called in or have there been occasions in the past where perhaps the IMF has been more part of the problem than part of the solution?
As regards the World Bank, has any progress been made in relation to the suggestion made by Mr. Kenneth Clarke when he was Chancellor that the World Bank 783 should sell some of its gold reserves and use the interest from the money to help those very poorest countries with their debt burden?

§ Lord McIntosh of Haringey
My Lords, I am surprised at the first question coming from the Opposition Front Bench. If the noble Lord wishes me to go into an historical dissertation on the wisdom or otherwise of IMF decisions, his government may well be involved. But in any international organisation over a period of 50 years there will be mistakes.
As regards the World Bank and Mr. Kenneth Clarke's suggestion, I answered that in response to my noble friend Lord Grenfell. The World Bank is succeeding in lending substantial amounts of money but doing so within its existing prudential limits.

§ Lord Ewing of Kirkford
My Lords, is my noble friend aware that the World Bank does not have any gold reserves? They are all held by the IMF.

§ Lord McIntosh of Haringey
My Lords, I am grateful to my noble friend for correcting the noble Lord, Lord Mackay of Ardbrecknish.