International Debt

Part of the debate – in the House of Commons am 2:16 pm ar 12 Mai 1989.

Danfonwch hysbysiad imi am ddadleuon fel hyn

Photo of Mr Chris Patten Mr Chris Patten , Bath 2:16, 12 Mai 1989

I am glad to have the chance again to discuss in the House the important issues of aid and development. I congratulate the hon. Member for Monklands, West (Mr. Clarke) on his good fortune and his choice of subject.

The motion refers to the "international debt crisis". That well-worn phrase can tempt us to see the problems of sub-Saharan Africa and Latin America in the 1980s only in terms of international debt. That would be wrong. Those two regions in fact owe not much more than half of total developing country debt. There are some very heavy debtors in Asia. Yet Asia in the 1980s, unlike Africa or Latin America, demonstrates a consistent run of strongly positive growth in per capita income figures. We should, perhaps, rather talk of Africa and Latin America suffering a "development crisis", and not focus purely on debt in seeking the causes or the remedies of those countries' economic difficulties.

The motion, perhaps rather unhelpfully, refers us not to the causes of debt problems, but to their remedies. I propose to deal briefly with the situation in Africa, before turning to comment on the recent proposals for middle-income debtors, which are specifically mentioned in the motion. I have often said before that the key to Africa's economic recovery lies in the policies pursued by African Governments. More and more are now pursuing economic reform programmes agreed with the International Monetary Fund and the World Bank. There are also encouraging signs that economic performance in recent years has been better in those countries which have adopted adjustment programmes than in those which have not.

However, we have long recognised that many countries in sub-Saharan Africa, with incomes typically around $350 a head, will never be able to repay all the debts that they owe. We have played a part in recent initiatives to alleviate the debt burden of sub-Saharan Africa. In April 1987 we launched an initiative to help those poorest, most indebted countries, which were prepared to shoulder the difficult responsibility of restructuring their economies. The initiative called for the writing-off of old aid loans and the rescheduling of other official debt on concessional terms.

Britain has taken a lead in implementing the first part by cancelling nearly £1 billion of old aid loans or providing equivalent relief. The Chancellor's second proposal formed the basis of the agreement reached at the Toronto ecomomic summit in June 1988. Nine countries have now had their official debt rescheduled on concessional terms in the Paris Club and more are likely to follow in the next few months.

In the multilateral institutions, the Government have played their part in providing financial support for the poorest debtor countries pursuing economic reforms. We have agreed to provide up to £327 million over 14 years to subsidise loans from the International Monetary Fund's new enhanced structural adjustment facility. That is enough to subsidise one sixth of total lending and makes us the largest single contributor to the subsidy account. Seven of the poorest most heavily indebted countries already have programmes supported by that facility.

At the World Bank we have pledged £250 million over three years in association with the bank's special programme of assistance for Africa. I shall speak later of our specific contributions to the International Development Association, a subject referred to in terms in the motion and to which the hon. Member for Monklands, West referred at some length.

The position of Latin American countries is very different from that which I have just described. Their incomes per head are typically five or six times as high as those in Africa. The bulk of their debt is owed to commercial banks. Given that they are starting from a higher base than African countries, it is even more true that prospects for growth depend on their economic policies. Economic reform can do more than debt reduction to improve the prospects for growth and for rising living standards. It can also do more than debt reduction schemes to help countries to overcome their debt difficulties. Sensible policies form the basis for a long-term recovery of creditworthiness. They are also important in meeting short-term financing needs. Confidence in a country's economic management will encourage investors to put their money into a country and will discourage residents from putting their savings elsewhere and adding to the problems of capital flight.