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Wheeler, Sir John

Widdecombe, Ann

Wiggin, Jerry

Wilkinson, John

Wilshire, David

Winterton, Mrs Ann

Winterton, Nicholas

Wood, Timothy

Woodcock, Dr. Mike

Yeo, Tim

Young, Sir George (Acton)

Tellers for the Noes :

Mr. John M. Taylor and

Mr. Tom Sackville.

Question accordingly negatived.

New clause 3

Additional relief for LDC debt

After section 88C of the Taxes Act 1988 inserted by Section 66 above there shall be inserted the following section :

"88D additional relief for overseas Government debt.

(1) Where in relation to a debt to which section 88A(2) above applies, a company has included a provision in its accounts for any accounting period ending on or after 20th March 1990 which exceeds the aggregate amount which has a been deducted under section 74(j) above in relation to that debt for that and any previous accounting period, then it shall be entitled to additional relief under subsection (2) below subject to the clawback provided for by subsection (3) below.

(2) The additional relief shall be a deduction from profits chargeable to corporation tax for that accounting period equal to the difference between the aggregate amount mentioned in subsection (1) above and the lesser of

(a) the provision mentioned in subsection (1) above and (b) the maximum provision which would have been made in relation to the debt had the company followed the recommendations contained in the Bank of England's guidelines for overseas debt provisioning in force at the end of that accounting period ;

and for the purposes of subsection (1) above any relief given by virtue of this subsection shall be regarded as an amount deducted under section 74(j) above.

(3) The additional relief granted by subsection (2) above shall be withdrawn to the extent that, at a date three years from the end of that accounting period the company has not made a relevant release of the debt ; and an assessment made to give effect to this subsection (or subsection (5) below) may be made at any time up to six years after that date.

(4) For the purpose of subsection (3) above, a relevant release means

(a) a release of the debt in favour of the Creditor Overseas State Authority for no consideration, or

(b) a disposal of the debt to the Overseas State Authority for a consideration equal to or less than its book value at the end of that accounting period, or

(c) a disposal of the debt by the company under a development plan or an environmental protection plan approved by the Treasury ; and the Treasury shall be empowered by this subsection to issue regulations demonstrating the criteria which it will use in deciding whether or not to approve under this subsection a development plan or environmental protection plan submitted to it for approval. (5) Nothing in subsections (1) to (4) above shall cause the aggregate profits charged to corportion tax of any person for the accounting period in question, and all previous accounting periods in relation to which he was chargeable to corporation tax, to exceed those which would have been so charged had this section never been enacted ; and this section shall have no effect to the extent that it would otherwise cause such excess to be charged to corporation tax.".'.-- [Mr. Boateng.]

Brought up, and read the First time.

Mr. Paul Boateng (Brent, South) : I beg to move, That the clause be read a Second time.

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New clause 3 is a modest measure, made all the more so by the restrictions of the Ways and Means resolution. However, its principle is important. It is introduced against a backcloth of crisis because of growing poverty in the developing world. There is a debt crisis that threatens to make that poverty even worse, and that will impact adversely upon Britain's banking system.

One in every five of the world's population has less than a dollar a day on which to live. More than 1 billion people--about a third of the developing world's population--are living on less than $370--£206--a year. The problem of poverty has been ably and comprehensively recorded in a recent report on world development by the World bank. It studies the last decade, which it considers to be a lost decade because of the opportunities that presented themselves to deal with the problems of poverty, but which were not taken or were squandered. Even more than a lost decade, it was a decade of despair, especially for the children upon whom poverty impacts adversely as it reduces their opportunity to achieve even basic standards of education. It was a decade of despair for the farmers, especially the single crop and subsistence farmers who found the whole basis of their agricultural economy undermined. It was a decade of despair for the women of the third world whose backs have borne the greatest brunt of debt and poverty.

Against that backcloth, the measures are meagre. Nevertheless, they are important because it is vital that there is a reduction in debt and that we recognise the contribution that the commercial banking sector can make in that process. Commercial banks play a disproportionate role in the net transfer of resources. Debts to banks, including guarantee export credits, represent 40 to 45 per cent. of the total debt of the debt-burdened countries. In 1988, £28 billion of their £30 billion net transfer to creditors was on transactions with commercial banks. It is clear from those figures that a reduction in net transfers to commercial banks is critical if we are to alleviate the debt burden. Even with that reduction, there is unlikely to be any substantial gains in that area.

The new clause seeks to offer banks more relief than that proposed in the Bill. However, the relief would not be unconditional ; it would not be just a handout. It would be clawed back if, within three years of the accounting period in which the relief is claimed, it had not been given by way of reduction in indebtedness--either through the sale, at a loss, of the debt to the debtor country, or a swap that had environmental or development gain. That must be done within three years or the relief is clawed back, with interest.

6.30 pm

This modest measure is an incentive to the commercial banks to take their obligations seriously. It is commercially desirable to the banks, but there is also a moral obligation on them. It is important that the banks see their responsibilities as a matter not simply of commerce but of common morality. The Opposition are bound to say--I do not think that they are entirely alone in this--that there was something distinctly unseemly about the paean of special pleading in the Grand Committee Room by several Conservative Members on behalf of the banks. They addressed us at great length about the hardships experienced by the banks. It was a bit rich that their cry should drown the cry of the dispossessed and the deserted of the world. Such pleas are a bit much

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from Conservative Members who come along with their carpetbags loaded with dosh while people in the developing world have to live on a dollar a day.

One in five people in the world has to live on a dollar a day--a shaming statistic, as hon. Members would agree. It should be possible to devise a programme of aid and assistance that is not limited to reducing indebtedness but is geared towards providing not just a safety net but a trampoline by which it will be possible for the developing world to bring itself up. The issue relates to the obligations not simply of aid donors but of aid recipients to ensure that the aid is not misused and abused. All too often over the past decade aid has been misplaced by us donors then misused by the regimes and Governments of the recipient countries. The poor have not had the advantages of development, and medium and long-term gains in those countries have not been made possible.

The new clause should not be seen as an end in itself ; it is but a faltering step in the right direction. I wish to set it in the context of the Brady initiative. That initiative made a truly faltering start in addressing the issues, the magnitude of which we now fully understand. That faltering start was highlighted in the recent report by the Treasury and Civil Service Select Committee, which concluded that the Brady initiative

"will be partial in its effect ; and in the case of those countries which have adopted a Brady package its impact will be modest. The Brady initiative is not likely to provide a solution to the problems of the middle income debtors as a whole."

I do not think that any hon. Member could find fault with that conclusion. The United States Treasury Secretary, Mr. Brady, said that creditor Governments should consider how to reduce regulatory accounting or tax impediments to debt reduction where they exist. The new clause would reduce one such impediment and as such is commendable. We hope that the Government will find it in their heart to take it on board, and we commend it to them with that in mind. The Brady initiative is weak in terms of its lack of ambition. It aims to reduce bank debts by some 20 per cent. The former vice -president of the World bank, David Knox, argued that we should try to cut the Latin American debt service to private creditors by 70 to 80 per cent. That shows the scale of the Brady initiative. A wider study group was chaired by the former managing director of the International Monetary Fund- -not a body known in the developing world for its liberality or for its breadth of understanding of the impact of its strictures on debtor countries.

I am obliged to my hon. Friend the Member for Islington, South and Finsbury (Mr. Smith) for helping me to pronounce the name of that former managing director, Dr. Witteveen--they are very communautaire in Islington ; the Dutch trips off the tongue. We in north-west London must learn from them. Dr. Witteveen correctly said that we should take 50 per cent. as a starting point for bank debt service reduction by highly indebted countries. I note that the Chief Secretary is waiting to demonstrate his linguistic ability. No doubt there are plenty of authorities upon whom he can rely.

The number of authorities that support the Government's approach on this issue is limited, if not non-existent. Who knows? Perhaps some can be dredged up from somewhere. Perhaps a family friend will help--but we must not trespass into family grief. We look forward to hearing what the Economic Secretary has to

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say because this is an issue that requires urgent solutions. There are no easy solutions, and we do not pretend that there are. This matter requires us to go beyond sentiment to strategy, but we require some strategy if we are to deal with the problems of indebtedness. The "World Development Report" was clear about the importance of addressing the issue of debt in relation to poverty because it is a prerequisite and a precursor to a successful arrival at a position from which it is possible to address the issue of poverty in the developing world, to deal with the issue of debt and to relieve some of the burden that currently encumbers those countries. If the necessary domestic policies--which are recommended by the World bank--to maximise the best available resource of those countries, their labour, are linked to social policies and to welfare policies that are focused on the needs of those most in need in the countries in question, that in itself is a welcome development. I am sure that hon. Members will agree with the thinking of the World bank on this issue.

Before one is able to address those domestic concerns, the international context of indebtedness must be got right. That is the conclusion of the "World Development Report" and it is worth considering in full. The report concludes :

"Many low-income countries--especially but not exclusively in Sub-Saharan Africa--find themselves with daunting debt and debt service burdens at a time when they need to invest more (in order to improve their long-term prospects) and, simultaneously, to increase the consumption of large numbers of people in poverty. Further efforts by the international community will be needed to reduce their debts and to increase concessional assistance to them. These efforts should be conditional on appropriate policy reform in the countries concerned. Aid and debt relief will be to no avail if appropriate policies are not in place."

That report puts the issue of debt clearly in perspective. The new clause addresses that issue in a way that will effectively suspend the operation of new clause 88B and will reapply the old law, although only temporarily. If in the three years after relief has been granted the debt has not been released completely, sold at a loss to the creditor state or disposed of under an approved development plan or under an environmental protection plan, the additional relief is withdrawn and new clause 88B comes back into operation. That is secured by new clause 88D(3). Our proposal is more modest than we would want and the Ways and Means resolution weighed especially heavily on us in this respect. However, the new clause is a start and we have to begin somewhere. As a start, we commend it to the House.

Mr. James Wallace (Orkney and Shetland) : We welcome the new clause. The hon. Member for Brent, South (Mr. Boateng) did not make any great claims about how radical the effect of the new clause would be. However, it pushes the modest provision that the Government have introduced in the Bill a step further in the right direction. The hon. Member for Brent, South said that the new clause and the Government's proposal are consistent with the Brady initiative, although he is right to point out that, as the Select Committee on the Treasury and Civil Service concluded, the Brady initiative "will be partial in its effect ; and in the case of those countries which have adopted a Brady package its impact will be modest." Given the scale of the debt crisis facing many developing countries, any package is to be welcomed inasmuch as it helps to relieve them of debt. However, we

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should be under no illusion about the amount that still needs to be done if the heavy burden of debt is to be removed and if, in removing it, we are to allow those countries the opportunity to go forward and to seek and undertake development with far greater confidence and ability.

6.45 pm

The hon. Member for Brent, South referred to the background against which the new clause is moved and to the need to relieve many nations of their debt. It is important that we remind ourselves of the scale and consequences of that debt. The debt crisis has ensured that over many years many of the debtor states have been denied the resources that they need to build sustained and sustainable economic growth. As a result, many of the basic services of food, shelter, health, education and employment have been denied to the people.

The hon. Gentleman made the valid point that much of the debt that has been incurred has not gone to relieve the burden of the plight of the poorest people in those countries. They have continued to suffer and the prospect of any relief of their suffering has been seriously hindered by an ever- growing debt problem.

"The State of the World's Children Report 1989" states that average incomes in Africa and Latin America have fallen by 10 per cent. to 25 per cent. in recent years, that health spending has been reduced by half, that education spending has been reduced by 25 per cent. in the 37 poorest nations and that in over half the 103 developing nations there has been a 20 per cent. drop in the number of children attending school in the six to 11-year-old age bracket. Those are startling figures and should bring home to us the nature of the problem and its human dimension. They should also encourage us to an even more dramatic response than we have had in the Bill or in the new clause.

It is also important to recognise, as we are now all

environmentalists, the effect that debt burdens have had on the environment. That has resulted in the marginalisation of small farmers, which has been one of the causes of the slash-and-burn exploitation of forests and of other desperate and environmentally destructive survival strategies. Apart from the need to improve the lot of many of our fellow human beings, there is also an urgent need to take steps to remove the need for many people in these countries to take action that will be environmentally damaging.

The hon. Member for Brent, South did not make great claims for the new clause. However, much will depend on the Bank of England guideline. My reading of the new clause--I am subject to correction if I am wrong--is that if the guideline for a country does not increase by more than 15 per cent. over three years, nothing in the new clause would give any further relief above that already provided under clause 74. However, the incentive for packages to be implemented which is implicit in the new clause is welcome ; the matter is not left to chance. A degree of urgency is instilled into the measures and that is especially welcome, as is the definition of what releasing a debt amounts to. That is helpful and widens the original definition.

This gives us an opportunity to ask whether the amendment is a big step forward. The answer is that it is not. I suspect that some of its deficiencies are a fact of life

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because there are things that Opposition parties are unable to do in the context of the Finance Bill. There are restrictions which prevent Opposition Front-Bench Members from taking steps which are as dramatic as they would like. It also gives us an opportunity to ask in which direction the Government wish to move in future Finance Bills to extend the provisions that they have introduced. Is this to be the sum and substance of their contribution towards encouraging banks to write off or sell back debt, or can we look forward to further initiatives in future Finance Bills, particularly if the measures introduced in this Bill are seen not to be sufficient? I should be interested to hear from the Economic Secretary what proposals he has to monitor the use made of the current clause and what further proposals he might have to extend it.

One way to improve the new clause and make it more effective would be to entitle banks to full relief on any level of provision and subject that to clawback. That may have been impossible for the Opposition to propose, but it would be much more effective in trying to achieve the objectives which I am sure that all hon. Members wish to achieve. The debate will have been worth while if the Treasury Bench will say that this is only a first step towards taking much more drastic and radical action to alleviate a global problem affecting our fellow citizens. Although the provisions are modest, they are to be welcomed.

Mr. Mike Watson (Glasgow, Central) : The scale of the debt problem relating to developing countries should not be underestimated. No one participating in this debate or in the Committee has underestimated the problem, but there are differences in the way people feel that it should be addressed. The World bank classifies 46 of the 111 countries reporting to it as "severely indebted". Those countries owed $675 billion out of a total developing country debt of about twice that figure. They are mostly to be found in the African continent, mainly in the sub-Saharan region. Relative to their exports and economic activity, the total debts of low-income debtors are even larger than those of the developing world's largest debtors such as Mexico and Brazil. Most of those countries have a debt service to export ratio of at least 25 per cent., which goes some way towards explaining the fact that many of the aid agencies viewed the 1980s as a decade of negative development for those countries. For some countries, the debt repayment and the austerity measures designed to facilitate that repayment have had such serious economic consequences that social and political unrest has resulted. There have been riots in countries such as Algeria, Venezuela and Zambia, which are countries that we are supposed to be assisting. The austerity demanded by the so-called middle-income countries was no more effective. Brazil's external debt in 1973 was $9 billion. Between that time and 1985 Brazil paid $145 billion as debt service while a total of $121 entered the country as new loans. That means that in that period there was a net outflow of $24 billion, yet the total debt still rose to $95 billion by 1985. If that is an example of the developed world helping the developing world, one can forgive the average Brazilian for saying, "You can keep your money--if that is the way the International Monetary Fund and the World bank assist us, heaven help us if they ever try to undermine our economy." Brazil is the sixth largest exporter of foodstuffs, yet 30 million of its people subsist on fewer than 1,600 calories a

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day--600 below what is regarded as the basic minimum by the World Health Organisation. There is no shortage of examples of other countries whose economies are in desperate straits and are being driven further into the mire by the avarice and heartlessness of the commercial banks throughout the developed world, including banks in this country.

Between 1982 and 1988 there was a net transfer of resources from debt- burdened countries to the banks of $144 billion. That is a disgrace and a dereliction of the duty by the developed countries to their less fortunate counterparts. The pendulum must begin to swing back towards the third world countries. Banks now have provisions worth in excess of 50 per cent. of their third world loans and can afford substantial debt reduction without incurring significant additional losses.

The Brady initiative of 1989, referred to by my hon. Friend the Member for Brent, South (Mr. Boateng), recognised that debt reduction is now essential. However, many banks still resist the temptation to reduce their debts. It is clear that neither Brady nor the 1980 Toronto agreement, under which western countries cancelled a third of debt servicing costs over 14 years--that was aimed at the more seriously indebted countries--eliminated the negative net transfer of resources to which I have referred.

World problems require world solutions. The Government could and should be doing more to encourage our banks to reduce or sell their debts to the developing countries. Clause 66 gives tax advantages to banks when a debt is sold back to the debtor country. That is welcome as far as it goes, but it does not go far enough. In Committee the then Financial Secretary rejected the arguments advanced by my hon. Friend the Member for Islington, South and Finsbury (Mr. Smith) relating to the widening of the scope of relief to cover environmental swaps. It is right that that issue should be the subject of further consideration now.

These arrangements are becoming a major feature of the method by which commercial banks and voluntary aid organisations use debt reduction to assist indebted countries. The bank donates its loan expenditure to a charity--the Midland bank did this with UNICEF in the Sudan two years ago-- and the charity then arranges with the developing country to provide in local currency an equivalent amount which is then used for approved development products. That is a sensible method of addressing a debt burden which is often a millstone around the neck of developing countries. It turns such a problem into a positive advantage. It is relieved of the debt while guaranteeing funding of a project that enhances the quality of life for at least some of its people. Surely that must be welcomed.

The Government should recognise that and be prepared to offer tax incentives to British banks to encourage them to follow the example of the Midland bank. I am not so naive as to think that banks are in the business of philanthropy, but by using the corporation tax system they could be encouraged to sell back debts and become involved in meaningful debt disposal under a development or environmental protection plan.

In Committee the Financial Secretary gave what I and many of my hon. Friends felt was an unconvincing response on this issue. I hope that the Economic Secretary, who I am sure will soon become the Chief Secretary's successor, when he has had time to consider the matter

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further will feel it within his power to presage that appointment by appreciating the value of the provisions of the new clause and agreeing to add it to the Bill.

The Economic Secretary to the Treasury (Mr. Richard Ryder) : I am not surprised that this debate has ranged beyond the immediate tax provisions of new clause 3. Hon. Members have raised a number of important related points.

Mr. Campbell-Savours : That could not have happened ; the occupant of the Chair would have intervened.

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Mr. Ryder : The hon. Gentleman says from a sedentary position that that could not have happened because the occupant of the Chair would have intervened. I think, Madam Deputy Speaker, that Opposition Members were illustrating their arguments by providing examples that were not directly concerned with the tax provisions of new clause 3. Certainly those of us who were here enjoyed the debate and learned a great deal from what hon. Members said.

On the United Kingdom's general strategy on third world debt, I cannot agree with those who argue that our approach is not working or that we are not making available sufficient resources. Our approach has been to give our support to an internationally agreed strategy which was reaffirmed by the G7 Heads of State at Houston earlier this month. The Government believe that the strategy that we and our international partners have adopted offers by far the best way forward.

Hon. Members have referred to the provision of official resources. These have been significantly increased and will be increased again when the International Monetary Fund quota increase comes into force. The United Kingdom is contributing significantly.

I accept that new clause 3, to which the hon. Member for Brent, South (Mr. Boateng) spoke, seeks to encourage debt reduction and debt forgiveness and that it is well intended. But clause 74--together with existing reliefs for charitable donations--already covers significant ground.

The relief proposals in the new clause could be very costly, and I shall refer to that in a moment. It depends on what exactly is meant by giving extra relief up to the maximum provision recommended by the Bank of England's guidelines, as those guidelines provide not a precise level for each country but only broad bands. If the proposal means that banks could claim relief up to the top of the band within which any particular country fell, the extra relief in 1991-92 could cost up to £350 million. That is partly because it would override the phasing arrangements on increases in provisions which we have introduced and partly because it would allow tax relief up to the top of the Bank of England's bands rather than--as under the procedures that we are introducing--to an intermediate point within them. That would completely undermine one of the main objectives of the Government's proposals which is to keep the costs to the Exchequer of doubtful sovereign debt within bounds.

The Opposition may feel that that money would be well spent if it went to reducing the debt of third world countries but, effectively, under their proposals, banks would get such loans whether or not they engaged in debt reduction. Under our proposals, they will get immediate relief for any loss on disposals of debt back to the

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borrower Government. The tax advantage to a bank that took part in a debt reduction scheme--over a bank that did not-- would be just the same under our proposals as under the Opposition's proposals. The only difference would be that, under the new clause, there would have been a substantial interest-free loan by the Government to the banks.

Moreover, during the three-year period, banks would be discouraged from selling their debt on the secondary market. Any fall in sales as a result would hit those debtor countries that are able to buy back their debt, especially those that have acquired it unofficially on the secondary market.

Mr. Campbell-Savours : Before Ministers slip into producing mythical figures in this debate, as they did in the previous debate, may I ask the Economic Secretary this? He referred to a figure of up to £350 million. Will he give us the bottom-end figure?

Mr. Ryder : I am prepared to say that the relief would cost about £350 million and that if it cost less, it would not cost much less. We are talking about a significant sum. That much has been acknowledged throughout our proceedings on the Bill : we are dealing with very large sums. Some of my hon. Friends criticised my right hon. Friend the Chancellor for taking more than he should have done in his Budget on 20 March. No one is quarrelling about the fact that the sums that have been calculated and agreed among a wide variety of organisations are accurate, and those are the sums on which we have been working.

The Government have greatly improved the provisions for tax relief for company donations to charities. Banks that wish to assist development and environmental charities can take advantage of the provisions. I recognise that gifts in kind are not deductible, but it is possible for banks to arrange a transfer of money which will achieve the same effect and, provided that the amounts do not exceed the allowable limits, there will be tax relief. I am happy to repeat the assurance that my right hon. Friend the Secretary of State for Trade and Industry--I look forward to reading this in Hansard tomorrow--gave in Committee that if charitable relinquishment of debt starts to run up against the 3 per cent. limit of dividends paid in the year, we shall, of course re-examine the matter.

The resolution of international debt problems is inevitably a long-term matter. But we have come a long way since the crisis broke in 1982. It is significant that debt levels have stabilised. For the most heavily indebted middle-income countries--the so-called Baker 15--the total debt stock has fallen about 10 per cent. from its peak. It is also important to recognise that the systemic risk to the banking system has been averted. For example, the exposure of United States banks to least-developed countries has fallen from about 200 per cent. of their capital in 1982 to about 70 per cent. in 1988. For British banks, the figure has fallen from around 150 per cent. to 50 per cent. in the same period.

Let me refer to this country's record on debt strategy. I remind the House that we fully supported the strengthening of the debt strategy agreed by the IMF and World bank boards just over a year ago. The Brady plan, which has been referred to, has encouraged the process of debt reduction by the commercial banks. Progress has

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already been made. In particular, recent commercial bank agreements with Chile, Costa Rica, Mexico, Morocco, the Philippines and Venezuela involve significant debt and debt service reductions. A combination of debtor reform efforts and commercial bank debt reduction has helped improve confidence in debtor economies, perhaps most noticeably in Mexico where there has been some welcome return of flight capital.

Among middle-income countries, the bulk of whose debt is owed to the commercial banks, it is primarily for the debtors and their commercial creditors to resolve debt problems. I cannot accept that the taxpayer should be expected to bail out the banks. Among the poorest countries, whose debts are primarily to official creditors, Governments have a more prominent role. That is why the Government have paid a good deal of attention to the needs of such countries. The House will be familiar with what has been done. My right hon. Friend the Member for Blaby (Mr. Lawson), the previous Chancellor, launched an initiative which led to the adoption of Toronto terms, alluded to by the hon. Member for Glasgow, Central (Mr. Watson), at the June 1988 summit. This recognised the need for relief on official debts for the poorest countries in sub-Saharan Africa. I am sure that we are all pleased that the Paris club has been implementing this initiative and that already about 18 countries have benefited from concessional rescheduling covering over $5 billion of debt. Additionally, the United Kingdom has written off nearly £1 billion of old aid loans and all our new aid to low-income countries is provided on grant terms. Some 70 per cent. of our aid goes to the world's 50 poorest countries and the recent Houston summit encouraged the Paris club to review the implementation of the existing options that apply to the poorest countries. It is worth quoting from paragraph 55 of the Houston communique :

"Significant progress has been made during the past year under the strengthened debt strategy, which has renewed the resolve in a number of debtor countries to continue economic reforms essential to future growth."

Of course, private sector investment is also important, and in that regard the United Kingdom's record in the developing countries is of a high order. Only the United States and Japan are greater sources of foreign direct investment than we are. Nearly $10 billion of United Kingdom net direct investment went to developing countries between 1985 and 1988. Of course we try to encourage countries to remove restrictions on foreign direct investment, and many are now doing so.

The World bank has become increasingly environmentally sensitive in its project programme design, and the United Kingdom has encouraged and welcomed that development, playing a significant part in board discussions and initiating some time ago the desire for the World bank to become more environmentally sensitive. We are happy for commercial banks to engage in debt-for-nature swaps if they so choose. However, we think that official aid is better and more effectively used for directly financing environmental projects than for official participation in debt-for-nature swaps.

We must all be encouraged by the progress made in some countries with severe debt problems in getting to grips with a more market-oriented approach to economic policy-making. An example of that is the trade liberalisation in Mexico and Venezuela. Several countries, such as Brazil, Argentina and Mexico, are implementing privatisation programmes. As in eastern Europe, there has

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been a growing recognition of the failure of centrist policies and the dangers of excessive fiscal deficits. If the shift towards more market-oriented reforms can be sustained and extended, many of those countries will be more likely to achieve the growth objectives for which they have been searching. No one understands that better than the majority of the politicians now running debtor countries, many of whom come to London for talks.

The hon. Member for Glasgow, Central referred to Brazil. As it happens, Brazil's Finance Minister was in London yesterday, and it was clear from what she said that Brazil has made major strides towards becoming a more market-oriented economy along the lines that we have been discussing tonight.

7.15 pm

Mr. Nigel Forman (Carshalton and Wallington) : I apologise to the House if I have not been here for all the Economic Secretary's remarks. From his glancing reference to eastern Europe, I gather that he is concerned about the possibility that, now that there has been a change of regime in those countries and they are following more sensible market-led policies, they may be burdened with debt from the previous regime that ran their economies in an unsatisfactory way. Can the Minister offer any hope of a degree of "forgiveness" for the debts that countries such as Poland incurred under the previous regime?

Mr. Ryder : My hon. Friend knows that we are doing a great deal to help Poland, which is one of the most severely indebted countries in the world. Although I have not visited Poland, I think that my hon. Friend has, as have some of my ministerial colleagues, who came back and said that the Poles recognised that the advice with which we have been able to provide the Polish Government on market-oriented reforms and privatisation is as valuable as any economic advice that they have received.

As my hon. Friend knows, the International Monetary Fund has been exceptionally helpful to Poland. The British Government play a full part in the councils of the IMF and the World bank, and will continue to do so. If my hon. Friend reads the communique of the Houston summit of 11 July 1990, he will find that there is no such commitment to Poland along the lines that he suggested, but paragraph 36 says : "We commend the work done by the Commission of the European Communities on the coordination by the Group of 24 of assistance to Poland and Hungary inaugurated at the Summit which has made a significant contribution to helping these countries lay the foundation for self-sustaining growth based on market principles. We welcome the decision of the Group of 24 to enlarge the coordination of assistance to other emerging democracies in Central and Eastern Europe, including Yugoslavia."

I understand why the Opposition have tabled the new clause, but I do not think that we can support it. It would be very costly--

Mr. Campbell-Savours : I do not think that the Minister replied to the important question asked by the hon. Member for Carshalton and Wallington (Mr. Forman). The hon. Member asked about debt forgiveness, and the Minister referred to the Houston agreement and what was decided there. Why does not he answer the question directly? Why is it impractical to write off a part of Poland's debt that was incurred under a Government whom some might regard as fascist?

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Mr. Ryder : As the hon. Gentleman knows, Poland is not the only country in eastern Europe--although it is by far the worst affected--to have been misruled by a communist regime, to the extent that it owes money to other people. It is our aim to ensure that all the countries of eastern Europe are treated fairly and in the same way. It would not be right to select one country for special treatment. That much was recognised by other countries in the Community, and was acknowledged at the economic summit meeting in Houston only last week.

Mr. Watson : The Minister referred to the need for a market-led economy to assist countries with vast foreign debts. He mentioned Brazil, as I did earlier. Brazil is massively in debt : I am not aware that it has ever--certainly in recent times--been anything other than a market-led economy. However, that has not stopped it having a low standard of living for the vast majority of its people, and building up a massive debt. Does the Minister agree that as long as Brazil--the sixth largest food exporter in the world--has 30 million people surviving on 1,600 calories a day, it is not just a question of a market-led economy, but a question of the debt that it is obliged to service and live with like a millstone round the neck?

Mr. Ryder : I take the hon. Gentleman's views seriously. During my discussions with the Brazilian Minister of Finance only yesterday, she told me that the new policies being followed by the Brazilian Government along a market-oriented path were encouraging more foreign investment and helping to put that economy on to a surer footing than it had been on in the past. That is true of many other countries in Latin and South America, which are following precisely the same policies.

The new clause could prove costly ; I have put the figure at £350 million. I do not think that it will give the banks any new incentive to forgive debt, but it would have an adverse effect on the operation of clause 74, which already increases the relative attraction of debt reduction schemes by not phasing losses made on disposals back to the original borrower. We have pointed out for some time the scope for voluntary commercial debt reduction. The Government welcome the growing menu of options for the banks and the progress made under the strengthened debt strategy. Clause 74 already provides an adequate incentive to take part in debt reduction schemes, and I do not think that there is any need for the new clause.

During his speech, the hon. Member for Brent, South referred to Dr. Witteveen, and he saw a broad smile cross my face. Perhaps he thought that I was smiling because he had mispronounced "Witteveen". I do not know how it is pronounced, but Dr. Witteveen is the distinguished person responsible for drawing up the IMF plan when the Labour Government went broke in the 1970s. The hon. Member for Brent, South spoke warmly about some remarks of Dr. Witteveen. I wonder whether the hon. Gentleman passed such kind remarks about Dr. Witteveen when he drew up the IMF agreement for Britain in 1976. I say that in a light spirit. I am sure that the hon. Gentleman--my favourite designer Jacobin from Brent--who has the last word in the debate, will explain that he supported Dr. Witteveen in 1976.

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