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Standing Committee for the English Regions

37. Mr. Austin Mitchell (Great Grimsby): What plans she has to set up a Standing Committee for the English regions. [55920]

Mrs. Beckett: The Standing Orders already provide for a Standing Committee on Regional Affairs, although it has not met for many years. I am considering whether the Committee might serve a useful purpose in future and how it might be convened.

Mr. Mitchell: I am delighted to hear that. With the establishment of regional development agencies and the possibility of regional devolution, we are clearly moving in a regional direction. It would be useful if each English region--particularly Yorkshire and Humberside, which is the best of them and has a population equal to that of Scotland and problems that are, in many respects, more severe than those of Scotland--should have its own Committee to study its problems.

Mrs. Beckett: I am well aware of the strong regional loyalties in the House. As I say, I am considering whether changes can be made to improve the scrutiny of business. As we all agree, that is what we are here for.

Mr. Michael Fabricant (Lichfield): If such a Standing Committee were established, would its locus be to find out how regional governments can possibly be paid for without demanding extra from the taxpayer, as has been claimed? Does the right hon. Lady agree that people do not want regional governments in England? Would that not cost the taxpayer money? Is it not another example of jobs for the boys?

Mrs. Beckett: As no one has the smallest intention of forcing regional government on anybody, the hon. Gentleman's remarks are interesting but not precisely relevant.


38. Gillian Merron (Lincoln): If she will make a statement about progress in modernising the work of the House. [55921]

Mrs. Beckett: Better information for Members of Parliament is being provided through improving the content of the Order Paper, normally giving advance notice of business two weeks ahead, and publishing, from the start of next Session, the new-style explanatory notes

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for Bills. On Wednesday, the Social Security Committee reported on pre-legislative scrutiny of the first Bill published in draft, on pension sharing on divorce. The House has approved a report on conduct in the Chamber, to dispense with some of our outdated practices. The parliamentary calendar is being considered by the Modernisation Committee. The report on improving European Union scrutiny procedures will be debated soon.

Gillian Merron: I thank my right hon. Friend for her answer. Given the Government's commitment to

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family-friendly policies, will she give the House some idea of development in that area, other than the very welcome reference to half-term holidays?

Mrs. Beckett: The balance that the House is striving to achieve between better and more productive scrutiny of Parliament's business while wishing, of course, to do as we encourage others to do and to promote family-friendly policies, is one with which the Modernisation Committee is, struggling almost even as we speak.

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International Financial System

3.31 pm

The Chancellor of the Exchequer (Mr. Gordon Brown): With permission, I should like to report to the House at the earliest available opportunity the terms of a new agreement reached on Friday by Finance Ministers and central bank governors of the Group of Seven countries to reform and strengthen the international financial system. A full copy of that and a statement by the Heads of Government, setting out the agenda for further action, is available in the Vote Office.

Tomorrow, I shall present to the House the pre-Budget report, with its detail on the domestic economy. However, the financial crisis that swept Asia last year and reverberated around the world has revealed long-standing weaknesses in the international financial system, which G7 Ministers agree must be addressed as a matter of urgency.

Our predecessors had to meet the challenge of ensuring economic stability in an era of national economies. Our generation must meet the challenges of ensuring stability in the era of a global economy, in which each economy can directly affect the prospects of every other. The new way forward is sensible global financial regulation, credible crisis prevention, orderly mechanisms for crisis resolution and a sure foundation in minimum standards and best practices that all countries adopt to participate in the international financial system.

That is directly relevant to the United Kingdom economy. It is everybody's business, not only because we are dependent on trade in goods and services with other countries--the Asian crisis, for example, cut in one single year UK exports to Indonesia, Malaysia, South Korea, Thailand and the Philippines by more than 50 per cent.--but because, in countries such as ours, as we have seen, a weak financial system or inappropriate economic policies in one country put at risk another country's financial system and threaten people's savings or investments, and eventually, their companies or jobs. That is why it is in everyone's interest to support a new mechanism for crisis prevention and resolution, a new transparency in the global financial order and a new process of financial regulation.

The G7 Ministers' statement reaffirms that the balance of risks in the world economy has shifted from concerns about inflation to concerns about growth. In the last month, interest rate policy has been adjusted in Japan, the United States, Canada, the United Kingdom, Spain, Portugal, Ireland, Denmark, Italy and again in the United States. The G7 statement issued on Friday reaffirms our commitment to create or sustain the conditions for strong domestic-demand-led growth and financial stability in each of our economies. The authorities will continue to be vigilant in the light of the shift in the balance of risks on a global basis.

In our statement, each continent has agreed to make a contribution to creating the conditions for stability and growth--Japan with banking reform, Europe with structural reforms to tackle unemployment, and America by promoting growth with low inflation. In the case of Latin America, we welcome the policy commitments that the Brazilian Government have made, and we will work with the international community to support them. All of us must act to avoid a retreat into protectionism.

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As well as measures to deal with short-term instabilities, we need action to reform the financial architecture. For 50 years, our policies for regulation, supervision, transparency and stability have been devised and developed for a world of relatively sheltered national economies with limited capital markets. Now that markets transcend national boundaries, we must create for global markets systems for supervision, transparency, regulation and stability that are as sophisticated as the markets with which they have to cope.

G7 Governments have therefore concluded that the international architecture devised in the 1940s for the economies of the 1940s is no longer adequate for the challenges of the 1990s, and that we need new rules for the global financial system. In the statement, each G7 country has now agreed to adopt and apply codes of conduct founded on minimum standards and best practice. These are new disciplines and undertakings that each country is prepared to accept as a condition of its participation in the international system.

In monetary and financial policy, we are agreed on the need for greater openness, and that each country should specify its objectives for monetary policy. We are agreed that each country should identify responsibility for achieving those objectives, and for reporting and explaining monetary and financial policy decisions. We are agreed that these standards should be set down in an internationally agreed code of conduct that all countries are prepared to accept.

We have committed ourselves to complying with the code of conduct of good practice on fiscal transparency that has been drawn up by the International Monetary Fund. Similar standards of transparency are required in the private sector. By spring next year, the Organisation for Economic Co-operation and Development will complete work on a code of principles on sound corporate governance and structure. By early 1999, we will also have in place a plan for internationally agreed accounting standards.

Those codes of conduct in monetary policy, fiscal policy and corporate governance will mean radical changes in the way in which financial markets function. They will help to produce an environment in which financial markets can operate better. They should reduce the risk of future failures and mean that, when failures do occur, the financial system is robust enough to withstand them. By improving public understanding of why and how decisions are made--and by making sure that the right long-term policies are in place--the codes will help to build public understanding and support for the policies that are necessary to deliver economic growth and prosperity.

Proper implementation of the codes of conduct should be a condition of IMF and World bank support. Immediate action to promote transparency in these areas should be key components in any reform programme which the IMF and World bank agree in coming months. The IMF and the World bank must themselves be more open and accountable, with a presumption in favour of releasing information and external audit of their performance.

We have agreed that there should be new undertakings on social policy, too. The G7 statement underlines the importance of policies that protect the most vulnerable--the real victims of financial crises, whose pain is very real

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indeed. That is why the G7 Governments have agreed that there should be general principles for good practice in social policy. These should serve as a guide to best practice by individual countries, and there must be, as a matter of immediacy, a new World bank emergency facility to provide additional funding on special terms to the most vulnerable groups in society.

On global financial regulation, the G7 Governments have now agreed to support the establishment of a process for strengthened financial sector surveillance, using national and international regulatory and supervisory expertise. That will be used in the IMF's regular surveillance of individual member countries.

We will bring together the key international institutions and those national regulatory authorities that are involved in financial sector stability to co-operate and co-ordinate their activities in the management and development of policies to foster stability and reduce systemic risk. They will be able to exchange information more systematically on risk in the international financial system.

Dr. Tietmeyer, the president of the Bundesbank, has agreed to consult the relevant international bodies on the reforms. I want an international memorandum of understanding to establish a proper division of responsibility between regulators and international authorities.

In the G7 statement, we also commit ourselves to strengthening the regulatory focus on risk management systems and prudential standards in financial sector institutions, and, in particular, to examining the implications of the operations of leveraged international financial organisations, including hedge funds.

A fundamental problem has been a lack of transparency and poor standards of disclosure by some financial market participants. The Basle committee on banking standards will look at that important issue when it considers an international standard of best practice for transparency and disclosure. An agreed international standard of best practice would act as a benchmark both for financial institutions and for their regulators.

The United Kingdom is clear that financial institutions that deal with hedge funds must take into account all proper prudential standards and requirements of disclosure--proper due diligence procedures are essential. We also believe that, as part of the review of capital adequacy rules, the Basle committee needs to examine the appropriate treatment of banks' exposures to hedge funds to ensure proper recognition of the risks.

As Howard Davies, the chairman of the Financial Services Authority, has emphasised, managements of financial institutions have a responsibility to ensure that circumstances never arise in which personal relationships with potential counterparts could get in the way of appropriate due diligence. He said that there must be complete transparency in senior management's personal investments in counterpart firms to avoid any suspicion of conflicts of interest. I fully endorse those remarks.

In their statement, the G7 Heads of Government said that they would examine not only the operation of highly leveraged operations of offshore institutions but how they can encourage offshore centres to comply with internationally agreed standards. That is of particular

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importance for the United Kingdom, because Long-Term Capital Management was registered in the Cayman Islands.

The Government are committed to improving standards of regulation and regulatory co-operation in our overseas territories and to implementing the European, G7 and other OECD initiatives to tackle unfair tax competition. We will not allow high-risk hedge fund speculation by a few to translate into wider risks for the many, and destabilise the financial system on which we all depend for prosperity.

Through international examination of transparency in hedge funds, proper due diligence procedures, potential conflicts of interest and dissemination of standards to offshore centres, Governments can play their part in minimising the implications of future sudden and systemic disturbances.

G7 Ministers are agreed on the need for a new procedure for crisis prevention and tackling contagion. The central element is an enhanced IMF reserve facility, which would provide a contingent short-term line of credit for countries pursuing strong IMF-approved policies. That facility could be drawn on in times of need, and would entail appropriate interest rates along with shorter maturities. It could be complemented, in individual cases, by bilateral contingent financing, and it would be accompanied by appropriate private sector involvement.

The G7 countries have also agreed on the need for a better long-term mechanism for international authorities to work with the private sector and national authorities in handling debt rescheduling at times of potential crisis. We are asking the private sector to adopt collective action clauses to facilitate more orderly work-out arrangements, and we will consider the use of such clauses in our own sovereign and quasi-sovereign bond issues.

We are asking the World bank, in co-operation with the IMF, to work to put in place effective insolvency and debtor-creditor regimes and, we are asking the IMF to consider lending into arrears, under carefully designed conditions and on a case-by-case basis. We want the private sector to build on its experience with some emerging market countries in developing new, market-based contingent financing mechanisms. We will now support the more active use of loan guarantees to encourage greater private-sector involvement in emerging market financing.

Following the welcome United States Congress decision, we call for the IMF quota increase and the new arrangements to borrow to be implemented as soon as possible. Together, they will provide additional IMF resources of $90 billion to ensure the stability of the international financial system.

Globalisation has happened. We must now make it work in hard times as well as good. As we have shown, we need not new institutions, but new rules and disciplines. I want to thank other G7 Ministers and central bank governors, and Heads of Government who have backed this work all along, for working through this new agreement.

Taken together, the reforms that we have agreed--global financial regulation, new codes of conduct for transparency and mechanisms for crisis prevention and crisis resolution, backed up by the resources that those need--represent the first steps and now set the agenda for what will become the most radical restructuring of the

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international financial architecture since its creation in the 1940s, making us better equipped to tackle the challenges of the 1990s and the century ahead. I commend this detailed statement to the House.

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