International Monetary Fund

Thursday 24th November 2011 Lords Chamber

Question

11:28

Asked By

[Lord Barnett]

To ask Her Majesty’s Government by how much they expect to increase their contribution to the International Monetary Fund.

[The Commercial Secretary to the Treasury (Lord Sassoon)]

My Lords, at the G20 Britain, and all the other countries, agreed to ensure that the IMF continues to have resources to play its systemic role to the benefit of its whole membership. We stand ready to contribute within limits agreed by the House and set out in the International Monetary Fund Act 1979. However, there is currently no agreement about the timing, extent or exact method through which IMF resources will be increased.

[Lord Barnett]

In thanking the noble Lord for his Answer, I remind him that the Chief Secretary to the Treasury said on 6 November that he expected our contribution—which is the Question I asked—would be up to £40 billion. Perhaps the noble Lord could answer that as well. He and the Government recognise the need to provide funds for the IMF. Indeed, the Prime Minister said in the House on 7 November that it would be irresponsible to walk away from helping the IMF, but that it must not be used for a bailout. Can the Minister explain the difference between helping for a bailout and helping for a crisis—a very serious world crisis?

[Lord Sassoon]

My Lords, in answer to the first question, the position under the International Monetary Fund Act 1979 is that the limits agreed by Parliament currently stand at 38.8 billion SDRs, or about £38.3 billion. That is where the £40 billion figure comes from.

On the question of what the IMF is there to do, it is to look at the overall systemic risks in the world and support individual countries. It is not there to support countries in one particular zone as opposed to others or to support currencies. It is there to consider, under its criteria, country by country, where support might be needed.

[Lord Newby]

My Lords, in view of the failure of the German authorities yesterday to auction off debt, do the Government believe that the time has now come for the development of a Eurobond to provide a long-term stable approach to raising funds for the whole of the eurozone?

[Lord Sassoon]

My Lords, we are at risk of straying a bit far from the question about the IMF, but there are a number of serious points here. First, with respect to Germany or any other countries, one should not read too much into one particular bond sale that does not meet its target. That has happened to a number of countries over the years, including the UK. As for what the arrangements will be for the eurozone, we continue to wish that the eurozone makes as much progress as it can, as urgently as possible, to put the arrangements in place.

[Lord McFall of Alcluith]

My Lords, given that the eurozone crisis is potentially more damaging than the one of 2008, is the Minister aware of the IMF statistics that show that over 50 per cent of the Italian, German and French debt is held by non-residents, thereby ensuring that if there is a crisis it will not be confined to the European continent? Is there not a case for more urgent consideration with the IMF to ensure that it and the UK play their part in this global crisis to ensure a better and more stable economic future for the citizens of this country?

[Lord Sassoon]

The IMF does and will continue to play a pivotal role in these systemic issues. There was no agreement at the G20 for an increase in resources for the IMF because, understandably, the US and other key non-European countries want to see the euro area core’s willingness to contribute to the eurozone crisis before they commit. Meanwhile, the IMF has $400 billion available to lend, but I agree with the noble Lord that there is an urgent need to resolve all these interlinked matters.

[Lord Blackwell]

My Lords, does my noble friend agree that it is undesirable for the IMF or indeed any other agency to fund the debts of any particular country unless that country has a sustainable plan to restore its international competitiveness?

[Lord Sassoon]

I very much agree with my noble friend. The IMF’s lending programmes are indeed conditional on programmes of that kind.

[Lord Harrison]

Given the fact that we help our fellow European countries in the contribution that we have made to Ireland, the IMF and the EFSM, what is the philosophical and practical difference between contributing to the EFSF—which is not wholly confined to the euro 17—and contributing to the future EFSM or, for that matter, any other acronym that may come along to help?

[Lord Sassoon]

It would be unproductive to be drawn into the history of the arrangements that the previous Government committed this country to, but we could go into that if noble Lords want to. This Government are completely clear: we will support the IMF on a bipartisan and all-party basis, as we have always done since its inception. It must be for the eurozone countries to put in place their mechanisms for future support.

[Lord Dykes]

My Lords, does the Minister not agree that in view of the deep urgency of this crisis, which the noble Lord, Lord Barnett, referred to—indeed, the United States is the most irresponsibly indebted country of all in the whole IMF system—there is a growing case for a significant increase in these facilities and for working with the eurozone for the good of the whole world? Otherwise this problem is going to grow and grow, including in non-euro countries.

[Lord Sassoon]

My Lords, I would just reinforce to my noble friend that at the G20 Britain and all the other countries agreed to ensure that the IMF continues to have all the resources that it needs. There is no lack of commitment to the IMF having those resources. We now need to see what proposals develop. I agree that the situation cannot drag on for ever.

[Lord Davies of Oldham]

My Lords, the noble Lord has cited the resources that are already available to the IMF but many commentators foresee that they will be inadequate to meet the depth of this crisis. If the IMF seeks to raise further funds, will the Government be contributing?

[Lord Sassoon]

My Lords, I have made it completely clear that we have headroom under the current law and the statutory instruments that were passed by Parliament in July 2010 and July 2011. We have always contributed to the IMF and we will continue to support it.