Greg Hands is the MP for Chelsea and Fulham, and Parliamentary Private Secretary to the Chancellor fo the Exchequer
Some commentators appear to be suggesting that the UK should not play a full role in the International Monetary Fund, or in increasing its capital base, or that somehow the IMF is part of a larger plot to drive forward European federalism.
I used to work from time to time with the IMF in the 1990s, when I worked in debt finance markets in London and particularly in New York City. At the time, the IMF was heavily involved with sovereign borrowers like Argentina and Bulgaria which were experiencing financial difficulties of one sort or another. And this makes the point: the IMF is there as an important resource to help countries across the world which may be in short term or longer term financial difficulties – not just those in the Eurozone. Indeed, the UK itself, as we know, with Labour’s previous disastrous record running our public finances, had to have recourse to the IMF in the 1970s.
It would be strongly against our national interests to not participate in the IMF. Britain would lose a considerable amount of influence, and we would lose a significant part of our recently hard-won reputation as a beacon for financial good management since the Coalition Government took over in May 2010. The Chancellor strongly rejects any suggestion that we should not be part of the IMF. Recent moves to increase the IMF’s resources were first agreed by the G20 in April 2009. This was crucially well before any Eurozone support packages.
At the G20 in November 2010, the doubling of quotas was agreed. Because it was accompanied by a reform to the quotas moving a greater share to emerging economies, for the UK and other advanced economies this worked out at less than doubling the quota. Assertions that the UK taxpayer is on the line for IMF financings completely fail to understand how funding for the IMF works. We lend money to the IMF from our foreign currency reserves. The IMF pays interest. Because this is a loan, it has no impact on our borrowing – it is a financial asset that will be repaid.
I mentioned the work I did in the 1990s with the IMF’s borrowing programme. It is worth noting that the IMF has never failed to repay loans it has received from its members. As far as I can recall, it has never been rated at anything else than AAA/Aaa. Meanwhile, back home, the Budget announced an increase in the foreign exchange reserves (again a financial transaction, so made without impacting on borrowing) to reflect these increased commitments to the IMF ( paragraph 1.50 of the Budget). In the Debt and Reserves Management Report, published alongside the Budget, the Treasury confirmed that quotas would double.
So the question is this: do some want to see the UK pulling out of important international institutions which are important to UK national interests, and have served troubled borrowers across the world – including the UK – or do we want to support the Government’s sensible strategy of minimising our financial role in any Eurozone bailouts, whilst recognising that it is also in our national interest for the public finances of our key trading partners to be restored to an orderly state as soon as practically possible?