In the City

Good money after bad

Jock Bruce-Gardyne

rientral banks and international V./institutions, I read the other day, are bullying the commercial banking system in- to lending ever more money to bad debtors. Governments are 'happy to continue drif- ting towards the precipice', while the banks (with a subtle change of metaphor) `seem quite content to drift over Niagara with them'.

Stern words indeed. And their author? Wall Street's Dr Henry Kaufman? Some arch-conservative from the Congressional banking committee? Dr Otman Emminger, late of the German Bundesbank? Well, ac- tually no. These were the words of that pillar of financial rectitude and fiscal cau- tion Mr Denis Healey. It is true that Denis Healey has always believed in singing to the gallery, and I imagine he found a receptive audience at last week's European banking conference in Milan. Besides, he has been telling us that the collapse of the world banking system is only weeks away for almost two years now, and like the sandwich-board men prophesying the end of the world he has to keep changing his deadline.

Labour's erstwhile Chancellor finds himself in unexpected company. Just as he was calling for a return to hard-faced bank- ing prudence in Milan, his current successor Nigel Lawson was echoing the message in Washington. 'The formula the Fund has adopted, of offering help [to countries in trouble] only when proper adjustment is undertaken, has been proved to be effective and we must clearly stick with it.' There was a danger that the Argentinian bale-out 'might be read as a softening of what should be a firm attitude that the financial community takes towards dealing with the debtor nations.'

There were dissenting voices, though. Mr Donald Reagan, US Treasury Secretary, was firmly on the side of vice: the Argenti- nian debt arrangements constituted a `magnificent example of hemispheric solidarity'. It isn't every day that we get a Tory monetarist Chancellor and his Socialist predecessor lined up against a Republican US Treasury Secretary in defence of banking orthodoxy.

Well I don't know about 'hemispheric solidarity'. But perhaps Nigel Lawson ought to pause to consider what could have happened if there hadn't been a spot of `softening' at the end of March — and not just to the US banking circuit. Last week the City learned that the can of worms that is Midland's US venture, Crocker of Cali- fornia, is looking even less appetising than had been hitherto appreciated. In a single quarter Crocker's specific bad debt provi- sion had shot up from $107 million to $140 million. But had that 'softening' not occur- red, and had Argentina not come up with interest on its debts at the end of March, Crocker would have had to show another $185 million worth of 'non-performing' loans. Add to that the cost of provisions for future UK tax liability arising from Nigel Lawson's budget, and Midland's own balance sheet would have been looking rather seedy. Small wonder they are happy to pay Mr Cahouet upwards of half a million dollars a year to try to sort things out.

So now it's on to the next deadline at the end of June. Long before then, they tell us, Buenos Aires will have agreed a course of treatment with the brokers' men in Washington, and the commercial banks will be able to lay on the cash to have their in- terest payments met on time with an easy conscience. Let us hope so, anyway: although the Argentinians could be forgiven for hanging tough in the light of their ex- perience at the end of March. One's instinct is that the major commercial banks will not need much bullying to induce them to top up their loans whatever happens. And that Dennis Healey — or at any rate Nigel Lawson — would not greatly relish the alternative.

One person who cannot have been par- ticularly surprised by this united front across the political divide is the head of Mrs

Thatcher's Think Tank, John Redwood' For Mr Redwood has just produced a tell- ing chronicle, Going for Broke • • ' (Blackwood £15, paperback £4.95), of the ways of successive British governments, regardless of their colour, with our money It is a work after the Prime Minister's heart. `Looking at the whole record of govern ments' involvement in industry', Mr Red- wood reckons, 'the conclusion to which one has to come is that it would be better if they did not intervene at all'.

But they do: and as if to underline the

point the publication of Mr Redwoods study coincided neatly with the delivery of another £37.5 million to that most enduring of all the industrial Oliver Twists, Harland and Wolff. `To assure its survival', the Nor thern Ireland Secretary added in a grace' note, 'Harland and Wolff will have to con- tinue its drive for more efficient produce " 1,,e: tion'. To which the Belfast shipyard, h the Argentinians, might reasonably reP1Y,' `now pull the other one'. For Mr Prior s message has been repeated over the Years with the monotonous regularity of the spring equinox. Mr Redwood casts the Department of In' dustry in the villain's role, althought- 111 fairness that should be shared by the Scoff fairness

Welsh and (above all) Northern

Ireland Offices. Even when ministers corn to office full of good intentions, as Keith Joseph so emphatically did in (`basically I'm averse to seeing plih,1,1,c, money invested in manners which open up pressures for money to be put into thingv that shouldn't survive'), they sorrieh°'a swiftly find themselves paying over witilhe will. They do so, of course, for preciseb,..1 same reason that the commercial ban"' suspend the rules of normal hank° prudence in favour of their sovereign bor- sreociwueernse: ebsecoafudsoeitnhgeyotahreerwsciasered of the con- sequences of

British Shipbuilding, British Rae:

British Steel: these are the legacies of ti'r compound follies of the past. But, Nine Redwood is also highly sceptical — ar' suspects with good reason — about some the 'sunrise investments', the InmoSeS ar,in the Nexoses (to which Airbus and iss% might now be added) which are all the rag' with the Department of Industry todaye. `The Department of Industry was tno. r_, often motivated by the desire to create joo't.

often in areas that were particularly

tractive for investment, with workforee, unsuited to the venture in hand.' That, in- deed, is the name of the game, and P01,1t1-0. cians of all the parties are adept at PlaPri'

it. neced''

Well, Mr Redwood is now ideallY P'ao to question their gullibility with our m Perhaps he should now also direct his see: -c tical gaze upon the latest fashion for pub works — what David Howell calls 'the in- frastructure frastructure spending, the urban trarisP?ii.. dustrial re facilities .a.. aas whi ndthecgh threeneing of derelict 1,5 ia finances could well withstand mentra pressure on either inflation or interwr rates.' Is that so, David? Is that really Sy. G:itVheornlit extra pressure