In the City
Doomsday talk
Jock Bruce-Gardyne
Is it time to wave goodbye to the great bull market of the Eighties? As they packed their bags for the Whitsun weekend after an unnerving week the mood of the in- habitants of the Square Mile matched the weather. Majority opinion was that the modest rally which had occurred before the long weekend would not survive the predicted buyers' strike when the US Treasury came forward with its latest bond offering on Thursday. Overhanging all was the imminent prospect of the irresistible force of market pressures for higher interest rates meeting the immovable object of the debtor countries' inability — or un- preparedness — to pay, with the major US banks caught squarely in the middle.
It still seems to me that the Doomsday talk involves a considerable misreading of the evidence. For essentially it assumes that the US Federal Reserve is of a mind to raise the price of money and damn the conse- quences. Or at the least that the US bond markets will force its hand. And further- more that Latin American governments are now prepared to declare collective default and Washington to let them do so.
If that were really the case, then surely the US authorities would have allowed nature to take its course with Continental Illinois. The repercussions could have been contained, and the solemn lesson to the rest of the banking community would have been spelled out. Equally, if that were so, Washington would surely have stood behind the hapless Treasury under- secretary Mr Macnamar and his warning that there could be no further reprieve for Argentina's debts. Instead Continental Il- linois was loaded into a smart new life-boat, and Mr Macnamar was told to eat his words in public. Of course it is always possible that the Latin Americans will decline to allow the interest on their borrowings to be paid for them effectively without condi- tions. But it is not obvious why they should.
Nor is it quite as inevitable as most peo- ple in London seem to believe that US in- terest rates are set to rise further with or without the blessing of the Fed. For the Fed • — to an extent that is probably unique to- day among central banks — can always monetise the debt instead. Indeed, it has already begun to do so. The inhibition on such behaviour by other central banks is that it leads them straight into a vicious cir- cle of soaring inflation and plunging ex- change rates. In America these things take rather longer: and besides, a plunging dollar would lead to sighs of relief all round.
Chancellor Lawson is not so lucky. His message urbi et orbi via the CBI last week was that he did not intend to be put off his stride by a month or two of ugly figures for government borrowing and the money sup- ply. Unfortunately, however, he cannot command the waves, and the City was not of a mood to share his savoir faire. So the expectation was that base rates were set to rise again. Why, oh why, Mr Lawson must ask nightly as he says his prayers, can't the international investment community see what the Fed is up to — and scuttle from the dollar?
For unless it does before the autumn, the prospects for the floating of British Telecom are looking cloudy. No wonder, therefore, that the Treasury is seeking suitors for its stock of shares in British Aerospace — not to mention Jaguar and Inmos. If only Inmos's patrons at the Department of Industry did not have such a hang-up about a sell-out to AT&T!
It is not, indeed, altogether easy to see why they should have such a hang-up. For as the Public Accounts Committee pointed out the other day, the £100 million we have got at risk in Inmos has so far largely gone to pay for jobs in Colorado. 'DTI told us', the Committee reports, 'that Inmos's 1980 Corporate Plan . . . had envisaged a total of 4,166 staff by 1985, 1,467 in the USA and 2,699 in the UK. The latest Corporate Plan showed 1,399 staff in the USA and 1,385 in the UK by that year: in October 1983 there were actually 844 staff in the USA and 584 in the UK'. So if Inmos lives up to its latest promise every job produced in South Wales
Spectator 2 June 1984 will have cost us £70,000. Par for the course, I suppose. Inmos was also suPPosed, to have enabled us to save on imports an' to be generating handsome profits and ex' ports by now. It has missed those targets hY a wide margin too, although it did at least turn the corner into profit in the last quarter of 1983. Given the current world- wide famine of chips it would have been rum do if it hadn't. Nevertheless Inmos has been a miracle of skilled investment compared with that other technological brainchild of the NEB, the office-equipment business Nexos. went up the cleaners in October 1981, ra". ing £31.5 million of our money with it — the last dollop cheerfully supplied within ten months of liquidation. The that Accounts Committee was assured Public at 'thet revised guidelines applying from Ang.,,t1s, 1980 made it extremely unlikely that NtP would enter into new investments of the, kind that had caused problems in the Past' 'We note', the Committee concludes, coolly, 'the Department's confidence abou' the likely outcome of more recent ill- vestments; we trust that it will not prove t° have been misplaced'. We can all saY 'amen' to that. Be that as it may, the PAC is shocked Wa find that there has apparently never been t post-mortem into what went wrong a Nexos. It is here, however, that I wonder whether the PAC is itself entirely blaniele'f The PAC is without a doubt the fiercest 0t. the parliamentary watchdogs. A Perrhanergifir under-secretary summoned to account his stewardship before the PAC does neglect to do his homework. But it is th; constitutional task of the Committee s check out what has happened to ra°neYd. voted by Parliament after the initial spell, It is not empowered to investigate ministers came to have a flutter in We firs' place: and as a result it does not, by conven- tion, cross-question ministers at all. the When the long-awaited report from PAC into the de Lorean fiasco is PU shortly it is likely to be very stern about thile way our cash 'went walkabout' Switzerland, and ended up apparent' 111.. the late Mr Colin Chapman's offshore ba°! vaults and Mr de Lorean's Colorado skislope-making business. But we Oa search in vain for any account from slico- cessive ministers of how they came t squander £80 million on this macicak! speculation. For ministers were never ed. Had the PAC not insisted on knuckhrl in on the act we might have had a spec: Select Committee which could have put the appropriate questions to Mr Roy Mason and Mr Don Concannon, Sir HumPrill Atkins, Mr Giles Shaw, Mr Jim Prior
Mr Adam Butler. all
It would take a brave man to assert that! public inquisition of these happy punter" would have ensured that their successords would think twice before they embark% upon such ventures in the future. But ,e might have done something to concentra;1 minds in Whitehall. As it is we silt presumably be told that Mr de Lorean was a very naughty boy. As if we didn't know.
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