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JUL
HEADS OF DEPARTMENTS
DKK 512 FLOATING THE £
CODE (277)
In Crgberall M2Swans. 12/ En
Comment
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Reference.......
cc Mr King
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Under Secretaries
Mr Ovens
Mr P HR Marshall FCO Mr Windsor
1. We have been trying to assess the effects on the aid programme of the floating of the £. These appear to be likely to be felt in a few cases in the short term but in most cases in the longer term.
2.
To deal with the latter first, it seems likely that changes in allowances for technical assistance officers (which in any case are bound to Estacode) and supplementation provisions will be made in the course of normal reviews of the allowances as these become due. It will not necessarily follow from the floating of the £ that there will be a change in allowances. The consequences will however work through the system. The conversion factor which is recalculated annually and by which the PESC prices are converted to estimates prices will itself tend to pick up the consequences of floating and the estimates may expect to be inflated on this account more than they would have been apart from the downward float. The result of this will be that we do get extra money but that there is likely to be a lag behind the events that cause it. We shall therefore lose a little on the aid programme overall on this account.
3. The short term effects relate to the unpaid balances of our contributions to the IBRD (which is a revaluation payment), Asian and Caribbean Development Banks which are expressed in dollars and the replenishment of IDA. So far as any payments on these accounts have not yet been made in this financial year they will be inflated in sterling terms as compared with the estimates provision.
4.
The Rand is floating with sterling at present and therefore no additional sterling will be required di rectly in the Southern African countries. Certain other aid recipients, mainly Colonies and Associated States, are in areas affected by other currencies, eg the movement of the Australian dollar and the American dollar. I do not think that at the moment we can do more than watch the effects noting that we may have to supply a small amount of extra sterling if sterling depreciates relative to the currencies to which the recipient's currency is tied or to those with which it operates.
5. The payments to the currency stabilisation fund for Laos so far as it has been issued this year will also cost us more in sterling.
6. Pension supplements are paid in sterling. So far as pensions taken over are concerned we reimburse the local governments and will have to find the sterling to match what they themselves have had to pay. There is a margin of uncertainty about the total of pension payments however and it may be that any excesses will be accommodated within that margin.
7. So far as bilateral aid is concerned, a good deal of our expenditure is tied to procurement in this country. The cost will not immediately change on account of the floating of the £. Local costs, where we are committed to paying them, may however change and it may be that in the course of time we shall be asked to top up our aid for particular projects. The question whether or not any such topping up has to be accommodated within the aid framework figure for the country will have to be examined at the time. This however i probably a medium term effect.
CON I DEWITAL