CONFIDENTIAL
ractice, however, commercial interests have tended to be given less prominence than is now desirable. This is partly because the extent to which Ministers wished the commercial considerations to be taken into account in the implementation of aid policy had not been established.
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We have therefore considered what greater use of administrative options compatible with the strategy set out in the White Paper would permit increased commercial/industrial advantage to be gained from the operation of the aid programme. We suggest in this Report a number of changes which should ensure that the commercial/industrial considera- tions set out in (a) (f) of para 5 above are brought constantly and consistently into the calculation in the administration of the aid programme.
The basic strategy as set out in Cmnd 6270 inevitably limits the extent to which commercial considerations can be decisive. We consider, however, that there would be advantage in carrying on the aid programme a limited contingency margin, unallocated by recipient, which would be available for projects which are developmentally sound and are of particular commercial/industria significance. This proposal, and the reasons for it, are discussed more fully in paragraph 28 below. Whilst for the bulk of the aid programme the commercial considerations set out in paragraph 5(a) (f) cannot predominate over the develop- mental objective, these considerations would, subject to a minimum test of developmental soundness, be accorded priority in the allocation of this contingency margin.
III FLEXIBLE USE OF AID FINANCING AND CREDIT
8 A flexible use of ECGD-backed finance in combination with aid appears to offer one of the potentially most effective means of achieving aid and trade aims. This in practice means Credit Mixte or something along similar lines.
Credit Mixte
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Credit Mixte, a French invention, provides finance consisting of a quantity of capital aid mixed with a similar or larger quantity of commercial credit on the basis that the aid is available only on the condition that the recipient country also accepts the related commer- cial credit. This has the effect of producing credit terms that are softer than commercial credit for similar contracts but harder than aid terms both in relation to the length of credit and the rate of interest. When used by others it prevents UK exporters from obtaining orders on normal commercial terms.
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Credit Mixte has hitherto been regarded as undesirable because:
(a) its primary motivation is commercial and it therefore tends to divert aid flows to the more prosperous developing countries at the expense of the poorest;
(b)
it distorts commercial competition and increases the risk of an escalation of the credit race;
(c) it is contrary to the objective of restraining competition
on credit which all the credit giving countries have accepted:
(d)
the combination of aid and commercial credit undesirably blurs the distinction between the two.
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