But the Foreign Secretary insisted that funding for this and three other legally doubtful "aid for trade" projects would continue to be met from Treasury reserves.
The move, which brought an angry response from the Opposition, leaves the Overseas Development Agency's budget in debt for the years 1996 to 2003 to the tune of about £122m.
Labour MPs repeatedly called for Mr Hurd's resignation despite a promise that the aid budget would be boosted for the next two years to the extent of the £65.5m which would now be taken from the reserves to fund Pergau and the three further projects. These are a British sub-contract for the Metro in Ankara, worth £22m; a £2.3m project to build a television studio in Indonesia; and the £29m Botswana Light Information Region project.
Mr Hurd's admission that to be legally safe they would have to be funded from reserves indicates a strong risk that, applying last month's ruling, they would be adjudged economically unsound and of little benefit to the countries concerned or their people.
That disclosure is embarrassing enough, but Labour MPs were further angered by Mr Hurd's refusal to "open the books" in respect of illegal spending on the four projects in previous years.
"What is self-evident to the taxpayer is that money was misused," Sir David Steel, the Liberal Democrat elder statesman, said. Joan Lestor, shadow overseas development minister, said the Pergau loan was untenable - and so was Mr Hurd's position.
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