The broadening of the inquiry comes as new evidence emerges of a secret government policy channelling development money to Third World countries as a sweetener for orders of arms from UK companies since the 1980s.
A pattern of increasing aid to countries which are also important purchasers of British arms has emerged from an analysis by the World Development Movement, a UK-based organisation which campaigns on world poverty.
Lord Younger, the former Defence Secretary, is to be asked to explain his role to the select committee, and some members want to question Lady Thatcher. The MPs will interrogate Douglas Hurd, the Foreign Secretary, on Wednesday, demanding an explanation of his admission that aid to Malaysia and the arms trade had become 'temporarily entangled' during negotiations on British help for the Pergau dam.
The documents made available to the Select Committee include a letter from Lady Thatcher to the Malaysian Prime Minister, Dr Mahathir Mohamad; correspondence between Lord Younger and the British High Commissioner in Kuala Lumpur, and the text of an arms-and-aid protocol signed in March 1988 which explicitly linked the two issues.
According to sources who have seen a paraphrased version of the Thatcher letter, the Government has admitted a linkage between the provision of aid and the sale of arms to Malaysia over almost six years.
Lady Thatcher's note, dated 8 August 1988, after a stopover in the Malaysian capital, enthused about increased co- operation, and confirmed the British government's assurances of pounds 70m grant aid in association with pounds 130m of export guarantees for civil projects.
She underlined that further grant aid would be available on a similar basis and looked forward to the premier's visit to the UK the following month, when a memorandum of understanding on a defence package could be signed.
Some countries, relatively rich by Third World standards, are identified in a the WDM briefing document sent to MPs: Ecuador, Venezuela, Malaysia, Jordan, Oman, Indonesia and Thailand. The low-income countries of India, Nigeria and Pakistan would 'bear further examination given their large British arms purchases', it says.
The report goes on: 'In the light of the Pergau case the WDM examined Britain's aid relations with the biggest purchasers of British arms.
'Within the top 13 countries our analysis revealed a group of countries whose growing aid allocations were surprising given the Overseas Development Administration's key priorities of poverty reduction and good government.'
Figures compiled for the Independent on Sunday (by the WDM and the Stockholm International Peace Research Institute) revealed a striking association between the level of aid and major weapons delivered between 1980 and 1992/93.
Malaysia received pounds 202.2m in aid and weapons worth dollars 121m were delivered. The pounds 234m Pergau dam aid is paid over 14 years and the country has agreed a pounds 1bn arms contract.
Indonesia received pounds 285.2m aid and took delivery of weapons worth dollars 1.07bn.
Thailand received pounds 147.2m aid between 1980 and 1992/93, and had dollars 278m worth of weapons.
Oman received pounds 9.2m aid between 1988 and 1992/93 and bought weapons worth dollars 1.03bn. Although aid is not very high in cash terms, at pounds 4.2m in the past five years, Oman received more aid per head ( pounds 0.46) that Ethiopia ( pounds 0.34) and almost double the average given to all countries ( pounds 0.25). For five years - despite its tiny population of 1.6 million people - Oman has been the third largest buyer of British weapons in the Third World.
Jordan received pounds 77.9m in aid between 1980 and 1992/93 and took delivery of major weapons worth dollars 568m.
The WDM report recommends the UK's Aid and Trade Provision should be halted and money directed to tackle poverty in the poorest countries.
It says that the Overseas Aid and Co-operation Act should be amended so that any linking of aid commitments to arms sales would be illegal.
In Kuala Lumpar yesterday officials and businessmen painted a gloomy picture for British trade prospects, saying the ruling party's influence goes far beyond the public sector.
It also emerged yesterday that five projects negotiated by John Major on his visit to Kuala Lumpar last December will not proceed. They include the building of the Kuala Lumpar international airport, a steel plant, bus and coach transport, a power station development by British Gas and a gas turbine power station.
Local expatriate business leaders plan a lobbying campaign to try and reverse the decision. But locals say they have little hope of success.
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