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MPs attack aid-for-arms deal with Malaysia: Whitehall 'liaison failure' highlighted

A BREAKDOWN in communication within Whitehall was blamed yesterday for the original decision to link overseas aid with the sale of arms to Malaysia.

The cross-party House of Commons Foreign Affairs Select Committee said there was 'a serious failure of the system of inter-departmental liaison' when Lord Younger, the then Secretary of State for Defence, visited Malaysia in March 1988 and committed Britain to granting aid based on a percentage of weapons orders. Such linkage may have been illegal and was certainly contrary to stated government policy, the committee's report said.

Once the error had been made, and the Government felt morally obliged to supply aid to a country spending more than pounds 1bn on arms, ministers, including Margaret Thatcher and Chris Patten, then overseas aid minister, did their best to keep it quiet: 'Replies to certain questions were literally true, though less open and less informative than the House (of Commons) has a right to expect.'

Ministers also tried to ignore Pergau in the hope it would go away, a tactic, the MPs said, that should not be part of the Government's decision-making process, especially when such a large amount of money is involved.

Labour and aid pressure groups broadly welcomed the report and the insistence of MPs that it should not happen again. Tom Clarke, Labour's overseas aid spokesman, said it 'highlights the comedy of errors and catalogue of bad decisions which led to this abuse of the aid programme'.

The MPs stood back from recommending abolition of Aid and Trade Provision, the controversial type of aid given to major overseas projects in co-operation with big business, although they advised it should be brought within the remit of the Overseas Development Administration rather than the Department of Trade and Industry. MPs said it was 'reprehensible', once the Malaysians indicated they wanted aid in return for buying arms, for the MoD not to bring in the Foreign Office, which oversees the ODA.

Lord Younger, an ex-minister, and Sir Nicholas Spreckley, former High Commissioner to Malaysia, are singled out for particular criticism - Sir Nicholas for not being involved in preparations for Lord Younger's sales mission, and the two of them, for not telling London before striking a deal with the Malaysians. Peter Shore, committee chairman, said he regarded the protocol signed by Lord Younger on the trip as 'a grave error of judgement . . . there should be no linkage of aid and weapons'.

MPs said they subscribed to the 'cock-up' theory of government rather than the eventual granting of pounds 234m in aid to Pergau - widely condemned as a waste of public money - as being part of some deeper conspiracy.

Despite attempts, in Foreign Office speak, to 'disentangle' the linkage, once made it placed Britain under what Lord Howe, the former Foreign Secretary, described as a 'moral obligation' to provide state aid. The fact the funding was still made simultaneously with Malaysia buying pounds 1.5bn of arms and bore a similar proportion to that originally agreed by Lord Younger, was 'coincidence', Jim Lester, a Tory member of the committee, said.

At the drafting stage, Mr Lester tried to have struck out this inference that the link was nevertheless maintained. Mr Shore used his casting vote against Mr Lester's proposed amendment.

Some of the strongest words in the report are reserved for the contractors: Balfour Beatty, Cementation International and GEC. The companies put Baroness (then Mrs) Thatcher under pressure to agree to help build the dam, in March 1989, based on a price of pounds 316m. Two weeks later, they said it would cost pounds 397m. The MPs found that 'the Prime Minister was encouraged to give an oral commitment on the basis of information which was incomplete'. Baroness Thatcher refused to appear before the committee.