Mr Major told MPs that he and Douglas Hurd, the Foreign Secretary, had decided to pump pounds 234m into the Pergau dam project in Malaysia to honour a commitment by Baroness Thatcher while she was Prime Minister, 'and in the wider context of maintaining billions of pounds of British exports to Malaysia'.
He was speaking the day after Sir Tim Lankester, former head of the Overseas Development Administration and currently permanent secretary at the Department for Education, had made plain to the Commons Public Accounts Committee his own opposition to the deal.
The Prime Minister said that Labour could only 'carp and criticise' while the Government was backing business to achieve export orders.
However, Mr Major failed to explain why he was withholding papers on the project from Members of Parliament, and his remarks came against mounting evidence of dissatisfaction in Whitehall over the initiative, described as a waste of taxpayers' money by the National Audit Office, the public spending watchdog.
A former senior government official told the Independent that aid to Malaysia caused 'a lot of argy-bargy', with the ODA and Treasury accusing the Ministry of Defence and Foreign Office of not consulting them before committing Britain to assist a country that was not even poor.
The official said that the rows began after an MoD sales mission to Malaysia in June 1988. He claimed the mission 'came back with a memo which appeared to commit aid for non-military projects'.
Shortly afterwards, the Department of Trade and Industry indicated to the ODA that the Pergau dam would be a suitable candidate for the promised aid.
A former department official said there was also a mystery over why so much aid was used, when Pergau could have received a higher proportion of commercial finance. The Government's Export Credits Guarantee Department is understood to have been happy and able to back a larger commercial bank credit.
Officials said that they were surprised the Government had not tried to reduce the aid element as far as it possibly could to reduce the cost to the taxpayer.
Leading article, letters, page 15