Tuesday, February 14, 2006

Undergraduate Dissertation: The implications of the Pergau Dam scandal

The Political Economy of Thatcherism: Dissertation
Dr. Roger Middleton


The implications of the Pergau dam scandal in terms of the power-play of commercial and developmental interests in the allocation of Aid-and-Trade Provision (ATP) funding


By Alexander Gordy
(History BA 3rd Year)
19th April 2004



I. INTRODUCTION

The Pergau dam scandal, involving the funding of a huge developmentally dubious hydroelectric dam in Malaysia, revolved around the linking of arms sales to overseas aid, in the form of Aid-and-Trade Provision (ATP) funding. The linkage came to public attention when a senior civil servant in the Overseas Development Administration (ODA), Sir Tim Lankester, voiced objections over the funding of the un-economical and environmentally damaging dam in 1991. His objections were over-ruled by the then Foreign Secretary, Douglas Hurd. Several investigations into the reasons for the United Kingdom (UK) government’s proceeding with the funding of the dam project in Malaysia eventually threw the spotlight on the linkage of the two deals, which was against stated government policy.
Through the investigations into this scandal, both by parliamentary committees and newspapers, the operation of the government’s decision-making process, in the context of the ATP, was opened up to public scrutiny. Interest groups such as Non-Governmental Organisations (NGOs), backed by influential academics, used the scandal to highlight the links between arms transfers and aid provision in the Conservative government’s record.

In our analysis of the Pergau dam scandal, we set ourselves the task of chronicling the primacy of commercial interests over developmental ones at every stage of the approval process for ATP funding. We will use the Pergau affair to illustrate the fact that the functioning of ATP is predisposed to favour commercial interests over developmental ones. The question of the power-play between commercial and political interests in the allocation of aid reflects a continuing dichotomy within the Conservative party of Thatcherite free-market advocates on the one hand and paternalist ‘One Nation’ proponents on the other. The implications of the scandal and its review in the High Court also link into the increasing shift towards judicial oversight of ministerial decisions.

II. THE LEGAL FRAMWORK OF AID DISBURSEMENT

As an introduction to our case study of the Pergau Dam scandal, it is necessary to establish a working legal framework for the actions of those involved. The most important piece of legislation here is the Overseas Development and Co-operation Act (1980), which states:

“The Secretary of State shall have the power, for the purpose of promoting the development or maintaining the economy of a country or territory outside the United Kingdom, or the welfare of its people, to furnish any person or body with assistance, whether financial, technical or of any other nature”.[1] (the emphasis here is mine)

We can interpret this as meaning that commercial interests must necessarily take second place to developmental ones.
Despite the fact that the 1980 Act did not specifically cover linkage between aid and arms, it was stated government policy that there could be no such linkage. This government policy was based on the 1966 Overseas Aid Act. Although groups preoccupied mainly with development, such as NGOs, contend that the Act makes linkage of aid and arms deals illegal, the government has disputed this.[2] We can see here the possible political manipulation of a legal document. Indeed since the 1966 Act strongly implies that such linkage of aid and arms deals would not be tolerated, but does not expressly state it, it remains possible for politicians to claim impunity in linking the two. We will revisit this point when looking at the High Court’s ruling in November 1994. Nevertheless it was government policy not to link such deals. Thatcher herself, in a written answer to the Commons, stated:

“Overseas aid is frequently used to finance civil engineering contracts that are of benefit to developing countries. It is not used in connection with sales of military equipment.”[3]

Chris Patten reaffirmed and defended this position in a universal sense: “aid has not been used as a sweetener for defence deals anywhere.”[4] This position was reaffirmed by the then Secretary for Foreign and Commonwealth Affairs, Mrs Chalker, in 1991: “There is no question of linking aid and arms “deals”.”[5]

The guidelines established by the Development Assistance Committee of the OECD in 1983, in response to the growth of mixed credit financing of developmental projects, is also relevant to the Pergau case. The original rules stated that donors had to confine mixed credits to projects with a minimum concessionality element of 20 per cent. The grant element of a contract, that is the aid itself, constitutes the level of concessionality. This was raised to 25 per cent in 1985, 30 per cent in 1987 and finally 35 per cent in 1988.[6] In practice, this entails that an aid-financed project cannot be linked to a purely commercial one, as that would in fact be using aid as a stimulus in two different manners. First, tied aid stimulates the domestic economy by imposing that the contracts are awarded to British companies. If, in addition to this, the entire contract is linked to another on commercial terms with British companies, then the practical effect is to make aid doubly tied. This held true for any related contract, including defence exports.

The General Agreement on Tariffs and Trade (GATT) must also be mentioned in this regard. The thrust of article XVI of this agreement prohibits the use of subsidies by any government department whose function is not to promote development.[7] Therefore a department such as the Department of Trade and Industry (DTI) cannot, by itself, subsidize British exports.


III. CONSERVATIVE PARTY ATTITUDES TO AID


Attitudes towards aid cannot be split along traditional party lines in Britain. The mere fact that Callaghan’s Labour government instituted the Aid and Trade Provision (ATP) in 1977 is good illustration of this. The then Overseas Development Minister, Judith Hart, had to contend with the two broad strands coexisting in her party. Whereas the middle-class socialist constituency advocated ‘More Help for the Poorest’ (hence the name of the 1975 White Paper), the working-class one pushed for a defence of British jobs, and therefore a consideration of the commercial implications of aid for the UK.[8]

A similar split exists within the Conservative party between traditional nationalism and Thatcherite free-market liberalism. This is a dichotomy identified by Professor John Toye, director of the Institute for Development Studies at the University of Sussex, who provided some evidence to the Foreign Affairs Committee in its investigation of the Pergau scandal. Toye defines ODA Minister Neil Marten’s speech in 1980 to the House of Commons, which stressed commercial considerations alongside developmental ones in the allocation of aid, as “a sop to industrialists, displeased by the overall decline in the real value of aid.”[9] Industrialists cited the new international economics school of trade theory, which pointed to the imperfect nature of international competition.[10] In effect, the thrust of their argument was that if firms in all other countries were benefiting from export subsidies, then why not them? This is what we shall call the defensive argument for the use of aid as an export subsidy, and we shall revisit it when we study the history of the ATP. The decline in aid was due to an ideological hostility on the part of Thatcher towards aid as an export subsidy, which was based on traditional trade theory. This theory contends that export subsidies distort the free operation of markets, and so in the long run lower economic welfare for everyone.[11]
Thatcher at first made excuses for the reasons for cutting aid, linked to the impact of the recession on Britain’s ability to disburse aid. However, in retrospect, these excuses are undermined by the fact that overseas aid was cut much more than was overall public expenditure. In addition, newspapers have often quoted the rising ratio of military expenditure to aid as evidence that the recession was not the main reason for cutting aid flows. These excuses can be linked to the fact that, before the 1983 election, traditional ‘One Nation’ Tories threatened Thatcher’s control over the party. Nevertheless, as we shall see, the real value of aid did decline consistently throughout her administrations.

The mere fact that the ODA was made a part of the Foreign Office when the Conservatives gained office illustrates how commercial interests seem to have a higher priority than developmental ones, in terms of how the aid budget was allocated. The Labour party adopted this view, describing the incorporation of ODA into the Foreign Office as illustration of “the contempt and indifference with which [the Conservatives] regard the people of the Third World.”[12]

Although Thatcher was not open about her desire to restrict aid due to political considerations, the real value of aid declined during the 1980s by more than one third.[13] In terms of the aid flows that persisted, a large proportion remained tied to the purchase of British goods and services. By 1987, only 13.1 per cent of bilateral aid was untied.[14] This must be placed within a context of a falling percentage of bilateral aid: whereas in 1980 about 70 per cent of aid was bilateral, this figure had fallen to close to 56 per cent in fiscal 1988-89.[15] This was in part due to the political impracticability of reducing multi-lateral aid flows compared to reducing bilateral aid. So within the context of a reduced aid budget, a growing proportion of bilateral assistance was tied to British goods, thus acting as an informal export subsidy.

The overall attitude on aid in public statements by Thatcher tends to stress commercial aspects rather than developmental ones. A symptomatic example will illustrate this point. When asked how she reconciled her pledge to attain the 0.7 per cent of GDP mark for aid (a UNDP objective) with the fact that aid had decreased by 17 per cent since 1979, the Prime Minister replied:

“Few countries have reached the target of 0.7 per cent of aid. However, the amount of private investment from this country to other Commonwealth countries is considerable, and one of the highest.”[16]

The implication of this was that private investment, dominated by a concern for maximum return on investment, is equivalent to developmental aid in its effects. Even if one considers the market as the best allocator of resources, the school of new international economics, with its stress on the imperfect nature of competition in international markets, points towards the fact that resources are not always allocated optimally by existing market structures. In addition countries, which are considered un-creditworthy, tend to be penalised by international investment when they are the ones most in need of aid. This leads us directly into consideration of the logic of the ATP.


IV. THE AID-AND-TRADE PROVISION (ATP)

The justification for the creation of the ATP was originally reactive. The creation of ATP was a response by the government to intense lobbying by large manufacturing firms such as British Leyland and British Rail Engineering.[17] The facts that France was using credits mixes throughout the 1970s, and that Italy adopted the practice in 1976, are often cited as justification for the ATP scheme. The rationale is thus that competitors were ‘spoiling’ markets, and that the UK had to respond in like manner in order to stay competitive.

The defensive rationale for the ATP also has undertones of competitive logic. Those who argue for the funding of projects through ATP, even where there is no visible developmental value, base their support on the fact that the UK’s competitors would fund them in any case. In other words, developmental value is seen as a luxury that the government cannot always afford. In the terms adopted by the Foreign Affairs Committee
“the UK might as well support X or Y project, despite identifiable developmental penalties, because our competitors stand ready to implement it and therefore no gain will result for the recipient from a display of developmental virtue by the British Government.”[18]

Toye has questioned the logic of such an approach. Instead of attaining the efficiency that would result from establishing a binding international regulatory body for mixed credit funding, the establishment of ATP merely served to escalate the mixed credit race.[19]

In fact the ATP scheme was escalated in 1985, when a ‘soft loan’ plan was added. Its purpose was to relieve some of the strain on the ODA budget in the early years of ATP’s funding of a project. Thus aid funds would be used to pay for most of the interest on a commercial loan. The effect for the developing country would be that it would receive a virtually interest-free loan, while the ODA would only have to pay small amounts every year. Although the final cost to the ODA would be larger, ATP funds could be used to sponsor more projects at once. However, given that a commercial loan had to be secured, this tended to accentuate the commercial pressures, to the detriment of developmental objectives, on projects that were applying for ‘soft loan’ funding.

The above graph (Graph 2) illustrates clearly the trend of a rising proportion of ATP within the overall bilateral aid budget. Although the quantitative importance of ATP within the overall aid programme may not have been that significant, it symbolized the Conservative government’s stance on aid. It captures about 20 per cent of the ‘project aid’ budget[20], most of which is tied to British goods and services. We have already mentioned Marten’s 1980 speech stressing the importance of political, commercial and economic considerations in the allocation of aid. The ATP was specifically identified as “an integral part of the UK’s overseas aid effort”[21] by the Treasury in its expenditure plans.

There has been debate about whether to maintain ATP within the ODA’s budget or to switch it entirely to the DTI’s responsibility ever since its inception in 1977. The arguments in favour of keeping it part of the aid budget related to maintaining some influence for developmental priorities in the allocation of ATP. Essentially it is argued that the aid budget is small enough as it is without ATP being removed as well. In addition, the symbolism of the ODA Minister having responsibility for it, albeit taking account of commercial pressures, is seen as a gesture to the export lobbies. On the other hand, the arguments for handing over responsibility entirely to the DTI concern the protection of the quality of aid disbursed by ODA and the maintenance of the integrity of ODA’s allocation and appraisal criteria.[22] The recommendation reached by the Foreign Affairs Committee investigating ATP in the 1986-87 session was that responsibility for ATP should be handed over entirely to the DTI.[23] The government rejected this, however. Toye has suggested that ATP was essentially an export subsidy, legitimised by the fact it falls under the responsibility of the ODA. Thus if ATP was entirely under the control of the DTI, this would contravene the UK’s obligations under the GATT accords.[24] The implications of this are that developmental objectives of ATP-funded projects are merely fig leaves for what are essentially commercial objectives. This is the position taken by Middleton and O’Keefe (1998).[25]
At this point it is worthwhile to look at the process of approval of projects applying for ATP funding. The process starts off with a UK firm applying to the DTI for export finance. Until 1980 it was necessary for the firm applying for funding to prove that a foreign competitor was offering concessional credits for the contract. Subsequently, however, the ATP operated under the logic of ‘generalised matching’, which meant that the contract had merely to involve a country listed as ‘spoiled markets’, which meant that at some point a foreign firm had used concessional credits to secure a contract. [26] Thus one instance of a foreign firm securing a contract with the help of mixed credits would be enough to add the country to the list of ‘spoiled markets’. Needless to say, this evolution in the assessment of contracts fatally undermined the original defensive rationale for ATP.

The DTI then filters the applications to favour the commercially valuable ones. Once the DTI has decided to make the case for a project to other government departments responsible for ATP funding, the commercial negotiations with the client country begin. Given that the recipient country is weighing offers on the part of other countries, the commercial pressures for quick approval are considerable. Finally, the ODA makes its judgment on the developmental aspects of the project. This means that the ODA has no influence on the design of the project itself. An ATP Evaluation Synthesis Study undertaken by New Labour in 1997 highlighted this as a fundamental flaw of the system.[27] This contrasts starkly with normal aid, which is allocated in the context of the developmental framework of a country. Toye (1991) makes a vital point concerning the politics of approval:

“Unlike normal bilateral aid, the ODA has to take account of the views of other Whitehall departments, and ATP projects cannot go ahead without the interdepartmental agreement of a committee on which it is a minority.”[28]

The ODA itself recognised the superfluous nature of its appraisals when it gave evidence to the Foreign Affairs Committee in 1986: “ATP appraisal is usually a final check carried out under tight deadlines and with limited information”[29]. There are many instances in which ODA appraisal seems to have been rushed, or when disquiet existed within the ODA about funding a project. These were highlighted by Professor Paul Mosley in his evidence to the Foreign Affairs Committee in July 1986. He also pointed to the fact that commercial pressures were created by UK firms desperate to sell off some of their excess capacity.[30] In 1982, for example, a set of gas turbines to be exported to Egypt was funded by the ATP. Despite objections raised by the ODA regarding the developmental objectives of the project when it had originally been considered under the normal bilateral aid scheme, pressure from Rolls Royce on the DTI took its toll. Mosley reported that the ODA was left with little time to appraise the project.[31]
Another such instance involved the Zambian government. This time the pressure was brought to bear by Willowbrook, a firm that had supplied the Conservative Party with £50,000[32]. The project was to supply the Zambians with 50 buses. The British High Commission in Zambia had raised objections because it was thought that the buses could not withstand the country’s uneven dirt roads. Again, due to commercial pressures, the ODA was not given enough time to consider fully all aspects of the project and it went forward nevertheless.[33]

Some effort was made to enforce the ODA’s normal appraisal methods on ATP in 1986 with the introduction of Project Frameworks. As Toye has noted, though, the ODA’s intention and its performance can differ markedly because vital pieces of information can be missing and too little time given to carry out investigations.[34] In addition, due to the minority influence exercised by the ODA in terms of allocating ATP, its judgment can still be over-ruled.

We have laid out the constraints imposed on developmental considerations in the allocation of ATP funds. Of course this does not mean that these considerations are disregarded systematically, but it is important to understand the potential that commercial interests have of outweighing developmental ones.
The general literature we have studied so far is important in laying the framework for our case study of the Pergau dam scandal. The reasons why this particular case was chosen are straightforward, as it represents a unique occasion when the workings of the government’s operation in the allocation of aid have been opened up for the general public to see. Through the various parliamentary investigations into the approval of funding through ATP it is possible to analyse the different perspectives and interests at play in the disbursement of aid. In addition, the fact that judicial review was applied for the first time to the aid programme opens up interesting possibilities for analysis. The fact that the High Court approved of the application by the World Development Movement (WDM), the main British NGO concerned with overseas aid exclusively, for judicial review also has important implications for future ministerial decisions. In terms of the long-running friction between those in the Conservative party who believed aid should be used to alleviate poverty, such as Lynda Chalker, Overseas Development Minister, and those such as Alan Clarke and Douglas Hurd who believed in ‘realpolitik’, that all means must be employed to secure overseas contracts, the Pergau case is also of importance. As the Independent noted, the “Malaysian dam scandal demonstrates the ascendancy of those who would corrupt British aid policy.”[35]


V. SOURCES
A brief note must be afforded with regard to the sources we are using in this case study. These are of five broad types.

First of all, newspapers have constituted an important source of information on the subject of Pergau, given that they exerted pressure on political representatives to investigate allegations made. The main press sources involved in this issue were the Economist, the Sunday Times, the Observer and the Guardian. Although the last two cannot be accused of being traditionally conservative in their views, it is revealing that the two former have been so active in looking into this scandal. The wider context is that of a revolt by the press against the Major administration, and it must be kept in mind when citing these sources.

It is of some interest that newspaper coverage of the 1985 meeting between Prime Ministers Thatcher and Mahatir only received substantial media coverage from 1989 onwards. The parliamentary proceedings regarding the Pergau scandal in 1994 brought to light the extent to which the British side would go to preserve Malaysian goodwill. Newspapers such as the Sunday Times and the Economist were among the most vocal critics in the media of the government’s actions in the Pergau scandal. It is well possible that, as some NGOs claim, this incident was but the continuation of an unstated government policy,[36] but it could also be taken as an incremental step in parts of the British media’s disaffection from the Conservatives.[37] Alongside standing critics of the Government, such as the Guardian and the Independent, were newspapers such as the Economist and the Sunday Times.

Allegations of corruption levelled at the Malaysian government, specifically in the Sunday Times, provoked a backlash, with the temporary reinstallation of a ‘Buy British Last’ policy in 1994. The Malaysian government was penalising British industry because of of a ‘fault’ in the press, in line with their traditional emphasis on necessarily perfect relations in every sense. One could see in the effect of this backlash, expressed through the channels of the Foreign Office, the DTI and vocal CBI (Confederation of British Industry) directors, the effect of commercial pressures exerted on media coverage.

In his biography of Rupert Murdoch, former editor of the Sunday Times Andrew Neil argues that he lost his job as editor because of the political impact of the investigations of Pergau. At the time, Murdoch was hoping to purchase a Malaysian satellite television channel. Neil backs his story up by citing a British diplomat saying that Mahatir “made it clear that Murdoch would never do business in his country again as long as Andrew Neil was editor”.[38]

Another important source used is politicians’ public statements. These can be quite misleading. An example we will note below relates to MPs deliberately answering a different question from that asked in order to avoid confession of a sensitive point. As far as possible, we have highlighted the biases at work. In public statements, for example, Thatcher has consistently denied the allegations appearing in various news articles, notably in the Observer. In a written interview with the Malaysian newspaper Utasan Malaysia during a Commonwealth Summit in Kuala Lumpur, she denied that there was any basis for the allegations.[39] Subsequently, however, the government was forced to admit the existence of a ‘brief entanglement’ of aid and arms deals. We must therefore be cautious in taking a politician’s word per se. Indeed, a Campaign Against Arms Trade (CAAT) special news report from February 1994 attacks the “special pleading of “I don’t remember seeing that piece of paper come across my desk” that is becoming the mantra of Government ministers” [40], as it argued that deals

“were also carried out across the dinner table at informal meetings between the then Prime Minister, Margaret Thatcher and the Prime Minister of Malaysia Dr Mahatir Mohamed.” [41]

This complicates the task of leading a comprehensive analysis of all dealings between the two governments, given that the government can also invoke the Official Secrets Act in order to withhold embarrassing information. Nonetheless, the Pergau case has been chosen because it is the case in which the most information is available.

Parliamentary investigations will also be heavily relied upon for evidence. Due to the Official Secrets Act, the inner workings of government are not disclosed to the general public. Parliamentary enquiries are the rare occasions when a glimpse can be caught of the reality of operations. However one must understand the legal limits of each type. Let us briefly review the reports we will be using here.

The October 1993 Report by the Comptroller and Auditor General alluded to the fact that its jurisdiction was economic rather than political by stating that it “is not for the National Audit Office to question the merits of this policy decision.”[42] Nevertheless its findings can have political implications and repercussions. This indeed was the case for Pergau.
Based on these findings, the Public Accounts Committee investigated the use of aid funds in the Pergau project. The subsequent report of this committee investigated the context of the Foreign Secretary’s over-ruling of the ODA’s recommendations, from the first application for funding up to the decision taken in 1991. It is notable that the scope of the investigation did not include the oral promise of aid made in the context of negotiations by the Ministry of Defence in 1988 over an arms deal with the Malaysians. The conclusions reached therefore only constituted part of the whole story, as they took for granted that continuing good Malaysian-UK relations were dependent on the ATP funding being provided. The investigation did not, however, cover the reasons why these relations were tied to ATP funding.
In parallel with the Public Accounts Committee investigation, the Foreign Affairs Committee was also investigating the affair. The scope was much larger than the two other committee investigations, and covered the arms negotiations as well. The findings of this last report are therefore of greater fundamental importance to this thesis than the two others. It is important to note, however, that the Committee was only granted limited access to certain documents. Government-to-government papers were not given viewing but merely summarised, as HM Government argued they were not “germane” to the case.[43] Although this restricted the investigation to a certain extent, refusal of access is sometimes as revealing as the documents themselves. Indeed the Observer noted that they were “understood to show that Margaret Thatcher, the former Prime Minister, sanctioned the Pergau aid-for-arms deal.”[44] Thus in addition to the whole process of approval of ATP funding being biased towards commercial interests, this would point to the fact that the first impulse for the Pergau funding was itself commercial, with Prime Ministerial approval.
The fourth type of source comes in the form of court cases and articles in law journals. This is rather exceptional insofar as the Pergau case is the only issue involving ATP where a High Court was involved. This type of source is interesting as it presents three sides to the issue: the developmental side, as represented by NGOs, the political side given by the Foreign Secretary and the final legal ruling. However, the interest of these sources can be limited, given that the findings are merely legal rather than political. In the context of the other sources we will be considering, though, many political consequences and implications can be gleaned from these legal sources.

The fifth and final type of source to be considered is that arising from NGOs. The investigations by organisations such as the WDM tend to be more critical than parliamentary ones, given that their interests lie on the side of developing countries rather than British industries. The political influence of NGOs in the Pergau case is unprecedented, as the implications for judicial review of the High Court ruling (treated below) will show us.

VI. THE CONTEXT OF RELATIONS BETWEEN MALAYSIA AND THE UK
The background of relations between the two countries is noteworthy, as it provided the main justification for not reneging on Thatcher’s promise of aid to Malaysia. Indeed it was argued by the Secretary of State for Foreign and Commonwealth Affairs, Douglas Hurd, that his over-ruling of the recommendations of the ODA’s Accounting Officer, Sir Tim Lankester, were motivated by concerns that relations between the two countries might revert to those of the early 1980s. John Major backed this decision. In the words of Sir (then Mr) Charles Powell, the Prime Minister’s Private Secretary,

“[The Prime Minister]…agreed with the Foreign Secretary that a decision to back out could have grievous consequences for our very substantial commercial interests in Malaysia.”[45]

We will return to the politics of the decision-making below. It is important, though, to place the Pergau project in the longer-term context of relations between the countries, before proceeding any further. Within four months of becoming Malaysia’ Prime Minister, Dr Mahatir bin Mohamed announced a ‘Buy British Last’ policy in 1981.[46] This policy was designed to emulate post-war Japan in promoting a ‘Malaysia Inc.’, in an effort to shed what he believed was Malaysians’ persistent colonial mentality and subservience to the British. The two ultimate causes for the escalation of the dispute to this level were the rise in fees for overseas students at British Universities and the restriction by the British Airport Authority (BAA) of landing rights for the Malaysian national airline at Heathrow airport. This was the low point in relations that later justifications for provisions of aid alluded to.

The policy, detrimental to British corporate interests, was brought to an end after a private three-hour meeting between Prime Ministers Thatcher and Mahatir in Kuala Lumpur in April 1985. In Thatcher’s own words:
“When I left Malaysia I felt that Dr Mahatir and I had established a good understanding, and so indeed it proved.”[47]

The deal struck was that Britain would provide Malaysia with defence equipment, help improve its infrastructure and provide more landing slots at Heathrow in exchange for the rescinding of the policy.[48] In this same article, a former Malaysian minister explained that during the meeting Thatcher proposed bilateral aid, through the ATP, to help finance a rural water supply project, to be built by a British firm, Biwater. The peak in Graph 3 above clearly illustrates the huge proportion of the ATP budget captured by the rural water supply project. A Sunday Times article reported another former Malaysian minister saying that this deal was linked to an arms deal in the early stages.[49] Whatever the quid-pro-quo, this meeting ended four years of commercial hostility between the two countries.
In addition to this amelioration of relations between Malaysia and the UK, and perhaps as a cause of this, the whole of South-East Asia had a high profile for foreign construction companies in this period. As The Economist noted, “With non-Japanese Asia planning to spend $1 trillion on infrastructure projects over the next decade, many western companies are desperate to get a slice of the action.”[50] This was compounded by the South American debt crisis of the early 1980s, which labelled many lower and middle-income developing countries as un-creditworthy. International exports thus had to look elsewhere for opportunities. Southeast Asia was the prime location. One can imagine the lobby effort that these companies engaged in to secure these contracts. So concurrently with a wish not to lose the share of the Malaysian market that had been built up since 1985, there was also a thrust on the part of British companies not to miss out on the future expansion of the market. In the words of the Select Committee of Public Accounts, there “was also a fine export opportunity with the ending of the Malaysian policy of “buy British last”.”[51] Similarly, in a House of Commons debates on the 1st of March 1994, Mr Goodlad, the then Minister of State, Foreign and Commonwealth Office, argued that the breaking of the promise of aid “would have withered a wide range of British prospects for the future. We should have paid the penalty for a breach of faith.”[52] All of this shows the high profile attributed to the commercial relations between the two countries in the justification of the Conservative Government.

During his questioning by the Select Committee on Foreign Affairs, Douglas Hurd pointed to the rising level of British exports having been built up in the aftermath of the ending of the ‘Buy British Last’ policy in 1985. As Graph 4 shows us, these exports rose from £226 million in 1986, £635 million in 1992, to finally £965 million in 1993.[53]

VII. THE LINKS BETWEEN THE COMPANIES INVOLVED IN PERGAU AND THE CONSERVATIVE PARTY

In this context of huge commercial pressures on the international markets, we can now turn our attention to the British side of the question. Indeed it is vital to understand the ways in which these commercial pressures were exerted on the decision-making process within the British government. Therefore an area that we cannot neglect covers the substantial links between those companies involved in building the Pergau Dam and leading members of the Conservative government. Newspapers and NGOs have termed transitions from public to private sector employment the ‘revolving door’ between Whitehall and the City, in connection with alleged deferred pay-offs for services rendered when in government.[54]

Lord Howe, Foreign Secretary at the time of the appraisal of the Pergau project, subsequently became the director of the BICC group plc. This company owns Balfour Beatty Ltd., which itself owns Balfour Beatty Civil Engineering Ltd. This latter company was the one responsible for construction of the Pergau Dam.[55] Sir Tim Bell, Thatcher’s public relations adviser, is also a controversial character. He was also adviser to Dr Mahatir and Tan Sri Armugam, who controls General Electric Company (GEC) Malaysia. The chairman of GEC was of course Lord Prior. This company was heavily involved in the construction of the Tornado bombers included in the 1988 £1 billion and was one of the contractors involved in the Pergau deal.[56] Sir Charles Powell, Thatcher’s foreign policy adviser until 1990, subsequently became director of Trafalgar House, owner of Cementation International. This company was to provide the cement for the Pergau Dam.[57] In addition, Mark Thatcher was an adviser for Cementation Int. at this time.[58] The links between the governing party and the Pergau contractors were thus substantial.

This kind of connection can not only be found on Internet websites, whose integrity has been put into question by Conservative officials, but within the corridors of government themselves. Thus a memorandum written by an adviser to the ODA, Professor John Toye, was circulated to the Foreign Affairs Committee. This memorandum alleged that the ATP was a breeding ground for corruption. As the Financial Times reported, he “concluded that ATP projects had been used to maximise profits for officials in local agencies and British shareholders.”[59] As evidence, Toye cited the fact that 55 per cent of ATP funding since its creation in 1977 went to five companies, including Balfour Beatty, GEC and Biwater. This sort of lobby effort was by no means specific to the Pergau project, as Toye points out that ex-officials employed in the private sector and used to apply pressure on the relevant government sectors is seen in Whitehall as “normal behaviour”.[60]

Another revealing point concerns financial gifts to the Conservative party. Among the largest donors to the Conservative party, up to 1994, were Trafalgar House (£630,000), GEC (£100,000), BICC (£96,981) and Biwater (£86,550).[61] When one considers these facts alongside the award of the Pergau civil works contracts to Balfour Beatty without any competitive bidding, they would seem to suggest some kind of causal connection.[62] The inconsistencies between the practice and rhetoric of free trade will be analysed further on.

When this issue was raised in the House of Commons by Sir David Steel (Liberal-Democrat), a somewhat desperate Mr Goodlad proceeded with what can only be termed a dissembling. While first specifying that ATP is given to a foreign government and not to UK companies, he then attacked the allegation as unfair on two counts. “It is unfair to the ODA officials who vet those projects and who seek to make no connection between the Conservative party and ATP. It is also unrealistic and unfair to the Governments who receive ATP.”[63] Such a response, while perhaps factually true, ignores the fact that ATP is awarded for specific projects, for which contractors have already been chosen. May and Malek (1989) recognize the government’s ability to choose as they point to the ATP as a possible, though inefficient, British regional development policy. They argue that the government, by choosing to fund contracts involving firms working in regions of high unemployment, could stimulate employment through the ATP scheme.[64] The government thus has power of discretion in its awarding of ATP funding. It is therefore undeniable that some bias might be at work when funding is granted to certain companies. In addition, too much faith may be put in the ability of those officials who enter government to divest themselves of partisan colours.

These close links between those who benefited from the Pergau project and the governing party were acknowledged by the then shadow Minister of State for Overseas Aid. Mr Tom Clarke (Labour) expressed the view that Major’s decision to proceed with the funding “benefited a small number of people closely associated with the Tory party”.[65]


VIII. THE ORIGINAL LINKAGE OF AID AND ARMS

In order to understand the rationale for proceeding with the funding of Pergau despite objections raised by the ODA, it is vital understand the pressures surrounding the signing of a Protocol by Defence Secretary George Younger (now Lord) and the Malaysian government on 29th March 1988. This concerns the declining market for defence exports. As an example of the speed with which the world market for defence equipment was (and is) contracting, we can note the fact that between 1987 and 1991 the world market for these exports declined by 63 per cent.[66] This was a consequence of the end of the Cold War, of course, and the falling procurements by developing countries.[67]

The competition in this contracting market was fierce, given that most governments subsidize their respective defence industries. The dirigiste approach adopted by the French government, for example, diminishes the amount of domestic competition between various defence contractors in favour of increased competitiveness on the world market. These were the pressures exerted on the defence industry in Britain and the world over.
As Graph 5 shows us, South-East Asia represented a non-negligible destination for arms exports. This is why the sixth Malaysia plan of 1991-95, conceived of in 1986, was of such importance to defence exporters. This plan was characterised by a senior Malaysian military officer as the “shifting from a threat-based force to a capability-based force.”[68] This emphasized the purchase of new equipment, and within the context of the declining market for defence exports, British firms were eager to get a slice of the pie.
The contents of the Protocol were referred to for the first time only on the 29th January 1994 by Foreign Secretary Hurd, in an attempt to make Younger the sole scapegoat for the ‘temporary entanglement’ of the aid and arms deals. The Protocol included a reference to “aid in support of the non-military aspects under this programme.”[69] Although Younger was forced to admit to this linkage, he made excuses to the effect that he did not consider this binding: “We regarded it as a “happy noise” from us which the Malaysians would be able to use with their parliament.”[70] Faced with intense questioning from fellow Tory MPs, though, he was forced to admit that the aid offer was fixed, at the early stage of March 1988 before any specific project had been submitted for funding, at twenty per cent of the £1 billion arms deal.[71] It is suspicious that final ATP funding amounted to over £200 million, despite protests by Lynda Chalker that this was a coincidence. Although Younger may not have considered this binding, it is now clear that, as former Foreign Minister Rais Yatim told the press, the Malaysians perceived such a linkage.[72]

The political role aid played in the securing of the defence contract must be noted in order to place allegations of linkage in proper context. The domestic opposition to Mahatir, led by Lee Lam Thye, attacked the decision to proceed with this deal, given that the country had just emerged from a difficult economic period and that there were other more pressing needs than defence. Every concession was therefore made to the Malaysians so as to diffuse this criticism: they were allowed to pay for the £1 billion worth of arms in commodities such as oil and rubber, they were given extra landing rights at Heathrow airport, and were granted extra trading credits.[73] This tense Malaysian situation provided the context for the aid offer being made.

It is revealing to analyse what the government presented as the dis-entanglement of the two offers, which took place in mid-1988. This dis-entanglement is dubious, for the two deals proceeded in parallel even after the British government made explicit to the Malaysians that there could be no linkage of the two. The letter from Lord Younger to the Malaysian Finance Minister on the 28th of June 1988 stated that there could be no linkage between an aid offer and an arms deal. On the same day, however, the British High Commissioner, Sir Nicholas Spreckley, sent a letter to the same Finance Minister. It is inconceivable that Spreckley did not consult the Foreign Office before sending the letter. This offered ATP funding and Export Credit Guarantee Department (ECGD) credits of up to £200 million, a sum very close to the 20 per cent of a £1 billion arms deal promised in the Protocol signed by Younger on the 23rd of March 1988. In a meeting between the two Ministers of Defence again on the same day, the Malaysian Minister is reported to have gone out of his way to acknowledge that there could be no linkage.[74] All of this seems to indicate a process of bait and switch, in which the British Government ended up delivering on a promise that ran against government policy. In the words of the Economist, the “nudge and wink could hardly have been more blatant.”[75] This assessment is substantiated by the report of the Foreign Affairs Committee, although it did credit the government with more goodwill.

“Although the UK Government attempted to break any linkage or entanglement expressed in the Protocol between an arms deal and an aid package, the aim and effect of the three letters was to assure the Malaysian Government that the arms deal and an aid package would nevertheless both proceed in parallel.”[76]

It is thus clear that the protocol of the 23rd of March 1988 created, in Lord Howe’s words, a ‘moral obligation’[77] to provide aid. It is important to note, however, that Lord Howe did not see this obligation as persisting after the ‘disentanglement’, which took place on the 28th of June. The Foreign Affairs Committee, however, considered that this obligation persisted insofar as the two deals proceeded in parallel. A letter from Thatcher on the 8th of August 1988 referred to both, although no linkage was made in words. The persistence of the obligation was also visible when Mahatir travelled to London in September 1988 and signed the final arms deal.[78] In a speech celebrating the signing of the memorandum on the 27th of September, Thatcher made reference to continuing help from her government in the field of civil projects.[79] This is a clear indication that the two deals were proceeding in parallel, and were de facto linked. The Committee criticized these letters as being open to misunderstanding, but it could be argued from a more cynical perspective, such as that adopted by the Economist, that the government was merely circumventing the barriers to such a linkage. Indeed even if one accepts the government's version of a dis-entanglement of the two deals after March 1988, the written pledge had still been made by Younger in March. The Economist identified the importance of this pledge when it reported,

"Mrs. Thatcher ruled, somewhat ambiguously, that the pledge of aid could not be directly linked to an arms deal but that a promise by a British minister, once given, could not be violated.”[80]

Even if one accepts the government’s detachment from the March 1988 Protocol, based on the allegation that the document was not cleared with the Foreign Office[81], the government permitted the “policies proceeding in parallel”[82]. This is a euphemism for linkage, according to the Times. This obligation must thus be seen as the driving force behind Thatcher’s offer of aid in March 1989.[83]

At this point it is important to establish what, if any, was the developmental value of the Pergau Dam. Under the 1980 Act, the prime objective of any aid expenditure must be for the benefit of the recipient country.


IX. THE APPRAISAL OF THE DEVELOPMENTAL VALUE OF PERGAU
Before judging the value of the project itself, it is necessary to understand the circumstances in which the initial appraisal of the project was reached. I wish to show how commercial pressures systematically undermined the conduct of an orderly and comprehensive analysis of the dam project.
First of all, the background to the consideration of Pergau for ATP funds has already been noted. Let us simply reiterate that what Hurd described as “a brief entanglement’ of aid and arms deals in 1988 put pressure on the Prime Minister to offer aid in the first place, given the historically fragile relations between the countries.

Then, in the run-up to Thatcher’s formal offer of aid on the 15th of March 1989, an appraisal mission was sent off to consider the developmental aspects of the project. The Public Accounts Committee noted “it has not always been possible to carry out a detailed appraisal where speedy decisions are necessary because of commercial pressures.”[84] Although the Administration made it clear to the Malaysians that further appraisal would have to be conducted in the future, the aid offer was made on the basis of the two-day mission to Pergau, between the 12th and the 14th of March 1989. Given that this offer was to become binding in the view of the Government, as we shall see, this appraisal mission seems to have been sped through, as if the developmental value of the project was of less importance than the preservation of good diplomatic ties between the countries. The question of why good relations depended on the offer of aid inevitably throws one’s focus back to Lord Younger’s promise of aid, worth twenty per cent of the arms deal.

When the Foreign Affairs Committee investigated the reasons for the rushing of the appraisal mission, the answers delivered by those involved threw responsibility back onto the others respectively. The ODA’s opinion, as pronounced by Sir Tim Lankester, was that they had wanted to send a mission before, but that the DTI, the High Commission and the consortium of Balfour Beatty and Cementation Int. had raised objections relating to the fragility of negotiations being conducted up to that point.[85] The Foreign Secretary agreed with this version. In contrast to this, though, the Minister for Trade, Mr Richard Needham, made the case that his Department had wanted the mission to go in November 1988.[86] Finally the consortium detached itself completely from the mission’s timing, arguing that ODA could have sent a mission at any time, but that such a mission would have had to await a contract price being produced in March 1989.[87] Thus on a background of commercial pressure for an aid offer to be made, the mission was eventually rushed by political considerations to do with Dr Mahatir’s visit to London on the 15th of March. The result was an appraisal mission described by the top ODA civil servant as “wholly unsatisfactory”[88] and a “lamentable slip-up”[89].
The blame cannot be placed wholly on the DTI’s shoulders, however. It would appear that the consortium of British companies was trying to manipulate the government into offering aid, which would then bind HMG to the project. The Foreign Affairs Committee established this in very clear terms:

“Our evidence indicates that the consortium, in seeking to put pressure on the Government to make an offer of ATP on Pergau in mid-March 1989, was acting in the knowledge that the price of the project, on which that offer was predicated, was likely to rise significantly.”[90]

In other words while the consortium was not being straightforward with the government on the price of the project, in order to avoid potential objections, commercial and political considerations hindered a proper analysis of the developmental value of the project. Once the ill-informed decision was reached, it was to become binding insofar as HM Government did not want to break its promise. Again the Foreign Affairs Committee made this clear in its conclusions:

“in the opinion of Government, offers made with respect to Pergau in March and April 1989 were the decisive events that tied the maintenance of a healthy overall relationship with Malaysia to the progress of the Pergau project.”[91]

Between the first official offer of aid, made on 17th April 1989, and January 1991, when the newly privatised Malaysian Energy Company, Tenaga Nasional Berhard, issued a letter of award to the consortium for the building of the dam, the contractors raised the price of the dam to £397 million. Nevertheless the offer of ATP, based on the original price of £316 million, was renewed twice, but allowed to lapse in October 1990 pending an energy sector review. Based on this review, the ODA decided that the dam would be uneconomic until the beginning of the 21st century due to insufficient Malaysian demand for electricity. Even in retrospect, Sir Tim’s objections have been proven justified. In a recent article on the Malaysian energy sector, Thomas Smith has noted that in 1999, “peninsular Malaysia’s generating capacity was 13,500 MW, although the demand was only 9,000 MW.”[92]

In addition, the increased cost of £397 million was calculated to be about £100 million more than more economical alternatives, such as the installation of gas turbines.[93] This was consistent with the findings of a World Bank report covering Malaysia’s energy sector from 1987. The analysis, while identifying Pergau as a possible site for the construction of a 211 MW hydroelectric station, concluded that Malaysia should concentrate on gas as the source of its electricity until the turn of the century.[94]

The position of the ODA was thus that the Pergau Dam project was both developmentally unwarranted, given that there was not a massively under-supplied demand for electricity, and also uneconomic. The two levels of appraisal usually conducted before ATP funds are allocated were not satisfied. In the first instance, in March 1989, the ODA team was not given enough time to complete a comprehensive appraisal due to commercial and political pressure. In the second instance, in January 1991, when the ODA did voice its objections to funding the Pergau project, these were over-ruled by the Foreign Secretary, due to political considerations. In its conclusions concerning the ATP scheme and the changes brought to it in the aftermath of the Pergau scandal, the Foreign Affairs Committee addressed these issues briefly:

“[the statement of intent to apply ODA’s full appraisal procedures to ATP proposals] does not necessarily address the apparent difficulty of the constraints on ODA caused by the nature and timetable of commercial negotiations nor does it contain an assurance that the ODA conclusion will necessarily be given any more weight than, for instance, in the case of Pergau.”[95]

The minority status of developmental interests sends us back to the institutional nature of the ATP. As we noted when analysing the process of approval of ATP funding, the ODA is in the minority in terms of its objectives, and commercial considerations seems to be predominant. In addition, there seems to have been a certain amount of censorship in terms of Sir Tim Lankester’s objections to the Pergau project. Foster and Plowden (1996) have concluded from the whole affair, and Sir Tim’s subsequent departure from the civil service, that

“it was impossible for many not to draw the moral that, however justified, a permanent secretary who writes such a minute censuring ministerial behaviour will be caught up with in the end.”[96]

This adds to the Pergau scandal the dimension of the primacy of political concerns over technical ones in the running of government.
The Foreign Secretary Douglas Hurd submitted an affidavit to the High Court during the course of 1994, in which he defended his actions:
“Throughout the decision-making process in which I was involved, I considered that I was dealing with a development project”.[97]
Although the word ‘sound’ is omitted from his declaration, it is possible to infer that the Secretary thought the condition of developmental value was fulfilled, allowing him to take account of other, political and economic, considerations. This seems to be a sign of bad faith, however, given the explicit objections from the ODA’s Accounting Officer, Sir Tim Lankester, whose job it was to judge the developmental value of projects.


X. THE RULING OF THE HIGH COURT AND ITS IMPLICATIONS FOR ATP
The judgement of the High Court rejected the idea that the preservation of good relations with the Malaysians, in the context of such overtly commercial priorities, was sufficient justification for proceeding with the funding of Pergau. Indeed “broader political and economic considerations would only have been relevant if there had been a genuine developmental purpose behind the grant.”[98] This judgement is of fundamental importance, for it orders the policy objectives to be achieved through ATP as: first of all development, and, only after that condition is satisfied, commercial value. The language used in the High Court ruling is that the developmental value of the project was the “purpose” whereas the wider economic and commercial implications were merely “considerations”.[99]
Harden, White and Hollingsworth (1996) support this judgement:

“The problem was that the expenditure had been charged to the wrong account (that for the Overseas Development and Co-operation Act 1980) rather than the right account (that for the Export and Investment Guarantees Act 1991).”[100]

Legally, therefore, funding for the Pergau Dam should have come entirely from the ECGD rather than from the ODA. In the 25th January 1995 Commons debate about the implications of the High Court ruling, Mr Marshall argued, “the Government had the right to provide money, (…) [t]hey simply chose the wrong vehicle to do so.”[101]

The consequences of this ruling are clearly that two policy objectives cannot be given equal weight if they are dependent on the same policy instrument. Thus developmental objectives and commercial ones cannot both be achieved using bilateral aid.

The defence taken by the Prime Minister responsible for the final acquiescence of funding for Pergau emphasizes the commercial benefits, which flowed from the decision, rather than the developmental ones. On the 18th January 1994, Major defended himself by pointing to the billions of pounds of exports and the creation of many jobs that followed the deal.[102]

From 1989 onwards, faced with rising pressure over allegations of a linkage, government officials consistently denied that aid had been used to ‘sweeten’ an arms deal. On the 15th of May 1989, when asked if there had been any mention of aid in the negotiations of a defence contract between Malaysia and the UK, the then Secretary of State for Defence Procurement, answered that all proceedings between the two governments had been formalized in the memorandum of understanding signed in September 1988. In it, no mention had been made of overseas aid.[103] This did not entirely answer the question. On the 13th of June 1989, again asked about the issue by Miss Lestor, Sainsbury explained that the Malaysians had tried to link the two, but that Younger had resisted.[104] Finally Lestor asked the Prime Minister whether there had been any question of aid in the correspondence between the two governments concerning the arms deal. Thatcher replied that this was confidential.[105] The Observer reported this cornering of Thatcher.[106] Although there was no official linkage, there was, as Joan Lestor has argued, a de facto linkage.[107]

The implications of the High Court’s ruling on the allocation of ATP in the Pergau dam case are also notable in terms of the future of the operation of government decision-making.

“The Pergau Dam case offers the prospect that the changes currently being made to the Victorian architecture of parliamentary spending will be driven not only by the objectives of the “new public management”[Hood (1991)] but also by the equally important and complementary values of the rule of law.”[108]

The scope for applying for a judicial review has thus been broadened to include parties with a legitimate interest in the outcome. As Lord Chief Justice Taylor noted in an interview with the BBC, it’s “no longer (…) simply somebody who has a financial interest or a personal interest who is the only person who can apply.”[109] This has considerably enlarged the influence on ministerial oversight of NGOs. It is possible, therefore, that Ministers will increasingly be held accountable for any divergence from stated government policy. However the implications of an un-elected judiciary being responsible for essentially political rulings seem awkward in a democratic society such as Britain.

Another point of possible optimism stands out in the fact that recommendations made by the Public Accounts Committee were implemented. The most important of these was for increased communication concerning the over-ruling of officials’ recommendations, with any such over-ruling being immediately communicated to the National Audit Office. This increased the power of oversight of the National Audit Office in Ministers’ decisions, thereby making a Minister more accountable to the civil service in his department. Nevertheless the operational bias of the ATP towards commercial interests, as illustrated by the power-play between different departments, is only slightly affected by these developments.


XI. SUMMARY AND CONCLUSIONS
In this analysis, we first established the framework of the operation of the ATP funding. This led us to note the disproportionate influence of commercial pressures compared to developmental ones. This power-play between differently weighted interest groups contrasts with the legal framework for aid disbursement laid out in various pieces of legislation, and stated government policy. Our conclusions about the propensity to favour commercial considerations over developmental objectives, in allocation of ATP funds, led us on to our case study of the Pergau Dam scandal. In our chronicling of the various stages of the appraisal of Pergau, we found that commercial interests were systematically more influential than forces pushing for developmental value-for-money.

In this sense, it is vital to understand the importance of the gradual nature of appraisal of ATP projects. At every stage in the various offers of aid, it is clearly stated by the British government that funding will proceed subject to further appraisals. However future decisions are taken on a path-dependent basis, with the original conditional offer of aid being seen as binding for the British government.

In this sense, the decision to proceed with ATP funding for Pergau was effectively taken when Younger signed a Protocol in March 1988 linking the arms deal he was negotiating with aid procurement worth 20 per cent of the arms contract. Therefore, along with the constraints imposed on the appraisal missions sent by the ODA to judge the developmental value of Pergau, the original decision to provide ATP funds was taken in the context of commercial considerations, in order to secure a contract.

Many have hinted openly at the fact that ATP cannot be left entirely under the responsibility of the DTI, given the rules Britain signed up to in GATT. ATP and the use of mixed credits can thus best be seen as unofficial export subsidies. This practice stands in stark contrast to Thatcherite free-market ideology. In addition to the signs of hope we have noted in terms of increased judicial oversight of ministerial decisions regarding aid disbursement, it can also be noted that the ATP scheme was dismantled in 1997 by the incoming Labour government.[110] The use of mixed credits was not ruled out by New Labour, however. To this extent, the power-play of interests fundamental to ATP may continue to operate through the use of these mixed credits.



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● Joint UNDP/World Bank Energy Sector Management Assistance Program, Activity Completion Report No. 068/87, (March 1987), accessed at http://www-wds.worldbank.org/servlet/WDSContentServer/WDSP/IB/1987/03/01/000009265_3960928074315/Rendered/PDF/multi_page.pdf, on 29th February 2004
● Webb, B., ‘Government Papers demanded in Pergau dam legal challenge’, in the New Statesmen, 4th November 1994
● Willet, S. (1999), ‘The Arms Trade, Debt and Development’, accessed on CAAT Website, http://www.caat.org.uk/, accessed on 13th April
● World Development Movement’s (WDM) Website:
http://www.wdm.org.uk/campaign/history.htm#Aid ,accessed on 14th of April 2004
● Wylie, I., ‘Company Vitae: Balfour Beatty’, in the Guardian, 19th August 2000


Secondary Works:

● bin Hassan, M. J. (1995), ‘Malaysia in 1994: Staying the Course’, in Asian Survey, vol.35 (2)
● Bose, A. and Burnell, P. (ed.s) (1991), Britain’s Overseas Aid since 1979: Between Idealism and Self-Interest, (Manchester; Manchester University Press)
● Erswell, C.C. (February 1994), ‘UK Aid Policy and Practice, 1974-90’, found on http://members.lycos.co.uk/CCErswell/CHAPTER4.htm, accessed on 26th March 2004
● Foster, C. and Plowden, F. (1996), The State under Stress, (Buckingham; Open University Press)
● Hook, S.W. (ed.) (1996), Foreign Aid Towards the Millennium, (London; Lynne Rienner Publ.)
● May, R.S. and Malek, M.M.H. (1989), ‘The Regional Impact within the United Kingdom of the Overseas Development Aid Programme’, in Regional Studies, vol.24 (4) (August 1990)
● Middleton, N. and O’Keefe, P. (1998), Disaster and Development: The Politics of Humanitarian Aid, (London; Pluto Press)
● Morrissey, O. (1991), ‘An Evaluation of the Economic Effects of the Aid and Trade Provision’, in the Journal of Development Studies, vol.28 (1) (October 1991)
● Morrissey, O. (1993), ‘The Mixing of Aid and Trade Policies’, in World Economy, vol. 16 (1)
● Mosley, P. (1987), Overseas Aid: Its Defence and Reform, (Brighton; Wheatsheaf Books)
● Murshed, S. M. and Sen, S. (1995), ‘Aid Conditionality and Military Expenditure Reduction in Developing Countries: Models of Asymmetric Information’, in The Economic Journal, vol.105 (429)
● Mussington, D. (1994), Understanding Contemporary International Arms Transfers, (London; The International Institute for Strategic Studies) ● Smith, T.B. (2003), ‘Privatising Electric Power in Malaysia and Thailand: Politics and Infrastructure Development Policy’, in Public Administration and Development, vol.23 (3), (August 2003)


Endnotes
[1] Overseas Development and Co-operation Act (1980), Section 1 (1)
[2] Pilger, J., ‘Britain’s Dirty Secrets in Indonesia’, in the New Statesmen, 11th February 1994
[3] House of Commons Hansard written answers, 14th November 1989, vol.160, column 121
[4] House of Commons Foreign Affairs Committee, Session 1988-89, Aid Policy, Minutes of Evidence, Wednesday 21st June 1989, (London; HMSO), question 26, p.11
[5] Hansard written answers, 20th December 1991, vol.201, column 331
[6] Morrissey, O. (1991), ‘An Evaluation of the Economic Effects of the Aid and Trade Provision’, in the Journal of Development Studies, vol.28 (1) (October 1991), p.106
[7] Excerpts from the General Agreement on Tariffs and Trade as amended through 1966, found on http://www.ciesin.org/TG/PI/TRADE/gatttxt.html#art16, accessed on 31st of March 2004
[8] Toye, J. (1991), ‘The Aid and Trade Provision’, in Bose, A. and Burnell, P. (ed.s) (1991), Britain’s Overseas Aid since 1979: Between Idealism and Self-Interest, (Manchester; Manchester University Press), p.98-99
[9] Toye (1991), p.99
[10] Morrissey (1991), p.108
[11] Morrissey (1991), p.108
[12] The Labour Party International Department (1980), Statement by the National Executive Committee: Conservative Aid Policy, (London; The Labour Party).
[13] Brown, M.L. and O’Connor, J.M. (1996), ‘Cross-Pressures in Western European Foreign Aid’, in Hook, S.W. (ed.) (1996), Foreign Aid Towards the Millennium, (London; Lynne Rienner Publ.), p.95
[14] OECD, Development Cooperation Report, (Paris; OECD, 1989), p.209
[15] Byrd, P. (1991), ‘Foreign Policy and Overseas Aid’, in Bose and Burnell (ed.s) (1991), p.70
[16] Thatcher, M., House of Commons Statement [Kuala Lumpur Commonwealth Summit], 26th of October 1989, found on Margaret Thatcher Public Statements 1945 to 1990, on University of Bristol CD-ROM network.
[17] Toye (1991), p.98
[18] Foreign Affairs Committee, Session 1993-94, Third Report, p.liii
[19] Toye (1991), p.116
[20] ODA, British Aid Statistics, (London; Government Statistical Service, HMSO), successive editions from 1985 to 1994.
[21] HM Treasury (1989), The Government’s Expenditure Plans, (London; HMSO), although the ATP was praised in this way in every edition up until 1997.
[22] For a further discussion of these arguments, look at Winpenny, J.T. (1991), ‘Efficiency and Effectiveness in Overseas Development Administration’, in Bose and Burnell (ed.s) (1991), p.44
[23] Foreign Affairs Committee, Session 1986-87, Second Report, Bilateral Aid: Country Programmes, (London; HMSO).
[24] Toye (1991), p.103
[25] Middleton, N. and O’Keefe, P. (1998), Disaster and Development: The Politics of Humanitarian Aid, (London; Pluto Press), p.29 especially
[26] Toye (1991), p.117
[27] Department for International Development (DfID) (1997), ATP Evaluation Synthesis Study, found on http://www.dfid.gov.uk/policieandpriorities/files/nsc/ev_s490.htm, accessed on 3rd of April 2004
[28] Toye (1991), p.101
[29] Foreign Affairs Committee, Session 1986-87, Second Report, Ev. (Memorandum by the ODA) p.24
[30] Erswell, C.C. (February 1994), ‘UK Aid Policy and Practice, 1974-90’, found on http://members.lycos.co.uk/CCErswell/CHAPTER4.htm, accessed on 26th March 2004
[31] Foreign Affairs Committee, Session 1986-87, Second Report, p.101
[32] Erswell (1994), found on http://members.lycos.co.uk/CCErswell/CHAPTER4.htm, accessed on 26th March 2004
[33] Foreign Affairs Committee, Session 1986-87, Second Report, p.103
[34] Toye (1991), p.114
[35] ‘Aid, Trade, and Great Britain plc’, in the Independent, 4th March 1994
[36] World Development Movement’s (WDM) Website is the main pressure group in this case:
http://www.wdm.org.uk/campaign/history.htm#Aid ,accessed on 14th of April 2004
[37] This point is made in Rogaly, J., ‘Rumbled in Bumbledom’, in the Financial Times, 4th March 1994
[38] As quoted in Cohen, N., ‘Hold on a minute…: St Rupert’s new halo doesn’t quite fit’, in the Observer, 30th of March 1997
[39] Thatcher, M., ‘Written Interview for Malaysian Press (Utasan Malaysia)’, 16th of October 1989, found on Margaret Thatcher Public Statements 1945 to 1990, on University of Bristol CD-ROM network.
[40] CAAT, Action Special, (February 1994), p.2
[41] Ibid, p.2
[42] (This is a reference to Foreign Secretary Hurd’s over-ruling of Sir Tim Lankester’s (ODA) recommendation not to proceed with the project)
[43] Webb, B., ‘Government Papers demanded in Pergau dam legal challenge’, in the New Statesmen, 4th November 1994
[44] Nelson, D. and Durham, M., ‘Secret Number 10 wires may ‘hold key’ to aid-for-arms deal’, in the Observer, 6th March 1994
[45] Foreign Affairs Committee, Session 1993-94, Third Report, Ev. p.271, para 2 [summary].
[46] ABC News Online, ‘Timeline: Malaysia’s Mahatir Timeline’, found on http://www.abc.net.au/news/newsitems/s979934.htm, accessed on 1st February 2004
[47] Thatcher, M. (1993), The Downing Street Years, (London; HarperCollins Publishers), p.502
[48] Ibid
[49] The Sunday Times, 6th March 1994.
[50] ‘Asia: Mahatir and the Power of Asian Money’, in the Economist, 5th March 1994, UK p.73
[51] Committee of Public Accounts, Session 1993-94, Seventeenth Report, Pergau Hydro-Electric Project, (London; HMSO), p.viii, para 8
[52] Hansard Debates, 1st March 1994, vol.238, column 813
[53] Foreign Affairs Committee, Session 1993-94, Third Report, pp.xxiii-xxiv
[54] This is the main argument of Palast, G., ‘Inside Corporate America: War on Corruption? Not quite, Minister still cheap in Rip-Off Britain’, in the Observer, 9th of July 2000
[55] ‘Feature: Balfour Beatty’, in Corporate Watch, Magazine Issue 1 (Winter 1996), accessed at http://www.corporatewatch.org.uk/magazine/issue1/cw1f4.html, on 15th February 2004
[56] Owen, I., ‘Minister Dismisses wider Aid-for-Arms Allegations’, in the Financial Times, 2nd March 1994.
[57] ‘Arms and Aid: Cosy’, in the Economist, 5th February 1994, p.28
[58] The Corner House (December 2000), ‘Underwriting Corruption: Britain's Role in Promoting Corruption, Cronyism and Graft’, (Submission to The International Development Committee's Inquiry into Corruption), found at http://www.thecornerhouse.org.uk/document/corridc.html, on 20th March 2004
[59] Rudd, R., ‘Aid Policy Decried as Recipe for Corruption’, in the Financial Times, 4th March 1994.
[60] Toye (1991), p.112
[61] ‘Aid and Trade: The Curse of Pergau’, in the Economist, 5th March 1994, p.30.
[62] The Corner House (2000), found at http://www.thecornerhouse.org.uk/document/corridc.html, on 20th March 2004
[63] Hansard Debates, 1st March 1994, vol.238, column 812
[64] May, R.S. and Malek, M.M.H. (1989), ‘The Regional Impact within the United Kingdom of the Overseas Development Aid Programme’, in Regional Studies, vol.24 (4) (August 1990), p.308
[65] As quoted in ‘Major approved £234m aid for ‘wasteful’ dam project’, in the Independent, 18th January 1994.
[66] Jenkins, G. (1996), ‘Feature Article: A Farewell to Arms’, in Socialist Review, issue 198 (June 1996), accessed on 23rd February 2004 at http://pubs.socialistreviewindex.org.uk/sr198/arms.htm
[67] Mussington, D. (1994), Understanding Contemporary International Arms Transfers, (London; The International Institute for Strategic Studies), p.7
[68] as quoted in Jane’s Defence Weekly, 29th March 2000, p.31
[69] Jackson, B., ‘Damning Evidence of Tory Sleaze’, in the New Statesmen, 11th February 1994
[70] Nelson, D. and Durham, M., ‘Secret Number 10 wires may ‘hold key’ to aid-for-arms deal’, in the Observer, 6th March 1994
[71] Jones, M., ‘Ministers in the Dock’, in the Sunday Times, 6th March 1994
[72] Purnell, S., ‘Britain’s dam aid linked to arms, says ex-Minister’, in the Daily Telegraph, 29th January 1994
[73] Jackson, B., ‘Damning Evidence of Tory Sleaze’, in the New Statesmen, 11th February 1994
[74] Foreign Affairs Committee, Session 1993-94, Third Report, p.lviii-lxi
[75] ‘Arms and Aid: Cosy’, in the Economist (5th February 1994), p.29
[76] Foreign Affairs Committee, Session 1993-94, Third Report, p.liv
[77] Foreign Affairs Committee, Session 1993-94, Third Report, p.lv
[78] ‘Arms and Aid: Cosy’, in the Economist (5th February 1994), p.29
[79] Thatcher, M., ‘Speech signing Memorandum of Understanding with Malaysia’, 27th of September 1988, found on Margaret Thatcher Public Statements 1945 to 1990, on University of Bristol CD-ROM network.
[80] ‘Arms and Aid: Cosy’, in the Economist (5th February 1994), p.29
[81] Hurd alleged that the Protocol was handled “100% by the MoD”. Leathly, A., ‘Hurd admits Tories erred in linking arms contracts to aid’, in the Times, 3rd March 1994
[82] Riddell, P., ‘A Complacency of Errors’, in the Times, 7th March 1994
[83] This is the position taken by the Foreign Affairs Committee, on p.lvi
[84] Committee of Public Accounts, Session 1993-94, Seventeenth Report, p.4
[85] Foreign Affairs Committee, Session 1993-94, Third Report, p.xxiii
[86] Ibid.
[87] Ibid.
[88] Committee of Public Accounts, Session 1993-94, Seventeenth Report, Ev. Question 142
[89] Committee of Public Accounts, Session 1993-94, Seventeenth Report, Ev. Question 178
[90] Foreign Affairs Committee, Session 1993-94, Third Report, p.xxxv
[91] Foreign Affairs Committee, Session 1993-94, Third Report, p.lv
[92] Smith, T.B. (2003), ‘Privatising Electric Power in Malaysia and Thailand: Politics and Infrastructure Development Policy’, in Public Administration and Development, vol.23 (3), (August 2003), p.275
[93] Committee of Public Accounts, Session 1993-94, Seventeenth Report, p.5
[94] Joint UNDP/World Bank Energy Sector Management Assistance Program, Activity Completion Report No. 068/87, (March 1987), accessed at http://www-wds.worldbank.org/servlet/WDSContentServer/WDSP/IB/1987/03/01/000009265_3960928074315/Rendered/PDF/multi_page.pdf, on 29th February 2004
[95] Foreign Affairs Committee, Session 1993-94, Third Report, p.lvii
[96] Foster, C. and Plowden, F. (1996), The State under Stress, (Buckingham; Open University Press), p.232
[97] As quoted on http://www.lexisnexis.co.uk/lawcampus/student/Lev3/weblinked_books/loveland/data.htm, accessed on 8th April 2004
[98] ‘Case and Comment’, in The Cambridge Law Journal, vol.54 (part 2), July 1995, p.227
[99] ‘Regina v. Secretary of State for Foreign and Commonwealth Affairs, Ex parte World Development Movement Ltd.’, in Weekly Law Reports, (1995) vol.1, p.401
[100] Harden, I., White, F. and Hollingsworth, K. (1996), ‘Value for Money and Administrative Law’, in Public Law (1996), p.678
[101] Hansard Debates, 25th January 1995, vol.253, column 276
[102] ‘Editorial: Sweetener hides a bitter Truth’, in the Independent, 19th January 1994.
[103] Hansard written answers, 17th May 1989, vol.153, column 191
[104] Hansard written answers, 13th June 1989, vol.154, column 398
[105] Hansard written answers, 29th June 1989, vol.155, column 531
[106] The Observer, 2nd of July 1989
[107] Erswell (1994), found on http://members.lycos.co.uk/CCErswell/CHAPTER4.htm, accessed on 26th March 2004
[108] Harden, White and Hollingsworth (1996), p.672
[109] ‘On the record: Lord Chief Justice Taylor Interview’, 26th of February 1995, accessed on http://www.bbc.co.uk/otr/intext94-95/Taylor26.2.95.html, on 1st April 2004.
[110] Department for International Development (1997), Eliminating World Poverty: A Challenge for the 21st Century (White Paper on International Development), (London; HMSO)