Leading Article: A dam waste of money

MOST TAXPAYERS probably imagine that our small overseas aid budget of slightly less than pounds 2bn a year goes to very poor countries, where children are starving or suffering from disease, where clean water or adequate food production are lacking. They may be somewhat startled to discover that any money at all goes to Malaysia, a country that enjoys an annual growth rate of about 8 per cent, leads the world in producing electronic equipment and is well on the way to joining the South-East Asian 'economic tigers'. Far from being a candidate for compassion, Malaysia is frequently held up as an example of a dynamic, efficient, low-cost competitor that will put us out of work unless we cheerfully put in extra hours of labour, cease nagging for higher wages and stop fussing about health, safety and the environment.

So why did the British government pay pounds 234m from the overseas aid budget towards the cost of a pounds 400m scheme to build a hydro-electric power station and dam in Pergau, northern Malaysia? The bare facts are as follows. George (now Lord) Younger, then Secretary of State for Defence, agreed an outline deal in April 1988 that British firms would sell arms, including Tornado jets, to Malaysia. Margaret Thatcher visited Kuala Lumpur to sign the agreement with the Malaysian Prime Minister, Mahathir Mohamad, in September 1988. A few months later, the British government offered the Pergau aid package to the Malaysian government. The money went through early in 1991. Though Labour always smelt a rat, none of this occasioned much comment until the National Audit Office looked at the use of the aid money last year. It concluded that Pergau was a waste.

The suspicion is that Lord Younger or Baroness Thatcher or both told the Malaysians that, if they bought British arms, they would get the aid. The Economist reported last week that the amount of aid was even fixed as a certain percentage of the value of the arms deal. This would be of doubtful legality and of even more doubtful morality. Lady Thatcher has denied it. Lord Younger told the Independent last month however, that 'a verbal undertaking was given by somebody - not myself - to link the aid to the defence contract'. Whatever the reasons, the aid went through - with John Major, by then Prime Minister, giving the final go-ahead at a cabinet meeting in February 1991 - in the face of extraordinary behind-the-scenes opposition from civil servants and some ministers, including (as we report today) Chris Patten, at one time the overseas development minister.

The opposition was based on the view that, even if the people of Malaysia were deserving of British aid, it was far from clear that the dam would do them much good. The World Bank thought they would be better off with gas-fired electricity, providing cheaper power. The most senior civil servant at the British Overseas Development Administration, according to the audit office report, advised that giving money for Pergau was not consistent with using funds 'in a prudent and economic manner'. No member of the British government seems, at any stage, to have bothered arguing that the project had merit. Douglas Hurd, the Foreign Secretary, has merely observed that to cancel it 'would have been damaging to British companies and British exports'. Malaysia seems to have no corresponding sensitivities, even though it exports twice as much to Britain as we export to it. For example, it puts British and Hong Kong citizens to death for drug offences, despite appeals for clemency. It cancelled the order for Tornado jets. Though it put in another order for Hawk aircraft, no deliveries or payments have yet been made.

All this suggests that, once more, ministers have been bending the rules as they did when they sold arms to Iraq, this time adding a cavalier disregard for the proper use of public money to their usual disregard for assurances given to Parliament, and winning no particular advantage for Britain at the end of it all. It is a measure of our declining expectations that we are not greatly surprised. Ministers, it seems, will go to almost any lengths to placate Malaysia. What of the mysterious case of Lorrain Osman, a Hong Kong-based employee of a Malaysian state-owned bank? He was arrested in London, on suspicion of making unauthorised loans to a Hong Kong company called Carrian. A Malaysian minister was both a director of the bank and a major shareholder in Carrian. Why was Mr Osman held on remand in Pentonville prison for seven years (a record)? Is it possible, as the Independent suggested last week, that the British government was once more obliging Malaysian ministers by keeping Mr Osman out of Hong Kong where he might spill some unwelcome beans? It is time for ministers to give a full account of their relations with Dr Mahathir and his regime.