'Moral hazard' at heart of foreign deal

PROFESSOR John Toye, a special adviser to Baroness Chalker, Minister for Overseas Development, said in the report quoted yesterday that British political parties could receive pay-offs from firms who received aid, writes Colin Brown.

The report said that the National Audit Office and the ODA had found no evidence of corruption. 'The scope of an NAO audit does not extend to the activities of the recipient government subsequent to the transfer of aid.

'It therefore does not have anything to say about the propriety or otherwise of those activities, or any repercussions which they may have at the UK end. British political parties are not obliged by law to disclose the sources of the foreign donations which they receive. Until political parties are legally required to disclose the sources of foreign donations, or they volunteer to do so, there can be no assurance that part of the proceeds of any financial improprieties occurring in connection with aid projects does not find its way back into the British political system, thus closing the loop of collusion.'

He said there was also a 'moral hazard' in the Pergau project over the privatisation of the company which owned the dam, whose shares soared on the Malaysian stock exchange when it was floated. The price may have been boosted by the pounds 234m loan from the British taxpayer.

The senior management gained access to up to 150 lots of 1,000 shares at a preferential price, he said. The estimated profit on a portfolio of 150,000 shares held for two years would be approximately 1.88m Malaysian dollars, equivalent to the lifetime earnings of a senior manager.

Professor Toye said even after tightening the rules, aid could be informally linked to China and Indonesia. It was urgent to take further measures to abandon mixed credit and soft loan financing. Failing that, the ATP scheme should be put under the control of the Department of Trade and Industry.