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In-person event

The Politics and Economics of Britain's Foreign Aid: The Pergau Dam Affair

The funding of the Pergau hydroelectric project in Malaysia in the early 1990s was the most controversial episode in the history of British aid.

Speakers:

  • Sir Tim Lankester, Permanent Secretary at the Overseas Development Administration (1989-1994) and author of The Politics and Economics of Britain’s Foreign Aid: The Pergau Dam Affair
  • Owen Barder, Director of the Centre for Global Development in Europe
  • Sir Simon Jenkins, Guardian columnist and former editor of The Times    

Chair: Jill Rutter

Sir Tim Lankester explained his new book – based on access to files held by the Department for International Development on the Pergau Dam affair.  Pergau today was very impressive – but behind it lay a story of the misuse of aid to fund an uneconomic proposal, linked to arms sales. The story showed the impact of a dominant prime minister acting as an “arms supersaleswoman”, the interplay of corporate and departmental interests and a disregard of normal processed of good government.

Although the decision to fund Pergau was not taken until 1991, the full story did not emerge until 1993.  It started in 1988 when Defence Secretary George Younger had visited Malaysia accompanied by representatives of the Defence Export sales organisation, then headed by a secondee from BAE. He promised aid for civil projects in exchange for Malaysia purchasing British arms. He did this in direct contravention of government policy and without consulting cabinet colleagues. When they discovered this agreement, Overseas Development Minister Chris Patten and his boss Geoffrey Howe demanded either a reversal of the agreement or for MoD to meet the cost of building the dam – but Mrs Thatcher sided with Younger.  Subsequent letters formally “delinked” the offer.

ODA – a weak department without its own voice in cabinet – assumed that at the very least the aid proposal would be strong- but the candidate put forward for aid funding was Pergau Dam – regarded as not needed for 10 years  by Malaysia’s own power company and as “hopelessly uneconomic” by ODA.

For the next five years ministers remained in denial about the nature of the deal; while the linkage between aid and arms exports had formally been broken, it effectively remained in place. The aid was confirmed in early 1991 by John Major and Douglas Hurd, who had by then become Foreign Secretary; they determined that it was impossible to go back on Mrs Thatcher’s commitment to Prime Minister Mahathir. In his capacity as the ODA accounting officer, Sir Tim sought a written direction before proceeding – in part to protect his own back before the inevitable PAC inquiry.  Unannounced at the time, it was this action which propelled the case into the headlines when revealed by the National Audit Office.  

1994 saw the decision to grant aid to build the Pergau Dam challenged in the High Court by the World Development Movement on the grounds that such an uneconomic scheme did not promote development and thus was ultra vires under the 1980 Overseas Development and Cooperation Act. ODA had been remiss in not seeking legal advice at the time – but the High Court decision took many lawyers by surprise. Sir Tim Lankester concluded by saying that consequences of the affair included poverty alleviation becoming a much stronger focus of overseas development work,

Sir Simon Jenkins, who had covered the row at the time, saw the story of the Pergau Dam affair as one of “an attempt by the machine to justify a bad decision”. The assumption that the actions of the government were rational was wrong; instead of trying to justify the decision, they should have been focusing on reversing it. He argued that, against this background, an increased willingness by government to consider U-turning is a virtue, and that Pergau Dam reflected the role of political personality in that ministers did not dare to countermand Margaret Thatcher. He concluded by saying that more needed to be discussed in terms of the internal chemistry of government, rather than its processes.

Owen Barder began by saying that, as a young civil servant at the time, he had been inspired by Sir Tim Lankester’s actions in speaking truth to power and seeking to bring economic analysis to bear against a misguided policy. Focusing on the long term legacy of the Pergau Dam affair, he argued that the decision to create the Department for International Development in 1997 stemmed directly from the aftermath of the incident, with DfID now giving development issues a voice in government in a way that didn’t exist when the ODA operated from within the Foreign Office. The 2002 International Development Act had played a key role in bringing about this change. The recent scrutiny of the DFID Permanent Secretary by the Public Accounts Committee over alleged profiteering from international development programs also reflected changed attitudes about the purposes of foreign aid.

In the Q&A session that followed, Ben Jackson from WDM highlighted the risks that a small NGO took in deciding to challenge the lawfulness of Pergau.  One realisation he had from the affair was the potential for unlikely alliances with different sections of government.  Adam Raphael who had uncovered much of the original story wondered if civil servants should be more ready to expose wrongdoing to the press – a view rejected by the former civil servants.  Sir John Gieve wondered if permanent secretaries needed to operate within a stronger statutory framework.  Others debated the impact on the untying of the aid programme – and whether the Ministry of Defence had changed its approach.

Sir Tim Lankester thought Accounting Officers giving a written direction today would find it more difficult as a consequence of the worsened relationship between ministers and civil servants; his relationship with Douglas Hurd, by contrast, had not been adversely affected by his actions with Hurd telling him that “you did your job, I did mine”. The increased tendency for ministers to publicly blame officials was unwelcome, and never previously occurred until relatively recently. 

Owen Barder noted that the strengthened position of DfID relative to the 1980s was shown by Clare Short using the 2002 International Development Act to stop Downing Street from seeking to disburse aid to countries who took back their nationals seeking asylum in the UK

 

Jonny Medland

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