MPs outraged over 'defence sweetheart deal'

PUBLISHED : Thursday, 17 February, 1994, 12:00am
UPDATED : Thursday, 17 February, 1994, 12:00am

BRITISH opposition MPs were fuming yesterday over allegations that Lady Thatcher ordered subsidies on defence exports to Malaysia in yet another sweetener to the Kuala Lumpur Government.

The Foreign Office is refusing to disclose the contents of a secret memorandum drawn up between Britain and Malaysia at the time of the Pergau arms-for-aid scheme, insisting it is ''only for the eyes of both governments''.

But The Guardian yesterday published details of the memorandum of understanding, revealing that the British Government was prepared to set up cheap loans for the Malaysians to subsidise their purchase of British defence exports.

According to the 15-page memorandum, the Government would pay the difference between the banks' commercial rates and the concessionary rate it was offering, involving subsidies worth tens of millions of pounds.

This was in addition to the GBP234 million (HK$2.65 billion) in aid for a dam.

Labour MP George Foulkes commented: ''This is absolutely outrageous. It amounts to a sweetheart deal financed by the British taxpayer.'' The Liberal Democrat defence spokesman, Menzies Campbell, said: ''The terms of the funding arrangements which required the British Government to arrange cheap credit for the Malaysian Government are absolutely monstrous.

''What possible justification can there be for such an arrangement unless there was a direct connection with some other financial deal?'' On funding, the memorandum reads: ''The total payment for any equipment procured under this [memorandum] will be provided by the Malaysian Government. But in the event that there is any shortfall in the funding, the United Kingdom Government will assistin the arrangement of financial facilities provided by a United Kingdom bank or a group of United Kingdom banks and the United Kingdom will ensure that the interest to be charged will be at concessionary rates.'' According to the paper, the memorandum adds that Britain was prepared to go further than the normal assistance provided.

It also shows that, while prime minister, Lady Thatcher agreed to establish a unit within the Ministry of Defence in support of the arms deal.