Thatcher swung aid to sell arms

Press, 17 May 1989, Page 17

Thatcher swung aid to sell arms

Pledges of British Govt cash oil wheels of S3B Tornado deal for Malaysia

ADAM RAPHAEL, of the "Observer,” reports on how Britain has become the world’s No. 2 supplier in military arms.

FUNDS FOR MALAYSIA RUN AT HIGH LEVEL

MARGARET THATCHER has personally “lubricated” a huge $3 billion arms deal with Malaysia, involving the sale of Tornado jet fighters, artillery and radar equipment, with a promise of British Government aid.

Despite official denials that there is any link between the arms deal and British aid, the formal Memorandum of Understanding signed by Mrs Thatcher and the Malaysian Prime Minister, Dr Mahatir Mahamad, last September, giving the go-ahead to the Tornado sale, coincided with pledges of a large civil aid package. Foreign Office, Downing Street, and Ministry of Defence officials have been unable to explain this "coincidence” in view of the Government’s claim that there was "absolutely no connection” between arms and aid.

"We have made it crystal clear that we do not mix the two,” said a Foreign Office spokesman. “If the Malaysians want to make the connection they can but we do not.”

This last elliptical reference appears to refer to the Malaysian insistence that the arms deal had to be associated with a substantial new tranche of British civil aid.

Whitehall sources concede that there were several exchanges between the two Governments on aid before the arms agreement was signed but stress that the actual arms agreement does not contain any reference to aid.

The point is a sensitive one because the 1966 Overseas Aid Act, which governs the distribution of British aid, expressly prohibits the use of aid as a means of securing defence sales. At the time the understanding was signed last September, a Downing Street spokesman insisted that neither civil nor military assistance was involved. However, other senior Whitehall sources acknowledge that ’’parallel talks” took place at the time of the arms agreement designed to lead to an increase in the level of civil aid to Malaysia. The Minister for Defence Procurement, Lord Trefgarne, now claims the conjunction between the Malaysian arms deal and the aid package is “pure coincidence.” The Government is not involved in "any skulduggery,” he says. The Malaysian arms deal, though complicated by the civil aid offer, shares a number of common features with a series of controversial British arms sales of the Anglo-German Tornado fighter bomber around the world. All have been shrouded in intense secrecy, all involve large commission payments, which have inflated the Tornado sales price by between 30 and 50 per cent, and most of them involve barter arrangements with poor countries that cannot afford, and arguably do not need, such sophisticated weapons. Finally, nearly all require substantial subsidies from the British taxpayer despite an almost total absence of Parliamentary scrutiny.

The Tornado deals have been personally masterminded by Mrs Thatcher, who is proud of her role in transforming Britain into the second largest arms exporter in the world.

When the Defence Secretary,

George Younger, referring to the biggest of all the Tornado sales, said in the Cabinet’s defence committee recently: “You know, Prime Minister, the planes we sold to Saudi Arabia,” he was quickly brought to heel by Mrs Thatcher, who said, reportedly without the trace of a smile: “The planes I sold to Saudi Arabia, George.” For once, the Prime Minister did not appreciate the use of the royal “we.”

After he was sacked, Mr Timothy Raison summed up the difficulties of being Minister for Overseas Aid in a Thatcher Government, in a remarkably frank open letter to his successor Chris Patten. Warning him that “there are those who see the aid budget as simply a big pot to be used for buying businesses or impressing foreign rulers”, he noted that Mrs Thatcher had many qualities but "I can’t say that over-enthusi-asm for the aid programme is one of them.” The Prime Minister’s view of her role as the nation’s chief arms saleswoman not only encompasses the promise of aid to secure arms deals, but also the use of other special measures.

The “Observer” has learnt that British Airways has had to be compensated after Mrs Thatcher intervened personally to secure the Malaysian State airline (MAS) additional landing rights in London. Malaysia was threatening to torpedo the whole arms deal unless MAS flights from Kuala Lumpur to London were increased from five to seven a week.

“Batting for Britain,” as Mrs Thatcher likes to call it, also embraces the need to look discreetly the other way when very large commission payments are made to secure arms sales.

The Malaysian deal, according to informed sources in London and Kuala Lumpur, involves an up-front payment of 300 million Malaysian dollars, about SNZI7O million, to Prime Minister Mahatir’s political party, UMNO Baru, as well as large payments totalling another 200 million Malaysian dollars (SNZIIS million) to agents and ruling families.

The basic price of the Tornado bought by the R.A.F. and the German Luftwaffe is SNZSO- - million, depending on the scale of equipment. But the price of the Tornados being sold to Malaysia by British Aerospace is nearly SNZIIS million. This huge discrepancy in prices cannot be accounted for solely by differences in equipment, servicing, training or spares. According to defence sources, tropicalisation of the Tornados might account for a markup of 25 per cent or additional price

per aircraft of SNZIS million. One senior Malaysian defence official said he regarded the SNZIIS million price charged for the Tornados as excessive but he remarked: “Unusual people are involved in the deal, so we must expect unusual terms.” Malaysia’s demand for large “kick-backs” on the Tornado deal stems from the dire financial position Prime Minister Mahatir’s party finds itself in. A split in UMNO’s ranks led to a Malaysian High Court ruling that all its assets belonged to the faction that went into opposition. With an election looming, the ruling party is in urgent need of funds to finance its campaign. Malaysian politicians say the Tornado deal and its associated commissions are not surprising. The only feature which raises eyebrows in Kuala Lumpur is Britain’s willingness to pay such large “up-front” fees before the deal has been concluded.

If Malaysian political sources regard the deal as par for the course, that is not the view taken in Whitehall. One senior Whitehall warrior said he regarded the Malaysian arms sales as a disgrace. Not only, he said, had the aid budget been perverted but Britain was selling totally unsuitable weapons to a country that could not afford them. Officials at the Overseas Development Administration are

also embarrassed at even the suggestion that there is a link between aid and arms. An ODA spokesman said: “We never give aid for military purposes. As far as I know there is no connection whatsoever between the Malaysian arms deal and civil aid.”

The ODA says it was approached by Malaysia last autumn to help finance a fourlane road highway project linking three remote resort villages in the Cameron Highlands. “We offered a feasibility study,” says a spokesman, “but that offer has not yet been taken up.” The timing of the approach, coinciding with the signing of the arms deal, insists the spokesman, was chance.

British aid to Malaysia is already running at a high level for a potentially rich country. Two years ago, a SNZI7O million grant was made for a water project, the largest ever allocated for a single scheme from Britain’s aid and trade provision. The size of the grant, and the fact that the contract was let without tender to a single British company, Biwater, whose Malaysian partner Antah is controlled by the Malaysian Negri Sembilan Royal Family, led to questions in both the Malaysian and British Parliaments.

Another unusual feature of the Malaysian arms deal, which mirrors the much larger. Tornado sale to Saudi Arabia, is that it is principally a barter deal withpayment in oil, natural gas, tin, rubber and other commodities spread over 10 years. Though details have been kept secret, that effectively means the British taxpayer is having to underwrite the deal at heavily subsidised interest rates. Malaysian sources say the country is in no position to finance a huge

purchase of highly sophisticated weapons. Last October, Mrs Thatcher wrote to the German Chancellor, Helmut Kohl, to complain that Britain was having to bear a disproportionate part of the credit risk in the (now postponed) sale of Tornados to Jordan. “Risks associated with export sales should be shared according to the work ratio,” wrote Mrs Thatcher.

But that principle has not been applied to the Malaysian deal, which is being financed by Britain without any West German participation, though the Germans have more than 40 per cent of the Tornado workload.

Despite the signing of the Memorandum of Understanding more than seven months ago, the Malaysian deal has still not been ratified. The argument over landing rights was only finally settled last month.

Malaysia was expected to buy as many as 12 Tornados but Dr Mahatir Mohamad is understood to have reduced the number to eight. Rapier surface-to-air missiles, part of the deal, have also been cut from the package. Malaysian sources, however, believe the deal will eventually go ahead in view of the large commission payments that have already been made. After the recent cancellations of Tornado orders by Jordan and Oman, that will be a relief to British Aerospace.

1966 law

prohibits method

‘Battling for Britain’

Unsuitable

weapons claim

Cuts in

the package