IOU: The Debt Threat and Why We Must Defuse It. Noreena Hertz

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СКАЧАТЬ example, the Iraqi government stopped honouring their contract with Uhde – the Western Export Credit Agency, the underwriter of the deal, pays the corporation almost all the monies owing it and assumes the debt itself. And then this debt is added to the outstanding bilateral debt owed by the debtor country to the country from which the ECA hails, thus becoming a significant part of the bilateral debt the developing world owes. Around 95 per cent of the debt owed to the UK government by developing countries, for example, is export credit debt. While 65 per cent of all debt owed by developing countries to official creditors is to ECAs.

      Much like a department store that provides its own charge card so that people on credit can buy the store’s own products, government ECAs facilitate loans for foreigners so that they buy the lending country’s own products. The more the ECAs sell, the happier the domestic firms from the ECA’s home country are, but also the more debts the foreign countries run up.

      And Saddam’s Iraq made Western arms dealers very happy. Of the $26 billion plus currently owed by Iraq to the British, the French, the Germans, the Japanese and the Americans, most of the debt was run up in the 1980s after Saddam came into power. Most of it undoubtedly resulting from military equipment procurement and weapons programmes – funding the various international military manufacturers whose sales were underwritten by these creditors’ respective ECAs.

      And now the Iraqi people are being told to repay this debt. Or at least that proportion of the debt that creditors feel they will realistically be able to squeeze out of them. The nation that suffered so much under Saddam that its cause became one of ‘liberation’ is being told to repay debts which were racked up with the express encouragement of Western companies and Western governments for purposes of oppression, violence and genocide. Debts that were clearly odious in nature.

      But is the Iraqi situation an anomaly? How widespread are ECA loans in the first place? And how usual is it for them to be used so ill-advisedly?

      As it is

      Let’s start with some facts. Export Credit Agencies like the US’s Ex-Im, the German Hermes Guarantee, the Italian SACE, the Japanese Export-Import Bank, the Swiss ERG, the French COFACE, the Canadian EDC or the British ECGD are the largest source of public finance for private sector projects in the world. Between 1982 and 2001, ECAs supported $7,334 billion worth of exports and $139 billion of foreign direct investment primarily to countries of the developing world. In 2000 alone, ECAs provided a total of $500 billion in guarantees and insurance to companies operating in developing countries, and issued $58.8 billion worth of new export credits. With the two largest ones, the ECAs of Japan and the United States in recent times approving on average new loans and guarantees worth $15 billion every single year.

      As overseas aid continues to fall, the importance of ECAs to developing countries continues to increase. Between 1988 and 1996, the worldwide value of new export credit loans and guarantees increased fourfold with approximately half of the new commitments going to the developing world. Eighty per cent of financing for projects and investment in developing countries today comes from ECAs. And export credits are now at levels of between two and three times the amounts of aid provided by the World Bank, regional development banks and countries of the developed world.

      This is a trend which is likely to continue. The 2002 G8 Africa Action Plan stated: ‘We commit to…helping Africa attract investment, both from within Africa and from abroad and implement policies conducive to economic growth – including by…facilitating the financing of private investment through increased use of development finance institutions and export credit and risk-guarantee agencies…’

      Yet, rather than being used to bankroll projects that are ‘conducive to economic growth’, export credits were and are often used to bankroll projects just as dangerous, dubious or misguided as those in Saddam’s Iraq. Time and time again, as we will see, export credits were and are used to pay bribes, support tyrannical or dictatorial regimes, or support environmentally unsound or socially undesirable projects.

      And, once again, it is the ordinary people of these countries who are left to pick up the bill. ECAs are amongst developing countries’ single largest creditors, and export credit debts account for about a quarter of developing countries’ total long-term debt – in some countries even more. Gabon, Nigeria and Algeria all owe more than 50 per cent of their total debt to export credit agencies.

      Why exactly are the governments of the developed world providing these loans? In some cases to serve their geopolitical interests (as we saw in the previous chapter) but more often to serve the different, though related, interest of their domestic corporations, so manifest in the Iraq example. The UK’s ECA, the Export Credit Guarantee Department, or ECGD, explicitly states that its goal is to ‘help exporters of UK goods and services to win business and UK firms to invest overseas by providing guarantees, insurance and reinsurance against loss.’

      ECAs also serve the interests of commercial banks. As Stephen Kock, the Midland Bank executive in charge of arms deals put it: ‘You see, before we advance monies to a company, we always insist on funds being covered by the [UK] government’s Export Credit Guarantee Department…We can’t lose. After 90 days if [they] haven’t coughed up, the company gets paid instead by the British government. Either way, we recover our loan, plus interest of course – it’s beautiful.’ Especially beautiful because the ECGD typically pays banks about 0.75 per cent per annum on the total value of any ECA-backed loan it has provided so that the bank has an incentive to provide the capital to the British exporter.

      And while 0.75 per cent per annum may not sound that much, on a $500 million project it amounts to around $3.8 million. And this is on a completely risk-free loan – the equivalent of lending to the Bank of England! No wonder banks spend serious amounts of money cosying up to big corporations. They want to be the bank through which the company secures its ECGD-backed loan.

      From the point of view of a Western corporation, export credit arrangements are great because they enable them to pass some of the risk of doing business in developing countries on to their own governments. By providing lower fees, premiums and interest rates than the private market can, and by backing transactions that the private market would refuse to back, ECAs are implicitly subsidizing their domestic exporters.

      Export credit arrangements also offer companies the added bonus of harnessing a government’s interests to their own. Once corporations have export credit guarantees they can rest assured that if things go wrong their government will protect their investments. ‘The Export Import Bank can be a powerful ally,’ Edmund B Rice of the American pro-ECA corporate lobbying group Coalition for Employment through Exports, has said. ‘You’ve got the full weight of our US embassy, our ambassador, the Treasury Department here and overseas the State Department all coming in.’

      No wonder corporations lobby hard for ECAs to continue their work. When there was a move to eliminate the US Overseas Private Investment Corporation (OPIC) in the late 1990s – a similar agency to Ex-Im but focused solely on the developing world – Kenneth Lay, the now disgraced former CEO of Enron, wrote a letter to every single member of Congress staunchly defending the institution.

      Why do Western governments want to serve corporate interests СКАЧАТЬ