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

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СКАЧАТЬ ‘business interest serves national interest’ myth that they don’t stop to question it. They should. First, most economists remain highly sceptical that a nation can improve its long-term welfare by subsidizing its exports. Second, subsidies radically reduce the incentive for exporters to do all they can to ensure that the companies they are selling to will make good on their debts. In much the same way that many more homes would be built in flood-prone areas if their owners were compensated for flood damage by the government, ECAs provide exporters with incentives to maximize their exports in the knowledge that they will be bailed out if their deals go bad. Third, export subsidy policies have tended to be very costly for the exporting countries, many ECAs have made huge losses over the past two decades. And, finally, rather than benefiting the interests of their host country, ECA-backed companies often turn out to be only benefiting themselves.

      Most of the companies that have received large amounts of Ex-Im support in the US, for example, are companies that have ruthlessly shed jobs and have shifted production abroad to save money. Ex-Im’s five biggest corporate beneficiaries in the 1990s – AT&T, Bechtel, Boeing, General Electric and McDonnell Douglas – collectively cut more than 300,000 jobs during that time, shifting production away from the US to India, Mexico, Japan and elsewhere. Worse still, Ex-Im is extremely selective in the businesses it serves, choosing merely to benefit a small handful. In 2001, more than 60 per cent of Ex-Im’s loans and guarantees went to just three corporations, and almost 90 per cent went to just ten. Similar trends can be seen in other countries.

      Lining the wrong coffers

      The lion’s share of the subsidies is not, however, usually paid for by Western taxpayers despite the high failure rate of ECA projects. That burden more commonly falls on the peoples of the developing world – the masses in the developing countries who have to face the consequences of an increase in their debt burden as a result of the importer not paying up. For, as we have seen, export credit debt accounts for a significant proportion of the debt that developing countries owe to official creditors, and in some cases for almost all the debt they owe. And the interest paid on export credits is particularly onerous for developing countries because it corresponds to commercial rates of interest, not the lower rates incurred by bilateral or multilateral (the World Bank, IMF or regional development banks) loans.

      If it could be shown that countries now carrying ECA debt burdens were better off because of ECA-backed projects, a reasonable case could be made that the resulting debt burden was worth it. In many cases, however, the promised benefits never materialize, and a large number of projects do not even see the light of day. A former employee of HSBC told me that, of the export credit agency deals he worked on over a 12-month period at the bank, every single one went bankrupt..

      Moreover, billions of dollars worth of ECA loans have ended up lining the pockets of corrupt government officials. Acres, for example, the EDC-(Canadian ECA) supported company, was convicted in a Lesotho court in September 2002 for having paid $260,000 in bribes to a Masupha Sole, the former CEO of the notorious Highlands Dam Project, a project which, besides being riddled with corruption, displaced hundreds of subsistence farmers and directly and adversely affected the lives of approximately 27,000 people. And it is commonplace for the prices of projects that receive ECA funding to be massively inflated so as to be able to cover the related ‘commissions’. An investigation into power contracts in Indonesia in 2000, for example, revealed that most power transmission projects financed by foreign export credit agencies ‘smacked of mark up practices…[and] on average they cost 37 per cent more compared to projects that underwent international tenders.’ This reflects similar findings by the corruption-fighting non-governmental organization, Transparency International. It revealed that it was common practice for the value of an ECA contract to have been inflated by between 10 and 20 per cent to account for the ‘commissions’ (otherwise known as bribes) necessary to secure the deal.

      Yet rather than trying to screen out corrupt countries from export credit agency funding, some of the world’s most corrupt countries – Indonesia, Turkey, the Philippines – continue to figure in the top 10 markets for export credit support. As Transparency International has written: ‘The continued lack of action by export credit agencies to address the issue of corruption has brought some export credit agency practices close to complicity with a criminal offence.’

      Corruption, yet again, seems not to be a factor when governments of the rich world decide to which countries to lend. Indeed, it remains so pervasive in the world of the ECA that it can almost be thought of as a complementary export that our governments finance. One of Britain’s most prominent contractors in Africa, a man who has built countless schools and hospitals using British ECA funding to do so, told me proudly that he has paid bribes of over $75 million to secure his contracts over the past 10 years.

      Of course, ECA loans aren’t necessarily or always a bad thing. Poor countries wouldn’t be able to finance many projects without them, many of the projects they facilitate are beneficial or at least harmless, and even though the contractor in the story mentioned above did pay out tens of millions of dollars in bribes over the past ten years, he did at the same time build schools and hospitals. The bribes could be considered a kind of operating tax.

      It is just that by lining the pockets of elites, ECA loans undermine not only the possibility of democracy, but also by essentially legitimizing corruption, can impede economic growth. Empirical study after empirical study has shown that corruption is a barrier to significant numbers of potential investors. Which means that the overall return on the debts incurred through ECA loans can be extremely low, or even negative.

      There have been some token gestures made recently on the part of ECAs to appease mounting criticism – Britain, for example, has introduced a new warranty procedure which requires companies to state that they have not engaged in bribery. But in practice reforms tend to be insufficient and unenforceable. Britain’s ECGD still has no investigatory powers, and thus no way of ensuring compliance. As Transparency International has recently said, ‘None of the ECAs seem to seriously consider or even allow the possibility of denying access to export support to a country that has previously been shown to use bribery.’

      Moreover, the projects ECAs choose to fund are often highly contentious. President Boigny of the Ivory Coast built the world’s largest church in Yamoussoukro, his birthplace, a cathedral modelled on St Peter’s in Rome with 36-metre high stained-glass windows, a 280-ton dome twice the height of Paris’s Notre Dame, and a 30-ft gilded cross, with $150 million worth of European export credit financing. A St Peter’s replica with air-conditioned seating for 7,000, standing room for 12,000 and an open-air piazza built to hold a congregation of 350,000 in a town with a population of 100,000 in a country where only 15 per cent of the population is Christian, and still fewer Catholic. Worse still, Boigny built this huge edifice at a time when millions of people in the Ivory Coast were dying from disease; funding for immunization programmes was nil; and AIDS was beginning to get out of control.

      Or take the Bataan Nuclear Power Plant in the Philippines. Built in 1976 for over $2 billion with loans largely provided by the US’s Ex-Im. The largest and most expensive construction project ever undertaken in that country, the loans taken out to build it are still costing СКАЧАТЬ