Home

Snouts in the Trough
Export Credit Agencies, Corporate Welfare and Policy Incoherence

Corner House Briefing 14

by Nicholas Hildyard

first published 30 June 1999

Summary

Export Credit Agencies (ECAs) are publicly-backed government agencies that give financial guarantees to companies operating abroad. They are now the single largest source of taxpayer support for companies operating in the countries of the South and Eastern Europe. Projects backed by such export credit agencies -- from dams to weapons to power stations -- are frequently environmentally destructive, socially oppressive or financially unviable. It is the poorest in these countries who end up paying the bill. With rare exceptions, the major ECAs lack mandatory environmental and development standards, and are secretive and unaccountable.

Contents

Acknowledgements

Nicholas Hildyard of The Corner House who would like to thank all those who contributed to this briefing.

Abstract

Export Credit Agencies (ECAs) - publicly-backed government agencies which give financial guarantees to companies operating abroad - are now the single largest source of taxpayer support for private sector companies seeking to off-load on to the public the financial risks of their business projects in the South and Eastern Europe. Ultimately, it is the poorest in these countries who end up paying the bill. ECA support now exceeds by far the total annual investments made by the World Bank and other multilateral development banks. With rare exceptions, the major ECAs lack mandatory environmental and development standards: in addition, they are secretive and unaccountable. The result is a range of ECA-backed projects - from dams to arms and polluting power stations - that are environmentally destructive, socially oppressive and, often, financially unviable. Environmental, human rights and development groups are pressing for fundamental reform.

Consider this: In November 1997, Britain's Department for International Development (DfID) outlined the newly-elected Labour Government's policy for UK aid to developing countries in a document entitled Eliminating World Poverty: A Challenge for the 21st Century. This committed the Government to paying "particular attention to human rights [and] transparent and accountable government"1 and to ensuring "that the full range of government policies affecting developing countries, including environment, trade, investment and agricultural policies, takes account of our sustainable development objective."2 In line with the new policy, the UK's bilateral aid programme would in future "avoid large capital projects".3

Barely 15 months later, however, the British Government is considering underwriting a £200 million investment insurance guarantee for UK construction company Balfour Beatty to build the giant Ilisu hydroelectric dam in Turkey, some 40 miles upstream from the Syrian-Iraq border. If constructed, the project - which would forcibly remove 15,000-20,000 mainly Kurdish people from their homelands - would violate not only five of the World Bank's guidelines for development projects on 18 counts, but also a UN convention aimed at preventing wars between states that share water resources (see Appendix 2).4 Because the Turkish State is engaged in a brutal, undeclared war against the region's Kurdish people, it is difficult for local communities to voice their concerns about the dam. Critics argue that for the UK to be involved in the forcible removal of an oppressed ethnic minority in Turkey whilst at the same time condemning Serbia for its policy of ethnic cleansing in Kosovo is the height of hypocrisy.5 The government department responsible? The UK Export Credits Guarantee Department.

Another example: On 12th May 1997, just days after the New Labour Government was elected, British Foreign Secretary Robin Cook announced a new "ethical foreign policy" for Britain.6 He proclaimed that the country would "once again be a force for good in the world ... Our foreign policy must have an ethical dimension". In future, no more arms would be sold to dictatorial regimes. The announcement was intended to implement New Labour's election manifesto commitment not to permit:

"the sale of arms to regimes that might use them for internal repression or international aggression and to increase the transparency and accountability of decisions on export licences for arms, whilst at the same time stating our support for a strong UK defence industry."7

Yet almost two-thirds of the £3,360 million worth of military equipment exported from the UK in 1997 went to regimes with appalling human rights records, including Indonesia, which is currently deploying death squads in East Timor.8 £1,577 million went to Saudi Arabia, £112 million to Indonesia, and £25 million to Turkey. In many cases, such arms sales have been subsidised by the UK government. The government department responsible? The UK Export Credits Guarantee Department.9

Two isolated examples? What about this, then? In June 1997, British Prime Minister Tony Blair told the Special United Nations Session on Sustainable Development:

"Industrialised countries must work with developing countries to help them combat climate change ... We must live up to our side of the bargain and ensure they have the resources to do this."10

The November 1997 document from DfID outlining the UK's new aid policy went on to spell out strategies for fulfilling this pledge, including "promoting and encouraging the use of renewable energy resources".11 Similarly, the UK Minister for the Environment, along with colleagues from other G8 countries, has stressed the need for international policies that "encourage developing countries to abate their greenhouse gas emissions while taking full account of their legitimate need to eradicate poverty and achieve sustainable development."12

Yet, despite such policy commitments, the UK Government is actively backing the construction of a number of carbon-dioxide emitting, coal-fired power plants in the developing world, thus ensuring that tonnes of greenhouse gases will be added to the atmosphere when non-polluting alternatives are available. These include: the Shiheng II, Heze II and Liaocheng coal-fired power plants in Shadong Province, China;13 the Huaneng power plant in Dalian Province, China;14 and the construction of a 1,040-megawatt power plant in Visakhapatnam, Andhra Pradesh, India. The government department responsible? The UK Export Credits Guarantee Department (ECGD).

Left unaddressed, such policy incoherence begins to look like hypocrisy rather than bureaucratic inertia. Despite being one of the smaller agencies in the UK government bureaucracy, the ECGD is no bit player. On the contrary, the value of the investments and exports it underwrites far outstrips the UK's bilateral aid budget.15

Yet, despite being backed by public money, the ECGD operates in almost total secrecy; is to all intents and purposes unaccountable even to Members of Parliament; and lacks any mandatory environmental and development standards. Moreover, repeated calls by UK environmental and development groups for reform have met with official indifference. Moves within the Organisation for Economic Co-Operation and Development (OECD), a grouping of the 29 major international nations, to institute common environmental and development standards for all OECD Export Credit Agencies (ECAs) have also led nowhere, the UK proving itself at best lukewarm to the reform process, at worst complacent. This, perhaps not un-coincidentally, is at a time when ECAs are becoming increasingly important sources of finance for infrastructure and other projects in the South and in Eastern Europe.

NGOs internationally are now pressing for all ECAs "to adopt and upwardly harmonize their environmental and social policies." Unsurprisingly, many now view the UK Government's willingness to respond to that call as a litmus test of New Labour's real commitment to human rights, sustainable development and the environment: put bluntly, will the government's flirtation with big business override its stated commitment to placing ethics at the heart of its foreign and development policy?

It's All Too Beautiful

Set up to assist companies to export capital and project-related goods and services, ECAs provide companies with insurance against the main commercial and political risks of operating abroad, in particular, of not being paid by their creditors. The system is simple. To obtain an export credit guarantee, the exporter takes out insurance with an ECA, which undertakes to pay the exporter for the exported goods should the importer default on payment. If it does have to pay up, the ECA passes on any debt that is not covered by the premiums it has received to the government of the importing country, adding it to the stock of bilateral debt owed to the ECA's home government.16 Ultimately, therefore, it is the poor of the South who end up paying the bulk of the bills.

Many of the projects backed by ECAs would not go forward without their support, since private sector banks and insurance firms are simply unwilling to underwrite the high financial risks involved. Yet, even where the companies involved have failed to take due financial diligence or have been accused of corrupt practices, ECA support ensures that the companies involved are bailed out. In July 1998, for example, the Pakistani government cancelled a deal with BC Hydro, a Canadian company, alleging corruption; part of the loss was swallowed by the project's "senior lender" Canada's Export Credit Agency, the Export Development Corporation (EDC).17

For companies and the banks that finance them, the advantages are obvious. As Midland Bank executive Stephen Kock in charge of arms deals and a former MI6 "asset", puts it:

"You see, before we advance monies to a company, we always insist on any funds being covered by the [UK] Government's Export Credits Guarantee Department ... We can't lose. After 90 days, if the Iraqis 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."18

Services provided by ECAs include: providing "Buyer Credits" in the form of 100% unconditional guarantees to banks who make loans available for overseas purchases of goods and services; underwriting the losses of commercial banks if the agreed interest rates on loans for overseas projects prove insufficient to cover their costs "plus a reasonable rate of return"; and covering losses resulting from specified political risks, "such as a foreign government seizing or confiscating an investment, suddenly imposing restrictions on profits leaving the country or the outbreak of civil war".19

Box 1: Public Risk, Private Profit

It is a truth universally acknowledged that a private company in possession of a business contract must be in want of a public institution to shoulder its financial losses, since private gain is most profitably pursued at public expense.

For companies operating overseas, a range of public institutions - from the Multilateral Development Banks (MDBs), such as the World Bank, to bilateral aid agencies and government-backed Export Credit Agencies (ECAs) and Investment Insurance Agencies (IIAs) - have long offered a range of services that perfectly match the needs of companies seeking to off-load onto the taxpayer the commercial risks of undertaking contracts abroad. A whole industry has now grown up to direct companies to the easiest source of ready subsidy and to help them obtain the funds on offer.

Northern-based companies, for example, have ably exploited the massive infrastructure development programmes funded since the Second World War by the World Bank to open up new markets and secure contracts at the public's expense. Much of the $25 billion lent each year by the Bank to Southern governments for development projects and policy reforms is returned to the North in the form of consultancies or construction contracts, some 40,000 of which are awarded annually.

In 1992, for example, over half the money lent by IDA (the arm of the World Bank which lends money at concessional rates to the world's poorest countries) went to companies in the world's ten richest nations as payments for goods and services. The UK topped the list of the rich countries benefiting from "aid" for the poor: $285 million of IDA money came to Britain in 1992, more than went to Bangladesh.

In 1994, World Bank contracts awarded to UK companies totalled £961 million - some £700 million more than Britain subscribed to the Bank as its annual capital input.

In the US, between 1993 to 1995, the MDBs channelled nearly $5 billion to US firms. Major beneficiaries included General Electric, General Motors, Motorola, IBM, AT&T, Allied Signal, Cargill and Westinghouse. Caterpillar alone raked in $250 million a year in export sales of construction equipment as a result of MDB projects.

But while MDBs provide Northern companies with secure government-funded contracts for infrastructure and other development projects in the South, they have limited facilities for funding private sector projects. Historically, they have also been reluctant to back arms sales or the construction of civil nuclear power plants and other projects with a link to weapons proliferation.

ECAs, by contrast, have no such qualms. Moreover, unlike the MDBs, the majority of ECAs are unconstrained by the restrictive environmental and development guidelines that the MDBs have now been forced to adopt. Small wonder that they are viewed by companies operating abroad as an attractive source of government subsidy.

Sources: US Department of the Treasury, The Multilateral Development Banks: Increasing US Exports and Creating Jobs, Washington DC, May 1995.

Back in Favour

In the 1980s, ECAs fell out of favour with industry, largely because they were considered too bureaucratic.20 But now they are the most commonly-used means of featherbedding risky Third World business contracts (see Box: Public Risk, Private Profit). Between 1988 and 1996, the worldwide value of new export credit loans and guarantees increased four-fold - from $26 billion to $105 billion a year.21 By 1996, ECAs were supporting $432.2 billion worth of exports (about 10% of the world total)22 in the form of guarantees, insurance and loans - a 40% increase on the figure for 1990.23 While much of this credit involved short-term transactions, an estimated $70 billion a year was for medium and long-term cover,24 with approximately half of the new commitments going to large infrastructure projects in power generation, telecommunications and transport, predominantly in the South.

ECA support for such projects is now so large that, according to Bruce Rich of the US-based Environmental Defense Fund, ECAs are now:

"the single largest public financers of large-scale infrastructure projects in the developing world, exceeding by far the total annual infrastructure investments of multilateral development banks and bilateral aid agencies."25

Heffa Schucking of the German NGO Urgewald observes that:

"If you are an environmental activist and you are fighting a project that will destroy a river, a forest or displace a community in a developing country, chances are that the project you are up against is being backed by an Export Credit Agency."26

Recent examples include:

  • the massive Three Gorges Dam on the Yangtze River in China for which an estimated 1.3 million people will have to move (see Appendix 1);
  • the Maheshwar dam in Madhya Pradesh, India which has provoked widespread public protest in the area affected (see Appendix 1);
  • the San Roque hydropower and irrigation dam in the Cordillera region of the Philippines, the last in a series of three dams on the Agno river which have severely disrupted the lives, economy and environment of the region's Ibaloi people over the past 45 years (see Appendix 1);
  • five dams on the Mekong in Laos, many of which will be undertaken by the private sector on a Build, Operate and Transfer (BOT) basis;
  • the Urucu gas and oil project in the western Amazonian region of Brazil which will cut through some of the least disturbed rainforest in the region (see Appendix 1); and
  • the Paiton power project in Indonesia (see Appendix 1).

ECAs to the Rescue

One reason for the explosive growth in the export credit business during the 1990s lies in moves to liberalise the global economy and in the resulting privatisation of infrastructure development and public services. Whereas in the past, infrastructure projects were largely planned, commissioned and financed by public authorities using public money, often in the form of loans from MDBs and other international bodies, the trend now is towards private sector financing and ownership.

Although total net private capital flows to the Third World and Eastern Europe have declined since South-East Asia's economic collapse in 1998, falling from a record $328 billion in 1996 to $140 billion in 1998,27 private sector flows are expected to regain their previous levels and outstrip public transfers of funds once again as the driving force of infrastructure development in the countries of Asia, Latin America and (to a lesser extent) Africa. In the mid-1990s, the private sector financed about 10-15% of infrastructure investments in the Third World, with the World Bank predicting that private investors could soon be providing as much as 70% of infrastructure investment. Although private sector financing for infrastructure projects in the developing world fell to less than $20 billion in 1999, the expectation is that it will soon recover to earlier levels.28

The increasing "privatisation" of infrastructure development has meant that construction and engineering companies have been forced to take on financial risks which, in government-sponsored projects, were previously borne by the State - risks which, in the absence of taxpayer support, potentially threaten shareholder profits and may make raising the necessary finance more difficult. Banks, in particular, have proved extremely reluctant to back large-scale private sector infrastructure projects without the backing of investment insurance, since most such projects are increasingly financed on a so-called "non-recourse" basis - in the event of a default, the investors have no claim other than on the assets of the project itself.29 Although in the boom years of the early 1990s, a significant number of project financiers (perhaps believing their own free-market propaganda) thought they could avoid investment insurance, primarily by using bond issues rather than bank loans to finance their projects, many have had their fingers badly burned, particularly in South-East Asia. As the former Chief Executive of the UK ECGD observes:

"In the year or so up to the end of 1997, there had been growing euphoria both that political risks were a thing of the past and also that any kind of project could be structured as a project financing on a viable basis and that, for example, it did not matter if the project was on the Isle of Wight or [in] Chad. Others thought that it was irrelevant whether the project concerned raw materials which could be extracted and sold for foreign currency or drinking water for consumption by people who had no experience of paying anything for water, let alone the true economic cost."30

Not surprisingly, project financiers are increasingly insisting on some form of investment insurance before they will invest in new private sector infrastructure projects. Raising investment insurance through the private sector, however, is often difficult, particularly where the project is in a country with a low credit rating. As a result, project developers are increasingly looking towards publicly-funded bodies, such as ECAs and Investment Insurance Agencies (IIAs), for support. In the view of banker Martin Copeland of Deutsche Morgan Grenfell:

"ECA support is absolutely critical in countries for which there are no substantial credit limits available at banks."31

Indeed, in the energy sector, many commentators now believe that the future of privately-financed power projects is uncertain unless governments are prepared to give support in the form of investment guarantees. "The lenders cannot do it themselves on an uncovered basis", says Larry Bressler, Vice President of the Sanwa Bank Ltd of New York. "There is a need for export credit and multilateral agencies."32

Multilateral agencies, however, are no longer the easy milchcows they once were. Although MDBs, historically the biggest sources of public money for Third World projects, supply many of the same export credit services as ECAs,33 their funds for private sector support are limited.

More important, under pressure from environmentalists and development activists, the majority of development agencies, such as the World Bank, have introduced new environmental and development standards, which, though far from stringent and often not observed,34 nonetheless impose a range of environmental and social conditions on project developers. Environmental impact assessments are now mandatory for many categories of project; the participation of affected groups is increasingly encouraged; and project developers are (in theory) bound by a raft of rules governing projects involving involuntary resettlement, indigenous peoples, wetlands and forests.

In some cases, agencies such as the World Bank have found the political fallout from funding certain infrastructure projects (such as dams) so damaging that they have all but ceased to support them.35 As Roberto Piccioto, Director of the Bank's own Operations Evaluations Department, recently put it, "growing public awareness of social and environmental impacts of large [hydropower] projects" has made the "risk premia of supporting such schemes 'prohibitive'."36

Unsurprisingly, industry is increasingly irked by what it sees as bureaucratic red tape - it took six years to agree a loan from the International Finance Corporation (IFC), the private sector arm of the World Bank, for a power project on the Hub River in Pakistan - and institutional cowardice, with leading developers such as Enron, the US power company, publicly chastising the MDBs for protracted implementation times and excessive regulation.37

Yes, We Have No Standards

With MDBs no longer playing the game as industry would wish, many companies have turned to national ECAs to featherbed their Third World projects. As Project Finance, a leading trade journal, reports, ECAs are "back in fashion", with "[project] lenders and sponsors citing the export credit agencies as the solution to the funding gap in project finance."38

The attractions of ECAs are multiple:

  • First, the services they offer - investment guarantees, insurance against political risk and export credits - are precisely those required to secure the private sector investment now needed to get projects off the ground;
  • Second, those services come without any of the environmental and social conditions demanded by MDBs; and
  • Third, ECAs have an institutional culture that is secretive, protective of business interests, generally blind to social and environmental concerns, and rooted in the clubby world of City back-scratching.

With rare exceptions - the US Export-Import (Ex-Im) Bank and the US Overseas Private Investment Corporation (OPIC) being cases in point - most ECAs have no human rights, environmental and development standards whatsoever. In Britain, for example, the ECGD is required under the 1991 Export and Investment Guarantee Act to take account of all economic and political factors that might adversely influence a loan. It has no legal obligation, however, to consider the environmental impacts of its investments or the contribution they will make to development; no obligation to ensure that all its projects comply with a set of mandatory human rights, environmental and development guidelines; and no obligation to screen out projects with adverse social and environmental impacts. This is despite clear language in the Final Communiqu_ of the June 1997 Denver Summit Meeting of G7 leaders, which Prime Minister Tony Blair attended as Britain's Prime Minister, committing the UK government to:

"help[ing] promote sustainable practices by taking environmental factors into account when providing financing support for investment in infrastructure and equipment."39

There are no formal policies, for example, that require environmental impact assessments for ECGD-backed projects or export deals; no requirements to ensure that rigorous safety measures and emergency accident response plans are in place for projects involving hazardous facilities, such as nuclear power or chemical plants; no requirements to ensure that those forcibly evicted as a result of a project will be adequately compensated and resettled; no requirements to consult with local people or concerned non-governmental organisations; no requirements to release documents that are relevant to assessing the social and environmental impacts of a project; no requirements to give timely advance notice of upcoming projects so that affected peoples can voice their concerns and objections; and no requirements to publish details of funded projects. Unsurprisingly, the ECGD is backing a wide range of projects with egregious social and environmental impacts (see Appendix 2).

The ECGD is not required to follow even the World Bank's (weak) guidelines for screening and monitoring projects, nor the guidelines recommended by the Development Assistance Committee of the OECD, nor the guidelines drawn up by the OECD to influence the conduct of multinational companies - all guidelines which the UK helped develop and to which it is formally committed.40 Its mission is entirely focused on promoting UK trade by "help[ing] exporters of UK goods and services to win business, and UK firms to invest overseas, by providing guarantees, insurance and reinsurance against loss."41 The only criteria that it employs for assessing projects and investments are "its normal underwriting criteria to ensure that the provision of support ... involves an acceptable risk."42 Although, in some instances (and generally only as a result of public pressure), environmental and social factors are taken into account in this underwriting process, the risks assessed are those posed to the financial and political viability of the project, not the risks that the project poses to the environment and to people.

Indeed, it is indicative of the ECGD's approach to the social and environmental impacts of its investments that senior officials appear at a loss to understand environmentalists' concerns over the Three Gorges Dam in China, which would drown 13 cities and force the relocation of 1.3 million people. Commenting on the project, one senior officer mused, "There was some problem about moving peasants there, wasn't there?"43

Secretive and Unaccountable

Although the ECGD has since commissioned a study "to examine the question of how export credit agencies can best take environmental factors into account",44 it has refused to make the document available for public comment. Likewise, although the Department of Trade and Industry has assured NGOs that "the ECGD is strengthening and deepening its procedures for assessing the environmental impact in the broadest sense of the projects which it supports", no details have been released to the public and there has been no consultation with leading UK environmental and development groups, let alone project-affected peoples.

Even parliamentarians seeking information on the environmental and social impacts of ECGD projects have been stonewalled. In February 1999, for example, Cynog Dafis MP requested a complete list of ECGD export credits and insurance agreements since 1995. In response, the Minister for Trade and Industry told the House of Commons:

"ECGD does not report individual guarantees without consent of the firms concerned and, in view of the number of guarantees involved, disproportionate cost would be involved in obtaining this."45

The ECGD has also refused to release copies of an environmental impact assessment undertaken by a Swiss consultancy firm of the Ilisu dam in Turkey (see Appendix 2). The Swiss Government's review of the assessment was given to the ECGD in July 1998. Neither the study nor the review has been published, however. Balfour Beatty, the British company that is hoping to construct the dam, has been reported as being against the publication of the assessments on the grounds that they are only "preliminary environmental assessments".46 The UK Government argues that the assessments cannot be released because "they are not our property."47 So much for New Labour's election promise that "transparency and accountability are our watchwords."

A Gentleman's Club

Secrecy apart, the ECGD's attraction to industry is further enhanced by the self-referential, club-like nature of its oversight procedures. Under the 1991 Export and Investment Guarantees Act, for example, an Advisory Council was established "to provide advice to the President of the Board of Trade, at his [sic] request, in respect of any matter relating to the operation of the Export Credits Guarantee Department."48 The Council does not make decisions on individual deals. However, it makes recommendations on which country markets are opened, closed or put on "alert" in terms of exposure and lending.

The ECGD itself recommends new advisory councillors, who are then "independently" vetted by the Department of Trade and Industry before being approved by the Minister. Council members are chosen "on the basis of their breadth of knowledge and experience" and include "senior and distinguished people from the banking, commercial and industrial sectors." In 1997, for example, the Council included the finance director of GEC, the chair of the BICC Group and the Managing Director of Rolls-Royce Industrial Power Group. Although all council members "serve in a personal capacity" and are expected to remove themselves from the room where they have an interest in the issues under discussion,49 many work for (and, in some cases, run) the very companies that receive the lion's share of the ECGD's financial support. GEC, BICC and Rolls-Royce, for example, all ranked amongst "the top ten main contractors" receiving export credit guarantees in 1995-96, with Rolls-Royce ranking third in the list a year later.

Whilst there is no suggestion of impropriety on the part of any members of the Advisory Council, past or present, the opportunity for back-scratching must always be present. As a senior ECGD official has acknowledged off the record:

"We rely on honesty really. But it's a difficult one. We need people who operate in the marketplace, who understand how the export world works, how the financial world operates ... I can't say to you they don't abuse their positions, but there is no evidence to say that they have done. There again, it would do them no harm in knowing how the ECGD operates. Conflict of interest comes about only on the occasions when the council decides [what countries] come on or come off cover. A council member might think 'hmm, that's very interesting'. It is something no system can stop. You couldn't think up a system that can stop it."

No minutes of the Advisory Council's deliberations are made public, and no representatives from development or environmental bodies sit on the Council.

A Race to the Bottom

Whilst agencies such as the UK ECGD continue to operate without mandatory environmental standards, there is strong pressure on other national ECAs to resist taking unilateral action to raise their standards. To do so, governments argue, would mean that their national industries would lose out on new overseas contracts.

The same argument is now being deployed by industry in an attempt to strip away or weaken the standards that some ECAs have introduced. In the US, for example, both the US Ex-Im Bank, the country's official Export Credit Agency, and OPIC, the publicly-backed US investment finance and insurance agency, adopted mandatory standards in 1992 and 1997 respectively.50 OPIC standards now categorically forbid any investment in "projects that require large-scale involuntary resettlement" (defined in terms of the movement of more than 5,000 people) and a ban on support for "large dams projects that disrupt natural ecosystems or the livelihoods of local inhabitants".51

In 1998, however, Republican Senator Frank Murkowski attempted to introduce legislation that would have prohibited Ex-Im from withholding finance for projects supported by any other G7 country. Murkowski argued that US exporters were losing contracts overseas because other ECAs do not impose similar standards to those of Ex-Im and OPIC. Without new legislation, Murkowski maintained, US companies would be "left in the dust while the environment suffers anyway."52

Although Murkowski's proposed legislation failed to make it to a vote during the last US Congress - and has not be "re-offered" to the newly-elected Congress - industry strongly supported his proposals, arguing that Ex-Im's standards are incompatible with its primary objective: protecting US jobs.

Environmental and development groups, however, charge that it is not US jobs that are protected but US corporations and their shareholders. They point out, for example, that most of the companies that have received large amounts of Ex-Im support have ruthlessly shed jobs through downsizing or shifting production abroad in order to exploit cheaper labour costs.

Thus Ex-Im's five biggest corporate beneficiaries this decade - AT&T, Bechtel, Boeing, General Electric and McDonnell Douglas (which has been purchased by Boeing) - have collectively cut more than 300,000 jobs in the last 10 years. Indeed, a study by the US General Accounting Office concludes:

"Government export-finance-assistance programs may largely shift production among sectors within the economy rather than raise the overall level of employment in the economy."53

A study by the Congressional Research Service goes further:

"Most economists doubt ... that a nation can improve its welfare over the long run by subsidizing exports. Internal economic policies ultimately determine the overall levels of a nation's exports."54

Upwards, Not Downwards

Rather than downgrading Ex-Im's standards, argue environmental and development groups, the need is for stronger guidelines, in addition to internal incentives including career penalties, to enforce them. Although the standards currently used by Ex-Im and its sister organisation, OPIC, are a step in the right direction, they are still insufficient to prevent the funding of egregious projects. In the Russian Far East alone,55 recent OPIC and Ex-Im loans have variously supported:

  • Investment insurance from OPIC for two forestry projects, one financed by the Global Forest Management Group (GFMG) and the other by Pioneer, both US-Russian joint ventures. The projects both involved logging primary forests and exporting the raw logs to Japan, although GFMG has since ceased its logging operations. Neither company had obtained the necessary environmental certificates required under Russian law for logging operations. The companies also refused to make public the Environmental Impact Assessments that they were required to undertake as a condition of receiving OPIC finance and insurance. These were later obtained by a US NGO which sued OPIC under the US Freedom of Information Act. Independent site visits to GFMG project found that large areas of primary forest had been stripped and that there were problems with the regeneration of second growth forest.
  • Export credits from Ex-Im for millions of dollars worth of US-built pulp mill equipment to Roslesprom, the Russian State Timber Industry Company. A memorandum of understanding has also been agreed to underwrite export credits for logging equipment. Roslesprom's director has since been forced to resign amid allegations of corruption.
  • Financial guarantees from OPIC for the Sakhalin II Oil and Gas Project off Sakhalin Island. Critics of the project warn that "inadequate oil spill response preparations threaten endangered grey whale populations, priceless stocks of wild salmon, pristine shorelines and the livelihoods of fishermen in Sakhalin and Northern Japan."
  • Financial support from OPIC for the Kubaka gold mine in the Russian Far East. In 1997, the coffer dam which holds toxic tailings from the mine was found to have sprung leaks, threatening major pollution of the surrounding environment. The dam was later found to have been built to a different design to that presented in the project's publicly-released environmental impact assessment.

OPIC's support for coal-fired power stations and oil and gas development in the South and the former Soviet bloc has also come in for criticism, with environmental groups charging that such funding is "engendering a structural reliance on fossil fuels ... that threatens the welfare of people in developing countries who are ... at greatest risk as the climate grows more unstable."56 In 1997, notes a recent report by the Washington-based Institute for Policy Studies (IPS):

"over 70 per cent of OPIC's direct project finance was in the electric power generation and oil and gas development sectors, with a commitment of $539 million in loans out of a total of $707 million; 41 per cent of OPIC's entire assistance portfolio (both insurance and project finance) was committed to projects in the power generation and oil and gas sectors."57

Ex-Im too has invested heavily in fossil fuel projects. From 1992-1998, the two agencies between them underwrote $23.2 billion in financing for oil, gas and coal projects around the world: over their lifetimes, these plants will release 29.3 billion tons of carbon dioxide a figure which, IPS notes, is "slightly greater than all global emissions for 1996."58

IPS argues that such lending will increase climate change and therefore "runs counter to the US Congress' stated goal of garnering greater participation by developing countries in slowing the rapid pace of fossil fuel combustion and the increasing reliance on fossil fuels as an energy source in developing countries." In many countries, less carbon-intensive energy options are available, from natural gas to solar, but these are not being backed by the two agencies.59 In the case of the corruption-ridden Paiton Power Project in Indonesia, backed by Ex-Im and promoted by such Washington insiders as Henry Kissinger and Warren Christopher, such alternatives were recommended by the Indonesian government's own power consultants. Paiton, however, still went ahead.60

Because the US will also be affected by the climatic instability caused by the continuing use of fossil fuels, OPIC's and EX-IM's support of fossil fuel projects suggests what IPS terms a "less than full implementation" of the US National Environmental Protection Act, which applies to US government-backed projects outside the United States that lead to significant and adverse environmental impacts in the United States. Such legislation would require OPIC and Ex-Im to take into account the global environmental impacts of each fossil fuel project it funds, rather than just the specific local impacts. Yet the wording of their environmental guidelines allow them to skirt the requirements of the Act.

Indeed, the IPS report reveals a range of areas where OPIC and Ex-Im guidelines fail to protect the environment and people or to ensure transparency and accountability. In the case of OPIC, for example, there is no requirement to calculate power plant emissions until after a project has been approved; no requirement to assess the cumulative emissions that are likely from power plants or their relative global impacts; and no requirement to carry out environmental assessments on power plants which are under 200MW in capacity. Moreover, says IPS, "OPIC's current and proposed disclosure policies for environmentally sensitive projects are grossly inadequate for a publicly-backed organization." Many upcoming projects listed by OPIC - a "Philippines residual fuel-fired power plant" being one example - give the public no substantive information about their likely impacts.

A New Debt Crisis?

The failure of ECAs to take account of the environmental and development impacts of their projects has inevitably meant that many have failed socially, environmentally and financially.61 Indeed, the very nature of exports credits encourages businesses to take unwarranted financial risks at the public's expense, while enjoying the full benefits if a project is successful. As Michel Van Voorst of Eurodad, a Brussels-based NGO, notes:

"This is a clear case of moral hazard: exporters are incentivised to maximise their exports, in the knowledge that they will, at public expense, be bailed out of deals that go bad. This also distorts pricing: the financing terms of deals do not reflect the real level of risks, with the illusion of cheap financing encouraging unnecessary borrowing."62

Where companies make claims for losses covered by ECAs, the liability passes to the ECA, which, in turn, passes the losses on to the importing country. The claims thus end up being added to the stock of bilateral debt owed to the ECA's national government, the peoples of the South ultimately picking up the bill. In effect, Northern governments are using Third World money to subsidise their exports, the chief beneficiaries being the shareholders of some of the richest companies in the world.

Export credit- related debts now constitute a major drain on the foreign exchange earnings of developing countries. Many have been unable to fulfil their repayment obligations and have been forced to the Paris Club, the international forum in which creditor countries meet with debtor countries to reschedule debt repayments. Although severely indebted poorer countries qualify for debt reduction of 67% under the so-called "Naples terms", such reductions are only approved if the debtor country has a "satisfactory" three-year track record of implementing IMF structural adjustment programmes and has cleared its arrears with the Paris Club. Critically, however:

"The reduction is only applied to eligible debt, that is, all debt incurred before the country's first visit to the Paris Club. Debts contracted after this so-called cut-off date are excluded. For instance, in 1995, Uganda (cut-off date 1982) received a 67 per cent reduction of its eligible bilateral debt stock. This represented only a 2 per cent reduction of its total debt."63

In cases where export credit debts are reduced or written off, the tab is picked up by tax payers in the ECA's home country. This, however, is rare.

Some financial commentators now warn that, just as the debt crises of the 1970s were caused by reckless lending by Northern banks to the South in the search for quick and spectacular profits, so the failure of many private sector-financed (but publicly insured) infrastructure projects in the 1990s could be transformed into a serious sovereign debt problem for many Southern countries. In order to attract private investors, many governments in South-East Asia and Latin America, for example, have committed themselves to billions of dollars worth of contractual obligations (not least incurred through ECA-underwritten investment guarantees) to protect investors and lenders against foreign exchange risks. In many South-East Asian countries, these contractual obligations have now been triggered as a result of the recent economic collapse: unless they can be restructured, they are now due in one lump sum. As the Financial Times warned in the immediate wake of the South-East Asian economic crisis: "Combine this structure with significant current account deficits and the scene becomes reminiscent of the sovereign debt environment of the late 1970s and early 1980s."64

Worldwide, export credit-generated debt now accounts for 56% of the debts owed by the Third World to official creditors and 24% of their total debts, including debts owed to private banks.65 As Eurodad notes: "A few countries, such as Gabon, Algeria and Nigeria owe more than 50 per cent of their total debt to export credit agencies."66 Moreover, because export credit-related loans are usually made at less concessional rates than other official loans, "they figure disproportionately in a country's debt service profile".

In the case of the UK, 95% of the debt owed by the South to the UK Government is in the form of export credit debt. Indonesia, for example, owes £800 million to the ECGD; Algeria, £63 million; China, £2,352 million; and Iraq, £652 million (including debts incurred for weapons supplied prior to the Gulf War). All told, at the end of 1997, the outstanding debts on loans guaranteed by the UK Government through the ECGD to the world's 41 Heavily Indebted Poor Countries (HIPCs) stood at £4,685 million.67 Figures supplied to the House of Commons library by the ECGD in 1998 showed that the UK is due to receive £923 million in repayment of export credit debt between the years 1998 and 2031 from the 26 HIPCs which have agreed payment schedules.68 If interest on the debt is taken into account, the total figure would amount to £1,383 million.

Many of the export credit debts owed to the UK ECGD were incurred through loss-making arms deals;69 others through poorly conceived projects; and still others in the pursuit of foreign policy objectives with little regard paid to the financial viability of the projects supported. The ECGD, for example, operates a special account known as "Account 3" from which guarantees are issued to countries that are considered uncreditworthy and which therefore fall outside the ECGD's normal approval criteria. A senior ECGD official acknowledges that Account 3 projects are "political" loans. One example cited was "Russia, where we provided support politically. [The Government told us] 'let's help Yeltsin ... that was started by the Government for political reasons."

It's the Poor Who Pay the Price

Those who pay the price for such geo-politicking, however, are not the companies which receive the export credits and investment insurance guarantees handed out by the ECGD and other ECAs, nor the politicians who make political capital out of the "rescue packages" and "development assistance programmes" they are able to announce, but poorer people the world over who end up bearing the costs of the debt through cuts in public expenditure, poorer services and higher prices for basic needs.

Neither is that debt burden purely financial: the support of ECAs for dictatorial regimes has also subjected the citizens of many countries to internal repression.

Moreover, the use of ECA credits to establish new markets for Northern companies has been a major force in promoting a development model that favours the North over the South, fuels inequality, exacerbates environmental degradation, marginalises poorer groups and fuels poverty. As Titi Soentoro of Bioforum, an Indonesian NGO, notes of Indonesia:

"ECAs played a key role in supporting the Suharto regime's system of economic and political monopolies. The regime's military security approach assured low costs for land appropriation and a relatively docile and inexpensive labour force. Foreign investors, often supported by ECA finance, competed to align themselves with the powerful business interests close to the Suharto family for example by offering free shares to Suharto's children and other relatives and business associates. In return, investors were assured access to lucrative sectors of the Indonesian economy and were able to receive 'assistance' from Indonesia's armed forces when it came to clearing people off their land for their projects, stifling labour unrest, or preventing mobs from storming their polluting factories."70

Unsurprisingly, campaign groups in the UK and elsewhere are calling for the cancellation of export credit debts incurred through "political" loans or where ECAs were cavalier in their support of financially-dubious projects. Indeed, as a report by the UK House of Commons Library points out, cancelling the HIPC debt owed to the ECGD would:

"have a considerably smaller effect on the Exchequer than is perhaps implied by the headline figures on the level of third world indebtedness".

According to the report, the Exchequer is due to receive £932 million between 1998 and 2031 in repayment of principal from the 26 HIPCs which have outstanding debts with the ECGD and which have agreed payment schedules. Cancelling these payments would cost the Exchequer less than £30 million per year. If, as the report suggests, some 80% of the debt is unrecoverable, then the cost to the Exchequer falls to a mere £6 million a year. "Clearly", remarks the House of Commons Library, "when set against the size of the general government expenditure, the effect on the Exchequer of cancelling sums owed to ECGD by the 26 Heavily Indebted Poor Countries (HIPCs) seems fairly insignificant and easily manageable."71

Words But Little Action

Pressure from environmental and development groups, particularly in the US, has led to ECA reform's now being placed firmly on the international policy agenda. The urgent need to reform the OECD's national ECAs, for example, was fully recognised at the Denver G7 Summit in 1997. The Final Communiqu_ for the Summit stated:

"Private sector financial flows from industrial nations have a significant impact on sustainable development worldwide. Governments should help promote sustainable practices by taking environmental factors into account when providing financing support for investment in infrastructure and equipment. We attach importance to the work on this in the OECD and will review progress at our meeting next year."72

Although the Final Communiqu_ of the May 1998 Birmingham G8 Summit failed to follow through with a further statement on ECA reform, the G8 Foreign Ministers addressed the issue in their own Ministerial Statement, arguing:

"Building on the efforts of the OECD on taking environmental factors into account when providing official export credits, we encourage further work by the OECD to this end and ask for a report back next year."73

More recently, the Environment Ministers of the G8 endorsed the need for ECA reform in the Ministerial Communiqu_ issued after their G8 preparatory meeting at Schwerin in March 1999, their Final Communiqu_ specifically calling for measures to "better integrate the environment dimensions into the work of international financial institutions and export credit agencies". Significantly, Paragraph 4 of the Communiqu_ stressed:

"Global competition should never become a race to the bottom in environmental protection. We will therefore use our best efforts to expedite international co-operation on establishment, general recognition and continual improvement of environmental standards and norms. This is not just a question of appropriate legally-binding international standards and norms; it also involves other instruments at international level such as voluntary environmental initiatives, agreements and codes of conduct, innovative and flexible approaches as well as greater attention to environmental performance, compliance and public reporting, for example in standardisation work by the International Standards Organisation (ISO) and other organisations. In this context we welcome UNEP's strengthened co-operation with the banking and insurance sectors. We welcome the new Environmental Handbook of the World Bank as a good starting point and call for a continuous application and improvement of these standards and encourage other public and private financial institutions to follow this example. We furthermore stress the need to apply environmental considerations to both domestic and foreign direct investments."74

Although welcoming "the work being done by the OECD with a view to strengthening procedures for taking environmental considerations into account in the operation of export credit agencies", the environmental ministers unanimously called for the ECA reform process to be strengthened:

"The progress achieved in international co-ordination during the past year is encouraging, but needs to be followed up. We agree that the OECD Export Credit Group should accelerate its work. The group should report to OECD ministers on a regular basis, including on general progress and on any progress attained on common agency action for specific projects."

Crab-Like "Progress"

The call for accelerated action is timely. Despite several years of discussion within the OECD Export Credit Group, little progress has in reality been made in reaching agreement on common environmental standards for ECAs. Regretfully, the UK has been at best lukewarm to the reform process, demonstrating no leadership within the OECD discussions and making a minimal contribution to the debate.

Negotiations have proceeded at a dilatory pace and have been crab-like in their direction, moving sideways rather than forward. In May 1998, for example, the Export Credit Group produced a Statement of Intent on Officially Supported Export Credits and the Environment. The statement has never been made public but is opaque in its language and limited in its content. For example, the statement commits ECAs to paying greater attention to environmental concerns when preparing their risk assessments. The statement of common intent is so weak and ambiguous that it can readily be interpreted as a call to examine the risks that the environment poses to a project's financial and technical viability (something which ECAs should in any case undertake as a matter of due diligence) rather than the risks that the project poses to the environment and to society.75 Such self-serving ambiguity inevitably calls into question the commitment of the ECAs to taking environmental concerns seriously. Although this criticism was raised within the Export Credit Group, the UK nevertheless proceeded to endorse with other Export Credit Group members a statement that is so vague as to be meaningless.

More recently, the Export Credit Group has adopted what it terms a "common line approach", under which ECAs participating in a common project have agreed to share information on environmental issues and to consider whether or not to undertake an environmental impact assessment (EIA). Such EIAs will not be mandatory in projects covered by the new agreement; the "common line" merely allows the participating ECAs to "consider" - the language goes no further than this - commissioning impact assessments. In addition, such impact assessments will be restricted to reviewing environmental issues: no account need be taken of wider social and sustainable development concerns.

Moreover, because the "common line" will only apply to a handful of projects at most, the vast bulk of the guarantees and export credits backed by ECAs will not be covered by the agreement. Critics also point out that there is not even a methodology for deciding which projects should be covered by the "common line". Furthermore, discussions on the projects will be informal, with no record being made available to the public - thus denying non-governmental organisations and project-affected groups the chance to comment. And the language, such as it is, refers only to environmental concerns, not to wider social and sustainable development concerns.

An Agenda for Reform

Addressing such policy incoherence is now a matter of urgent concern. At an international level, environmental and development groups in the OECD countries are pressing their governments to:

  • Extend the current reform process within the OECD's Export Credit Group to include Investment Insurance Agencies, such as the UK's Commonwealth Development Corporation, which is in the process of being semi-privatized;
  • Lay down a strict timetable for reaching an international agreement within the OECD on the adoption of common, mandatory environmental and development standards for all OECD Export Credit Agencies and Investment Insurance Agencies;
  • Stipulate World Bank and OECD DAC (Development Assistance Committee) standards as the minimum acceptable starting point for negotiations on such standards;
  • Require the OECD's Export Credit Agencies and Investment Insurance Agencies to introduce transparent procedures that would permit public access to information relevant to the environmental and development impacts of ECA-backed projects and require consultation with affected or interested parties.

Reclaiming the Public Interest

Within their own countries, many NGOs have gone further, insisting that the adoption of mandatory standards and more general measures to make ECAs accountable to the public should not wait on the outcome of discussions within the OECD. As public institutions, the operations of ECAs should serve the public interest, not simply the interests of private businesses. Making them accountable to the public, both in their home countries and in the countries where the companies they support are operating, is fundamental if they are to have a legitimate development role in the future. The same applies to those companies which are subsidised by the taxpayer. At the very least, they should be required to justify that support through a process that allows for public debate and scrutiny. There is also a strong case for building "stakeholder obligations" into any subsidy: if public money is invested, why should this not give the public a stakeholding?

In the UK, a wide range of development, human rights and environmental groups from Friends of the Earth to Campaign Against Arms Trade (CAAT) are now pressing for reforms that would bring the ECGD into the age of sustainable development. In particular, such groups are demanding that the UK takes immediate steps to require the ECGD to develop an Ethical Guarantees Policy, embodying a commitment to socially-just and environmentally-sound development, and to anchor that policy firmly in its Constitution. Key elements of such a policy might include:

Human Rights, Environmental and Development Standards

  • Mandatory human rights, environmental and development standards aimed, inter alia, at ensuring that projects
    • have the minimum impact on the environment;
    • safeguard the lives and livelihoods of those directly affected by ECGD-backed loans;
    • minimise the need for resettlement and ensure that those resettled are better off than prior to the project;
    • assess alternatives to the proposed project, including the option of the project not being implemented; and
    • ensure the full and active participation of affected people and interested groups in the decision-making process surrounding the project.

These standards should be consistent with, or higher, than those required by the World Bank and recommended by the Development Assistance Committee of the OECD. They should also fulfil the letter and the spirit of the UK's undertakings under those international agreements and conventions which it has ratified, such as the UN Covenant on Economic, Social and Cultural Rights; the UN Convention on the Rights of the Child; the UN Convention on the Elimination of Discrimination Against Women; the UN Climate Convention; the Kyoto Protocol; the UN Convention on Biodiversity; the Rio Declaration (on sustainable development); the Basle Agreement (on the transboundary movement of waste); the UNCTAD Rules for the Control of Restrictive Business Practices; and relevant International Labour Organisation (ILO) Conventions, such as those on Labour Conditions and Indigenous and Tribal Peoples.

  • Internal procedures, including career penalties and rewards, to ensure that inappropriate projects are screened out and that approved projects comply fully with agreed environmental and development standards.

Corporate Standards

  • A requirement on the ECGD to consider the past human rights, environment and development record of companies applying for ECGD credits and investment guarantees;
  • A requirement on UK companies receiving ECA support that they agree to meet the same environmental, labour and development standards in other countries as they would be expected to observe in the UK;
  • The cancellation of all cover to companies which have been proved to have been involved in bribery or corrupt practices;
  • A requirement on the ECGD to ensure that the contracts which it supports have been awarded through open tendering processes;
  • An end to ECGD support for non-productive projects and programmes, including arms exports and the export of equipment that could be used for military means or civil repression.

Transparency

  • Advance notification on pending applications, detailing the type of project, the amount guaranteed, the companies involved, the country involved and likely human rights, environmental and development impacts;
  • A requirement on the ECGD to make public all documents relevant to the human rights, environmental and development impacts of ECGD-supported projects and to make translations available in the languages of project affected people;
  • A presumption in favour of disclosure, with companies having to demonstrate commercial confidentiality before a document is withheld from public release;
  • A requirement on the ECGD to consult with affected communities and interested public interest groups prior to any decision being taken on approval of a project and to demonstrate how account has been taken of the issues raised.

Accountability

  • An independent procedure to hear and adjudicate on complaints received by the public over ECGD-backed projects, along the lines of the World Bank's Inspection Panel;
  • Legislation enabling those adversely affected by projects supported by the ECGD to sue in the UK and to have access to legal aid;
  • Measures to broaden the base of the ECGD's Advisory Council, by including those with an expertise in human rights, environment and development issues;
  • A requirement on the ECGD to report annually to the UK Parliament and for the government to hold a debate on the report.

Debt

  • An independent review of the ECGD's debt portfolio with a view to sharing financial responsibility for projects that were poorly conceived.
  • The writing off debts incurred through the moral hazard attendant on the use of export subsidies made available through the UK ECGD.

Appendix 1: The Dams

i) Three Gorges Dam, China

ii) San Roque Dam, The Philippines

iii) Maheshwar Dam. India

iv) Urucu Gas and Oil Project, Amazonas, Brazil

v) Paiton Power Project, Indonesia

i) Three Gorges Dam, China

The reservoir behind the proposed Three Gorges dam on the Yangtze River would drown an area the size of the Isle of Wight, submerging 13 cities, 140 towns and 1,352 villages. A minimum of 1.3 million people (latest estimates put the figure at 1.9 million) will be forced to relocate.

The dam is expected to cost at least US$43 billion - some unofficial estimates put the figure at $72 billion - and will create a reservoir 400 miles long.

In 1997, the US Export-Import Bank (Ex-Im) announced that it would not support the project because of a lack of information on the mitigation of environmental and social impacts. But the UK ECGD, along with the German, Swiss, French, Canadian, Norwegian and Swedish ECAs, all offered support.

Of these, Germany has approved 71.41 million Deutschemark (DM) in export credits for the German engineering giant, Siemens AG, and the turbine manufacturer Voith Hydro, in addition to 485 million DM in guarantees for KfW, Dresdner Bank and Deutsche Bank and DG-Bank; Switzerland provided guarantees of SF211 million to ABB and Sulzer Escher-Wyss; and Canada a $12.5 million loan to enable Calgary-based Agra, Inc. to secure its first contract and, subsequently, $153 million in support of a turbine contract awarded to General Electric Canada.

Bribery and corruption are reported to beset the project, according to local farmers who claim they are being cheated of government resettlement funds. In one township, peasants petitioned the central government in protest against officials extorting fees and pocketing resettlement money. By the end of 1998, 95 officials had been brought to court on charges ranging from embezzlement to corruption and bribery.

Critics also charge that the land available for resettlement has been underestimated by the Chinese authorities - and that what land is available is unsuitable for farming. The Chinese Academy of Sciences has also voiced concerns that the pollution in the Yangtze river, described as the biggest "sewer system" in China, will be seriously exacerbated because the dam would reduce the flow of the river and hence its flushing capacity.

Sources: "Three Gorges Dam, China" in Berne Declaration et al., A Race to the Bottom, Environmental Defense Fund, Washington, March 1999, p.7.

ii) San Roque Dam, The Philippines

The San Roque hydropower and irrigation project in the Cordillera region of the Philippines is the last in a series of three dams on the Agno river which, over 45 years, have severely disrupted the lives, economy and environment of the region's Ibaloi people.

The dam is opposed by thousands of Ibaloi people who stand to lose their homes and land if the dam goes ahead. Over 925 families would be displaced, and tens of thousands living downstream would face impacts to their livelihoods due to erosion and the destruction of fisheries.

JEXIM, the Japanese equivalent of the UK ECGD, is currently supporting the project and has already approved a $302 million loan for the San Roque Power Corporation - a joint venture between Marubeni, Kansai Electric (both Japanese companies) and Sithe Energies (a US company) - and is considering a further $400 million of support. Although environmental and social impact assessments have been undertaken for the project, JEXIM has refused to make them available to those affected by the project or to NGOs in Japan.

Recent changes to Philippine law have recognised the right of local communities and indigenous peoples to veto destructive projects. Yet according to opponents of the dam, local opinion has not only been ignored but cynically misrepresented. JEXIM, for example, has been told by the Filipino authorities that the project has the necessary local support, despite affected communities being strongly opposed.

Local indigenous groups accuse the government and the companies of using patronage and the promise of future government development grants for the area to engineer the region's municipal authority into consenting to the project. Although the Itogon Municipal Council at first opposed the dam, it is now split on the issue, following a visit by the then President of the Philippines, Fidel V. Ramos, and officials from Marubeni. In a statement condemning the Council, the Cordillera Peoples' Alliance charges:

"In order to protect their personal interests as bureaucrats and traditional politicians, the Municipal Council has succumbed to the bribery of the national government in the amount of Peso 50 million in infrastructure projects. This they have done in [betrayal of] the basic rights of their constituency, whose lives, land and livelihood are now endangered by the dam project. The Council has reduced the issue to money matters as if this were the only way to govern. This is an outright misrepresentation of the peoples' interests."

Lorenzo Demot of the Council of Elders of the Shalupirip Santahnay Indigenous Peoples' Movement also points out that claims of support for the dam amongst those who will be resettled are highly misleading. Most residents in the area, he claims, are tenants who are afraid to voice their opposition publicly because they do not own the land they are tilling and living on. In many cases, their landowners support the project or have agreed to sell their land to the company.

JEXIM is currently merging with Japan's bilateral aid agency, the Overseas Economic Co-Operation Fund (OECF), to form a new institution, as yet unnamed. This institution will be the world's largest single source of public financing for infrastructure projects and other investments in low-income countries, dwarfing even the World Bank.

The Ibaloi are seeking international support for their struggle against the dam. "We are determined to fight against the project to the limit of our capacity", says a statement issued in September 1998. "We will not be a party to our own death."

Sources: A Statement of the Cordillera Peoples' Alliance on the Recent Itogon Municipal Council's Endorsement of the San Roque Multi-Purpose Dam Project, 27 January 1999; "San Roque Hydro and Irrigation, Philippines" in Berne Declaration et al., A Race to the Bottom, Environmental Defense Fund, Washington, March 1999, p.9.

iii) Maheshwar Dam, India

Part of the Narmada Valley Development Project, which consists of 30 large and 135 medium-sized dams, the Maheshwar dam in Madhya Pradesh threatens to flood the lands of 61 villages. Environmental clearance for the dam, which is being developed by S. Kumars Power Corporation Limited (an Indian textile company with no previous experience of dam building), was refused in 1986 by India's Federal Ministry of Environment and Forests and received only conditional clearance in 1994.

Villagers in the area affected by the proposed dam have received almost no information regarding the project. Moreover, the resettlement plan is seriously flawed: the company claims, for example, that only 13,687 people will be affected when the actual figure is closer to 20,000. In addition, a recent study by the Tata Institute of Social Sciences has revealed that most of the land identified for resettlement will be submerged by the dam's reservoir.

In 1998, a construction site occupation by more than15,000 opponents of the dam and subsequent hunger strike by five villagers led to work on the site being stopped and the state government agreeing to a total review of the project. After the government broke its promise and allowed construction to resume, the site was again occupied numerous times in peaceful demonstrations. During the last occupation in March 1999, the police used tear gas to disperse protesters and arrested 700 people.

In 1997, the German Export Credit Insurance Agency, Hermes, made an "in-principle" decision to guarantee 85 per cent of an export loan from the Bayerische Vereinsbank (now Hypovereinsbank) for the purchase of turbines and other equipment from Siemens, the German construction company, for the $3 billion project. Two German power companies, Bayernwerk and VEW, subsequently applied for investment insurance from the German government for their involvement in the dam, but in 1999, after widespread public protest, withdrew from the project. The two companies would, together, have acquired a 49% stake in the dam. German NGOs fear that other Northern companies will be approached to take Bayernwerk's and VEW's place. If so, they warn, other ECAs such as the UK ECGD could well become involved.

Hermes has yet to decide whether or not it will approve the export credit for the Siemens equipment. The initial "in-principle" decision has now become void. Should Siemens be awarded the contract to supply the turbines for the dam, it is committed to taking a 17% non-voting share in the project. Other European companies still involved in the dam include ABB, which is to provide generating equipment.

Sources: Schucking, H., The Maheshwar Dam in India: A Report, Urgewald, March 1999; "The Maheshwar Dam" in Berne Declaration et al., A Race to the Bottom Creating Risk, Environmental Defense Fund, Washington, March 1999, p.5.

iv) Urucu Gas and Oil Project, Amazonas, Brazil

Japan's Export-Import Bank (JEXIM) is underwriting a $64 million loan for the construction of the $1.5 Urucu Gas Processing Plant in western Amazonia, Brazil. The plant will supply gas to the cities of Manaus and Porto Velho via two pipelines that will cut through some 500 kilometres of the least disturbed rainforest in the region.

The JEXIM-backed gas plant is key to the expansion of the Urucu oil field, now being developed by Petrobras, the Brazilian State oil company. The main use of the gas and oil will be for additional electricity generation in Manaus and Porto Velho, where there is currently no unmet demand for electricity and where future energy needs could be supplied by several less economically- and environmentally-costly alternatives.

The pipelines will be buried underground. However, laying and maintaining the lines requires the opening of a 15-30 metre-wide road along their entire length, posing a major threat to the forest and its peoples. As the US-based Environmental Defense Fund (EDF) points out, "No other single factor more clearly leads directly to deforestation, uncontrolled migration and the invasion of existing protected areas in the Amazon than the opening of new roads." Already construction activities along the pipeline have led to increased prostitution, disease (including the rapid spread of AIDS), violent crimes, domestic violence and drug abuse.

The first stage of pipeline construction, completed in 1998, has already severely undermined the livelihoods of poorer people living along the Urucu and Solimoes Rivers. The pipeline blocked three streams formerly used by communities for drinking water, bathing and washing manioc (the staple food of the area and a major source of income). According to EDF:

"Drinking water had to be brought from a considerable distance. Various other creeks used by local people along the Urucu River were silted up or rendered inaccessible by the pipeline. Fish populations are said to have fallen dramatically in the Urucu."

Source: "Urucu Gas and Oil Project, Amazonas, Brazil" in Berne Declaration et al., A Race to the Bottom Creating Risk, Environmental Defense Fund, Washington, March 1999, p.13.

v) Paiton Power Project, Indonesia

Finance for the massive Paiton 1 and Paiton 2 coal-fired power complex in Java, Indonesia, has been guaranteed by a number of ECAs, including JEXIM, US Ex-Im, OPIC and Hermes. The UK's Barclays Bank was one of eight banks which syndicated the loan for the Paiton 1 project and the West Merchant Bank is reported to be heavily involved in financing Paiton 2, with Prudential Assurance providing debt cover for the project. Power Gen, the UK energy utility, has a 35% share in Paiton 2.

The bid to build and run the Paiton 1 project was won by Mission Energy-General Electric, a joint venture which had the backing of President Clinton, former Vice-President Dan Quayle, and such Washington insiders as Ron Brown, Robert Rubin, Warren Christopher and Henry Kissinger.

In December 1998, the Wall Street Journal reported a series of corruption scandals associated with Paiton 1. According to the head of Indonesia's state owned power company, PLN, "the US power companies dictated terms to us because they had Indonesia's first family behind them". Not only was PLN required to use coal from a company owned by Hashim Djojohadikusumo, a relative of President Suharto, and Agus Kartasasmita, brother of the then-Minister of Mines, both of whom were partners of Mission-GE. In addition, Mission-GE insisted that PLN agree to pay an extremely high price for the electricity it purchased from the Paiton plant. The final electricity tariff was set at 8.6 cents per kilowatt-hour of electricity, 32% higher than comparable tariffs in Indonesia and 60% higher than in the Philippines.

Ex-Im officials were told by government officials and by PLN staff that they did not want and could not afford the plant, but that they were powerless to challenge the project as it had the backing of the President. Since the overthrow of Suharto, and following the economic crisis, PLN has told Mission-GE that it will not buy any electricity from the Paiton 1 plant when it goes on line in 2000.

Source: Soentoro, T. and Fried, S., "Export Credit Agency Finance in Indonesia", in Berne Declaration et al., A Race to the Bottom Creating Risk, Environmental Defense Fund, Washington, March 1999, p.27.

Appendix 2: Dams, Arms, Nukes, Dirt and Smog: Britain's Discredited Credits

In the last 10 years alone, the UK Export Credits Guarantee Department (ECGD) has backed numerous projects with severe adverse environmental and social impacts - from dams to mining operations and arms deals. Despite protestations of reform, the ECGD is still financing, or considering financing, many destructive projects whose environmental and social costs will be borne mainly by affected communities and poorer sections of society.

Dams

Ilisu Hydroelectric Project, Turkey

The UK ECGD is one of several ECAs (the others being those of Germany, Italy, Japan, Portugal, Sweden, Switzerland and the US) which are considering support for the controversial Ilisu Dam in Turkey. If approved, ECGD support would provide a £200 million investment guarantee for Balfour Beatty, the UK company which will be the lead contractor in the project. Switzerland has already given its approval for an ECA-backed guarantee of SF470 million for two Swiss companies, ABB Power Generation Ltd. and Sulzer Hydro, which will supply the electromechanical equipment for the dam. Other European companies involved in the $1.52 billion project include Italy's Impregilo and Sweden's Skanska. The Swiss bank UBS is arranging finance for the project.

The proposed dam is on the Tigris River, 40 miles upstream of the Syrian-Iraq border. The dam would flood 52 villages and 15 small towns and require the forcible relocation of 15,000-20,000 people, mainly Kurds. The exact number of affected people is unknown. There have been no consultations with those who would be relocated.

Moreover, with the Turkish State engaged in a brutal, undeclared war in the region against the Kurdistan Workers' Party (the PKK), which seeks self-determination for the Kurds, local people are afraid to voice their concerns. The war has already killed 15,000 people and laid waste to more than 3,000 villages in "anti-terrorist operations". Draconian laws have also been introduced to stamp out the Kurds' identity: it is currently illegal to teach the Kurdish language or to give a child a Kurdish name. Hundreds of thousands of Kurds have fled the repression by migrating to neighbouring countries or to the West.

Many see the Ilisu dam - which forms part of the massive $32 billion Southeastern Anatolian Project (GAP) programme - as motivated primarily by the Turkish Government's desire to bring the region, home to 13 million Kurds, under full Turkish control. The Turkish Government, however, argues that the dams are needed to irrigate thousands of hectares of farmland and to generate electricity.

No rehabilitation plans for those who would be ousted by the project have yet been adopted. In other dam projects in the area (such as the Ataturk dam), only landowners have been compensated for resettlement: landless families have been left to fend for themselves.

There are also concerns that Turkey will use the 22 dams being built under the GAP programme to exert political pressure on Syria and Iraq by restricting the flow of the Tigris to the two downstream states, both of which rely on the river for drinking water, irrigation and electricity generation. The spare storage capacity of Ilisu's planned reservoir alone would be sufficient to block the flow of the River Tigris for, on average, two to three months. Syria has protested to Britain over its involvement in the dam. A report by the UK Defence Forum, a think-tank which advises the government on regional risks, has also warned that the project could involve Britain in armed conflict between Syria, Turkey and Iraq over the right to water from the Tigris.

Although the Swiss government commissioned an environmental impact assessment of the project, the report has never been made public. The EIA is understood to have highlighted the problems with resettlement. According to reports in the national British newspaper, The Guardian, Balfour Beatty has said that it is too early for anything but preliminary assessments to have been made and that they should not be published.

With the electricity generated by Ilisu costing an estimated $1300 per kilowatt (kW), argues the Swiss-based Berne Declaration, "the Ilisu project will be considerably less cost-efficient than modernising Turkey's notoriously wasteful power transmission system."

Nathpa Jhakri Hydro Electric Power Project, India

UK ECGD support for the 1500 MW Nathpa Dam on the Satluj River in Northern India was agreed in 1996. The dam is being built by the Nathpa Jhakri Power Corporation Ltd, a special purpose company jointly owned by the Indian central Government and the state Government of Himachal Pradesh. The ECGD is providing a £22.85 million guarantee for a loan by Barclays Bank plc to Kvaerner Boving, the lead contractor for the project. The project was also financed by $437 million loan from the World Bank, but the Bank withdrew after the Indian Government admitted that it had made crucial errors in calculating the height of the dam. Concerns over the rising costs of the project, time overruns and industrial unrest at the project site were also believed to lie behind the Bank's withdrawal. By the time the Bank withdrew, however, $300 million of its loan had been spent.

The miscalculation of the dam's height means that the dam will only be able to generate its peak output for half the time originally projected - 1.5 hours a day as against 3 hours. The dam will therefore fail in one of its prime objectives: helping to meet peak demand in the region. The Himachal Pradesh Government has vetoed the idea of allowing the project developers to raise the height of the dam because they now fear that to do so would inundate the head-race tunnel of the already existing 250 MW Sanjay Bhaba dam upstream.

The project was expected to be commissioned by December 1998 but is running four years behind schedule. The cost has risen from an estimated $1 billion in 1988 to about $1.7 billion despite a worldwide fall in power equipment prices worldwide. As a result, the cost of electricity from the dam is expected to almost double - from Rs 1.22 per kilowatt/hour (Kwh) to Rs 2.29 per Kwh. In May 1999, with the project reported to be facing "an acute financial crunch", the Power Finance Corporation of India sanctioned a loan of Rs.1118 crore for the dam.

Arms

In 1996, the ECGD agreed to underwrite a £280 million guarantee on the sale of 16 Hawk jets to the Indonesian Airforce. The deal followed an earlier ECGD-backed sale of 24 Hawks to Indonesia in 1993.

The then Conservative administration claimed that the Hawks, supplied by British Aerospace, were simply training aircraft and that they had assurances from the Indonesian authorities that they would not be used for internal repression.

Yet numerous eyewitnesses have reported seeing Hawks in action against villages in East Timor, where the Indonesian armed forces were engaged in a brutal war to crush popular resistance to Indonesian rule. Robin Cook, now UK Foreign Secretary, stated in the House of Commons in 1994: "Hawk aircraft have been observed on bombing runs in East Timor in most years since 1984." The same year, East Timorese leader, now Nobel laureate, Jose Ramos-Horta said:

"Hawk aircraft have been used extensively in the last three months, mostly in the eastern region with an average of six sorties a day, each bombing raid lasting 10 minutes with the launching of two missiles each."

The export licence for the 16 Hawks was announced in November 1996, but delivery of the aircraft only started in April 1999, almost two years after New Labour announced its commitment to an "ethical foreign" policy. Since the election of New Labour in May 1997, arms sales to Indonesia have continued at the same rate as under the Conservatives. In the period 1 May 1997 to 31 December 1998, 92 licences were granted for a range of equipment needed to upgrade Indonesia's military capability.

Indonesia is just one of several countries with repressive regimes to which Britain has supplied ECGD-backed arms sales. The ECGD typically issues over £3 billion worth of policies a year: over the last decade, an average 27% of this support has been for defence-related equipment. Nearly 55% of the ECGD's defence portfolio goes to the Middle East and 38 per cent to Asia. The bulk of military cover is for aircraft (58.2%), vehicles (23%), radar and radios (12%) and ancillary equipment (6%).

Many of the arms deals backed by the ECGD have resulted in heavy losses - losses which must be met by the debtor countries. UK citizens have also subsidised many past deals through taxpayers' money being used to provide concessional interest rates.

Recent loss-making ECGD-backed arms contracts include: £96 million for a contract in Egypt; £15 million for an arms deal in Jordan; and 63 million for defence equipment to Algeria. In all three cases, the government has refused to disclose the nature of the equipment supplied.

Although the New Labour government has pressed for ECAs internationally to agree not to support "non-productive" investments, which would include arms sales, it has baulked at taking meaningful unilateral action. Thus, although New Labour has pledged not to provide export credits for non-productive expenditure to Heavily Indebted Poor Countries (HIPC), only two HIPC countries are currently listed as eligible for export credit cover: the pledge is one that will therefore have little impact on the arms industry.

Nuclear power plants

Although the nuclear power industry in Britain is virtually dead, not least because of public concern over safety and the reluctance of the private sector to shoulder the financial risks of dealing with nuclear wastes, the ECGD is backing nuclear power stations in China.

Support has already been given for the Daya Bay nuclear plant being built by Framatome, Electricit_ de France and Alcatel-Alstrom, and, in March 1999, the ECGD announced that it would underwrite a $56 million loan from HSBC Investment Bank plc for work on a nuclear plant at Quishan. The work will be undertaken by Bechtel Limited, the UK subsidiary of the US construction giant Overseas Bechtel Inc.

China is planning a major expansion of its nuclear power programme, with plans to build more than 50 reactors by the year 2020. Most of these will be constructed by Northern-based companies - much to the relief of the North's beleaguered nuclear industry, which has undergone virtual meltdown since the heyday of nuclear power prior to the Three Mile Island accident in 1979. In the US, not a single new order for a nuclear station has been placed since 1979. As Christopher Flavin and Nicholas Lenssen of the Worldwatch Institute comment:

"Global nuclear capacity stands at 343,086 MW, providing just under 17 per cent of the world's electricity." This is less than one tenth of the 4,500,000 MW predicted by the US Atomic Energy Authority in 1974.

According to Flavin and Lenssen: "Nuclear power's biggest problems are economic. It is simply no longer competitive with other, newer forms of power generation. The final 20 US reactors cost $3-4 billion to build, or some $3,000 to $4,000 per kilowatt of capacity. By contrast, new gas-fired combined cycle plants using the latest jet engine technology cost $400-600 per kilowatt, and wind turbines are being installed at less than $1,000 per kilowatt."

Without the export subsidies provided by ECAs like the ECGD, the nuclear industry in the North would probably have been forced to diversify out of nuclear power and into other safer and more economic forms of energy. Such alternatives could well benefit the South: as it is, however, Southern countries are being fobbed off with yesterday's technologies to meet tomorrow's energy needs.

Mining

Alumbrera Mining Project, Argentina

The UK ECGD is part of an ECA consortium, headed by Australia's Efic (Export Finance and Insurance Corporation), which is underwriting the finance for the $1 billion Alumbrera copper and gold mine in Argentina, one of the largest mines in the world in terms of output. Other agencies include Canada's EDC (Export Development Corporation), Belgium's OND (Office National du Ducroire), Germany's KfW (Kreditanstalt fur Wiederaufbau) and the World Bank's MIGA (Multilateral Investment Guarantee Agency).

The mine, which began operations in October 1997 and reached full design capacity in February 1998, will produce three million tonnes of mined and worked copper and gold each year, yielding 600,000 tonnes of copper concentrate and 640,000 ounces of gold. Copper and gold concentrate will then be transported through a 230-kilometre pipeline to Tucuman. The mine, which will be run for 20 years, is jointly owned by the Argentine government and the University of Tucuman. The fall in gold prices is affecting financing for the project, which is also behind schedule.

The mine is operated by two Australian companies, MIM and North, and a Canadian company, Rio Algon (which is involved in uranium mining and the mining of copper on Native lands in the United States). Rio Algon has been embroiled in controversy in Wisconsin where opposition to its mining activities has been a key factor in the state drawing up tougher new mining laws.

There is a royalty dispute over the Alumbrera mine. The regional government wants three per cent royalties, but the mining companies, supported by the Argentina government, refuse to pay royalties until earnings have been sufficient to cover initial capital outlays.

Gold mines, such as Alumbrera, are highly damaging to the environment and have wrought havoc on the livelihoods of many communities, polluting local waterways with mercury-laced tailings, eroded land and acid mine wastes. Such environmental destruction has often been coupled with human rights abuses.

Appendix 3: Who Gets the Credit?

The ECGD lists the following companies are listed as "the top ten main contractors receiving export credit guarantees"

1995/1996

1. British Aerospace

2. GEC

3. Water Projects International

4. Babcock

5. BICC

6. APV (UK) Ltd

7. Amec

8. Rolls Royce

9. Rediffusion Simulation

10. Weir Group

1996/1997

1. British Aerospace

2. M. W. Kellogg

3. Rolls Royce

4. Aero International

5. Foster Wheeler

6. Joy Mining Machinery

7. Alvis

8. Nokia Telecoms

9. Babcock

10. Amec

1997/1998

1. British Aerospace

2. Chiyoda-Foster Wheeler

3. Taylor Woodrow/ Skanska Joint Venture

4. Marconi Avionics

5. Matra BAe Dynamics

6. VAI Industries

7. AMEC International

8. Balfour Beatty

9. Rolls Royce

10. Kvaerner Cleveland Bridge

Notes and references

1 Department for International Development, Eliminating World Poverty: A Challenge for the 21st Century, White Paper on International Development, The Stationery Office, London, November 1997, p.50.

2 Ibid, p.50.

3 Briskoe, J., The Financing of Hydropower, Irrigation and Water Supply Infrastructure in Developing Countries: A Background Paper for the UN Commission on Sustainable Development, World Bank, Washington DC, 1998, p.13.

4 Berne Declaration, The Ilisu Hydroelectric Project, Turkey: A Test Case of International Policy Coherence, Zurich, November 1998.

5 Letter from Friends of the Earth UK and others to The Secretary of State for Trade and Industry, 11 May 1999.

6 Cook has since denied that he was in fact announcing an "ethical foreign policy". In November 1998, he said, "I've given up trying to get this across. I've never used the phrase. I never said there would be an 'ethical foreign policy'. What we have sought to do is put into effect our values." See Killing Secrets, A Force for Good in the World? Labour's Ethical Policy, Killing Secrets Information Paper, killsecrets@msn.com

7 Quoted in Department of Trade and Industry, Strategic Export Controls: White Paper, The Stationery Office, London, 1998, p.5.

8 225 standard licenses were granted and 14 refused (6%) between 1 January 1994 and 30 April 1997. From 1 May 1997 to 31 December 1998, 76 standard licenses were granted and 7 were refused (8%).

9 Annually, some 20% of the ECGD's business involves defence contracts. In January 1999, the ECGD's exposure for defence-related equipment in Indonesia alone was £760 million. See Hansard, col 509, 20 January 1999.

10 Quoted in Department for International Development, op. cit.1, p.53.

11 Ibid, p.53.

12 Final Communiqué of G8 Environment Ministers, Schwerin 26-28 March 1999.

13 The $2.2 billion Shandong Power Project is the largest "independent" power project in China to date. The UK ECGD has extended 100% commercial and political risk cover for a 12-year facility to support a $330 million contract awarded to Mitsui Babcock Energy. ECGD underwrote some $228 million to finance the order, with Greenwich NatWest acting as the ECGD facility agent. See "Selecting the Best", Project Finance, November 1998, p.34.

14 The UK ECGD has guaranteed the UK portion of a contract between Huaneng Power International and a consortium comprising Babcock Energy of the UK, Sargent & Lundy Engineers of the US and Westinghouse Electric of the US.

15 See Annual Reports and Trading Accounts for the Export Credits Guarantee Department and the Department for International Development, The Stationery Office, London. The ECGD typically issues some £3-4 billion worth of guarantees and export credits a year. The Department's total global risk exposure in 1998 was £23.1 billion. See Export Credits Guarantees Department, Home Page, www.open.gov.uk/ecgd/ecgddata/about.htm, accessed 18 March 1998; Peel, M., "ECGD expects a rise in claims from exporters hit by turmoil", Financial Times, 18 December 1998.

16 Export credits and investment insurance guarantees issued by ECAs are, almost without exception, themselves underwritten by sovereign guarantees issued by the importing country. In January 1999, Britain's ECGD departed from this arrangement when, for the very first time, it supported finance for contracts awarded to a British firm without a sovereign guarantee. The contract was for power generating equipment to be supplied to Bilkent University by Rolls Royce and Allen Steam. See "UK firms win export credit boost", Middle East Economic Digest, Reuters Textline, 28 January 1999.

17 Klein, N., "A chance to practice what we preach", The Toronto Star, 28 January 1999.

18 Quoted in Killing Secrets, ECGD: The Export Credit Guarantee Department, Killing Secrets, 1998, killsecrets@msn.com.

19 Export Credits Guarantees Department, Home Page, www.open.gov.uk/ecgd/ecgddata/about.htm, accessed 18 March 1998.

Update: In 2010, the operating name of the Export Credits Guarantee Department changed to UK Export Finance. The equivalent web link is now:

www.gov.uk/government/organisations/uk-export-finance/about.

20 See "Taking the Credit", Project Finance, November 1998, p.29. As Project Finance notes: "The agencies have had a tough press in recent years. A couple of years ago, financiers even questioned their relevance. And emerging market benchmark deals were characterized by their lack of export credit involvement. Many claimed that the agencies were too bureaucratic, too unresponsive and needed to evolve. In its [sic] place, we saw increasingly high-profile deals which incorporated bonds and loans with a minimal amount of guarantees and supports. In hindsight, bankers and sponsors realise they went too far ... The export credit agencies are back in fashion." Such was the poor reputation of ECAs in government and business finance circles in the late 1980s that the UK Government considered closing down the long-term insurance activities of Britain's Export Credit Guarantee Department. In 1986, only eight agencies in the OECD reported a profit on their insurance business. The rest, including those from the biggest exporting nations, turned in big losses. See Montagnon, P., "MPS oppose dismantling of ECGD's credit role, Financial Times, 14 December 1989.

21 Rich, B., Export Credit Agencies: The need for more rigorous, common policies, procedures and guidelines to further sustainable development, Background memorandum for presentation before the OECD Trade Directorate Working Party on Export Credits and Credit Guarantees, Paris, 17 November 1998, p.5, citing Boote. A. and Ross, D.C., Official Financing for Developing Countries, International Monetary Fund, Washington, DC, February, 1998, p.13.

22 Rich, B., Memorandum: Export Credit and Investment Insurance Agencies - The International Context, Environmental Defense Fund, 1998, p.1.

23 Van Voorst, M., Debt-creating aspects of export credits, Eurodad, August 1998, p.1; Rich, B., op. cit 22, p.1, citing Export-Import Bank of the United States, Report to the US Congress on Export Credit Competition and the Export-Import Bank of the United States, July 1997, p.8.

24 Rich, B., op. cit. 22. See also World Bank, Global Development Finance 1998, Analysis and Summary Tables, World Bank, Washington DC, March, 1998, p.58.

25 Rich, B., op. cit. 22.

26 Schucking, H., "Turning up the Heat on Export Credit Agencies", Development Today, (forthcoming), 1999.

27 Coyle, D., "After the Crisis, Private Lenders Close the Purse", The Independent, 26 April 1999. See also Institute for International Finance, Report of the Working Group on Financial Crises in Emerging Markets, January 1999, www.iif.com/public.htm.; Institute for International Finance, Involving the Private Sector in the Resolution of Financial Crises in Emerging Markets, April 1999, www.iif.com/public.htm.

28 Lyons, R., "Providing a Vital Bridge", Trade Finance, May 1999, p.13.

29 See Ganzi, J., Seymour, F., Buffet, S. with Dubash, N.K., Leverage for the Environment: A Guide to the Private Financial Services Industry, World Resources Institute, Washington, D.C., 1998, p.12. The authors note that "One of the objectives of the corporate borrower in the structuring of project finance is to limit or eliminate the recourse nature of a project - the direct liability of the corporate sponsor in the event that the borrower defaults. So called 'non-recourse' financing limits the potential liabilities of a project finance deal to the project itself and provides no obligation for the sponsoring corporation to repay the debt if the project fails."

30 Stephens, M., "A new challenge for insurers", Project Finance, November 1998, p.38. According to IFR Project Finance International, the value of loans and bonds raised for projects and not backed by official guarantees rose by 53% to $27.1 billion in 1995, compared to $17.7 billion in 1994. As the World Bank points out, however, "it seems probable that the great majority of large loan syndications have been covered by export credit agency guarantees." See Rich, B, Export Credit Agencies: The need for more rigorous, common policies, procedures and guidelines to further sustainable development, Environmental Defense Fund, Washington DC, February 1999; Lapper, R., "Risks grow as markets expand", Financial Times Survey: International Project Finance, Financial Times, 3 December 1996.

31 Quoted in Spence, A. and Godier, K., "Multilaterals and ECAs: Powerful sources of support", Financial Times Survey: International Project Finance, Financial Times, 3 December 1996. Spence and Godier comment: "Stand-alone private project financing may well, in some circumstances, be the most appropriate funding mechanism for infrastructure and other schemes in the industrialised countries. But when it comes to developing countries, commercial banks and private investors still find themselves dependent, to a greater or lesser extent, on two powerful sources of official support national export credit agencies (ECAs) and multilateral development banks."

32 Quoted in Malhotra, A., "Private Participation in Infrastructure: Lessons from Asia's Power Sector", Finance and Development, December 1997.

33 The World Bank group offers investment insurance through its Multilateral Investment Guarantee Agency (MIGA), in addition to direct project funding through the International Finance Corporation (IFC). A number of regional development banks, such as the Inter-American Development Bank, the Asian Development Bank and the European Bank for Reconstruction and Development, also provide guarantees. 1n 1995, the World Bank group and other development agencies co-financed, insured or guaranteed 10% of all private direct investment in the developing world. However, the MDBs are seen by many in industry as unduly bureaucratic. See van Voorst, M., op.cit. 23; World Bank, Global Development Finance, Vol.1: Analyses and Summary Tables, Washington, D.C., 1998, pp.60-61; Spence, A. and Godier, K., op. cit. 21.

34 For many years, social and environmental considerations were almost entirely ignored in assessing World Bank projects. Public pressure, prompted by growing disquiet over the impacts of Bank projects, has since led to the introduction of new guidelines for projects. However, as the US-based International Rivers Network notes: "While this represents a step forward ... the EA [environmental assessment] process has been reduced to a largely rubber stamp function in the Bank's deliberations. Contrary to stated Bank policy which requires that the 'EA should form part of the overall feasibility study so that the EA's findings are directly integrated into project design', EAs are routinely prepared after technical feasibility studies are complete and are used instead to identify areas for mitigation. In other words, the approval of the project is assumed and EAs are concerned only with minimizing the potential impacts." See Sklar, L. and McCully, P., Damming the Rivers - The World Bank's Lending for Large Dams, International Rivers Network, Working Paper 5, Berkeley, 1994.

35 As the Bank's own Operations Evaluation Department (OED) recently acknowledged: "Unfavourable experiences with resettlement, and the attendant public outcry, may lead governments to eschew investments in large-scale water storage." See World Bank, Learning from Narmada, OED Precis, May 1995.

36 Many in the Bank now believe that "a 'phased withdrawal' of official development assistance from the hydropower sector has started."See Briscoe, J., op. cit. 2.

37 Spence, A. and Godier, K., op. cit. 31.

38 "Taking the credit", Project Finance (special Section on Export Credit Agencies), November 1998, p.29.

39 Final Communiqué of the G7 Leaders, G7 Summit, Denver, Colorado, 1997.

40 According to the Department of Trade and Industry, "The ECGD is aware of the OECD Guidelines for Multinational Enterprises but it is not part of its normal underwriting procedures to assess compliance with these." Hansard, Written answer to Parliamentary Question 98/1420, 22 March 1999.

41 Export Credits Guarantee Department, Annual Report and Trading Accounts 1996/97, The Stationery Office, London, 1998, p.2

42 Hansard, Written answer to Parliamentary Question 98/1419.

43 Quoted in Geary, K., Europe/Mekong Advocacy Research Project, October 1997.

44 Letter from Holmes, J., Principal Private Secretary, Prime Minister's Office, 12 May 1998. The Department of Trade and Industry has since announced that it is "undertaking further work ... to determine the best means of further enhancing its policies and procedures and of raising the awareness of UK exporters, investors and overseas buyers on its approach to environmental issues." No UK NGOs have been consulted and the Department has said only that it will place "relevant documents" in the House of Commons Library, where they would be available to MPs but not the general public. See Hansard, Written Answers, 11 February 1999, column 411.

45 Hansard, Written Answers, 11 February 1999, London, 1999, p.410, col.2.

46 Brown, P., "Britain backs controversial dam", The Guardian, 1 March 1999.

47 Hansard, Written answer to Parliamentary Question PQ 98/1421, 15 March 1999.

48 ECGD Press Release, "Five New Members Appointed to the Export Guarantees Advisory Council", 20 February 1997, www.coi.gov.uk/coi/depts/GEC/coi685c.ok

49 It is understood that no council member has ever excused themselves from deliberations, although declarations of interest to the chair have been made on occasion.

50 Norlen, D. and Durbin, A., "History of the Establishment of Environmental Policies at US Bilateral Finance Institutions", Pacific Environment and Resources Center/Friends of the Earth US, Washington D.C., 1999.

51 Ibid

52 Knight, D., "Increased Lending for Destructive Projects", IPS, 23 February 1999.

53 Quoted in "The Bank of Boeing", The Washington Times, 25 February 1999.

54 Quoted in "The Bank of Boeing", The Washington Times, 25 February 1999.

55 Case material drawn from "ECAs in Siberia and the Russian Far East" in Berne Declaration, Bioforum, Center for International Environmental Law, Environmental Defense Fund, Eurodad, Friends of the Earth, Narmada Bachao Andolan, Pacific Environment and Resources Center, Urgewald, A Race to the Bottom Creating Risk, Generating Debt and Guaranteeing Environmental Destruction: A Compilation of Export Credit and Investment Insurance Agency Case Studies, Environmental Defense Fund, Washington, March 1999.

56 Wysham, D., OPIC, EX-IM and Climate Change: Business as Usual An Analysis of OPIC and EX-IM Support for Fossil Fueled Development Abroad, 1992-98, Institute for Policy Studies, Friends of the Earth and the International Trade Information Service, April 1999.

57 Wysham, D. and Sherry, C., "Comments submitted on the Overseas Private Investment Corporation's Environmental Guidelines", Institute for Policy Studies, June 1998. See also Wysham, D., op. cit. 56.

58 Wysham, D., op. cit. 56.

59 IPS notes: "In Indonesia, the two agencies committed a combined $1.47 billion in support of the 4,920 MW Paiton coal-fired power complex, despite Indonesia's massive proven gas reserves. OPIC later matched its record-breaking assistance package for this Indonesian burner in support of a coal-fired power station in Morocco, the biggest private power project in Africa near where a 50MW wind farm was being developed." See Wysham, D., op. cit. 56.

60 Soentoro, T. and Fried, S., "Export Credit Agency Finance in Indonesia" in Berne Declaration et al., op. cit 55, p.28.

61 A 1994 commissioned by Eurodad identified five principal causes of ECA-generated debt: excess flows, inappropriate projects, design weaknesses, overpriced goods and corruption. See Fues, T., "Reforming Export Guarantee Systems: Challenges Ahead for Northern NGOs", study commissioned by Eurodad, August 1994.

62 Van Voorst, M., "Debt-creating aspects of export credits", Eurodad, Brussels, 1999.

63 Van Voorst, M., op. cit. 62.

64 Rowey, K. "Project pitfalls", Financial Times, 9 December 1997.

65 Boote, A.R. and Ross, D.C. (eds), Official Financing for Developing Countries, International Monetary Fund, Washington DC, 1998, cited in Van Voorst, M., "Debt-creating aspects of export credits", Eurodad, Brussels, 1999.

66 Van Voorst, M., op. cit. 62.

67 Hilliard, M., The Cancellation of the Third World Debt, House of Commons Library Research Paper, HMSO 98/81, 1998, p.1. This figure falls to £1,140 million when four countries (Nigeria, Liberia, Sudan and Somalia) which have unreliable figures are excluded.

68 Hilliard, M., ibid, p.22.

69 Claims made on the ECGD for "defence-related" business amounted to £133.2 million in 1994/95 (32% of all claims); £I07.3 million in 1995/96 (36% of all claims); and £49.7 million in 1996/97 (21% of all claims). See Hansard, Written Answers, Col.719, 12 December 1997. Defense-related export credits form a large proportion of the ECGD's overall exposure in a number of countries. In Indonesia, for example, the ECGD's total exposure stood at £1,575 in Januray 1999 of which £769 million was for 'defence-related' equipment. In February 1999, the balance of claims for 'defence and other equipment' sold to Indonesia was £11 million. See Hansard, 20 January 1999, col.509; Hansard, 20 February 1999, col. 581.

70 Soentoro, T. and Fried, S., "Export Credit Agency Finance in Indonesia" in Berne Declaration et al., op. cit. 55, p.27.

71 Hilliard, M., op. cit. 67, p.27. It is important to note that these figures relate to repayments of principal only: no account is taken of interest due. The report also assumes that "cancelling truly unpayable debt has no further effect on UK public finances since the cost to the Exchequer has already be incurred." It adds: "In a sense, cancelling unpayable debt is a cost-free option."

72 Final Communiqu_ of G7 Heads of State, Denver, Colorado, 1997.

73 Final Communiqu_ of G8 Foreign Ministers, Birmingham, 1998. Regrettably, the UK's call for export credits to be limited to productive investments was rejected.

74 Final Communiqu_ of G8 Environment Ministers, Schwerin 26-28 March 1999.

75 Group on Export Credits and Credit Guarantees, Statement of Intent on Oficially Supported Export Credits and the Environment, OECD, Paris, 14 May 1998, TD/ECG(98)14. The statement "recognises the desirability of strengthening environmental considerations in risk assessment practices of export credit agencies, acknowledging the differences in national systems of official export credit support."