IOU: The Debt Threat and Why We Must Defuse It. Noreena Hertz
Читать онлайн книгу.
investment through increased use of development finance institutions and export credit and risk-guarantee agencies…’
Yet, rather than being used to bankroll projects that are ‘conducive to economic growth’, export credits were and are often used to bankroll projects just as dangerous, dubious or misguided as those in Saddam’s Iraq. Time and time again, as we will see, export credits were and are used to pay bribes, support tyrannical or dictatorial regimes, or support environmentally unsound or socially undesirable projects.
And, once again, it is the ordinary people of these countries who are left to pick up the bill. ECAs are amongst developing countries’ single largest creditors, and export credit debts account for about a quarter of developing countries’ total long-term debt – in some countries even more. Gabon, Nigeria and Algeria all owe more than 50 per cent of their total debt to export credit agencies.
Why exactly are the governments of the developed world providing these loans? In some cases to serve their geopolitical interests (as we saw in the previous chapter) but more often to serve the different, though related, interest of their domestic corporations, so manifest in the Iraq example. The UK’s ECA, the Export Credit Guarantee Department, or ECGD, explicitly states that its goal is to ‘help exporters of UK goods and services to win business and UK firms to invest overseas by providing guarantees, insurance and reinsurance against loss.’
ECAs also serve the interests of commercial banks. As Stephen Kock, the Midland Bank executive in charge of arms deals put it: ‘You see, before we advance monies to a company, we always insist on funds being covered by the [UK] government’s Export Credit Guarantee Department…We can’t lose. After 90 days if [they] haven’t coughed up, the company gets paid instead by the British government. Either way, we recover our loan, plus interest of course – it’s beautiful.’ Especially beautiful because the ECGD typically pays banks about 0.75 per cent per annum on the total value of any ECA-backed loan it has provided so that the bank has an incentive to provide the capital to the British exporter.
And while 0.75 per cent per annum may not sound that much, on a $500 million project it amounts to around $3.8 million. And this is on a completely risk-free loan – the equivalent of lending to the Bank of England! No wonder banks spend serious amounts of money cosying up to big corporations. They want to be the bank through which the company secures its ECGD-backed loan.
From the point of view of a Western corporation, export credit arrangements are great because they enable them to pass some of the risk of doing business in developing countries on to their own governments. By providing lower fees, premiums and interest rates than the private market can, and by backing transactions that the private market would refuse to back, ECAs are implicitly subsidizing their domestic exporters.
Export credit arrangements also offer companies the added bonus of harnessing a government’s interests to their own. Once corporations have export credit guarantees they can rest assured that if things go wrong their government will protect their investments. ‘The Export Import Bank can be a powerful ally,’ Edmund B Rice of the American pro-ECA corporate lobbying group Coalition for Employment through Exports, has said. ‘You’ve got the full weight of our US embassy, our ambassador, the Treasury Department here and overseas the State Department all coming in.’
No wonder corporations lobby hard for ECAs to continue their work. When there was a move to eliminate the US Overseas Private Investment Corporation (OPIC) in the late 1990s – a similar agency to Ex-Im but focused solely on the developing world – Kenneth Lay, the now disgraced former CEO of Enron, wrote a letter to every single member of Congress staunchly defending the institution.
Why do Western governments want to serve corporate interests in this way? Typically, because they are so caught up in the ‘business interest serves national interest’ myth that they don’t stop to question it. They should. First, most economists remain highly sceptical that a nation can improve its long-term welfare by subsidizing its exports. Second, subsidies radically reduce the incentive for exporters to do all they can to ensure that the companies they are selling to will make good on their debts. In much the same way that many more homes would be built in flood-prone areas if their owners were compensated for flood damage by the government, ECAs provide exporters with incentives to maximize their exports in the knowledge that they will be bailed out if their deals go bad. Third, export subsidy policies have tended to be very costly for the exporting countries, many ECAs have made huge losses over the past two decades. And, finally, rather than benefiting the interests of their host country, ECA-backed companies often turn out to be only benefiting themselves.
Most of the companies that have received large amounts of Ex-Im support in the US, for example, are companies that have ruthlessly shed jobs and have shifted production abroad to save money. Ex-Im’s five biggest corporate beneficiaries in the 1990s – AT&T, Bechtel, Boeing, General Electric and McDonnell Douglas – collectively cut more than 300,000 jobs during that time, shifting production away from the US to India, Mexico, Japan and elsewhere. Worse still, Ex-Im is extremely selective in the businesses it serves, choosing merely to benefit a small handful. In 2001, more than 60 per cent of Ex-Im’s loans and guarantees went to just three corporations, and almost 90 per cent went to just ten. Similar trends can be seen in other countries.
Lining the wrong coffers
The lion’s share of the subsidies is not, however, usually paid for by Western taxpayers despite the high failure rate of ECA projects. That burden more commonly falls on the peoples of the developing world – the masses in the developing countries who have to face the consequences of an increase in their debt burden as a result of the importer not paying up. For, as we have seen, export credit debt accounts for a significant proportion of the debt that developing countries owe to official creditors, and in some cases for almost all the debt they owe. And the interest paid on export credits is particularly onerous for developing countries because it corresponds to commercial rates of interest, not the lower rates incurred by bilateral or multilateral (the World Bank, IMF or regional development banks) loans.
If it could be shown that countries now carrying ECA debt burdens were better off because of ECA-backed projects, a reasonable case could be made that the resulting debt burden was worth it. In many cases, however, the promised benefits never materialize, and a large number of projects do not even see the light of day. A former employee of HSBC told me that, of the export credit agency deals he worked on over a 12-month period at the bank, every single one went bankrupt..
Moreover, billions of dollars worth of ECA loans have ended up lining the pockets of corrupt government officials. Acres, for example, the EDC-(Canadian ECA) supported company, was convicted in a Lesotho court in September 2002 for having paid $260,000 in bribes to a Masupha Sole, the former CEO of the notorious Highlands Dam Project, a project which, besides being riddled with corruption, displaced hundreds of subsistence farmers and directly and adversely affected the lives of approximately 27,000 people. And it is commonplace for the prices of projects that receive ECA funding to be massively inflated so as to be able to cover the related ‘commissions’. An investigation into power contracts in Indonesia in 2000, for example, revealed that most power transmission projects financed by foreign export credit agencies ‘smacked of mark up practices…[and] on average they cost 37 per cent more compared to projects that underwent international tenders.’ This reflects similar findings by the corruption-fighting non-governmental organization, Transparency International. It revealed that it was common practice for the value of an ECA contract to have been inflated