Underwriting the ApocalypseLOCKED high away in twin black-glass towers in London’s Docklands, one of Whitehall’s smallest and most secretive departments – the Export Credits Guarantee Department (ECGD) – is about to undergo an operational review. The ECGD is responsible for 95 per cent of the foreign debt owed to Britain, and most of it is made up in guarantees on arms and aircraft sales, and deals for mining, dams and nuclear or coal-powered plants. Michael Welton rakes the muck.
For the ECGD the review is standard procedure which, like most government departments, will look at possible changes to the way it conducts its business. It happens once every four or five years. However, its outcome could be a major victory for the popular Jubilee 2000 anti-debt campaign, despite the ECGD having largely been missed as a prime activist target. The review team could, in theory, tell the ECGD to start insisting on social, ethical, labour and environmental standards when using taxpayers’ money to guarantee private British deals abroad.
Radical Reform
Any changes to the way the ECGD works would create a European precedent and be the biggest shake-up in the department’s 91-year history. Reporting in May, The Guardian suggested the review would usher in sweeping changes to the “traditionally hard-nosed ECDG” to make it more responsive to the needs of the poorest countries. None of Europe’s export credit agencies have ever been held to such standards.
If however the review team fails to change the status quo and the ECGD continues to heap billions of pounds of debt on its “clients” – poorer developing countries, in the main – a golden opportunity would have been missed. Even the $100bn debt concession announced by the G7 on June 18th – criticised by Jubilee 2000 as mere “crumbs of comfort” – becomes more of an irrelevancy if rich export credit agencies like the ECGD are not reined in by even the most modest ethical dealing criteria.
Red Herring However, the “news” that this review may herald some kind of global financial revolution has been dismissed within the ECGD’s offices as a political red herring. The ECGD knows the review team is not going to tell it to change the way it works – because the ECGD is reviewing itself.
The ECGD’s own paid reviewers will ask for some interested comment. They will, for instance, allow officers from its sister organisations, the DTI and Treasury to help them.
And they will also solicit the opinion of the ECGD’s clients, such as Rolls-Royce, Thames Water, Biwater, Philips, GKN Defence and Westland. The same companies, in other words, that pay the ECGD to underwrite their foreign deals against non-payment because of economic or political upheaval. Given that, is the ECGD likely to tell itself to change? Will it say ‘we won’t guarantee BAe’s agreement to sell Hawks to Indonesia, because it’s not ethical’?
Or we won’t guarantee Balfour Beatty’s work to help build the Ilisu dam in Turkey, because we don’t know if it’s environmentally or socially sound’? Or ‘we won’t guarantee GEC’s involvement in Chinese coal-fired plants, because it’s a major source of global warming’?
Critics believe those answers will be ‘no’. The ECGD’s argument is that ethical, social, labour and environmental questions are not for it to decide, but instead for politicians, sovereign governments and consultants. It is clear in the light of recent world events, however, that a blinkered progression through catastrophe and intervention is as, if not more, political than reliance on a sound ethical policy.
Massive Commitment
In the meantime, export credit agencies such as ECGD are quietly growing massive. In 1998 ECGD had more than £23 billion exposed, mainly in China (£2,352 million), Nigeria (which wasn’t – and still isn’t – paying its £1,700 million debt), Indonesia (£800 million), Iraq ($652 million, mainly for weapons bought before the Gulf War), Hong Kong, Saudi Arabia, South Africa, Turkey, India, Former Soviet Union and Brazil.
By 1996, export credit agencies were supporting $432.2 billion worth of exports (about 10 per cent of the world total) — a 40 per cent increase on the figure for 1990. They are now the “single largest public financiers 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”, says Bruce Rich, of the US Environmental Defense Fund.”
The way the system works is simple. To obtain a guarantee, the exporter takes out insurance with the ECGD, which undertakes to pay the exporter for the goods should the importer default. If it does have to pay up, the ECGD passes on any debt not covered by the premiums it has received to the government of the importing country, adding it to the stock of bilateral debt owed Britain.
Ultimately, therefore, it is the poor of the South who end up paying the bulk of the bills. 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.
“It’s beautiful,” Stephen Kock, the Midland Bank executive in charge of arms deals and a former MI6 “asset”, told the anti-arms trade NGO Killing Secrets. “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.”
A typical ECGD deal was highlighted earlier last month, when news broke that the department was considering underwriting a £200 million deal for UK construction company Balfour Beatty to build the Ilisu dam in Turkey, near the Syria/Iraq border. The news came just 15 months after the Government had announced that the UK’s bilateral aid programme would in future “avoid large capital projects”.
Twisted Beauty
The Turkish government plans to evict 15,000 Kurds from their homelands, which would be inundated by the dam’s reservoir. The deal would have broken five World Bank development guidelines on 18 counts, and a UN convention aimed at preventing wars between states that share water resources.
Similarly, as Robin “Mr. Ethical Foreign Policy” Cook was proclaiming that British arms would not longer be sold to dictatorial regimes, the ECGD was continuing to underwrite arms deals to Indonesia, Saudi Arabia and Turkey. 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. £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 Export Credits Guarantee Department.
The department has also been backing ultra-large polluting coal-fired power plants in China and India, including the Shiheng II, Heze II and Liaocheng coal-fired power plants - which have a combined capacity of 2,400MW - in Shandong Province, China; the Huaneng power plant in the Dalian Province, China; and the construction of a 1,040MW power plant in Visakhapatnam, Andhra Pradesh, India. These deals were done since Prime Minister Tony Blair’s June 1997 speech to the Special UN Session on Sustainable Development, when he said: “Industrialised countries must work with developing countries to help them combat climate change.”
Rising Resistance
A UK-based campaign against the ECGD is now gathering pace, although local activists have been lagging somewhat behind similar campaigns in the US, France and Germany. In the United States, for instance, activists have successfully lobbied for its export credit agency, the EX-IM Bank, to adopt environmental standards.
While this forced EX-IM to decline all involvement in the controversial Three Gorges dam project in China, it ironically allowed agencies from other countries – for instance Switzerland – to step in and back their own local contractors.
British NGOs, including Corner House, Campaign Against the Arms Trade, Christian Aid, Friends of the Earth, and TV activist comedian Mark Thomas, are now targeting ECGD. Acting as part of Jubilee 2000’s massive anti-debt campaign (on whose bandwagon New Labour has leapt upon, gathering much favourable publicity in the process), some of these groups wrote recently to Robin Cook insisting that:
• He begins lobbying the OECD to have all export credit agencies adopt common environmental and development standards;
• The ECGD is opened up to public scrutiny, including a public review process of projects considered by the ECGD for support;
• The ECGD ends its 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.
• An independent review of the ECGD’s debt portfolio is carried out, with a view to sharing financial responsibility for poorly perceived projects.
• Debts incurred through the moral hazard attendant on the use of export subsidies made available through the UK ECDG are written off.
It is clear however that the will to change must come from within the ECDG itself if these radical changes can come to fruition, unless the current system of self-review is scrapped and replaced with proper scrutiny. This would of course amount to an open acceptance by Government that ethics and investment must walk hand-in-hand. As famine and war continue to grip the third world, kind words alone are not enough.
Corner House briefing 14 – “Snouts in the trough: export credits, corporate welfare and policy incoherence” publ. June ‘99. Available from Corner House, see contacts .