Eurodad: ECAs push poor country debt and shrinks aid budgets

Campaigners are demanding tighter controls on the activities of so-called export credit agencies (ECAs) after a new report lifts the lid on how the shadowy government bodies force vulnerable developing nations ever-deeper into debt, while allowing European governments to count their own financial gain as development aid. “Almost 80% of developing country debt to European governments comes from loans that supported European commercial interest and not development,” says Núria Molina, director of the European Network on Debt and Development (Eurodad) which drew up the new report, Exporting goods or exporting debts? Export Credit Agencies and the roots of developing country debt. “They are undermining aid efforts, and keeping countries mired in poverty,” adds Molina.

ECAs are public bodies that provide credit guarantees to companies and financial institutions to ease exports from the country in which they are based. This allows exporting companies to invest in riskier projects than what would normally be the case, often in developing countries. Export credits to developing countries almost tripled in 2008 as compared to pre-crisis levels, showing the need to tighten up on controls. UN figures show that European government ECAs supported more than $1trillion in trade and investment in 2007. The figure increased by 35% in 2008-2009 as an effort by European governments to save their export industries at a time of dwindling global markets.

Export credits greatly reduce the amount of aid to developing countries, as when most European governments cancel developing country debt they charge that amount from the aid budget. According to the study, 85% of developing country debt cancelled by European governments and charged from the aid budget in 2005-2009 was actually debt created from export credits, which are in most cases driven by commercial, not development objectives. Counting cancellation of export credit debt as aid monies draws monies away from real aid, making fewer resources available for the world’s poor. The activities of these public bodies are hardly controlled at all, so the projects they support have often caused human rights violations and environmental damage in poor countries.

European Union regulations agreed in September, although welcome, don’t go far enough. Based on its Responsible Finance Charter, Eurodad is proposing concrete measures for governments to clean up their export credit operations including:
* Ensuring that ECAs and the projects they back are opened up to public scrutiny;
* Ending the use of aid money to cancel export credit debt;
* Introducing binding regulations to stop export credits being peddled aggressively to developing countries to the benefit of companies in industrialised nations.

Protest Rallies Against Turkish Dam All Over Europe

Critics of the ill-conceived Ilisu Dam in Turkey today held protests and rallies all over Europe in front of government buildings, banks and companies involved in the dam project. Actions were planned for Paris, Milan, Rome, Perugia, Berlin, Stuttgart and other German cities today, March 14, to mark the International Day of Action for Rivers, Water and Life. At least 77 organisations from 20 countries, including France, Germany and Italy, are all urging the governmental and financial institutions to withdraw from the project.

The protesters' case against the dam was bolstered by revelations in a new report that environmental and social conditions are not being followed. Indeed, the report – written by a committee of experts hired by European governments – shows that the social and environmental risks of the project are as great as anticipated by NGO critics. The experts found that Turkish officials in charge of the project were completely unfamiliar with the additional social and environmental requirements, which were conditions of loans to the project from European financial institutions. Among their findings were that 200 additional experts would have to be hired for the resettlement plan alone, that plans to create an archaeological park with monuments from the flooded area are unlikely to attract tourists, and that those monuments cannot be transported without risk of destruction and damage. The experts also revealed that key environmental studies are missing.

The planned Ilisu Dam is extremely controversial because of its massive negative environmental, social and cultural impacts. At least 55,000 people would have to be displaced for the project and a 10,000-year-old town would be flooded. Last year governments of Germany, Austria and Switzerland granted export credit guarantees for the project. They justified this support by attaching environmental and social conditions to the contracts, claiming that the project would then adhere to international standards. But Heike Drillisch from the German organisation World Economy, Ecology & Development (WEED) asserts, “The European governments try to continue with business as usual and negotiate new deadlines with the Turkish officials. In reality, the report reveals the fiasco the European governments entered into by approving the export credit guarantees for Ilisu.”

NGOs walked out of OECD meeting on official export credits

For years NGOs have asked for effective implementation of environmental and social standards, as well as for coherence of OECD export credit schemes with related goals and agreements. Earlier this week they walked out of an OECD meeting called to consult civil society organisations. The groups cited the recent approval by ECAs of projects that flagrantly violate internationally accepted environmental and social standards as well as the failure of most ECAs to take effective action to address sustainable development, corporate social responsibility, corruption, and sustainable debt relief. OECD taxpayers support some $100bn annually in ECA loans, insurance and guarantees for large scale projects in developing countries and economies in transition.

While appreciating efforts by chairs of the Export Credit Working Party (ECG) and staff of the OECD Secretariat to foster dialogue between NGOs and ECG national Members, and noting good working relations with a number of national ECA environmental practitioners and officials, NGO representatives pointed to ECG members' collective unwillingness to engage in substantive exchanges of views, pointing out that lack of progress threatens the credibility of the OECD to effectively address many broad overlapping issues, from sustainable development to debt and bribery, in which ECAs are critical players. “The approval this summer of German, Austrian and Swiss export credits for the Ilisu dam in Turkey, which violates World Bank/IFC environmental and social policies on many counts, demonstrates a flagrant disregard for basic environmental and social standards, and for the OECD Recommendation on 'Common Approaches on the Environment and Official Export Credits'”, notes Bob Thomson, Paris based Facilitator of ECA Watch. ECA-Watch is an international network of NGOs advocating effective ECA action in avoiding environmental and social harm, and credible ECA measures to fight corruption, cease promotion of unsustainable debt in poor countries, and increased transparency.

In a letter to the OECD ECG, the NGOs stated: ”There is a growing and urgent credibility crisis in the implementation of the Common Approaches. This crisis is a direct consequence of ineffective peer review, inadequate monitoring and inadequate transparency with respect to specific projects, accentuated by the categorical refusal of the ECG to discuss these very issues in specific cases.” Proposing greater transparency and more public and formal peer review processes as practiced by other OECD entities, the Groups regretted having to draw attention to the ECG's democracy and development deficit, reiterating their willingness to return to the table, bringing their expertise with respect to international best practices, when appropriate new modes of consultation and greater openness to dialogue are proposed. An ECA Watch paper summarises the OECD export credit policy’s incoherence and weak implementation.