World Rainforest Movement

The destructive role of Export Credit Agencies

Globalisation, a corporate-led process across the world, has had immense negative social and environmental impacts, particularly in the Third World. Though the huge commercial forces behind globalization have tried to make people think that it is some kind of an uncontrollable force of nature, and that the famous free market rules the world by its own right, there is increasing awareness that a large part of such devastation is financed and backed by tax-payers’ money using national export credit agencies, commonly known as ECAs.

ECAs are Northern-based public agencies that provide the largest source of government –i.e, taxpayer’s– financing to projects in the South and the East. Through the provision of loans, guarantees, credits and insurance, ECAs allow private corporations from their home country to do business abroad.

During the 1990s, ECAs financing averaged US$80-$100 billion or more per annum, roughly twice the level of the world’s total official development assistance. Worldwide, ECAs currently support an estimated US$ 432 billion in trade and investment – nearly 10 percent of world exports. The system is based on an agreement by the Organisation for Economic Cooperation and Development (OECD) member countries which all have at least one ECA, usually an official or quasi-official branch of the government.

Today, ECAs are collectively among the largest sources of public financial support for foreign corporate involvement in industrial projects in Southern countries. In recent years ECAs are estimated to have supported between US $50 – $70 billion annually in what are called “medium and long-term transactions,” a great portion of which are large industrial and infrastructure projects in those countries.

If a deal turns sour, the ECA guarantee covers the losses of the private company, but then adds the sum to the bilateral debt of the home and host countries. As a result, ECAs now account for up to 25 percent of total outstanding Southern debt.

The kind of projects most ECAs often back are projects that even the World Bank Group and other multilateral banks find potentially harmful to support. Hence, ECAs play a major role in the expansion of profitable (mis)development projects of corporate globalization. ECAs are racing to offer credit with the least-binding environmental restrictions and as a result of that race to the bottom, ECA-backed projects often despoil the environment and disrupt the lives of local communities with their environmental, political, social and cultural impacts. For example, ECAs finance greenhouse gas-emitting power plants, large scale dams, mining projects, road development in pristine tropical forests, oil pipelines, forestry and plantation schemes, to name a few.

Most ECAs only recently adopted environmental policies that benchmark against those of the World Bank Group and regional development banks (like the European Bank for Reconstruction and Development, African Development Bank, Asian Development Bank, Inter-American Development Bank). These policies resulted from an agreed set of recommendations, dubbed the “Common Approaches,” which was brokered in December, 2003 at the Export Credit Group of the Organization for Economic Cooperation and Development in Paris, France.

The environmental policies of the regional development banks have been criticized for their weaknesses, and the World Bank Group seems poised to weaken its own policies, too. Hence, weak ECA standards are benchmarked against weak regional development bank or World Bank standards, with precious little global leadership to point to. Meanwhile, the Common Approaches agreement is rife with loopholes. For example, it states that ECA-backed projects should “in all cases” comply with World Bank, regional development bank and host country standards, unless an ECA “finds it necessary” to apply lower standards (!).

Another characteristic of ECAs is a wholesale lack of public disclosure of the impacts of their projects. The Common Approaches do not require ECAs to consult with affected communities and civil society in the development of the projects they finance. According to Transparency International, “Bribing foreign officials in order to secure overseas contracts for their exports has become a widespread practice in industrial countries, particularly in certain sectors such as exports of military equipment and public works. Normally these contracts are guaranteed by government-owned or supported Export Credit Insurance (ECI) schemes (HERMES in Germany, COFACE in France, DUCROIRE in Belgium, ECGD in the UK).”

Thanks to ECA support, private commercial banks can shirk much of their responsibilities as well. As a Midland Bank executive in charge of arms deals once described, “You see, before we advance monies to a company, we always insist on any funds being covered by the [UK] Export Credit 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.” (Killing Secrets: ECGD, The Export Credit Guarantee Department, 1998.)

One example of ECAs-backed harmful projects is the investment in the Indonesian Pulp and Paper Industry, which is ranked amongst the top ten in the world. This has been made possible by international investment of more than US$15 billion during the 1990s.

Indonesia’s two largest pulp producers –Asia Pulp and Paper (APP) and Asia Pacific Resources International, Ltd (APRIL)– had a nine-fold increase in output between 1988 and 1999, which in turn entailed an increase in annual pulpwood consumption from 1.8 million m3 to 16.7 million m3.

In order to meet the demand of fiber for the pulp industry, the Indonesian government promotes the establishment of tree plantations, despite the social and environmental problems these create. Still, the development of plantations has lagged far behind the increase in processing capacity of the industry, rendering pulp producers dependent on a mix of tropical hardwoods. A World Bank study estimates that deforestation in Indonesia is equivalent to 2 million ha/year, or roughly the size of Belgium.

Another example of ECAs involvement in environmentally destructive projects is the Bolivia-Brazil natural gas pipeline, with a total cost of US$ 2 billion. The construction of the pipeline required the clearing of the forest, and stretches over approximately 3150 kilometers, from Santa Cruz, Bolivia to Brazil’s Mato Grosso do Sul. It cuts across several important ecosystems: the Gran Chaco, a protected area of primary dry tropical forest in Bolivia; the Pantanal, the world’s largest wetland; and the remaining Mata Atlantica Rainforest of Southeastern Brazil.

The project, with its attendant social problems, also has significant impacts on local communities in Brazil and Bolivia. In Bolivia the pipeline traversed a number of indigenous communities and a protected area managed by an indigenous organization. In Brazil, Transportadora Brasileira Gasoduto Bolivia- Brasil (TBG), whose investors include Pertobras, Transredes, Enron and Shell, owns the pipeline; Gas Transboliviano S.A., a consortium comprising Transredes, Enron, Shell and Petrobras, owns the Bolivian portion of the pipeline.

In 1997, the World Bank became the first multilateral agency to fund the pipeline. Other multilateral banks involved include the Inter-American Development Bank and the European Investment Bank (EIB). Export Credit Agencies involved include the Japan Bank for International Cooperation (JBIC), and the Italian Export Credit Agency, SACE, who jointly provided US$ 346 million.

A second pipeline of 630 kilometers starts in Ipiás, Bolivia, where it branches from the main Bolivia-Brazil pipeline and runs northeast to San Matias and on to Cuiaba, Brazil. This pipeline cuts through 200 kilometers of primary Chiquitano tropical forest, 100 kilometers of pristine Pantanal wetlands and bisects Bolivia’s San Matias Integrated Management Area, the only protected area for the world’s largest intact dry tropical forest and the headwaters of the Pantanal. This project is financed by Gas Oriente Boliviano (GOB), a consortium made up of Enron, Shell and Transredes. In 1999, Enron obtained a US$ 200 million financing from the US government via one of its Export Credit Agencies: the overseas Private Investment Corporation (OPIC).

Financing was approved despite the prohibition in the Foreign Assistance Act on funding projects in “primary tropical forests”. The Project’s Environmental Impact Assessment (EIA) and independent scientists classify this region as “primary tropical forest”. Using previous degradation to justify further degradation, Enron, the main project sponsor, contended that the forest is “secondary” due to sporadic logging activities in some parts.

To cut its losses in Enron’s bankruptcy, OPIC pulled out in February 2002. The local impacts on the Chiquitano forest region and the local populations have been significant nonetheless: pollution of local water resources, degradation of local roads, soil and air pollution, an increase in crime, prostitution, and the disruption of local towns by workers camps.

While ECAs play their role, there is increasing awareness that they are very far from being potential vehicles for development and instead embody a form of corrupt, non-transparent, environmentally and socially destructive globalization. Social processes in several southern countries spread against them in search of other possible worlds free from dependency and commercial alienation.

Article based on information from: “The Shadowy World of Export Credits”, Tove Selin, Aaron Goldzimer, and Roy Jones, Asian Labour Update, http://www.amrc.org.hk/4301.htm; “Financial power + ECAs: themes and alternatives”, James Goodman, AID/WATCH and the Minerals Policy Institute, http://www.amrc.org.hk/4302.htm; “What are ECAs?”, ECAWatch, http://www.eca-watch.org/eca/ecas_explained.html; “Export credits: Fuelling illegal logging”, Chantal Marijnissen, FERN, http://www.illegal-logging.info/papers/illegal.pdf

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