Debt aspects related to export credit agencies
The cancellation of Third World debt has been a rallying cry of social movements for years, gaining in volume and numbers in 2000 as a result of the global Jubilee movement. Much attention has been focused on the debts owed by poor countries to the World Bank and the International Monetary Fund. However, export credit agencies collectively own more debt of Third World countries than the World Bank and the IMF combined.
Export credit, especially compared with the financing available from the international financial institutions like the World Bank, has grown to predominate in developing economies. While lending from international financial institutions has remained relatively stable in recent years, export credit lending has soared. Export credit agencies globally increased their commitments fourfold in eight years, from US$26 billion in 1988 to US$105 billion by 1996.
While the policy of many OECD countries is to provide all development assistance to the poorest countries as grants only, rather than loans, export credit agencies financing is in the form of loans, most of which are on non-concessional (market) terms, designed to make profit for the export credit agencies.
Developing countries incur debt from export credit agencies by either borrowing directly from export credit agencies, or by guaranteeing a project that may not be productive. Export credit agencies universally require the government to guarantee their investment or to counter-guarantee their own guarantee extended to the project.
Export credit agencies operate in secret. Therefore, people do not know that the government is incurring new debt, or guaranteeing a particular private sector project.
Like the World Bank, export credit agencies often support projects with questionable or negative development impacts. Mines, large-scale dams, pulp and paper, all kinds of development debacles are financed by export credit agencies. Developing countries therefore also incur social and ecological debt as a result of export credit agency-supported activity. And because export credit agencies are in a form of tied aid, export credit involvement in development projects impedes local partnership or ownership and the use of local producers and suppliers.
Debt owed to export credit agencies is factored into the overall indebtedness of countries by creditors such as the World Bank and the International Monetary Fund. Countries not able to make debt payments must turn to the International Monetary Fund (IMF), which offers further loans with stiff conditions, known as Structural Adjustment Programs (SAPs). SAPs require governments to privatize industries, devalue the currency and cut spending on health, education and jobs.
As the World Bank and the IMF are preferred creditors to developing countries (in other words, the World Bank and the IMF get paid first), often developing countries are in arrears on payments to ECAs. However, unlike commercial lending institutions, export credit agencies do not write-down debt that is uncollectable from developing countries. Instead, the taxpayers in the home countries of export credit agencies pay the ECAs so that they do not take a loss. This practice of reimbursing ECAs for irresponsible lending, diverts resources in First World countries that could be put to social or environmental purposes and it contributes to moral hazard (continued irresponsible lending).
Debts to Canada's export credit agency form the bulk of debts owed to Canada by developing countries. As of March 1999, export credit related debt formed 95 percent of the $2.5 billion debt owed Canada by the 55 countries that are worst off in terms of human development. Almost all of this debt is owed by governments. (In ECA language this means it is sovereign debt as compared to commercial). Of these debts, $76 million is publicly recognized to be in arrears - debt that is, essentially, uncollectable and, for these countries, unpayable due to the impacts these payments will have on life-saving resources.
Latin American countries owe Canada's ECA the following. Canada's ECA is only one of potentially over 30 ECAs operating in Latin America. We, the public, may never know for what this money is owed.
- Argentina owes $600 million dollars.
- Brazil owes $800 million.
- Chile owes $500 million.
- Colombia owes $500 million.
- Ecuador over $35 million.
- Guatemala over $20 million.
- Honduras owes $50 million.
- Peru owes $800 million.
- Venezuela owes $700 million.
Bolivia and Uruguay also owe money to Canada's export credit agencies but the amount is undisclosed.
What ECAs should do
- ECA loans or guarantees should be used only for "productive" expenditures, extended only after rigourous social, environmental and human rights assessments.
- Export credit agencies must shoulder the losses for all debts that are uncollectable.
- ECAs must disclose before approval, full information on loans and guarantees