EDC

‘I think the EDC should be shut down’: Q&A

Paul McKay
The Ottawa Citizen
May 19, 2000

Paul McKay discusses the EDC with Patricia Adams, Executive Director of Probe International.


Economist Patricia Adams, executive director of Probe International and author of Odious Debts, a study of the environmental, economic and social harm caused by export credit agencies, has been Canada’s chief critic of the federal Export Development Corporation. This is a condensed interview with ‘Citizen reporter Paul McKay.

Q: When did you first become alarmed about the role of export credit agencies?

A: In the early 1980’s, we started receiving, requests for help from groups in the Third World. They were environmental groups who were fighting hydro dams that were being built in their community and they were being financed by Canadian taxpayers either through CIDA, through bilateral aid; or through multilateral -systems, through the World Bank, for example, or through the Export Development Corporation.

And that’s really when we created Probe International to specifically look at the international implications of Canadian expenditures, either tax dollars or Canadian corporate activity, in other countries.

Q: And in your own experience working for CUSO or the projects in Sri Lanka and Africa, were there other export credit agencies involved in those projects?

A: No, but what I did learn in both of those cases – and I think this happens to a lot of CUSO volunteers and a lot of people who go over with non-governmental organizations – is that they develop a great respect for the way decisions are made in those countries and I think develop a humility about our ability to help them, to help people in other countries. I think all of us who go overseas see aid projects running amok and see a relationship between the people in the Third World, the citizens or the bureaucrats or government politicians, and the aid agencies. It is not a healthy relationship. It’s a relationship that I think undermines the political process in these countries.

Q: Because there are more haves and have-nots, or because of the atmosphere of corruption?

A: No, I think it’s that the government does not have to talk to its people. If you want to finance a public project, you have to tax. I mean, this is the basic theory-. You should tax the public, and taxation focuses the minds of the taxpayers. It tends to shift the power balance to the taxpayers be- cause people get angry and there have been lots of rebellions over taxation. When a Third World government does not have to go to its people to tax it, and therefore to justify what it is going to do with the money – it has to go to the World Bank or it has to go to CIDA or it has to go to the Export Development Corporation –then they don’t have to account to the public. What we found in our research is that the people in the Third World don’t know what debts are being incurred in their name.

Q: Are there common flaws in export credit agencies in general, worldwide, would you say? Can you identify, some common flaws?

A: There are a number. One, is that they are very secretive. They will finance feasibility studies that are conducted in secret, that are not subject to peer review or to public scrutiny or to market discipline. The projects that are supported by export development corporations tend to have an inflated price and tend not to be as feasible because the corporations that are actually going to build the projects are the ones doing the feasibility study. So there is an inherent conflict of interest there.

There is also another very, I think, relevant force that happens with export credit- moral hazard. When the private sector is not forced to internalize all the risks of their export or their investment in another country they tend to make sloppy decisions. They are not as careful. It’s a well-known problem when someone else is taking financial responsibility for your decision – you don’t exercise the same sort of scrutiny and caution that you would normally if it were your own money. I think that has led to very bad projects that don’t work.

Q: And how does Canada’s Export Development Corporation rank among export credit agencies in terms of assisting pollution-prone companies and public disclosure of terms and conditions of loans?

A: I would say that EDC is the worst

Q: The worst?

A: The worst. Absolutely. Let me just give you one example. The Three Gorges Dam in China, which is, recognized as being the most environmentally damaging, socially reckless and economically ruinous project that is being built right now in the world, could not raise financing from public institutions until EDC agreed to do it, and EDC was given direction by the Canadian governmont to support the project. Everyone knew this project was going to be a disaster, and all of the export credit agencies stayed away, everyone was staying away. They were not making a decision to support the project.

The dam is not feasible, according to the World Bank. The U. S. Export/Import Bank, which is the U.S. equivalent of EDC, held a thorough investigation, they consulted with companies, they consulted with non-governmental organizations, they consulted with Chinese citizens and critics of the dam, and they finally made a decision that they could not support the Three Gorges Dam because it did not meet the environmental standards that Eximbank is obliged to meet.

Q: And how does EDC compare in terms of disclosure of public information, say compared to the U.S. Ex- port/Import Bank?

A: The US. Export/Import Bank is subject to the US. Freedom of Information Act, and EDC is not subject to our Access to Information Act. They don’t seem to have even the most rudimentary standards for releasing information. The public has the right to see virtually nothing. They can see the annual report, but the annual report gives only the scantiest details about the activities of EDC. We cannot figure out and find out what projects EDC is financing. We have no rights whatsoever to find out such basic information as that. I think that’s outrageous and I think that the argument that EDC uses is that they have to respect the commercial confidentiality of private corporations. My response to that is if the private sector wants to use public resources to finance their own private operations in which shareholders are benefitting, then they have to disclose details to the public.

The public has a right to know what their money is being used for, and the standard really should be set by that, that the corporations, if they don’t want to disclose that information, then they shouldn’t come to the government for help.

Q: Does the Export Development Corporation tend to give more assistance to a select group of heavy hitters? Their argument is that some 80 per cent of the customers that they assist every year are small to medium- sized enterprises. But does most of the money actually proportionally go to a few large traditional users of the EDC?

A: I think there is no doubt that there are a couple of big companies – a handful, probably about a dozen big companies- that are getting the lion’s share of EDC’s benefits. The problem is: we don’t know exactly which companies because, of course, the information will not be disclosed by EDC. But it’s not that hard to guess.

We know Atomic Energy of Canada Ltd., Bombardier, the big engineering firms SNC-Lavalin, Canadian General Electric, and these corporations also sit on the key committee of the Alliance of Manufacturers and Exporters, and we suspect are the main beneficiaries. Nobody has disclosed the distribution of EDC’s resources by corporation.

Q: What is the best way to deal with the problems at the Export Development Corporation?

A: I think they should be shut down. I think export credit in general is recognized as an evil force in international trade and you will find quotes from the heads of the export credit agencies saying, “The only reason we are doing this is because our competitors are doing this, it’s because the exporters in other countries are demanding this subsidization of their exports from their own government.”

So society is not being made richer, there is no wealth being created by this subsidization of private sector risk. Moral hazard is created. Bad investments, risky export contracts are made. The institution provides a per- fect opportunity for corrupt practices to occur without the public ever knowing what is going on. It allows the opportunity for patronage, for the government to us this as a tool for winning votes and elections, and it interferes with international trade. It doesn’t improve competitiveness, it distorts competitiveness, it distorts international trade and it costs taxpayers money, and it also subsidizes often dictators against their people.

Q: Some people, though, would say that shutting down the EDC would cripple Canada’s exports because the other export credit agencies would continue to fund these projects around the world.

A: There are a lot of exports that happen without EDC. It’s not going to cripple exports. I also think what would happen is if one country said, “We are getting rid of our export credit agency,” it would start a movement. I think that most countries would prefer not to have export credit agencies because it costs taxpayers money and politically it’s difficult to get rid of them.

 

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