Treasury plans bailout for £9bn of export bad debts

The Treasury is drawing up a face-saving plan to rescue the Export Credit Guarantees Department, after the government agency, which insures British exporters, ran up bad debts of £9 billion

The Treasury is drawing up a face-saving plan to rescue the Export Credit Guarantees Department, after the government agency, which insures British exporters, ran up bad debts of £9 billion.

The Times has learnt that the Treasury, which unveils its Pre-Budget Report today, is drawing up plans to dump the massive liability into a special ring-fenced account next year.

Officials will then concentrate on recovering as much as possible of the bad debt, which dates back three decades and which is owed by a string of poor countries. Insiders estimate that no more than £2 billion will be recoverable after the move.

The ECGD’s latest annual accounts show that it is owed £6.24 billion from foreign governments, and a further £4.06 billion of interest, making £10.3 billion. It is from this doubtful debt that the £9 billion for a special account will be drawn. Of the principal owed, £5.4 billion predates 1991.

Opposition parties and longstanding critics of the ECGD queued up to express concern about the emerging proposals, which they said showed the department had wasted billions.

Vincent Cable, Liberal Democrat Treasury affairs spokesman, said: “These reports put paid to the fiction that the ECGD ever broke even. Over the years the department has made a scandalous use of public money. It has underwritten arms deals to (Robert) Mugabe and Saddam Hussein.”

James Arbuthnot, Shadow Trade Secretary, said: “If this shows that the ECGD has been effectively losing money, then it is extremly worrying. It shows a lack of control and a lack of concern.”

Susan Hawley, a consultant at The Corner House, an environmental think-tank, said: “It is essential that the ECGD now comes clean about the real nature of its losses. The ECGD should make public the full list of the countries and projects where they know they will never see another penny.”

However, there are no plans to write off the £9 billion, the normal accounting practice when it becomes definite that a debt will not be paid. That will allow the Government to say it is not helping rogue states, and protect the taxpayer from the impact of a charge.

The ECGD underwrites billions of pounds worth of British exports every year. Last year it underwrote £3.5 billion of business, half of it defence related. Its overall exposure amounts to £24 billion.

The department operates by charging exporters, such as BAE or Airbus, an insurance premium. If an export deal turns sour, the department reimburses the company and chases up the debt from the host government.

A spokesman for the ECGD said: “We are in negotiations with the Treasury about setting up the department as a trading fund. It would be premature for us to comment on the existence of a ring-fenced fund, or any other fund.”

Dealing with the liability will be a key task for the ECGD’s new chairman and new chief executive. The department is recruiting for both jobs, and is understood to have been advising candidates of the financial situation.

Dan Sabbagh, The Times (U.K.), December 10, 2003

Categories: Europe, Odious Debts, United Kingdom

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