Patricia Adams
National Post
June 21, 2006

The evidence of boondoggles made possible by Export Credit Agency (ECA) support – the Three Gorges dam, the Norwegian shipping deal to Ecuador, the Manantali dam in the Senegal River basin, the Bataan nuclear power station in the Philippines, pulp and paper mills to Indonesia, the OK Tedi mine in Papua New Guinea, military exports to Iraq – is extensive and well documented.

ECAs back projects that are too risky and in markets that are too “dodgy” for the private sector. Their feasibility studies are prepared by equipment suppliers, their products marked up by as much as 100%. They operate in secret, without effective public oversight. Their business environment – state-to-state deals in the absence of sunshine laws – makes their operations a hothouse for corruption. Because they insist on sovereign guarantees, and counterguarantees from Third World governments, should purely private deals sour, they convert private corporate risk into public risk. As such, ECAs are moral hazard machines. Most damning is that their mandates are political, not economic: The mandate of all ECAs is to win contracts for their country’s exporters away from the next country’s, at any cost, without attracting the discipline of the OECD “arrangement” or the WTO’s “agreement.” The economic viability of the projects ECAs finance is irrelevant to, and thus not a factor in their support.

It is inevitable that the deals ECAs subsidize in Third World nations do not generate the wealth needed to repay the loans. Now, in perhaps the most stunning acknowledgment of what I would call the greatest financial scandal of the past half century – in which Third World taxpayers have been forced to subsidize northern multinationals by repaying them for boondoggles – the OECD Working Party on Export Credits and Credit Guarantees has issued a statement of principles that ECAs should no longer extend credits to “unproductive expenditures” in the poorest and most indebted Third World nations. I agree. And to ensure that these “unproductive expenditures” don’t occur again in future, I would recommend an immediate moratorium on the repayment of current ECA claims against Third World nations, followed by public audits of all claims to determine their legitimacy. Illegitimate debts – those incurred to strengthen a despotic regime, repress the population or to further corruption – would fail and be written off. The legitimate debts that remain – those that can be proven to have been spent in the interests of the people – could then be forgiven if countries are too poor to repay them.

Third World nations have been threatened for the past 60 years into honouring illegitimate contracts. This must end and lenders must now be required to establish the legitimacy of those contracts. Holding ECAs to account will embarrass the ECAs, it will certainly inform northern taxpayers of the waste laid by ECAs to the Third World’s environment and economies, and it will lead to write-offs of most Third World ECA debts. But it won’t stop new ECA debt from being created in future. As a former American National Security Council member and debt consultant commented when the U.S. Ex-Im Bank went into technical insolvency in 1990 after it set up a special reserve to cover losses on delinquent Third World loans, “not that anybody gives a damn.” And therein lies the key to the problem of the ECAs – their governments don’t “give a damn” if they lose money. Their purpose isn’t to make money. Their purpose is to push exports, usually for favoured firms in politically important constituencies. They are in the business of patronage, porkbarrel and cronyism. Can ECAs be reformed to “do no harm?” Not likely. As long as they are charged with the mandate of subsidizing exports, all other goals – environmental, economic, social, anti-corruption – will remain secondary, unenforceable and outside of their legal mandate. Can ECAs be reformed to “do good?” I would ask, why would we want to, in effect, turn ECAs into state aid agencies,