Who the EFIC are you?
BY JAMES ARVANITAKIS
"You see, before we advance monies to a company, we always insist on any funds being covered by [Britain's export credit agency] ... 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."
This is not an extract from the latest John Grisham spy novel, but rather a quote attributed to Stephen Kock, a former Midland Bank executive in charge of arms deals. So who is Mr Kock describing and what are export credit agencies?
Export credit agencies (ECAs) are publicly funded government agencies that provide lending and insurance to help companies compete overseas. As aid and development becomes increasingly commercialised, ECAs play an increasingly prominent role in large-scale infrastructure development projects.
Lending by ECAs quadrupled in the eight years between 1988 to 1996, to US$105 billion. Fifty-six per cent of low-income nation debt is now attributed to ECA-funded projects.
This is corporate welfare on a global scale. But don't be surprised if you haven't heard much about them — because they're not too interested in letting the public know what they do.
ECAs lack even the social and environmental guidelines of the World Bank and other multilateral development banks. These agencies are therefore able to step in and fund projects that even the development banks have rejected, including destructive projects which would otherwise have not been commercially viable.
Australia's ECA is called the Export Finance and Insurance Corporation, or EFIC.
Its credit has funded Indonesian government purchases of Australian weapons, a Chinese bank's purchase of Australian nuclear technology for the expansion of a nuclear power plant, operations at BHP's disastrous Ok Tedi mine in Papua New Guinea and guarantees for corporate finance backing of the equally disastrous Panguna copper mine in Bougainville.
Given its record, there is no reason to presume EFIC has operated under any real social or environmental standards. But it's difficult to know — because the bulk of information about its activities and even decision-making processes is kept secret by commercial-in-confidence clauses.
EFIC is self-funding and usually makes a profit, but the commonwealth (read, taxpayers) guarantees all monies payable. This guarantee has never been called upon and EFIC has accumulated $185m in reserves, as well as providing dividends to the federal government.
The bulk of EFIC's exposure is in credit insurance: if an overseas importer fails to pay the Australian exporter, then EFIC will.
The agency also provides political risk insurance against possible nationalisation, war or any other major political disturbance that may impact on the investment. In such an event, the EFIC will reimburse investors for losses incurred.
As the Indonesian arms example shows, the agency also loans money to overseas companies to purchase Australian goods.
A report, Putting the Ethic into EFIC, co-written by AID/WATCH and the Mineral Policy Institute (MPI), has highlighted the agency's secrecy, lack of accountability and lack of social and environmental standards.
Due in part to such pressure from environmental and human rights groups, and continued public embarrassment, EFIC posted "draft environmental and social standards" on its web site in June.
In a detailed review of the draft standards, both AID/WATCH and MPI condemned EFIC for loopholes in the standards, which make them little more than a public relations stunt. The call for EFIC to do better was endorsed by a wide range of other agencies, including the Australian Conservation Foundation, World Vision Australia and the Mercy Foundation.
Central to AID/WATCH's concerns is EFIC's exemption from the new Environment Protection and Biodiversity Act. In addition, after a project commences, there is no requirement for EFIC to monitor its ongoing environmental performance.
The consequences of this lack of monitoring and adherence to legislative standards are highlighted in the recent cyanide spill at the Lihir gold mine in PNG. EFIC provided US$250 million in finance guarantees to the mine, which even the United States' export credit agency walked away from.
The Mineral Policy Institute also criticised the continued lack of transparency. Geoff Evans, the institute's director, said, "It is a serious concern that the new EFIC standards would still allow the organisation to hide a wide range of information using the excuse that it is commercially sensitive. Any trade secrets should be removed from such material and the remainder released for public scrutiny."
In the first week of July, an international coalition of 349 non-government organisations, including a large number of low-income nations, signed the Jakarta Declaration, which demands reforms by export credit agencies and the establishment of firm environmental and social standards for companies operating outside their own country. Their campaign is gathering worldwide momentum.
For copies of Putting the Ethic into EFIC, the AID/WATCH and Mineral Policy Institute review, the Jakarta Declaration or the list of signatories, contact AID/WATCH on (02) 9387 5210 or the MPI on (02) 9387 5540.
[James Arvanitakis is AID/WATCH's campaign director.]