Export Credit Agencies, corporate welfare, lack of accountability
Export credit agencies (ECAs) are publicly funded government agencies that provide lending and insurance to assist companies to compete overseas. Although a positive goal in some ways, it is the way that they operate that raises a number of serious concerns. ECAs have an increasingly prominent role in large-scale infrastructure development projects. Internationally, lending by ECAs increased over the eight years from 1988 to 1996 by 400 percent, now totalling US$105 billion. ECAs support approximately US$430 billion of overseas investment overall. Around 56 percent of low income country debt is owed to ECAs, more than the debt owed to the World Bank and the IMF combined. Without even the limited social and environmental guidelines that the multilateral development banks, such as the World Bank, have adopted, most ECAs step in and fund projects that development banks have rejected. The existence of ECAs that operate without standards, transparency and accountability, means that destructive, commercially unviable development proposals continue to receive funding. The Export Finance and Insurance Corporation Australia's ECA is called the Export Finance and Insurance Corporation (EFIC). EFIC has existed under predecessor statutes since 1956 and its record is not good. EFIC has made loans to: * the Indonesian Government to buy Australian weapons; * the Ok Tedi mine in PNG; * guarantees for commercial finance backing of the Bougainville copper mine; and * provide funding for the Lihir gold mine in PNG. Given this evidence, EFIC did not operate under any real social or environmental standards. But it is difficult to know just how it goes about making decisions about financing projects, because the bulk of information about EFIC activities is kept secret by commercial-in-confidence clauses. The issues of secrecy, a lack of accountability and the absence of social and environmental standards, concerned the ALP, Democrats and Greens to such a degree that they combined in a cross-party launch of the report: Putting the Ethic into EFIC. It was co-authored by AID/WATCH and the Mineral Policy Institute in November 1999. EFIC provides three services to benefit Australian corporations: credit insurance, political risk insurance directly to exporters, and loans to buyers of Australian exports. In 1999-2000, EFIC supported a total of $6.4 billion of Australian exports. Credit insurance forms the bulk of EFIC's exposure, $5.9 billion in 1997- 98. Australian exporters obtain credit insurance so that if an importer fails to pay, EFIC will. Political risk insurance is provided against the risk of nationalisation, war or other major political disturbance that may impact on the investment in a development project. In such an event, EFIC will reimburse investors for losses incurred. There is a real need for common standards for export credit agencies internationally. Such standards should ensure that destructive projects do not go ahead. Without standards, ECAs are free to move in on projects rejected by the development banks and other ECAs. Reforming EFIC In June this year, EFIC announced the implementation of some basic environmental and social standards. At the time, environment groups, AID/WATCH and the Mineral Policy Institute, criticised these environmental standards as a public relations stunt. The two organisations made a submission in response to the draft standards, which was endorsed by a wide range of other agencies as diverse as the Australian Conservation Foundation and the Mercy Foundation. One of the disastrous projects funded by EFIC, was US$250 million in finance guarantees to Lihir gold mine in PNG. The guarantees were provided after the United States Export Credit and Investment Insurance Agency OPIC rejected the Lihir project on environmental grounds. The EFIC-supported project resulted in a cyanide spill from Rio Tinto's Lihir Gold mine in Papua New Guinea. This cyanide spill from an Australian mine exposes the Australian Government's record of inaction and in this case support for unsound environmental practices and risks. Ironically, this spill corresponded with the launch of EFIC's draft environmental standards. Although the attempt to introduce standards was welcomed by some environmental groups including AID/WATCH and the Mineral Policy Institute, these organisations remain highly critical of the lack of consultation and weak standards proposed. "We applaud EFIC for beginning both the process of implementing standards and communications with civil society, but we have also raised a large number of concerns with the standards", stated Mr James Arvanitakis, Campaign Director of AID/WATCH. "Central to these concerns are EFIC's exemption from the new Environment Protection and Biodiversity Act, and a lack of monitoring post-project implementation. "The consequences of this lack of monitoring and adherence to legislative standards is highlighted in the recent cyanide spill at the Lihir Gold Mine in PNG", continued Mr Arvanitakis. "EFIC's loans are characterised by a veil of secrecy masquerading as a commercial-in-confidence policy", said Mr Geoff Evans, the Director of the Mineral Policy Institute. "So far the Australian Government has failed to take any action to regulate our mining industry overseas. In this case the Government actually supported the development of an unsound mine." "During the life of the Lihir mine, 89 million tonnes of mine waste tailings and 330 million tonnes of waste rock will be dumped into the ocean. These practices are totally unacceptable in Australia." The Lihir proposal approved by EFIC used 1800 tonnes of highly toxic sodium cyanide annually to extract gold at the mine site. The process leaves considerable cyanide concentrations in the tailings. Scandal surrounding many of EFIC's loans has forced the Government to consider new regulations for its loans. However they fall well short of ensuring that such accidents are not repeated. "Both EFIC and the Government have yet to take any action to stop Australian companies exploiting low environmental standards, regulations and enforcement overseas", continued Mr Evans. The campaign by AID/WATCH and the Mineral Policy Institute coincided with the launch of an international campaign to reform export credit agencies, termed the Jakarta Declaration. The Jakarta Declaration was drafted by an international coalition of 349 non-government organisations (NGOs) including a large number from low- income nations. This Declaration demands reforms by export credit agencies and the establishment of firm environmental and social standards for companies operating outside their own country. "The need for governments to be more responsible for the behaviour of their nation's export credit agency and corporate citizens is being echoed by civil society internationally. "EFIC cannot ignore the demands by environmental groups internationally as well as project-affected communities to implement meaningful social, human rights and environmental standards", stated Mr Arvanitakis. Although EFIC met with both AID/WATCH and the MPI, there was no formal consultation process. The discussions centred on the many concerns raised by environmental groups rather than assisting in drafting the standards.* * * For copies of the AID/WATCH and Mineral Policy Institute submission, the Jakarta Declaration or the list of signatories, contact AID/WATCH: PO BOX 652, WOOLLAHRA, NSW 1350; Ph: 02 9387 5210 Fax: 02 9386 1497 Email: aidwatch@mpx.com.au Web: http://www.aidwatch.org.au* * * Acknowledgements: AID/WATCH