The Guardian December 6, 2000


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

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