RESPONSE TO VINCE CABLE ON UK EXPORT FINANCE JANUARY 2012 1) ‘Egypt/debtor countries is/are not disputing the amounts owed in relation to export contracts that were entered into in good faith by British exporters.’ Many Egyptian people are saying Egypt should not be made to pay the debt. The Popular Campaign to Drop Egypt’s Debt has been launched with the intention of finding out where the debt inherited from General Mubarak comes from, and for those debts to be dropped. Egypt is still under the military rule of the Supreme Council of the Armed Forces, which has itself become increasingly repressive since coming to power in February 2011. It is of course unknown what the position of any future – hopefully democratic – government will be. Contractually, the current and future Egyptian governments owe the debts inherited from General Mubarak, so there can be no legal dispute of the amounts owed. The question is whether morally the Egyptian people should have to pay the debts inherited from General Mubarak’s regime. It is rare for debtor governments to publicly call for their debts to be cancelled, as they fear the reaction of international financial markets and the impact on diplomatic relations. However, it is equally rare for governments to refuse to have debt cancelled if offered. In May 2011, US President Barack Obama announced that the US would relieve $1 billion of debt owed by Egypt because “we do not want a democratic Egypt to be saddled by the debts of its past”.i This is being done in a way which allows the US to determine how the money saved by Egypt is spent – potentially on US companies. We disagree with tying debt relief in this way, but it shows how debts can be reduced or cancelled quite easily. At the least, Vince Cable and the UK government could signal they would cancel the debt if the request to do so were made by a democratically elected Egyptian government.
UK exporters would not lose out from any debt cancellation. The Egyptian debt comes from contracts in the late 1970s and early to mid1980s. UK Export Finance (then called the Export Credits Guarantee Department) backed bank loans to the Egyptian government to buy British exports. The exporters were paid at the time. Egypt repaid the bank loans until 1986 when the size of its debt meant it could no longer afford to do so – and it defaulted on repayments. UK Export Finance repaid the money to the banks instead, and then reached agreements in 1987 and 1991 for Egypt to repay the debt by 2024. It is irrelevant that the contracts were entered into by exporters in “good faith” – they were paid at the time. However, the UK government at the time knew Egypt would struggle to repay the loans. In 1979 and 1980 ECGD increased its backing for loans which were risky, but in the UK’s ‘national interest’, from £65 million to £400 million. This decision was taken by then Financial Secretary to the Treasury, Nigel Lawson. Defence Minister Lord Strathcona told Nigel Lawson “though there is some doubt as to whether the Egyptian economy is yet strong enough to justify a large increase in cover [loans], there is also a strong feeling that we should, in the national interest, give these BAe proposals [for Hawk aircraft and Rapier missiles] favourable consideration”.ii Foreign Office officials at the time said backing loans for arms sales was preferable to loans for power station equipment because this “would demonstrate our political support for Egypt during their current international difficulties. Power generating equipment would not”.iii 2) Egyptian debt does not include ‘sums related to the supply of military aircraft, helicopters, tanks or missiles’. In February 2011 Liberal Democrat Business Minister Ed Davey told Parliament the Egyptian debt comes from “400 export contracts entered into before 31 October 1986” but that “Details of the goods or services supplied under the individual contracts are no longer held nor the specific amount of outstanding debt under each contract”.iv It is therefore surprising that Vince Cable is now able to say what loans were not given for, but has still not revealed where the debt actually comes from. Even if it is true that the debt is not the result of loans for military aircraft, helicopters, tanks or missiles, this does not rule out other kinds of military equipment. In fact, Ed Davey MP clarified in parliament that the loans do relate to communications equipment e.g. telephone and radio sets, to the Egyptian Government for use by the
armed forces. A full audit of debts to ECGD would allow public scrutiny of whether the debts resulted from irresponsible lending by the UK. Jubilee Debt Campaign has found information in the UK National Archives, and in press cuttings from the time, that show: • By 1979, 20 per cent (£40 million) of UK backed loans to Egypt were classed as for military exports. • In 1980, ECGD backed £85 million of loans for Egypt to buy Rapier missiles. • In 1985, an agreement was made on ECGD backing a £100 million loan to Egypt to buy British made military equipment. • By 1986, 67 per cent (£419 million) of outstanding loans backed by ECGD were under their ‘too risky but in the national interest’ category, primarily used for military exports. • In 1986, two British companies won contracts to build a tank factory and military city, with loans backed by ECGD. 3) Debt forgiveness is a responsibility of the Paris Club, not the UK government. The Paris Club restructures debt to a sustainable level as part of an IMF agreement and economic reform programme. The UK considers that by acting collectively, the Paris Club overcomes problems that would otherwise inhibit the achievement of a sustainable solution if debt restructuring were undertaken on a bilateral basis. The Paris Club is simply 19 rich country governments meeting to discuss their collective approach to enforcing or cancelling debts owed to them. If the UK government wants to cancel more debt owed to it than agreed by the Paris Club, it can. In December 1999 Gordon Brown announced the UK would cancel 100 per cent of debt owed by countries which have completed the HIPC initiative. This has and continues to be more debt cancellation than collectively agreed by the Paris Club. As said in the note on UK Export Finance from Vince Cable “Regardless of the amount of forgiveness agreed by the Paris Club, it is UK government policy to cancel 100 per cent of the debts of those countries that have completed the HIPC process”. Furthermore, the UK government can of course take a key role in arguing within the Paris Club for debt cancellation. It is a decision by governments to make it a condition of any debt restructuring or cancellation that a country has to implement IMF economic conditions, which can include extreme free market economic
conditions such as bank deregulation, trade liberalisation and privatisation. The UK government could argue for this to change, and it can cancel debts owed to it regardless of any IMF conditions. One thing the Paris Club does not do is ensure debts are cancelled in a collective way, preventing one creditor benefiting from debts cancelled by another. The Paris Club only deals with debts owed to those 19 governments. Debts owed to other governments, the IMF and World Bank, and private companies such as banks and vulture funds are not covered. In the case of Heavily Indebted Poor Countries, this has allowed vulture funds to ignore debt cancellation and sue countries for exorbitant amounts. A properly functioning multilateral system for dealing with debt cancellation would be a debt court. A court would need to be independent of all creditors, arbitrate on whether debts were unjust and/or unpayable and able to enforce debt relief or cancellation where needed across all creditors. UK government policy is to oppose the creation of such a court. However, it is Liberal Democrat policy to lead “international calls for the creation of a fully transparent international debt arbitration service”, though Vince Cable or Danny Alexander have not done this since being in power. 4) UK Export Finance has a duty to the taxpayer and a statutory responsibility to recover debts. Under law, the Secretary of State responsible for UK Export Finance (currently Vince Cable) “may make any arrangements which, in his opinion, are in the interests of the proper financial management of the ECGD portfolio, or any part of it”.v This is currently interpreted by the government as meaning he is legally bound to seek to recover debts. This is further interpreted to mean that the government can cancel any debts in line with what is agreed by the Paris Club. If the government wants to cancel more debts than agreed by the Paris Club – as in the case of HIPC countries – it can do so, but another part of the UK government has to pay UK Export Finance to ‘compensate’ it. This currently happens in the case of cancelling more Heavily Indebted Poor Country debt than agreed by the Paris Club. The Department for International Development pays UK Export Finance money out of the aid budget; around £100 million over the last decade (we oppose debt relief being counted as aid in this manner). However, the payments could come from elsewhere, eg, directly from the UK Treasury or even from within Vince Cable’s own Department for Business.
Cancelling debts costs the UK government, and thus taxpayer, money in terms of foregone repayments. If it cancelled all the debt owed by Egypt, this would cost the UK government £99 million between 2012 to 2024; £7.6 million a year, 13p per person per year. If UK Export Finance cancelled all of the debt owed to it by developing countries, this would cost on average £66 million a year over the next 17 years; around £1 per person per year.vi This is less than the cost of the House of Lords (£77 million a year).vii 5) The government has no plans to restrict the exports that UK Export Finance can support, provided that the financial risks are acceptable and they conform with the UK Export Finance Act and international obligations it must follow. UK Export Finance conforms to OECD standards on i) sustainable lending, ii) bribery and iii) environmental, social and human rights impacts. The OECD standards are extremely weak. For example: • No checks are carried out on any projects of less than £10 million. This can be described as a ‘don’t ask, don’t tell’ policy, and means UK Export Finance could back projects involving, for example, forced or child labour. • The standards can be ignored so long as the government concerned reports to the OECD on why it has done so. • Many projects which have had serious negative environmental, social and human rights impacts have been supported under these standards. For example, UK Export Finance backed loans of $150 million to the construction of the Baku-Tbilisi-Ceyhan oil pipeline in Azerbaijan, Georgia and Turkey by a BP led consortium. There were serious human rights abuses throughout the project. Villagers in Georgia reported that a pipeline PR officer told them if they protested they would not receive compensation for having land taken away from them. One critic alleges he was tortured in 2004, in part due to his opposition to the pipeline. Amnesty International stated the pipeline created a ‘rights-freecorridor’. In March 2011, a separate part of the UK government ruled that the BP-led consortium is breaking international rules governing the human rights standards of multinational companies. Yet in its 2010-11 Annual Report, UK Export Finance says the consortium is ‘compliant’ with all its ‘relevant international standards’.
The sustainable lending standard requires the government to take account of the level of debt only in the case of low income country governments in receipt of UK Export Finance backed loans. In 2007 a loan was backed to Sri Lanka to buy bridges, even though the country was at moderate risk of debt distress. It was regarded by the government as a ‘finely balanced case’. Since 2007, Sri Lanka’s growth has been slower than predicted and its debt has increased. However, UK Export Finance is again considering backing a further loan for more bridges. Most countries, unlike the UK, have standards which go beyond the OECD’s. For example, 23 out of 30 export credit agencies check all projects, no matter their size, including for forced labour. The most effective way to improve standards is to meet those standards met by others, then try to set an example by improving them further. Cutting standards to the lowest common denominator is the opposite. 6) Defence exports are only supported if the Export Control Organisation of BIS is willing to issue an export licence. In doing so it takes account of a number of factors, including international relations, security and human rights. The UK’s Export Control Organisation is extremely weak. Campaign Against Arms Trade has shown that in 2010 of 26 countries identified by the UK Foreign Office as ‘countries of concern’ in respect to human rights, the UK approved arms exports licenses for 16 of these including Israel, Libya, Pakistan, Russia and Saudi Arabia.viii The Export Control Organisation is not meant to grant licences to countries which do not ‘respect human rights and fundamental freedoms’. In 2012 the UK government is organising arms trade sales missions to 21 countries including Colombia, India, Kazakhstan, Nigeria, Saudi Arabia and the United Arab Emirates.ix 7) UK Export Finance makes information about its operations and the business it supports publicly available under the UK’s Freedom of Information Act and in accordance with the Government’s transparency policies. In its Annual Report, UK Export Finance provides a list of most of the loans it has backed in the previous year. Some of these projects are over a year old when they are made public. Furthermore, it refuses to list some for reasons of confidentiality. It does not proactively make any information available about what projects it is planning to support prior to signing them. Therefore, civil society in the UK or the recipient
country are unaware of potential projects, and therefore have no ability to hold UK Export Finance to account. The Annual Report only lists basic information about each project. When freedom of information requests are made, for example, for the contract details, these are usually refused on the grounds of commercial confidentiality. Amounts on debt owed, and repayments made, to UK Export Finance are not made available in the annual report, though they can be obtained from parliamentary questions and freedom of information requests. Similarly, information on defaults by companies and governments is not made proactively available by UK Export Finance. UK Export Finance does not provide any information on where debts owed to it come from. In response to Freedom of Information requests and parliamentary questions, UK Export Finance normally replies that the “Details of the goods or services supplied under the individual contracts are no longer held.” However, as has been shown with Egypt, UK Export Finance can find out if it wants to.
i
Obama, B. (2011). Speech ‘A moment of opportunity’ at the US Department of State. 19/05/11. http://www.thenation.com/article/160811/full-text-president-obamas-middle-east-speech ii Ministry of State for Defence. (1980). Letter from Lord Strathcona to Nigel Lawson on Egypt and arms exports. 28/05/1980. iii FCO. (1980). ECGD cover for Egypt. Internal FCO correspondence. 01/07/1980. iv http://www.theyworkforyou.com/wrans/?id=2011-02-09a.38816.h v http://www.legislation.gov.uk/ukpga/1991/67/section/3 vi Calculated from UK Export Finance. (2011). Export Credits Guarantee Department: Lists of debts owed to ECGD under debt rescheduling agreements. vii The Guardian. (2011). Public spending by the UK’s central government departments, 2010-2011. The Guardian. 27/10/11. viii http://www.caat.org.uk/issues/introduction/impact-human-rights.php ix http://www.caat.org.uk/press/archive.php?url=20111229prs