Britain's Debt Secrets by Jubilee Debt Campaign

November 2012

Britain’s Debt Secrets

What the UK Government doesn’t want you to know about the Department for Dodgy Deals

It is just over two years since the launch of our campaign to End Britain’s Dodgy Deals. The campaign is targeting the more than £2 billion of debt owed by developing countries to UK Export Finance – a secretive government department based in Canary Wharf which backs loans for UK exports overseas.* A big share of the debts owed to UK Export Finance arose from failed trade deals with some of the world’s most notorious dictators in the 1970s, 80s and 90s, including for military goods used to suppress their own people. While most of these dictators are now out of power, their debts are still being paid by the people.

Documents in the National Archives have revealed details of UK military exports to Egypt in 1970s and 80s.

Since 2010, tens of thousands of people across the UK have joined our call for the coalition Government to audit these debts and cancel those that are unjust. The Liberal Democrats have a party policy to audit all the debt owed to the UK and cancel those found to have come from “reckless loans to dictators known not to be committed to spending the funds on development”. But so far Liberal Democrat Business Minister Vince Cable, who is in charge of UK Export Finance, has said only that he is “not minded to pursue such an audit.”

investigation. Scouring 30-year old �les in the National Archives, using Freedom of Information requests, and in combination with parliamentary questions from supportive MPs, our activist researchers have unearthed crucial information related to debts owed by countries including Egypt, Argentina, Zimbabwe and North Korea. This brie�ng summarises what we’ve uncovered about Britain’s debt secrets.

So we decided not to wait for the Government to release the information and have carried out our own

Parliamentary questions and Freedom of Information requests have shown that Egypt still owes £100 million

Exhibit 1: Arms to Egypt

* Until late 2011 UK Export Finance was known as the Export Credits Guarantee Department (ECGD). In this brie�ng we refer to it as ECGD when talking about past contracts, and UK Export Finance when talking about present debts. Though the best name is still ‘the Department for Dodgy Deals’.

to UK Export Finance. In October 2011, we released documents from the National Archives exposing that some of this debt is from loans used to fund arms for President Sadat (1970-1981) and his successor Hosni Mubarak (1981-2011). By 1979, £40 million of loans (20% of all UK-backed loans to Egypt) were for arms sales to President Sadat, including Swing�re missiles and Lynx helicopters. In 1985 and 1986 ECGD was reported as backing loans of £250 million for further arms sales, though it is not clear whether these deals were concluded. This included a tank factory near Cairo and a military city west of Alexandria.

Egyptian economic issues at this time and still decided to back further business with Egypt: “Egypt’s external debt has been steadily increasing, despite their very [cautious] attitude to commercial credit and insistence on the so�est possible terms,” it wrote. “There is little sign of any likely improvement in Egypt’s present or future situation.”

Exhibit 2: Argentina ‘owes’ UK debt for Falklands arms Documents in the National Archives reveal that the UK Government, through ECGD, backed arms deals with the military junta in Argentina in the run-up to the Falkands War of 1983.

In an answer to a parliamentary question “Egypt’s debt is Mubarak’s Indeed, the archives, last December, then debt. It is not the Egyptian which include a letter from Liberal Democrat people’s. Egyptians never had then Foreign Secretary Business Minister Ed a say in the borrowing that was David Owen, show the Davey con�rmed that done in their name, let alone British Government was the debt owed to the borrowing to buy arms.” keenly aware of the odious UK “includes export nature of the Argentina – Dina Makram Ebeid, Popular Campaign contracts relating to the regime – describing it as supply of communications to Drop Egypt’s Debt ‘worse’ than Pinochet’s equipment e.g. telephone Chile – and that conflict and radio sets, to the Egyptian Government for use by the armed forces.” The over the Falkland Islands was possible. Nevertheless, in October 1979, the British Government raised the rest of Egypt’s debt remains unexplained. amount of loans it could back to Argentina from £100 million to £500 million to “provide room ... for the Today, in order to keep paying this debt, Egypt’s potential arms contracts.” government is taking out multiple new loans – driving a debt cycle well known to countries across the world. As of 2012, Argentina still owes the UK £45 million The Popular Campaign to Drop Egypt’s Debt, based worth of debt – this includes loans for two Type 42 in Cairo, is leading the call for an investigation of all Destroyers, two Lynx helicopters and Sea Dart missiles Mubarak’s debts and the cancellation of those which which were used in the invasion of the Falklands. One are unjust as they haven’t bene�ted the people. of the Lynx was the �rst Argentine aircra� to land on the Falklands a�er the invasion. When the Falklands Egypt defaulted on the payment of its external debt War was underway, Argentina should still have been in 1986, resulting in ECGD paying claims in respect of paying the British Government for weapons being used export contracts it had supported prior to this date. Jubilee Debt Campaign found evidence in the National against British soldiers. Archives that, in 1985, ECGD was perfectly aware of The debt overhang le� by Argentina’s military junta was not cancelled, despite a court case in 2000 �nding that loans to Argentina under the dictatorship were part of “a damaging economic policy that forced [the country] on its knees through various methods ... and which tended to bene�t and support private companies – national and foreign – to the detriment of society”. This failure to deal justly with dictator debts ultimately helped fuel Argentina’s debt crisis in the early 2000s, which culminated in its 2001 default. Skeletons protesters target Business Minister Vince Cable at the Lib Dem spring conference in March.

Exhibit 3: Enabling police repression in Zimbabwe

Exhibit 6: Arming Saddam Hussein’s Iraq

Jubilee Debt Campaign has been working alongside ZIMCODD, the Zimbabwe Coalition on Debt and Development, for many months to try and uncover the origins of the £210 million debt owed to the UK.

In the 1980s ECGD backed loans to Saddam Hussain’s government to buy British exports, including weapons. O�cially, from 1985 20% of loans (£50 million) could be for arms sales. However, some projects that were for military related equipment were not counted within this limit. In 1988, following the end of the Iran-Iraq war, the limit for backing loans for o�cial military sales rose to £100 million.

Information released via Freedom of Information reveals that Zimbabwe’s debt to the UK includes loans from Tony Blair’s government to Zimbabwe’s police force in 1998 to buy 1,500 Land Rovers which were later used in internal repression. The loans were given despite the fact Zimbabwe was already spending a quarter of government revenue paying foreign debts. No social or economic impact assessment of the deal was undertaken. The UK claims £21 million is still owed on the Land Rover loans.

Following the �rst Gulf War the Scott Inquiry into arms to Iraq was set up, which reported in 1996. This and subsequent other investigations found that loans backed by ECGD included:

• £14 million for the Falluja 2 chlorine and phenol plant which was secretly built in 1985 by the British subsidiary of German Uhde Ltd. Paul Channon, Campaigners in Zimbabwe are calling for an audit of trade minister at the time, instructed the ECGD to the country’s debt to �nd out who did and did not keep these deals secret from the public. At the bene�t from past loans. time the Iraqi regime was gassing its opponents and Iranians. Reports suggest there was a strong possibility the plant was used for manufacturing chemical weapons. The plant was also later cited by the US to ‘prove’ Iraq’s capability of producing In May 2011, an answer to a parliamentary question weapons of mass destruction. revealed that North Korea owed £5 million of debt to • £42 million for Racal to supply Jaguar V radios to the UK Export Finance. Further Iraqi army. FOI requests and research • £10 million for the Iraqi “We need a much more open in the National Archives army to buy Marconi and transparent system. It’s reveal that this debt is Command and Control almost impossible to track down owed for a petrochemical equipment crucial for when the debts originated and complex project backed in accurate artillery �re. what status they have at any 1972 by ECGD. The project was listed given time.” as for civilian purposes – Malcom Bruce MP, Liberal Democrat Chair North Korea, described by to bypass the military of the International Devleopment Select ECGD in 1984 as “a largely loans limit. Committee, June 2011 isolated, xenophobic • £18 million in 1988 for Communist dictatorship” the Iraqi airforce to wasn’t insured for supply equipment from business by any other country’s Export Credit Agency Tripod Engineering Co Ltd. apart from the ECGD because, among other reasons, it was considered di�cult to assess its creditworthiness. Iraq began defaulting on some of its debts in 1987, though it is thought payments on UK deals continued. By 1989, the UK and US were the only two creditors from whom Iraq had not requested debt rescheduling. Our Freedom of Information requests have shown that Burma still owes over £54 million to UK Export In 1990 Iraq invaded Kuwait, when it supposedly came Finance for deals related to turbine generators, power under an arms embargo, though the Scott Report found engineering and textile equipment. These loans were that arms sales did not necessarily come to an end with backed by ECGD between 1979 and 1988. the embargo. We presume Iraq began defaulting on their UK-backed loans from 1990 on – this would have From 1962 Burma was ruled by a military dictatorship led to debts owed on the deals listed above being paid a�er a coup. Under military rule, protests were violently o� by ECGD, and the debt coming to be owed directly to suppressed. In 1988 a large scale uprising against the the UK government. regime was met with a violent reaction – thousands were killed, and a further military coup took place, The year a�er the US-UK invasion of Iraq in 2003, Iraq’s bringing to power a regime of extreme brutality which debt to the UK was £1.3 billion. Western governments continues today. agreed to write o� 80% of the debt. The UK cancelled

Exhibit 4: The only country backing deals with North Korea

Exhibit 5: Exports to Burma

£950 million between 2004 and 2008 – all of which was counted as ‘aid’. Iraq’s debt to the UK is now £282 million. The Iraqi government began making payments on the debt in 2010. They are due to pay around £20 million a year between now and 2028.

Exhibit 7: Cold War lending to Mobutu’s Zaire In 1989 ECGD backed loans to the then Zaire (now Democratic Republic of Congo) state mining company Gecamines. This was under the rule of General Mobutu, when it was known the regime was pillaging Gecamines of resources. It has been estimated that $240 million a year was stolen from Gecamines by Mobutu and others in the 1980s. The UK and institutions such as the IMF and World Bank kept lending to Mobutu and Zaire in order to prop up the dictator during the Cold War. Congo began defaulting on its debts in the 1990s as new lending dried up, Mobutu was overthrown and the country descended into civil war. In 2003 Congo entered the Heavily Indebted Poor Countries (HIPC) initiative of the IMF and World Bank, and �nally quali�ed for debt relief in 2010. While the UK government says it cancels all of the debt owed to it by countries which �nish the HIPC scheme, a Freedom of Information request has revealed that while the UK has cancelled £91 million owed by Congo, a further £19 million from the Gecamines deal remains on the books. A year ago Department for International Development minister Stephen O’Brien told Parliament that the UK has “cancelled all of the £91 million of remaining debt” owed by Congo. But in fact Congo still owes £19 million. The UK government says it has not cancelled the debt because it is owed by the state mining company Gecamines rather than the Congo government. However, UK Export Finance contradicts this by listing it as a debt owed by the Congolese state. Under questioning in Parliament earlier this year, Business Minister Norman Lamb, said “Consideration is being given to abandoning recovery, which would lead to the debt being written o� in full.”

Breakthrough in 2012 In total, more than 40,000 people have now taken action in support of a full audit of the debts owed to the UK. Nearly 200 MPs have signed an Early Day Motion in Parliament to support an audit, including nearly all Liberal Democrat backbench MPs. Labour MP Lisa Nandy has presented a Ten Minute Rule Bill in parliament, and

a cross-party group of MPs has conducted an enquiry into UK Export Finance, due to report in late 2012. In November this pressure �nally led to a breakthrough, when UK Export Finance released �gures on the trade sector and number of all contracts that have become debts owing to the UK. While the contracts themselves have not been released, the �gures have vindicated our concern about dictator debts. They reveal that: • More than a quarter of Egypt’s £100 million debt comes from loans for military equipment to past dictators; • Three-quarters of Indonesia’s £450 million debt comes from military loans to General Suharto. (We already know these include Hawk jets used to crush protest.) • Nearly 40% of Argentina’s debt comes from loans for pre-Falklands military goods. The evidence we have uncovered in the campaign so far has revealed tens of millions of pounds of debt that is plainly unjust. There are likely to be further Dodgy Deals lying in UK Export Finance’s �les waiting to be uncovered. It is vital that we keep the pressure up for the unjust debts already uncovered to be cancelled, and for a full audit to be carried out so that people in borrower countries, and UK citizens, can judge which debts should and should not be repaid.  TAKE ACTION: Ask Vince Cable to reveal all the skeletons in the cupboard and cancel all debts found to be unjust: www.jubileedebtcampaign.org.uk/foi  READ MORE: For case studies, the government’s response in full, and our Dodgy Deals and Zimbabwe’s debt reports, see the campaign section of our website: www.jubileedebtcampaign.org.uk/dodgydeals

Jubilee Debt Campaign is part of a global movement demanding freedom from the slavery of unjust debts and a new ﬁnancial system that puts people ﬁrst. Jubilee Debt Campaign, The Grayston Centre, 28 Charles Square, London, N1 6HT 020 7324 4722 | info@jubileedebtcampaign.org.uk | www.jubileedebtcampaign.org.uk Facebook: Jubilee Debt Campaign | Twitter: @dropthedebt