What the Export Credit Agencies (ECA) claim to do, what they do and what they did; especially when it comes to the dams like to Three Gorges in China to the Maheshwar and Tehri Dams in India[1] is not unknown to us and I will try not to write about it. Neither will I attempt to damn the ECA’s promises. However I will attempt to share my view on the damaging effects the ECA will leave on the buyer country; both due the bruise from the dagger, economics; and the insult, environment and social unrest.
While it is common notion that the ECA funds/enables funds, for infrastructure projects that are often shunned by their nobler counterparts, like the World Bank, on grounds of Environmental/Societal Risk; I doubt if their intentions are always adequately scrutinized for doing so.
It can almost always be argued that the reason behind ECA backing such projects, is that the money flowing in through the ECA, which is often the taxpayer’s money of the lending country, can in effect, through promotion of the interests of the lending country’s firms, flow back to its taxpayers. However why, should taxpayer, or for that matter, the government of the lending country support/create the ECA in the first place? Is it not a lot safer for them to invest/insure with the taxpayer’s money, less risky avenues within their country?
The argument against this, that the firms of the lending country, can in effect, benefit from the success of international projects, mainly in terms of gaining reputation as is the case with infra structure projects; does not completely convince me. Simply because the contracting firms/developers, of the lending country, involved are involving themselves in riskier projects. Riskier not only from the perspective that the projects feasibility/outcome/acceptance might not be adequately investigated, thanks to the confident backing of the taxpayers bucks, but also from the view point that the firms involved are alien to the host country and may be inadequately prepared to deal with the political and social challenges that may can arise during and after the execution stage of the project. This increased risk poses question; won’t the firm’s reputation, that which it seeks to better, be tarnished if the project evades success?
Now, for a change let’s look into the ECA backed infrastructure projects in the developing world where the lending country’s contracting firms/ developers are not involved in the development. An example of such kind, discussed in class is the roadway development in India. It was reasoned that the motive for doing so is obvious; and that it is for the promotion of the auto industry of the host country which will dominate the usage of the “to be developed” roadway. However when you come to think of it, is that not a rather too risky a way to promote the sales of the auto industry, for that matter any industry in the lending country? Is it done because the lending country fears that ushering direct benefits to the auto industry would harm its international trading relations, the saga of WTO regulations? I would not bet on it.
I have a reason of my own for the ECA to back risky projects in the developing world. Every penny of/ insured by, the ECA, which is in turn backed by the taxpayers money of an entire country, that is invested, is bound to, in turn attract more money in the form of private investments[2] into the project. Why, simply because a federally funded project almost always appear rosier. And what if this is so? Ah ha! The trap is revealed. By funding a project with questionable probability of success the ECAs are indirectly risking the investment of private players. Now if the project indeed does not succeed, then what happens to the private investment? What happens to the “reputation” of the investment environment of the country? Won’t the authorities of the buying country not find it more difficult to raise capital for future development projects, which may be safe and feasible, on the grounds of tarnished “reputation”? Or in other words, will this not eventually increase the dependency of the country to seek support from ECAs which fund liberally?
Damming the ECAs, the economic dagger, is nothing short of nuclear disarmament or so I believe.
Stop enslavement! Stop ECA! For Freedom and Peace!
Reference
1. The Use of Environmental and Social Criteria in Export Credit Agencies’ Practices, A Study of Export Credit Agencies’ Environmental Guidelines with Reference to the World Commission on Dams By Markus Knigge, Benjamin Görlach, Ana-Mari Hamada, Caroline Nuffort, R. Andreas Kraemer
2. http://www.thirdworldtraveler.com/IMF_WB/Export_Credit_Agencies.html
3. http://www.escr-net.org/resources/resources_show.htm?doc_id=427881
4. http://www.eca-watch.org/problems/asia_pacific/india/index.html
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