IOU: The Debt Threat and Why We Must Defuse It. Noreena Hertz

      As Iraq illustrates, arms sales are another category of exports which account for large percentages of ECA loans. In the United Kingdom, between 30 and 50 per cent of all export credits are allocated to cover sales by UK arms exporters – though not, since 2000, to facilitate sales to the 63 poorest countries in the world, thanks to an intervention by British Chancellor of the Exchequer Gordon Brown. This percentage is extremely high, particularly when one considers that defence exports only account for approximately 3 per cent of total UK exports. While a third of France’s export credits go to subsidize their arm exporters.

      The question of how the arms might be used tends to be considered irrelevant. It’s not only Iraq to which the British ECGD provided loans. In 1993, for example, it provided loans to the Indonesian authorities so that they could buy 24 Hawks from British Aerospace, and provided subsequent cover for a further 16 Hawk jets three years later. These same Hawks were later used by Suharto’s armed forces to attack villages in East Timor and, more recently, to deliver what the Indonesian authorities called ‘shock therapy’ against separatists in the Aceh province. A similar story can be told of Germany. On top of its ‘export über alles’ policy regarding credits to Saddam, Germany offered $407 million in export guarantees to the Suharto government to catalyse the purchase of 39 East German PT boats. When students protested against the purchase, the Indonesian government threw them into prison. France, as we saw in the previous chapter, provided export credits to its arms manufactures to finance the weapons most probably used in the Rwandan genocide.

      When the loans are used to buy arms, they frequently fuel conflicts, kill huge numbers of people, uphold repressive regimes and subject citizens to internal repression. They also perpetuate a cycle in which arms manufacturers, with loans in tow, encourage war-crazy powerful elites to borrow more and more to fund the purchases of their own weapons.

      By supporting arms sales, wealthy nations also encourage developing world governments to spend money on military equipment rather than on their health or educational needs. The money spent on one British Aerospace Hawk fighter jet, for example, could provide 1.5 million people with clean water for the rest of their lives. Export credits, deployed to serve the interests of the lender’s domestic corporations, so often end up working to the severe detriment of the borrowing countries’ populations. Those spared death from the barrel of a gun find their lives shortened by poor health care or famine.

      And the dreadful irony is that the lender’s weapons can end up being used against them. The US military, for example, has had to face troops supplied with its own weaponry in Haiti, Somalia, Panama, Afghanistan and Iraq.

      

      Export credit agencies illustrate in shocking form one of the most serious imbalances in today’s world. Not the geopolitical one in which countries with monies to lend wield power over those that need to borrow, nor the imbalance within developing countries which can allow developing world leaders to take out loans without being held to account for their use. But an imbalance that lies at the core of developed nations themselves. An imbalance of power between corporate interests and the public interest, between economics, politics and society.

      Subscribing to the myth that business interests serve the national interest, Western countries use ECAs for 80 per cent of their investment in developing countries subsidizing them and providing a risk-free bonus for the commercial banks that have lent the investment capital. And with no quid pro quo at all that the favoured business employ the peoples of the subsidizing government, invest in its country or fulfil any national interest.

      The story of the ECAs is also a story of barefaced hypocrisy.

      The rich world censures the poor for its high levels of military expenditure, yet continues to provide the funds so that it can buy its arms. The Europeans deify multilateralism and sign up to a range of environmental conventions – Kyoto, the Convention on Biodiversity, and so forth – supposedly to protect the environment and slow down climate change, yet Europe’s ECAs finance the very fossil fuels and energy intensive projects that will lock in higher emissions in the developing world (thus recreating there the same environmentally unsound development path these countries themselves followed). While in the US, the justification for rejecting Kyoto is supposedly in part because the Protocol does not require emissions limits for developing countries, countries in which American ECAs are financing the building of environmentally unfriendly power plants. The developed world unapologetically uses its ECAs to subsidize its exporters, yet demands in the name of ‘free trade’ that developing countries do not protect their producers in any way at all. And, in the name of investment, saddles the developing world with yet more repayment of debt and debt at the higher rates of the commercial banks rather than the lower rates of the bilateral or multilateral loans.

      The case of export agencies rams home the Janus-faced nature of the West. A developed world that espouses concern for human rights, transparency and environmental issues on the one hand, yet on the other bankrolls projects that are at complete odds with any such concern. A developed world wedded to multilateralism which it defines in a way that serves the narrowest of corporate interests.

      So it is that the world’s poorest countries sink further and further into debt whilst Western corporations grow fat from government-backed projects that fuel conflicts, harm the environment and have built-in kickbacks. Rather than being a tool for development, ECA funds often serve to feed the vicious cycle of corruption, underdevelopment, conflict, and debt.

       CHAPTER FOUR Pushers and Junkies

      ‘Imagine a bank manager you didn’t know came knocking on your door, begging you to borrow some funds.’

      Crossbones and bananas

      He must have been good-looking when he was younger, although now with his paunch and perma-tan, it’s hard to imagine. But clearly there was a time when he was a player: the waterbed and hot tub are still there – I know because he pointed them out, as he showed me around his spectacular, though crumbling, apartment. Stained-glass windows shipped in by the Rothschilds, wooden panels, galleried living room and everywhere his own amazing photos of Africa, the continent in which he spent the best days of his life.

      In 1969, the year man landed on the moon, Richard Nixon took office as President and Charles Manson murdered Sharon Tate, Karl Ziegler was 26, and just out of business school when he went off to Kenya with First Chicago to head up the bank’s syndicated loans division.

      The biggest loan he made was to Nigeria in 1975, a jumbo loan of $1.4 billion. It was the biggest loan, in fact, that had ever been made to that country. $400 million of it went to the Wari Steel rolling mill (that part of the loan supported by Hermes, the German Export Credit Agency) and the rest undesignated, a generalpurpose loan to support Nigeria’s balance of payments. Nigeria, he told me, was a good risk at that time. It was one of the world’s major oil exporters and the oil price was high.

      It was a good risk, true, in the sense that it wasn’t likely to default, but it was not exactly the most salubrious of countries to lend to. Especially at the very time that Ziegler was working on the deal. Because right then the country was embroiled in a huge and highly visible scandal. A number of public officials and private contractors had imported over a million tons of cement at hugely inflated prices using central bank funds with the difference between the market price and the price they paid to be shared as a kickback between them. But rather than arriving in instalments, the shipments arrived en masse. With hundreds of cement ships waiting to offload their cargo in a harbour which, at the best of times, could only unload ten ships a week, the shipments began to solidify in the hulls, rendering many ships useless, fit only to be scuttled.