Exporting goods or exporting debts? Export Credit Agencies and the roots of developing country debt

Added 06/Dec/11


Export Credit Agencies (ECAs) are institutions that aim to support export industry in their home countries. They provide official credit or credit guarantees to public or private buyers, often in developing countries. Export Credit Agencies are therefore debt-creating agencies, yet the loans they create are driven by the interests of the exporters and their home countries, rather than concern for whether the loans are useful to the host country.

This report shows that export credit guarantees are at the root of most developing country debt. Eurodad assessed the debts owed by developing countries to four European countries and found that almost 80 percent of poor countries’ debts to other governments came from export credits, not development loans.

While export credit guarantees boost the coffers of richer countries’ Export Credit Agencies, they often weigh on developing country treasuries who must repay the debts. Borrowing for productive investments that promote sustainable and equitable development can be an important strategy for developing countries; however, copious anecdotal evidence provided by case studies reveals that all too often financial transactions guaranteed by ECAs have had damaging impacts on development, the environment and/or contributed to severe human rights violations. Requiring that taxpayers in poor countries repay loans, with seriously contested legitimacy, not only diverts much needed resources away from investing in social services and productive development projects, but it also places these debt repayments in a legally and morally grey zone.


Creative accounting: How donors divert development aid to boost their exports to poor countries,

ECAs also use up precious aid, as the latter is used to subsidise exports of rich country companies. When creditor governments decide to cancel developing country debts, they use aid budgets to pay back any outstanding debts of the country to their national ECA. In practice, this means that aid money from development ministries is transferred to trade and finance ministries and agencies of the creditor country instead of being channelled as new and fresh resources for poverty eradication in developing countries.

Eurodad research shows that 85 percent of the debts cancelled from 2005 to 2009 were debts resulting from export credit guarantees. As a result, massive amounts of aid resources were transferred from aid budgets to the coffers of Export Credit Agencies, draining much-needed resources for poverty eradication.


As export credit guarantees increase after the crisis, so does developing country debt

Over the last decade, export credit guarantees for buyers in developing countries were relatively stable. However, in 2008 guarantees for exports to these countries almost tripled compared to pre-crisis levels.

It is too early to know how the sudden jump in export credit guarantees for exports to developing countries will impact on sovereign debt levels. Nevertheless, the global crisis has taught us that it is never too early for crisis prevention; mitigation is less harmful and more efficient than crisis adaption and reparation. An overly cautious approach to export credit guarantees now could probably save problems in the future.