Guatemala: a study in human rights abuses

10 December 2012

On International Human Rights day, Jubilee Scotland examines the role of debt and international financial institutions on the people of Guatemala, and questions the role Scotland could play in gobal development.

By Charlotte Snelling.

For much of the post-war period, Guatemala’s past has been a story of dictatorships, terror, and genocidal regimes. It is estimated that 200,000 people have died as a result of murder, torture, and extreme poverty whilst the country continues to be affected by a legacy of successive odious governments. It remains one of the most impoverished countries in Latin America and ranks at just 131 on the United Nations Human Development Index, out of a total of 187 countries. In the Americas, only Haiti ranks lower.[1]

A recent report by Jubilee Debt Campaign has been launched to investigate the build up of sovereign debt in Guatemala and the role this has played, and continues to play, in reproducing poverty across the country, particularly in its rural areas. It looks at how debt has been accumulated, the impact on the country’s economy, society, and population, as well as the steps needed to ensure the people of Guatemala are not left paying for the illegitimate actions and unfair treatment endured at the hands of their former leaders.

Guatemala has a long history of debt and exploitation by foreign powers. In the late 1970s and early 1980s, when the wave of terror was at its highest level, foreign lending to the country increased substantially. Successive loans of between $100 million and $300 million every year were granted from 1978 to 1982 and by 1985 Guatemala’s debt had reached $2.2 billion, an increase of over $2 billion in just 10 years. The majority of this debt was owed to multilateral institutions, in particular the World Bank, and today the country is still paying these institutions back over $400 million every year. This undoubtedly has important implications for Guatemala’s ability to rebuild and develop its economy alongside providing essential services to its citizens. Money which could otherwise be spent on moving people out of poverty and developing essential infrastructure is being shipped out of the country and into the pockets of Western lenders.

Guatemalan women commemorate Rio Negro massacre

Guatemala, March 2009. Dozens gather to commemorate the 27th anniversary of the Rio Negro Massacre at Pak’oxom Peak in 1982. Photo: James Rodríguez / MiMundo.org

Significantly however, the loans granted to Guatemala were crucial in supporting the decades of terror its population endured, funding ill-conceived, unsustainable projects which impoverished families and led to displacement and destruction of rural communities. The Chixoy Dam is just one example but one which highlights some of the worst effects of the World Bank’s irresponsible lending. [2]In the late 1970s and early 1980s the Chixoy Dam project, $400 million of its budget financed by the World Bank and Inter-American Development Bank, acted only to exacerbate levels of violence and persecution against Guatemala’s indigenous people. In seeking to create a new reservoir as part of the project, the population of the Rio Negro region were threatened with eviction. When the local population resisted this pressure to move, their opposition was then exploited by the government as justification for counter-insurgency and increased violence against the Rio Negro community. It is estimated the project forcibly displaced more than 3,500 Mayan community members and led to 6,000 families suffering loss of land and livelihoods, with more than 400 people were massacred because of their opposition to the project. For the survivors the impact continues to be felt. A Probe International Report from 2001 states: “members of the Rio Negro community live in extreme poverty in comparison to neighbouring communities. However, before dam construction, the community enjoyed, relatively speaking, a high standard of living.”[3] Furthermore, World Bank loans for this project (and a second Chixoy Dam project in 1986) have cost Guatemalan governments $100 million in interest. The Chixoy Dam is a single example within a large back catalogue of odious debts originating from multilateral lending to Guatemala’s past dictatorial regimes. Worryingly the World Bank appears content to continue lending money to the country for new projects which threaten to exploit and impoverish even more communities.

As Barbara Rose Johnston at the Center for Political Ecology states, “the World Bank and Inter-American Development Bank… loans were the primary source of foreign aid to a nation ruled by a military dictatorship engaged in systematic state-sponsored destruction of Mayan peoples”[4]. Debt accrued in the period was loaned to illegitimate and unaccountable governments of which the lenders were well aware whilst only minimal, if any, token investigations into possible impacts of projects were conducted. It is unjust for new governments to be saddled with these debts and responsibility must be shared by the countries and multilateral organisations which funded and supported projects at the expense of the Guatemalan people.

The experience of Guatemala and this new report show that something needs to change. Not only should these illegitimate and destructive debts be cancelled, the accumulation of new odious debt has to be prevented. Lobbying for an audit of the debt in Guatemala and campaigning to force the World Bank to overhaul its current policy and apply ethical principles of justice, fairness, and sustainability to its future lending will be vital in this process.

Importantly though, we should also be looking closer to home. In the UK, UK Export Finance (previously the Export Credit Guarantee Department), a semi-autonomous government body existing to support UK exporters to enter in to international markets considered risky and where the likelihood of failure is high, has been responsible for numerous dodgy deals similar to that seen in Guatemala. Deals where UKEF is involved are typically made in the arms trade, aerospace or fossil fuel related industry (over 75 percent of UKEF’s observable transactions) and are often based in countries with unstable governments, despotic regimes, and areas of conflict, which further compounds their negative effects. Egypt, for example, owes the UK approximately £100mn which includes loans for arms made to the regimes of both Mubarak and his predecessor Sadat. Between 1985 and 1986 UKEF supported £250mn of arms sale loans to finance a tank factory near Cairo and a military city west of Alexandria.[5] As in Guatemala, the Egyptian people are now left paying for the actions of the governments which previously oppressed them.

Scotland has an opportunity to take a stand against unethical lending. It seems possible that, whatever the result of the referendum, Scotland will be given the powers to create export credits. We must campaign here to ensure that this agency will not follow the route of corrupt deals, human rights abuses and disregard for environmental considerations that has characterised UKEF, but instead lead the way in being a positive and socially responsible export agency, setting an example internationally of how exporters can be supported in a way that is ethical and fair[6].


[1] Jubilee Debt Campaign, 2012: Generating Terror – the role of international financial institutions in sustaining Guatemala’s genocidal regimes, p3

[2] Jubilee Debt Campaign, 2012: Generating Terror – the role of international financial institutions in sustaining Guatemala’s genocidal regimes, pp9-12

[3] Goldman, P, Kelso, C, and Parikh, M, 2001: The Chixoy dam and the massacres at Rio Negro, Agua Fria, Xococ, and Los Encuentros: A Report on Multilateral Financial Institution Accountability, The Working Group on Multilateral Institution Accountability Graduate Policy Workshop, Princeton

[4] Johnston,  BR, 2011: An Open Letter to Your Excellency, Alvaro Colom Caballeros, President of the Republic of Guatemala (reproduced on Counterpunch on 22 March 2011 as part of her work with International Rivers)

[6] Jubilee Scotland, 2012: Scotland: a new start on debt and exports, http://www.jubileescotland.org.uk/April12/debtbriefing

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Finance and Human Rights

4 January 2012

James Picardo, Campaign Director at Jubilee Scotland, spoke as part of the ‘Global Challenges’ series of events hosted by Edinburgh University. Here is what he said:

Economics on the one hand, and justice and human rights issues on the other hand, are often discussed as separate phenomena; as ways of looking at the world that don’t connect or intersect. But I believe that it’s of fundamental importance that we consider them alongside each other. In this blog I would like to use the example of Egypt’s arms debt to the UK to argue this point, touching on the gaps in international law and the importance of lending in the often violent shaping of the political map.

Jubilee Scotland is campaigning at the moment alongside its sister organisation – Jubilee Debt Campaign – for the cancellation of $100 million is owed by the Egyptian people to the UK government.

We are asking for it to be cancelled because we believe it to be an odious debt. An odious debt is one taken on by an unelected dictator – in this case Hosni Mubarak – the repayment for which is then demanded from the people of the country. This is the moral equivalent of someone breaking into your house and taking out a huge second mortgage against it, which you then have to repay when you get back into the house.

This would be enough to make the debt odious, but in the case of Egypt there is another layer to consider. The debt was used to pay for Rapier and Swingfire missiles, Lynx helicopters and a tank factory, weaponry which would actually have been used to shore up the illegitimate Mubarak regime. So to use our previous analogy, the house owner is also having to pay for the weapons that kept them out of their own house

Unfortunately, international law doesn’t recognise the concept of odious debt. This ties into the wider fact that it only recognises sovereign states and leaders; individuals, or whole peoples even, have no personality in its eyes. To go back to the house example, national law would seek to protect the interest of the party whose house had been stolen, but international law, if it operated the same way, would recognise the existence of the house, but assume that whoever was in charge of the house was the rightful owner – a kind of ‘finders-keepers’ approach to ownership. It is not a Code of Law in the true sense, as first formulated in ancient Babylon, because it does not protect the weak against the strong. It’s a system in which individuals – and whole peoples – are totally exposed to the Great Predators of the global economy: dictators, arms manufacturers, and lenders.

Mubarak’s arms debts are owed to a branch of the UK government called the Export Credit Guarantee Department (now renamed as UK Export finance), who use British tax-payers’ money to underwrite ‘high risk’ exports such as arms deals, meaning that both the arms exporter and the dictator remove themselves from the equation, leaving a debt owed by the people who suffered from the deal to us, the UK taxpayers.

The Export Credit Guarantee Department are the UK’s Export Credit Agency. Every major world power has one of these bodies, whose job it is to promote and support risky investments overseas. By using tax-payers’ money to underwrite deals they totally transform the risk profile of these risky deals, in effect creating a market where otherwise there wouldn’t be one.

For decades, Export Credit Agencies such as the ECGD have been used to set up trading relations with dictators in all parts of the world, including President Suharto in Indonesia and President Marcos in the Philippines. Their activities have provided domestic weapons manufacturers with stable overseas markets, have shored up regimes sympathetic to the West and have ensured a steady flow of debt repayments.

Export Credit Agency lending forms part of a wider portfolio of lending and aid – and it’s worth knowing that to qualify as ‘Overseas Development Assistance’ (the most widely used concept of aid) capital flows only have to have a 25% component of grant finances. This lending has been used for many decades to shape the map of the world, and to ensure that governments sympathetic to lending powers remained in charge of the house.

By sympathetic, we mean sympathetic to the supporting superpower, rather than sympathetic to the people of the country. As Franklin Roosevelt famously said of Nicaragua’s dictator Somoza, ‘he may be a son of a bitch, but he’s our son of a bitch.’

Because the bloody origins of many of these debts are not widely discussed, all debt campaigners are frequently asked whether we should in fact cancel debts to poor countries without being very vigilant on how the money is spent. To my mind this would be shutting the stable door after the horse has bolted. In the case of an Egypt or Indonesia the money for these debts has already been spent by a dictator on arms – often under the lender’s very vigilant eye.

Cancelling the debts is morally essential because it’s wrong to keep collecting money from the people whose oppression we have unwittingly colluded in. But if we are serious about stopping oppression we need to put a stop to bad lending, not just cancelling pre-existing bad debt.

In 1997, when Robin Cook became Foreign Secretary, he spoke of an ‘ethical foreign policy’. This statement was widely derided at the time as being a joke. In 1998, the scoffers were to some extent proved to be right, when the UK’s Export Credit Guarantee Department underwrote a huge sale of jet-fighters to the Indonesian dictator Suharto. The phrase ‘ethical foreign policy’ – even the idea of having an ethical foreign policy – became at this point even more bankrupt.

This trend needs I believe to be reversed. We may view ourselves as individuals, or as citizens of the world, we may campaign or give as individuals, and strive as campaigners to change the international system but we should not ignore the large proportion of our individual global impact which is mediated through UK foreign policy. It’s for this reason that, as well as building individual links with debt campaigners around the world, and while campaigning for an international system through which odious debts can be recognised and cancelled as as such, Jubilee Scotland also campaigns – alongside Campaign Against the Arms Trade and Amnesty International – for the radical reform of the Export Credit Guarantee Department.

Find our more about the campaign to end unfair lending at www.cleanupexports.org.uk and Jubilee Scotland at www.jubileescotland.org.uk


When creditors and debtors meet

1 December 2011

On October 5th, Jubilee Scotland  hosted a People’s Debt Tribunal at the Scottish Parliament, which saw Lidy Nacpil, representing Freedom from Debt Coalition Philippines and Jubilee South make the case for the cancellation of debt owed by the Philippines to the World Bank. Here an attendee of the Tribunal shares her thoughts.

‘Debt cancellation is a call not for charity but for justice’ – Lidy Nacpil.

By Olga Bloemen

We have a very fruitful partnership with the Philippines’, says the World bank ‘The World bank owes us for its damaging loans’, counters Filipino campaigner Lidy Nacpil. Jubilee Scotland is campaigning for the Scottish government to set up an international debt arbitration tribunal where creditors and debtors can meet. Thorough debt audits could help solve the debt crisis that is currently keeping developing countries in a poverty trap.

Third world debt seems to have disappeared from the public mind along with Jubilee 2000, Bono and Geldof. In 1998 and 2005, two initiatives pledged the one-off cancellation of the debts of 40 of the poorest countries. But, according to Jubilee Scotland, this remedy is ‘in many ways merely a sticking plaster’, offering too little too slowly: Many countries, like the Philippines, are excluded and debt is only cancelled to what is considered a ‘sustainable’ level, based on the country’s export earnings, while ignoring its domestic spending needs. Besides, the International Monetary Fund (IMF) and the World Bank demanded austerity measures in turn for debt cancellation like cuts on public spending and the privatisation of basic services, which many of the 40 countries have as yet not been able to meet.

This means that in 2008, the world’s poorest 48 countries still had debts totalling US$168 billion, and the 128 poorest together owed a dazzling total of US $3.7 trillion to multilateral bodies, individual countries, private companies, banks and individuals. Over the course of 2008 alone, the developing countries paid $602 billion towards servicing these debts. This year’s figures will be even higher, as the economic crisis has led developing countries to take up more loans. As a result, despite the aid rhetoric and the Millennium Development Goals, money keeps flowing from the Global South to the North instead of vice versa.

Many of the debts still stem from the 1960s and 1970s, when banks and governments in the North were eager to lend the huge amounts of money made from the rising oil prices to developing countries. Looking for Cold War allies, lending parties closed their eyes on corrupt or oppressive regimes and most of the money did not go into responsible hands and into development. In the 1970s and 1980s, the oil crisis led interest rates on the loans to soar. Additionally, falling commodity prices left countries with less hard currency to service the debts. The knock-on impact on exchange rates means that debts, which are most often counted in foreign currency, have skyrocketed in real terms for the affected countries. The debt total of US$3.7 trillion is the result.

Already since the early 1990s, campaigning organisations have called for an arbitration forum of some sort where historical cases of illegitimate or unfair debt can be lodged and solved, as well as unpayable debt relieved. With the 2010 Arbitration (Scotland) Act and the newly set up Scottish Arbitration Centre, Scotland would be a suitable host for such a tribunal. To demonstrate this, Jubilee Scotland organised a mock debt tribunal in Holyrood on the 5th of October. Here, the Philippines and the World bank met. Or, better said, Lidy Nacpil met “John Smith”, an actor who played, scarily realistically, a World bank representative quoting solely from the Bank’s official documents. In the debt tribunal, the legal principle of ex aequo et bono (“from equity and conscience”) was applied, according to which an arbitrator or tribunal has the power to move away from the law as laid down and to consider the case in the light of arguments of natural justice such as fairness and equity.

Lidy presented her country’s case: The New Economics Foundation has calculated that the Philippines need at least 63% debt cancellation in order for the government to meet the basic needs of its citizens, such as health, education and infrastructure, without taxing those living below the ‘ethical poverty line’ of $3 a day. According to a recent study, 107 countries are burdened with an ‘unpayable debt’ like the Philippines.

Former president Marcos, who governed the country from 1965 to 1985, left the Philippines with more than half of its current foreign debt. Although democratically elected, Marcos turned the Philippines into a dictatorship with martial law in 1972. When he fled the country in 1985, the country’s debt had gone from US$1 billion to of US$28 billion, most of it either stolen by Marcos or invested in failed or useless projects. The Bataan nuclear power plant is notorious in this regard. It was built by the US company Westinghouse on an earthquake fault-line at the foot of a volcano and has therefore remained unused. Westinghouse got paid generously nevertheless as the US government credit agency took over the standing debt. In 2007, the Filipino government finally completed paying off the $1.5 billion for the plant’s construction, more than 30 years after it began. As Marcos’ regime devastated the country’s economy, subsequent governments had to continue taking on loans to pay off the old ones.

During the fourteen-year dictatorship, the World bank granted five loans to Marcus. Now, the Philippines still owe the World bank around US $3 billion out of a total foreign debt of US $47,5 billion. The original loans from the World bank have long since been repaid, but because the interest has compounded, 80% of the debt is still owed. If nothing changes, Filipino taxpayers will continue to pay for the illegitimate debts of Marcos until 2025, 39 years after he was overthrown. While ‘Smith’ glorified the loans as an investment in pro-poor development, Lidy Nacpil said there is little evidence that the World bank has had any positive impact at all. ‘Debt cancellation is a call not for charity but for justice’, Nacpil concluded.

Of course, one could argue that debt cancellation would create poor incentives by making future borrowers hope that they will have their debts waived too. Also, developing countries are dependent on loans and if creditors would stop this flow of money due to lack of trust in return, the result could be disastrous, especially now in times of economic downturn. This, however, would relieve Northern countries of responsibility too easily. As we have seen, a major part of the third world debt is the result of the self-interested and reckless lending of first world creditors during the Cold War. Filipino people are currently forced to pay off a loan that was not taken up in their name and went to support an undemocratic dictator. The World bank could have reasonably foreseen this and should thus assume responsibility. Besides, one could argue that the Filipino people themselves never had a contractual arrangement with the World Bank.

The envisioned debt tribunal is just one step in creating a fairer lending system. Future loans should be given responsibly, on fair terms, and in a transparent way that is open to scrutiny by parliaments, media and citizens. Any loans given on unjust terms should be considered the responsibility of the creditor and thus eligible for cancellation in future. Jubilee’s mock tribunal demonstrated that debt arbitration can be done fairly and effectively. Or would it take a Bono to convince the Scottish government?


EXTRENAL DEBT AUDITS AND FAIR AND TRANSPARENT ARBITRATION – THE CASE OF ECUADOR

11 March 2010

On the 15th of December 2008 Ecuadorian President Rafael Correa took the unprecedented step of declaring that Ecuador would stop paying interest on commercial bonds owed by the government on the basis that they were ‘obviously immoral and illegitimate’. The decision came as a result of a comprehensive debt audit for which Ecuadorian civil society had been campaigning for a number of years.

Concern was over debt incurred under previous governments and for which many Ecuadorians felt they suffered an undue burden. This unrest was based on the belief that this debt was the result of illegal practices under former regimes, and as it turns out, they were right. The audit which aimed to establish the origins and nature of Ecuador’s external debt concluded that owing to the conditions on which they were issued and restructured, much of the private debts owed by Ecuador were illegal under both Ecuadorian and international law.

What followed from this audit was a series of shrewd financial manoeuvres by President Correa. A full scale default would not have been in Ecuador’s best interests. The possibility of being ostracised from world financial markets and the risk of being sued presented serious consequences. The threat of default however was strong enough for President Correa to cut a restructuring deal which resulted in Ecuador paying back only 35 cents in the dollar. This was helped a great deal by the President announcing the default on the very day that the three large hedge-funds which held much of the debt were being forced to liquidise their holdings as a result of the financial crisis. This devalued the debt considerably, allowing Correa to then use a large Ecuadorian bank to buy the loans back at rates high enough to fragment the debt distribution sufficiently to allow an extremely favourable restructuring deal to be forged.

Perhaps most importantly was the response from the multilateral finance institutions who, in not lodging any formal objections, implicitly offered some degree of support for such a process. This was a surprise to many, much of the mainstream media and many financial commentators condemned Ecuador for not playing by the rules and portrayed the step as a political manoeuvring by a renegade president. Their concern was over the precedent this sets, a precedent which allowed Ecuador an effective debt default despite having the ability to pay, and the worry that this will create grey areas over when debt is and isn’t required to be repaid, therefore undermining the principles on which international financial lending was structured.

These opposing reactions has therefore created clear tension and uncertainty regarding illegitimate debt and default. It does however significantly strengthen the call for an international system of fair and transparent arbitration as is advocated by a wide network of organisations including the Jubilee Movement. The adoption of such a system would allow issues of illegitimate debt to be addressed while maintaining security and stability in the international financial system, working out compromises which acknowledge fairness and responsibility.

The call for such a system is continually being strengthened as a result of various countries signalling their intentions to follow the same path as Ecuador. On December the 30th 2009 Bolivian Parliament approved resolution to set up an commission for a review of the external debt of Bolivia. In Paraguay President Fernando Lugo similarly signalled his wish for such a process and in Zimbabwe, civil society has long been calling for an audit to identify the staggering amount of odious debt incurred as part of the post colonial burden. This is an issue of tremendous relevance not only for countries in the developing world, but in the developed world as well. Iceland and Greece are two examples of countries suffering heavily as a result of increasing external debt burdens. Fair and Transparent Arbitration is therefore poised to be an issue of much debate in times to come and an idea which may cement itself as an essential part of the post-crisis financial infrastructure. This would be good news for many, especially for the poor for whom the repayment of illegitimate debt has hampered their countries efforts at poverty reduction for decades.

Drew Ritchie, Jubilee Scotland


Malawi’s debt relief enigma

14 July 2008

What was the value of Malawi’s debt cancellation (received in September 2006)?

If Malawi had received its debt relief with no hidden reductions and cuts, it would have had $101 million extra per annum free in its budget (the UK, in comparison, gave $180 million in 2006: SID, table 16.2). What it has really had is less impressive even than this. At best Malawi’s debt relief amounts to nothing more than a marginal adjustment to its domestic debt interest bill; at worst it amounts to less than nothing.

In September 2006 Malawi completed the Heavily Indebted Poor Countries process. Goodall Gondwe set out his intention to use the money saved specifically for the benefit of the poor. “Mr Speaker, Sir, and Honourable Members”, he stated, “during the budget review in March, it was proposed to spend these debt relief resources on those social activities that would benefit the poorer segment of the population.” (2007/8 Budget Statement, para. 48 – link now broken.)

But this appears to be impossible, since the terms and conditions of the debt relief Malawi received actually reduce the amount of money available for “the poorer segment”.

Gondwe’s 2007/8 Budget Speech explains that the overall debt stock was reduced from $3.0 billion to $0.5 billion, leading to saving in interest and capital repayments of $101 million in 2007/8; however, Malawi had been receiving $36 million per annum since the year 2000 in interim debt relief; so extra value provided by debt relief in 2006 was around $65 million per annum

However, a large proportion of this new debt relief money was provided under the terms of the deal agreed at the G8 Summit in Scotland in 2005: and under these terms, countries receiving debt relief also get a cut-back in the amount of development loans they receive from the World Bank. One of the terms of the debt relief deal for Malawi was that its World Bank funding would be reduced by $27 million per annum (this is, apparently, because the US won out over the UK during the 2005 G8 Summit debt relief negotiations: download article here). Now, the World Bank provides money to Malawi, it says, specifically to help with reducing poverty; given this, it seems fair to say that this $27 million per annum reduction is money that would have been, and now is not, available to benefit the “poorer segment”.

Malawi has – or had, in 2006 – huge domestic debts; this is because the government under Muluzi shored up its budgets by borrowing large amounts from Malawian and Malawi-resident businesses. An agreement was made with the IMF that a large proportion of the money saved through getting debt relief in 2006 would be directed towards reducing domestic debt. This agreement, set out in the 2006 Article IV Consultation(para. 22) ringfences $26 million per annum for the Malawian budget, and directs the the remainder to reducing domestic debt.

This means that only $26 million per annum is available for spending specifically on projects that benefit “the poorer segment of the population”. But we have already seen that the World Bank is reducing the money available for reducing poverty by $27 million per annum So Malawi had less, not more, money available for spending against poverty as a result of getting debt relief.

Certainly, by reducing domestic debt, the Malawi government will have a lower domestic debt interest bill to pay, and this will improve its financial situation overall. The IMF Article IV consultation says it will reduce domestic debt by 1.4% GDP; I have not tried to calculate the significance of this for the annual domestic debt interest bill. However, the claim made by governments and NGOs alike, was that debt relief money would go directly to pro-poor spending. “The debt relief to be provided as a result of reaching completion point will provide a great push to Malawi’s poverty reduction efforts”, said Michael Baxter, World Bank country director for Malawi.

This is a tremendous overstatement. If Malawi had received debt relief without these underlying conditions, it would have made less difference than an ungenerous donor. As it is, the debt relief will result in less money available specifically for “pro-poor” spending, but with some circumstantial reduction in the pressure of the domestic debt interest bill.

Debt relief is a noble cause: but delivered in this form it is vitiated.

Jubilee Scotland


Jubilee Scotland and Jubilee Debt Campaign meet the ECGD

12 June 2008

Kusfiardi’s last engagement was on Thursday the 5th of June, when we went with our colleague Sarah Williams from Jubilee Debt Campaign to meet officials from the Export Credit Guarantee Department, the UK government department who ensured – and are currently collecting repayments for – the bad loans that are the focus of our campaign. 

I had noticed throughout the speaker tour that the more confrontational and technical his interlocutors, the more Ardi rose to the challenge, and this meeting was no exception. He refused to be intimidated by the plutocratic architecture of Canary Wharf – ‘the elevator is speaking to us’ he remarked with a smile as we disembarked on the 13th floor of Exchange Tower – and repeatedly brought the discussion back to the core concerns of our campaign.

Ardi stressed the difficulty the people of Indonesia had in finding their feet when around 60% of their taxes went to debt repayments. He did not beg, but stressed the growth of a strong grass-roots movement in his country that was increasingly pushing the Indonesian government to de-recognise it’s illegitimate debts. Within this context I suggested that the Jubilee ‘Lift the Lid’ campaign, with its emphasis on an international and multilateral consensus on odious debts, was worthy of their serious attention.

It’s difficult to gauge how much of this serious attention we got. Certainly the meeting room was stuffed with officials of some seniority, including the CEO – Patrick Crawford. We encountered some of the usual red herrings – including the obligatory statement that it is pointless for the UK to clean up its own act when China behaves in the way it does. We were also told that standards had improved in the last few years, and that no new deals are being made to Indonesia.

While these last statements are possibly true, they are impossible to verify as long as so many ECGD-backed deals remain shrouded in commercial confidentiality. And while it felt exciting to expose this most business-minded of departments to the views of a campaigner from the Global South, it will clearly to be difficult for our campaign to make headway while the accounts of this secretive organisation remain closed to the public. To lift the lid, in other words, it may first be necessary to open the books.


THE EUROPEAN INVESTMENT BANK by Cornelia Trogmann

25 April 2008

Previously we examined the role of the Export Credit Guarantee Department (ECGD) and its role as the major UK government debt generator. Cornelia Trogmann here turns the spotlight on another lender funded by the UK government. The European Investment Bank (EIB)

The European Investment Bank was established in 1958 as the long-term lending institution of the European Union. It is mandated to provide financing in support of all policy objectives of the EU (CEE Bankwatch Network: The European Investment Bank. Promoting Sustainable Development “Where Appropriate”. November 2007). With an annual lending portfolio of more than €45 billion, the EIB is probably the largest public international financial institution. But it also is the least transparent European institution. It operates worldwide in a wide range of projects – in 2006 alone, the EIB distributed €5.9 billion to projects outside the EU – yet it does so without clear environmental, social or development policies in place. (Bank Watch 2008)  

 

But while the World Bank and the IFC operate with a single overarching mission in all their countries of operation, the EIB operates with distinct regional mandates outside the EU, as defined by the European Council. Acting outside of the EU, the bank is charged with implementing European Commission policy in the sphere of development cooperation. As a European Institution it has the duty to promote human rights and social principles outside the EU. But it still lacks specific operational policies on key social development and safeguard issues such as potential risks and impacts, public participation and information, health and safety, independent experts, meaningful prior consultation with affected communities, core labour standards, gender equality, and resettlement  (Tom Griffiths 2006) Instead, the main focus seems to lie on the European companies’ profit. Certainly, their controversial projects display a strong lack of expertise and an even stronger interest in lucrative investments. (The Guardian 2008)

The EIB is rather secretive about its projects. Minutes of its meetings are never published, so it is widely suspected that there is a culture of swapping favours between the countries. The EIB doesn’t even publish staff contact information and the evaluation of individual projects is considered as internal information and is not made public in principle. (Bank Watch 2007).

Counter Balance and Bankwatch have recently had a closer look at some of the projects the EIB has helped to fund, and the findings are worrying. One the EIBs more controversial recent involvements has been with the Gilgel Gibe hydro power project in Ethiopia, to which it contributed millions of euros (the remainder of the project was financed by the World Bank, the Austrian Development Cooperation and the Ethiopian Government). This project dates all the way back to 1985, but is still being implemented in 2008. The EIB has so far leant €41m for the construction of Gilgel Gibe I and €50m for Gilgel Gibe II. The bank has been formally approached by EEPCo for a new loan for Gilgel Gibe III, an offer that the World Bank has flatly refused to accept because of criminal proceedings that are hanging over the head of Salini Costruttori, the Italian construction company responsible for the building of the Gilgel Gibe II dam. Nevertheless, the EIB is still considering a multi-million euro loan for the construction of this third dam.

The EIB’s participation in the operations raises various concerns about the coherence and the compliance with international standards and best practices (the Gilgel Gibe III Dam does not comply with any of the seven strategic priorities of the World Commission on Dams), as well as with EU policies and with the bank’s own operational policies. For example, the EIB has apparently failed to consider that the energy generated by Gilgel Gibe III is fully export oriented. This will certainly not help the cause of Ethiopia, which already has one of the world’s lowest levels of access to modern energy services, and relies primarily on traditional biomass, which is responsible for massive deforestation that in turn causes severe erosion and loss of topsoil in many of Ethiopia’s river basins. While EEPCo (fully state-owned and currently the sole electric utility in the country) claims to have increased energy access from 17 percent to 22 percent between 2005 and 2007, figures reflecting direct access to electricity remain at only 12 percent of the population, and there is a great disparity between the access rates of urban and rural residents (Counter Balance 2008)

Also, the project cannot be considered as one of poverty reduction. Rather than bringing social development and an alleviation of poverty, the creation of the reservoir has resulted in the displacement of an estimated 10000 civilians. Of these, many were resettled on swampland, which was of poor agricultural quality and which had no electricity supply, despite being crossed by the high voltage transmission line. (CEE Bankwatch Network and International Rivers 2007).

 Neither did the EIB consider Ethiopia’s hydrological vulnerability to drought or climate change. The dam’s impact on animal disease, child and health nutrition, environmental health and ecology, epidemiology and infectious disease and soil fertility is still being analysed. (Counter Balance 2008)

The European Investment Bank, as well as the other main donors supporting the Ethiopian energy sector, justifies its investments by the projects’ potential for exporting to neighbouring countries. But from the evidence given above, the difficulties that this particular project has brought to the Ethiopian population are very clear to see. And this example is far from unique, in fact, a recent report of Counter Balance, which focussed specifically upon the Gilgel Gibe I, II and III large hydro projects, showed how goals to eradicate poverty and support local communities are most often compromised when major corporations and political elites are intent on maximising profits ( Counter Balance 2008)

Other examples of the EIB’s involvement in controversial projects include:

 Water privatisation in Indonesia. Since 1993, the EIB has granted almost €300 million in loans to projects in Indonesia, mainly in the gas and water sector. But rather than helping the poor to safe or more accessible water, these investments helped the private sector companies to increase profits at the expense of millions of consumers. (CEE Bankwatch Network 2006)

Bolivia-Brazil gas pipeline. Constructed in the late 1990s, this pipeline crosses several important ecosystems. The EIB granted a €55m loan for this project to a consortium including Enron and Shell. The EIB ignored the fact that gas is not a renewable energy, proof to many of the lack of respect the EIB shows towards EU environmental law in its projects. (CEE Bankwatch 2006)

Chad-Cameroon oil and pipeline project. In 2001, the EIB granted loans to the Chadian and Cameroonian governments and to Chevron and Exxon. Amnesty International found that the Chadian security forces carried out large-scale massacres of unarmed civilians in the oil-producing region in the late 1990s at the time of intense project preparations. The scandal was deepened further by the fact that Chad used part of the loan to purchase weapons. Nevertheless, the bank ignored the severe human rights abuse and corruption in these two countries. Negative effects include the loss of biodiversity along the pipeline route, and the poor waste management of the oil and drilling fluids threaten groundwater supplies. (CEE Bankwatch 2006)  

Mining in Zambia. The following year, the EIB granted a loan of €14m for the construction of a large mine without asking for an Environmental Impact Assessment prior to its approval of the project. This mine is a major source of air and water pollution in the local area. (CEE Bankwatch 2006).

 So what can be done to prevent the EIBs continued involvement in such controversial projects in future? Opposition parties have provided many answers, though all effectively seem to come to the same conclusion. Counter Balance, for example, has suggested that the EIB has to adopt clear and binding standards that are coherent with EU policies, and must also become more accountable for the catastrophes that are brought by their actions. (Counter Balance: European Civil Society Concerns About Inadequate Policies and Practices of the European Investment Bank. Memo for European Parliamentarians. February 2008). As Tom Griffiths has suggested, the EIB as a European Institution has a duty to promote human rights and social principles outside the EU as enshrined in European external policies and in European development co-operation treaties.  (Griffiths, Tom: 2006) Similarly, Bankwatch has suggested that the European Commission and Parliament have to exercise more control over EIB operations in poorer countries and ensure compliance with long-term sustainable development objectives. (CEE Bankwatch 2006).