Friends of the Earth Japan, Ikuko Matsumoto
"Private sector financial flows from industrial nations have a significant impact on sustainable development worldwide. Governments should help promote sustainable practices by taking environmental factors into account when providing financing support for investment in infrastructure and equipment. We attach importance to the work on this in the OECD and will review progress at our meeting next year".
This is part of the statement from the G-7 economic summit held in Denver in 1997. According to this statement, nowadays, the world's nations, especially the development of the developing countries strongly suffer from the lack of flow of funds from the developed countries to the public sector. The ODA budget has been sliced by 10% this year, a sharp cut due to the economic depression and administrative reform. On the other hand, the flow of private capital has been increasingly revitalized. The flow of private capital to the developing countries from the countries of the OECD was $12bn in 1985 and increased to $95 bn in 1994, an almost eight fold increase in about ten years. (Chart 1)
Until now, NGOs have kept their eyes on the environmental/social impact of the public funds on the aid and development projects. Now that the private funds for developing countries have been increasing, we should target the private funds which are lacking environmental/social consideration. The public funds on the trade insurance and export credit bear the risk on the flow of the private funds which accelerate the flow of private funds back to the developing countries. At present, the trade insurance and the trade credit are lacking social and environmental standards or clarity. In the future, while paying attention to the social and environmental impacts of private investment, the public investment on trade insurance credit must bring social and environmental standards into consideration.
In Japan, both the exchange-finance section/trade-credit sections in the Ministry of International Trade and Industry (MITI) and the Japan Export-Import Bank control the trade insurance and the trade credit. These agencies are assistance organizations similar to the ODA, their purpose is to "aim at assistance for internationalization of corporate activities". Although the public funds are handled by the institutions, the trade insurance and trade credits are significantly underestimated. [In addition, the accommodations of the funds are not well informed]. Especially, MITI, which completely lack environmental/social standards. An annual report is not provided for the public, so people rarely know the information regarding trade insurance. Of Japan's export which now totals Yen46tn, Yen19tn of the amount is insured by trade insurance. This is 35% of the total trade insurance in the world. Japan is the largest export aid country because it is protected by the trade insurance from the public funds for the exports to countries which have too much risk. The percentage of export with trade insurance is fixed by the economic condition of each country. In 1991, Japan (46%) and France (27%) were the highest in the world, compared to Germany (2%) and Switzerland (1%), the average amount of the Berne Union, which is the union of the trade insurance, is 13%.
Japan's trade insurance compensates for; 1) emergency risk on the exchange trade restrictions (political risk) 2) loss from credit risk suffered by bankruptcy of dealing company (trade risk). These risks accrue form international trade which is fixed for Japanese companies to facilitate overseas trade, for example; export, commission trade and overseas investment.
Japan's trade insurance has a Y20bn annual flow from the general account, 40% of this amount, more than Y8.0tn, far outstripping the annual ODA budget. On the other hand, the Japan Export-Import bank annually loans Y1tn 198.7bn (1996), which also exceeds the ODA budget. Of that loan, 78% is for developing countries, especially Asian countries which accounted for 47% of the 78%.
Japan Export-Import Bank positively aids the development of resources, the development aim being "our country which is poor in natural resources will continue to develop economically in the future". Financial cooperation for relative infrastructure repair is also supported by Japan's Export-Import Bank.
ECAs are formed by public funds for aids for trade and investment. In 1996 it reached US$432.0bn (Y55.5tn), 10.4% of the total, more than US$70.0bn (Y9.0tn) is to guarantee the long-term loans and investment projects for the developing countries which have serious environmental and social risks. The long-term loans from these agencies amount to 20% of the debts for the developing countries. Also, the debts of the developing countries are from the governments or the public investment agencies, which take 37% of the debts.
In Japan the export credit/investment insurance agency is known as the Export Credit Agency, in the U.K ECGD, in the U.S EXIM BANK (Export-Import Bank), in Germany HERMES, in France COFACE. These agencies work similarly to the Export Credit Agency of Japan.
Also, MIGA (Multilateral Investment Guarantee Agency) which fulfills similar tasks, concluded a reinsurance contract with MITI in June 1993. The contract can insure trade and investment which has large risks.
In 1994, the US Export-Import Bank in the Export Credit group of OECD, proposed to the ECAs in each country to establish a common environmental standard. Since then, they have tried to establish a common environmental standard in the OECD. The Export Credit Group of OECD hold meetings biannually, in April and November, which are negotiating the establishment of a common environmental standard, its progress will be reviewed at the G-7 economic Summit in Birmingham this year. The establishment of this standard is an argument that results from anxiety created by international double standards. This point manifested under the tenders for the Sankyo Dam. Although the US Export-Import bank stopped the loans for the Sankyo dam over the consideration of environmental and social standards, HERMES in Germany, ERG (Export Risk Guarantee) in Switzerland and Japan Export-Import Bank decided to loan money. The Export-Import bank of the US and OPIC have environmental standards as a result of two years of lobbying activities.
There are many examples of large scale public works that have social and environmentally nagative impacts. A large scaled dam across the Agno river in the Phillipines has enforced the relocation of many indigenous people, excavation of oil and gas resources in Sakhalin is threatening the fragile marine ecosystem. The Masimloc coal thermal power station disregards the possibilities of providing safer energy production and is seriously affecting the environment. The Singnauli thermal power plant has brought the destruction of a huge forest area and caused significant air and water pollution.
In the future, cases like the Sankyo dam must not happen again. Each country has started to make common environmental guidelines, especially in both Germany and Switzerland which have made a decision to loan money for Sankyo dam, a campaign has been initiated for export credit agency by environmental NGOs, more than 70 organizations have joined the campaign. The organizations have been complaining about the export credit agencies which are supported by public money; 1) no thorough research for environmental influences 2) no adaptation of the developing policy of German Government, even though the amount of trade insurance is twice as much as the budget of government development assistance 3) trade insurance covers military export against Turkey or Indonesia 4) low regard for human rights 5) the minimum correspondence concerning bribes.
In Japan, the Export-Import Bank decided to make a financial loan, fortunately or unfortunately, they didn't receive the motor order. [Thereafter, the problems of export credit have not been taken significantly]. However, nowadays the flow of private money has an increasingly strong impact on the sustainable development of the world, especially in developing countries. As a large export aid country, it is necessary that Japan establish environmental and social standards for export credit, disclosure of information and civil participation.
[The outlines related to export credit were agreed upon at a NGO workshop held at the end of June 1998. The outlines focussed on "the requirements of NGOs in domestic/overseas which are on the reformation of the export credit/investment insurance agencies"]. The [requirements] were for both the meeting which was held from April 21 to 22 in Paris, the meeting discussed the environmental standards of the export credit/investment agencies, and G7/G8 Summit which was held between May 15 and 17 in Birmingham.
In the future, Friends of the Earth Japan, will cooperate with domestic and overseas NGOs on campaigns about the export credit/investment insurance agencies, such as environmental and social standards, disclosure of information and civil participation. More information or anyone who is interested in the campaign activities is welcome, call Friends of the Earth Japan (telephone: 03-3591-1081 or e-mail: finance@foejapan.org)
CALL OF NATIONAL AND INTERNATIONAL NON-GOVERNMENTAL ORGANIZATIONS FOR THE REFORM OF EXPORT CREDIT AND INVESTMENT INSURANCE AGENCIES
Publicly supported Export Credit and Investment Insurance Agencies are supporting some $432 billion in trade and investment, accounting for more than 10.4 percent of world exports. Of this amount, over $70 billion a year is for long term loans and guarantees for investments and projects in developing countries that often have significant adverse environmental and social impacts. Long term loans from these agencies account for more than 20 percent of developing country debt, and 37 percent of developing country debt owed to official, publicly financed agencies.
Publicly supported private capital flows have the potential to foster environmentally and socially responsible development, thereby contributing to advance the numerous commitments towards sustainable development made by governments at the 1992 Rio de Janeiro Earth Summit as well as in subsequent international fora and agreements. Multilateral and bilateral finance agencies such as the World Bank Group and the bilateral aid agencies of the OECD countries have adopted in recent years environmental, social, and transparency policies concerning their activities, and increasingly these policies apply to the growing financial support of these agencies for private sector investment.
The lack of minimal standards of transparency, and of coherent environmental and social policies for publicly supported export credit and investment insurance agencies has resulted in an international double standard whereby these agencies are supporting projects and investments that would be unacceptable to publicly financed multilateral development banks and bilateral aid agencies. Examples include large-scale dams involving massive forcible displacement of poor populations such as the China Three Gorges and India Narmada River Maheswar projects, environmentally destructive mines threatening protected areas and indigenous peoples, large-scale coal-fired power plants with no consideration of cumulative climate change impacts or of environmentally more benign energy investments, and large scale investments in unsustainable exploitation of the earth's remaining intact tropical and temperate forests.
The lack of even a minimal commitment not to finance economically unproductive investments and expenditures by many of these agencies coupled with the lack of environmental and social sustainability of many of their investments works directly at cross purposes with the goals of other publicly supported multilateral and bilateral agencies. These agencies are a major contributor to a foreign debt incurred too frequently for unsustainable and unproductive activities, a debt burden for many developing countries that is hindering sustainable economic growth. The lack of common standards is resulting in a race to the bottom among these agencies whereby any agency that attempts to set responsible standards will be penalized.
At the 1997 Denver Global Economic Summit, the G7 countries declared that "private sector financial flows from industrial nations have a significant impact on sustainable development worldwide. Governments should help promote sustainable practices by taking environmental factors into account when providing financing support for investment in infrastructure and equipment. We attach importance to the work on this in the OECD and will review progress at our meeting next year." Although there has been much talk in the OECD, there has been little concrete progress towards an actual agreement on these issues.
Therefore, we call upon governments and the OECD to engage in a frank and constructive dialogue with civil society in our countries and in countries that are recipients of export finance on the following critical issues:
1. CALL FOR GREATER TRANSPARENCY AND PUBLIC PARTICIPATON
Access to environmental and social impact information, consultation with, and participation of civil society and affected and interested communities and groups is an elemental principle for public agencies supporting investment and economic development, a principle recognized in numerous international fora and organizations. Lack of transparency and consultation with affected communities and concerned groups increases project risk, the very thing export credit and investment insurance agencies have been created to mitigate..
2. CALL FOR ENVIRONMENTAL SCREENING AND ASSESSMENT
Environmental screening procedures prohibiting financial support for particular toxic substances and unsustainably prepared projects, as well as transparent, independently prepared, participatory impact assessments are common practices in OECD countries to help insure proper use of public funds and guarantees.
3. CALL FOR SOCIAL SUSTAINABILITY
Publicly supported private sector investment should serve the public interest in industrialized and developing countries, as the simple quid pro quo for the use of scarce public financial support where there are many alternative uses for such support. Use of public funds, guarantees and risk insurance should not contribute to the environmental and social impoverishment of affected communities and citizens, and should in no case support investments that contribute directly or indirectly to the violation of basic human rights.
4. CALL FOR AGREEMENT ON COMMON ENVIRONMENTAL AND SOCIAL STANDARDS
Based on the principles cited above, we urge our governments through the G7, OECD and other fora to call for an agreement on common environmental and social standards for export credit agencies; to set a deadline for reaching such an agreement within two years; to base the agreement on minimal existing standards in other publicly supported agencies subsidizing public and private investment such as those of the World Bank Group or the OECD Development Assistance Committee (DAC); and to extend the mandate for reaching such an agreement to investment insurance agencies not represented in the OECD deliberations but which do have a common forum in the Berne Union, the International Union of Credit and Investment Insurers.