Is US Ex-Im Bank promotion of Nigeria exports a free rider threatening more debt?

At a March 15, 2007 roundtable in Washington DC, the U.S. Export Import Bank briefed more than 70 U.S. exporters on the potential for sales to Nigeria now that that country "is experiencing economic stability through improved debt management, privatization, deregulation, banking and trade policy reform, and government and institutional measures to create transparency and fight corruption."

It is interesting to note that the Ex-Im Bank roundtable was addressed by former Nigerian Finance and Foreign Minister Ngozi Okonjo-Iweala, currently a Distinguished Fellow at The Brookings Institution, the Nigerian Minister involved in brokering the Nigeria debt foregiveness deal which improved its credit rating and now makes it possible for Nigeria to borrow more.

"The World Bank [has announced] plans to curtail countries’ allocations under its low interest window IDA, to any country that borrows at non-concessional terms from commercial or new sovereign lenders. These lenders are described by the Bank using the economists’ terminology of ‘free riders’. The Washington-based institutions argue that the new lenders are riding on the largesse of the Bank and Fund which has cancelled debts, and is threatening the previously indebted countries’ longer term debt sustainability." (Eurodad)

The U.S. Import Export Bank is required under several measures to charge interest and premia for it's services which cover its costs, i.e. it's lending and guarantees are non-concessional.

Article 23 of the OECD export credit Arrangement states that all Participants, most OECD ECAs, including the U.S. Ex-Im Bank, "shall charge premium, in addition to interest charges, to cover the risk of non-repayment of export credits. The premium rates charged by the Participants shall be risk-based, shall converge and shall not be inadequate to cover long-term operating costs and losses." Similarly, Articles (j) and (k) of Annex I of the WTO Agreement on Subsidies and Countervailing Measures (ASCM) require governments to charge rates which are not inadequate to cover the long-term operating costs and losses of their programmes. Recently, the Bush administration has not requested any funds for Ex-Im in its fiscal year 2008 budget, proposing instead that the Export-Import Bank rely on fees and other income to support its operations.

Thus it would appear that all U.S. Ex-Im Bank transactions must be carried out under non-concessional terms and therefore should be the subject of the World Bank's penalties for IDA lending to Nigeria.

Gail Hurley of Eurodad notes: "There is an apparent contradiction within OECD government's, which as major shareholders of the Bank and Fund have developed the Debt Sustainability Framework, which is supposed to guide new lending decisions and ensure that creditors do not lend to unsustainable levels all over again. They are urging all creditors, including China, to sign up to it, but at the same time, within these same creditor countries, there are pressures to help domestic companies do business abroad using public money provided to official export credit agencies that are clearly not abiding by these new rules."

ECA Watch and Eurodad ask "Where are rich countries priorities? With the debt sustainability framework or with their national ECAs?" They do not seem compatible. Perhaps sorting out these contradictions could be an initial task for the newly appointed OECD Deputy Secretary General for policy coherence , Mari Amano.