Bringing ECAs to account
On Monday August 21st Russia fully paid off its Soviet-era debt to the Paris Club members. The deal allowing Russia to do so was signed exactly two months earlier, after Germany – Russia’s largest creditor – accepted Russia’s request to do so. Out of a total debt of US$ 22 billion that Russia paid back to its creditors, more than US$ 15 billion is going to Germany. The previous repayment schedule foresaw all Russian debt to be paid back by the year 2020 only, against an interest payment of 7%. Since this scenario is abandoned, all creditors receive on top of the US$ 22 billion another US$ 1 billion as premium for the early repayment.
Some 95% of Russia’s bilateral debt was export credit debt. The early repayment therefore means that more than US$ 21 billion has been paid to the Export Credit Agencies (ECAs) of the creditor states. Given that earlier this year also Nigeria paid more than US$ 12 billion, the coffers of most ECAs must be more than full at this time.
Under regulations of the WTO, the OECD and the EU, all ECAs are legally required to break even in the long run. The current substantial replenishment of ECA reserves should therefore lead to the following urgent steps:
- All remaining export credit debt of developing countries should be cancelled immediately at the expense of the boosted reserves of ECAs.
- Now is also the time to urge the Development Assistance Committee (DAC) of the OECD to stop allowing the cancellation of export credit debt at the expense of ODA accounts. Again, ECAs have more than enough money to properly prepare themselves for eventual future defaults.
- Now is also the time that the Export Credit Group (ECG) of the OECD should be urged to develop an accounting and reporting system for all ECAs that shows their compliance with the break-even requirement in a transparent way.
Amsterdam, 24 August 2006.
Senior Policy Advisor