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Note: A similar letter was sent to the UK Chancellor of the Exchequer by UK NGOs on 1 April 2009

The Honorable Timothy Geithner
Secretary,
U.S. Department of the Treasury
1500 Pennsylvania Avenue NW
Washington, D.C. 20220

April 16, 2009

Dear Secretary Geithner:

We write concerning the April 2, 2009, Communiqués of the Group of 20 (G-20) countries, which call for an increase in the capacity of export credit agencies (ECAs) to respond to the global financial crisis.[1] We support a response to the financial crisis that includes financial stimuli if such government support is designed to promote an economic recovery that simultaneously brings about environmental and social benefits. We question, however, whether ECAs, as they currently function, are the best institutions to fulfill this important mission. We urge that you condition any economic stimulus role for ECAs on reforms that promote substantial reductions in greenhouse gas emissions, increase investments in renewable energy, decrease debt for less wealthy countries, and stem corruption associated with projects supported by these public finance institutions. The following sections identify opportunities and challenges in achieving this objective that we urge you to consider in further planning this initiative.

Curbing fossil fuels: By financing fossil fuel projects, ECAs are responsible for an increase in greenhouse gases. In 2008, the U.S. Export-Import Bank (Ex-Im Bank) authorized support for an estimated $1.6 billion in fossil fuel-related exports and power plants. The Ex-Im Bank’s financing for fossil fuel projects resulted in an environmental lawsuit that was recently settled, requiring the bank to establish a carbon policy and to advocate internationally for similar policies for other ECAs. The G-20 meetings provide an opportunity for the U.S. government to do so. Curbing ECAs’ support for fossil fuel-related transactions will help translate into action your recent statement criticizing subsidies for energy production, including oil and gas, on the basis of both economic and climate change concerns. Promoting renewable energy: President Obama’s domestic economic stimulus package includes increased support for renewable energy and energy efficiency—and so, too, should any international stimulus plan. Most ECAs provide woefully little support for renewable energy, however.

In 2008, Ex-Im Bank authorized approximately $30 million for renewable energy-related transactions, a paltry 1.8% of the financing for fossil fuelrelated transactions. A dramatic expansion in financing for renewable energy by Ex-Im Bank and other ECAs would stimulate economic growth, generate jobs, and aid U.S. renewable energy exporters, while helping to internationalize the Obama administration’s domestic economic and energy priorities. Meanwhile, ECAs should support the growth of the renewable energy and energy efficiency sectors in less wealthy countries through financing terms that provide advantages over fossil fuel-associated transactions. These terms should be more economically sustainable for developing countries than previous ECA schemes.

Debt and development: It is well-recognized that ECA financing is responsible for generating a significant portion of the public international debt of poor countries. In recent years, ECA debt has been approximately one third of total official public sector debt. While the U.S. proposal to the G-20 involves only short term transactions, ECAs continue to support transactions with repayment periods of over two years—the very kind of transactions that result in the most debt. In the absence of debt reforms for ECAs, these transactions will undermine the goal of the G-20 economic stimulus proposal and send a message that developed countries seek an economic recovery at the expense of developing countries.

Combating corruption: The U.S. government should be wary of economic stimuli that rely on institutions often associated with corruption. Bribing foreign officials to secure overseas contracts for their exports has become a widespread practice for global corporations seeking business in industrializing countries. Often, these transactions are associated with and supported by ECAs. Despite measures to combat corruption taken by the Export Credit Group of the Organization for Economic Cooperation and Development, this corruption persists. For example, this year one of the largest Foreign Corrupt Practices Act prosecutions in U.S. history resulted in the engineering firm KBR pleading guilty to charges associated with $182 million in bribes for engineering, procurement, and construction contracts for the Bonny Island liquefied natural gas (LNG) project in Nigeria. In 2002 Ex-Im Bank provided a $135 million “comprehensive guarantee” to support KBR’s participation in the Nigeria LNG project. Despite KBR’s guilty plea, Ex-Im Bank has not take action to debar or otherwise prosecute KBR for defrauding the bank through this corruption. Consequently, other G-20 countries can rightly question whether Ex-Im Bank and other ECAs possess the institutional commitment to manage new economic stimulus plans in a corruption-free way.

Offshore funds, “alternative investments,” and money-laundering risk: In recent years, many ECAs have expanded their participation, either directly or through co-financing schemes, in offshore funds and various opaque “alternative investments.” These ECAs have failed to subject these funds and the companies in which they invest to environmental, social, and financial due diligence monitoring, consultation, and reporting requirements. It is important that all such funds and the companies or “sub-projects” in which they invest are subject to standard environmental and social safeguard requirements, including those pertaining to environmental impact assessments, the rights of project-affected peoples, public comment, and disclosure requirements. In addition these funds and investments must be scrutinized carefully with respect to anti-money laundering due diligence requirements, including the identification of politically exposed persons associated with the funds or companies. It would be prudent to reconsider the appropriateness of allowing public financial institutions to invest in funds domiciled in offshore tax havens.

We look forward to your response and to the opportunity to meet with you and your staff to further discuss these issues.

Sincerely,

Doug Norlen, Policy Director, Pacific Environment, San Francisco

Kristen Genovese, Staff Attorne,y Center for International Environmental Law, Washington, D.C.

Bruce Rich, Director, International Program, Environmental Defense, Washington, D.C.

Stephen Mills, Director, International Programs, Sierra Club, Washington, D.C.

Charley Cra,y Director, Center for Corporate Policy, Washington, D.C.

David Hunter, Professor of International Environmental Law, American University, Washington, D.C.

Steve Kretzmann, Executive Director, Oil Change Internationa,l Washington, DC

CC:

[1] Excerpt from the April 2, 2009, G-20 Leaders’ Statement on the Global Plan for Recovery and Reform: [W]e will ensure availability of at least $250 billion over the next two years to support trade finance through our export credit and investment agencies and through the MDBs. We also ask our regulators to make use of available flexibility in capital requirements for trade finance.

Excerpt from the April 2, 2009, G-20 Declaration on Delivering Resources Through the International Financial Institutions: [T]he new IFC Global Trade Liquidity Pool which should provide up to $50 billion of trade liquidity support over the next three years, with significant co-financing from the private sector (as part of the global effort to ensure the availability of at least $250 billion of trade finance over the next two years). In order to reach this objective, we agreed to provide $3-4 billion in voluntary bilateral contributions to the IFC Pool. We also welcomed the steps taken by other MDBs to increase support for trade finance, and medium and long-term project finance through our export credit and investment agencies.