OECD debates allowing some private sector ECA support to be called development assistance

(ECA Watch, Ottawa, 31 January 2017) On January 18, 2017, the first day of a 2 day special meeting of a joint OECD Development Assistance Committee (DAC) and OECD Export Credit Working Group (ECG) task force took place with a number of outside CSO and business representatives, to discuss changes ("modernizations") in the definition of Overseas Development Assistance (ODA), with a view to "liberalize" ODA rules to allow subsidies to private firms to be counted as ODA. This change raises a number of risks, for example it could permit a rise in ODA without any change in expenditures as a portion of the work of Development Finance Institutions (DFIs), and possibly also of Export Credit Agencies (ECAs), which could be counted as ODA.

The basis of these changes would be in the definition of the "grant element" or "subsidy" in private sector instruments (PSIs) such as loans, guarantees or equity. This involves complex comparisons of PSI rates to market rates, with the difference counting as "grant element". As ECAs increasingly undertake loans as well as guarantees, and DFIs increasingly provide guarantees as well as loans, they find themselves at times financing (and possibly competing for) components of the same projects. Those ECAs which are members of the OECD "Arrangement" are prohibited by the World Trade Organization (WTO) Agreement on Subsidies and Countervailing Measures (ASCM) from providing export subsidies, i.e. "grant elements".

It is against that background that reportedly a number of OECD ECAs are opposed to the current proposals advocated by the OECD-DAC. While ECA's mandate is clearly to support domestic companies doing business abroad, it is quite troubling that officials that are supposed to fight poverty and inequity are widening their mandate to many kinds of private sector support as well, without taking care to examine the consequences. To ensure the ownership of developing countries on how the Sustainable Development Goals (SDGs) are to be financed, the OECD should be exploring in quite different directions. The current discussions of ECAs and ODA raises CSO concerns that ODA could be (mis)used as a source of subsidy for donor firms and that it could be directed away from current countries and sectors toward private sector support, middle-income countries and a reduction of actual public money available to developing countries.