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Reform of the Spanish Export Credit Agency will create more Southern debt

03 December 2009

At the end of 2009, the Spanish parliament will vote on reforming the main public mechanisms that generate external debt owed by Southern countries to the Spanish state. The mechanisms that will be affected by the reform are the Development Aid Fund (FAD) and the Spanish Company of Credit Insurance to Exports (CESCE), the Spanish Export Credit Agency. If the reform goes ahead, impoverished countries risk falling further into debt and human rights violations will become more prevalent.

FAD credits

FAD Credits are credits granted by the Spanish government to developing countries. They were created in 1976 with the dual purpose of providing overseas aid for impoverished countries and promoting the exports of Spanish companies, as the credits are granted on the condition that the recipient uses the aid to invest in Spanish goods and services. Whilst the Spanish government promotes FAD credits as a tool for delivering Official Development Aid (ODA), the grants are of most benefit to the commercial interests of Spanish transnational companies, and in fact have serious effects on the rights and the social and economic development of Southern countries.

CESCE

Furthermore, CESCE, established in 1970, is the most important financial tool used by the State to promote Spanish companies internationally. CESCE issues insurance that covers the political and business risks of Spanish companies engaging in activities with other countries. It works as follows: a Spanish businessman deals with a bank in order to grant a loan to a company from a Southern country to contract his services or products. CESCE secures this loan so that, in the case of default the bank receives payment directly from CESCE, which then obtains the money from the indebted contracting company from the South. CESCE and the bank then impose terms of sovereign guarantee to the State of the impoverished country, which pays the debt in cases where its company cannot pay. Therefore what was corporate debt now becomes public debt, with the impoverished country being indebted to the Spanish State (CESCE).

Both mechanisms have been denounced by civil society and human rights organizations for more than 30 years for the following reasons:

• They generate illegitimate external debt

• They use public funds, generated by Spanish tax payers, to fund the private interests of Spanish transnational companies, at the expense of human rights

• They are one of the main means of political and economic domination in Southern countries.

Generating illegitimate external debt:

Both mechanisms lack openness, democratic control (participation of the parliament and the population) and public mechanisms of assessment, monitoring and independent reporting. This means that external debt can sometimes be contracted by dictatorial and/or corrupt states without democratic consent. The recent official audit of Ecuadorean debt reports evidence of illegality, unlawfulness and corrupt management of the credits contracted with the Spanish State –95% of this debt belongs to FAD credits bound to the purchase of Spanish goods and services. Southern countries are bound to use their resources to the interest payment of an illegal and unlawful debt, rather than giving priority to social welfare spending, continuing the cycle of impoverishing the population. 

Funding the private interests of Spanish transnational companies, at the expense of human rights

These contracts have been supporting projects which do not respect human rights. For instance, since 1988 Indonesia has received numerous credits charged to the Spanish FAD, during one of the most bloodthirsty military dictatorships in Asia. In 1992, one of these credits was awarded to a contract for developing a communications network, executed by the Spanish company DEFEX S.A. This network was used by the Indonesian army and police as a tool for repression.

The aim of both mechanisms is to internationalise Spanish companies, some of which have been denounced for violating the economic, social and environmental rights of Southern countries. CESCE transactions have even supported Spanish arms producing companies and other projects that have been put into question for their serious effects on society and the environment. The two ENCE projects for opening paper mills in Uruguay is another example. In 2006, the first project was interrupted as a result of public pressure, in the wake of the international-scale conflict between Argentina and Uruguay. The dimensions and capacity of the second project would be twice as large as the first, and CESCE is considering supporting this second project, despite it being rejected en masse by several local organizations. This example shows how these publicly-funded mechanisms support actions that favour private interests rather than adhering to the international commitments that the Spanish State has signed as regards human rights.

Political and economic domination:

These mechanisms are a key geopolitical and geostrategic tool, as they allow governments and multinational corporations of “creditor” states to benefit from the debtor countries. In order to meet debt payment and to continue to receive help by way of further credits, developing countries are obliged to impose migration control or antiterrorist policies, and to implement trade liberalisation policies that result in plundering natural resources for European interests. 

According to reports and other indications, the Spanish government’s imminent reform of these mechanisms will not only continue to support the FAD and CESCE,  but will also further boost the contributions and advice given to Spanish companies for their internationalisation projects.

The “Who owes who?” campaign believes that this proposal for reform will result in impoverished countries falling further into debt and human rights violations becoming more prevalent, and all for the benefit of Spanish commercial private interests. For this reason we are against passing reforms under the rhetorical pretext of supporting Spanish interests and development in the South.

We must join forces in this struggle against these two reforms coming soon.

If your organization has been denouncing:

• The lack of openness and democratic participation of your government

• Spanish foreign policy support of Spanish multinational corporations’ interests rather than human rights and peace

• The effects on society and the environment of Spanish multinational corporations

• The proceedings of markets deregulation and companies offshoring in order to optimise profitability at human, labour and environmental rights’ expense

then  “Who owes who?” asks your support for the demands included in this document.

To show your support, please, contact us at quiendebeaquien.estatal@gmail.com

Individual endorsements at: http://www.quiendebeaquien.org/spip.php?page=adhesiones_fad