In fact, it is the largest multilateral source of loan and equity financing for private sector projects in the developing world. IFC generally operates independently of the rest of the World Bank, as it is legally and financially autonomous with its own Articles of Agreement, share capital, management and staff. Each member country is represented in IFC board and voting power is strictly connected with the shares that each country has. Therefore the G8 and few other industrialised countries control the majority of IFC board.

The European Bank for Reconstruction and Development (EBRD) was established in 1991, to finance new private sector development in the recently ex-Soviet countries. It now works in 27 countries from central Europe to central Asia, and is the largest single investor in the region. It is owned by 60 countries and two intergovernmental institutions. Like the IFC, it invests mainly in private enterprises, usually together with commercial partners. It provides project financing for banks, industries and businesses, both new ventures and investments in existing companies. EBRD has a similar financial structure to the IFC board and voting system.

Export credit agencies can be either public or private bodies. The public agencies are run by national governments and use public money to provide exporters and their banks with insurance and guarantees against different types of risk, such as political risk, currency risk or breach of contract by a foreign government or contractor. Some ECAs also provide debt and equity. The official ECAs generally cover risks that the private sector is unwilling to bear.

Broadly, export credit guarantees work as follows. Where a company deems there is a risk of not being paid for the goods it supplies to an importer abroad, it contacts its national ECA and takes out an insurance policy, for which it pays a premium. The ECA then undertakes to pay the exporter for the exported goods should the importer default on payment.

The ECA in turn almost always insists on the government of the importing country giving a counter-guarantee whereby it takes over the debt from the ECA. In the event of a default, the ECA’s loss therefore gets added to the stock of bilateral debt owed to the ECA’s home government. Ultimately, therefore, it is the poor of the South who end up paying the bulk of the bill for failed ECA-backed development projects. Because ECA debt is charged at commercial rates, it is particularly onerous for poorer countries. ECAs are the source of 24% of developing country debt and 56% of debt owed to official agencies. In the case of the UK, 95% of the debt owed by developing countries to the UK government is in the form of export credit debt.

Export credit agencies are the largest source of public finance for private sector projects in the world. In 2000, export credit agencies supported $500 billion in guarantees and insurance to developing countries and $58.8 in export credits. By contrast, the combined total of all the loans made by Multilateral Development Banks, such as the World Bank, was $41 billion.

All of the IFIs devote significant shares of their annual loans, investments and guarantees to fossil fuel projects. It is estimated that in the period 1995-1999, IFIs allocated around US$55 billion to projects in these sectors (not including fossil fuel thermal generating plants). However, the quality of publicly accessible data is such that it is difficult to make a precise estimate. It should be noted here that public IFIs leverage other sources of capital, which adds significantly to the total amount of investments in these sectors.

Between 1994 and early 1999, oil and gas development projects and power projects using fossil fuels made up nearly 40% of project and trade finance flows to developing countries; ECAs accounted for 20% of this financing. Friends of the Earth International and other civil society groups are calling for all International Financial Institutions (IFIs) and Export Credit Agencies (ECAs), to phase-out their financing of fossil fuel and mining projects within a period of five years. Current IFI lending practices in these sectors do not contribute to the eradication of poverty and the creation of sustainable societies, as they disregard the finite nature of natural resources and exacerbate rather than ameliorate inequities. This phase-out should cover all phases of the fossil fuel and mining cycles: prospecting, exploration, test drilling, exploitation, as well as construction of related infrastructure such as pipelines and roads, and any financial and regulatory advice or programs by IFIs that favour such projects.

Links:

Multilateral development banks:

Export credit agencies:

ECGD – the UK’s export credit agency

Other financial institutions:

Non-governmental organisations / campaign groups:

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