Press Responses : Saturday, March 18, 2000
PUBLICATION The Ottawa Citizen
DATE Sat 18 Mar 2000
EDITION FINAL
SECTION/CATEGORY News
PAGE NUMBER A1 / Front
BYLINE Paul McKay
STORY LENGTH 1250
HEADLINE: Crown Corp. is owed $22 billion for mystery loans: $2.8 billion in bad debts is almost 3 times amount of Shovelgate grants; Even Canada's auditor general doesn't know who owes what
While billing itself as "Canada's secret trade weapon,'' the taxpayer-backed Export Development Corporation has racked up $22-billion in outstanding loans -- of which $2.8 billion has already been declared deadbeat.
The loan losses are nearly three times the amount involved in the $1-billion Shovelgate job-grants scandal.
The EDC, which spent $40 billion last year giving loans and credit insurance to back private Canadian companies abroad, has borrowed $13 billion against the "full faith and credit'' of the government of Canada.
No one outside the EDC's downtown Ottawa headquarters -- not even Auditor General Denis Desautels -- knows precisely who owes the $22 billion. Or when it will be repaid. Or what portion is so high-risk it will go into default and never be repaid.
The EDC -- the chairman of which is Patrick Lavelle, a longtime political ally of Prime Minister Jean Chretien -- is the Federal government's best kept secret, because virtually every deal is done behind closed doors.
Exempt from federal access to information laws, the EDC tells neither the public nor Parliament who gets assistance, the amount of financing, the terms, the collateral, or the risk of non-payment.
"The Corporation has always been exempt to reflect the fact that its operations would be constrained, if not rendered impossible, it if was expected to fully disclose,'' says EDC vice-president Eric Siegel. "Companies could not have the assurance that they could proceed without reasonable commercial confidentiality.
"The Corporation seeks to disclose as much as it can, and we are continually looking at ways to disclose more and more information without breaching commercial confidentiality.''
Yet he says the EDC is flatly opposed to being governed by federal access to information laws.
What makes the EDC money trail even murkier is that billions are being transferred annually -- under confidential agreements -- to foreign governments or state-controlled banks and agencies which can only use the money to purchase Canadian goods or spur foreign investment by Canadian-based companies.
In essence, the EDC borrows money to lend money. But the loans are not paid to Canadian companies; they are paid to foreign accounts from which the Canadian companies are paid.
That's how the EDC is helping to finance CANDU reactor construction in China, mining projects from Peru to Siberia, metal
smelters in Latin America, petroleum refineries from the Persian Gulf to the Mexican coastline, huge oil and gas ventures, and telecommunications deals in a dozen countries.
It has also backed private company exports of rainbow trout fillets, blueberries, passenger jets, car parts, cappuccino bar franchises, fire trucks, theme park water slides -- even winter footwear for dogs called "muttluks.''
On the major deals, foreign governments get Canadian taxpayers to help finance their projects, while Canadian-based companies are guaranteed a piece of the overseas action. If the repayments falter or fail, the EDC takes most of the financial hit.
Since 1992, the federal treasury has quietly covered $800 million in EDC losses on loans to foreign countries, wiping out its claimed net income for the same period.
Beginning today, the Citizen will publish the results of an investigation that uncovered details on more than three dozen secret EDC deals. The Citizen probe also compared the biggest recipients of EDC financing with corporate donations to the
federal Liberal party, and political appointments made by the Chretien government. This jarring pattern emerges:
- Companies making major donations to the Liberals have received billions in EDC assistance, plus additional government grants exceeding $200 million.
- Key EDC decision-makers have close links to Mr. Chretien and the federal Liberal party.
- The EDC has helped finance resource-sector projects that have caused major ecological damage, and undercut attempts to improve ** international environmental standards.
- Some EDC loans, tied to purchases of Canadian-supplied technology and services, are routed through state banks and agencies of governments with notorious corruption and human rights records.
- EDC loans to major private projects abroad have helped drive down commodity prices, putting Canadian-based operations and jobs in peril.
Last December, a parliamentary review of the EDC concluded when a Liberal-dominated committee voted to raise the EDC's capital spending limits and expand its mandate. The committee report was debated and adopted in less than 15 minutes.
Echoing submissions from other critics, a Reform party dissenting report called for the virtual dismantling of the EDC and the transfer of political accountability for foreign trade financing to the International Trade Department.
"As a result, the decisions being made by EDC behind closed doors might be more closely scrutinized by Parliament,'' wrote Reform critic Deepak Obhrai. "Observers would be able more readily to distinguish between deals that are too risky for the private sector, and those where government backing is being used to influence or attract a deal that might not otherwise be viable.''
The Bloc Quebecois' dissenting report noted: "There is an obvious, indeed flagrant, lack of transparency from EDC's part. Even during actual review of the (EDC) Act, it was impossible for a Bloc Quebecois MP to obtain a breakdown showing EDC's financing activities in Quebec.''
Approval of the EDC's mandate for the next decade is scheduled to be decided by the federal cabinet this spring. A cabinet submission is being prepared by the staff of International Trade Minister Pierre Pettigrew, to whom the EDC reports.
The EDC has staunch defenders in the corporate world. They include giants such as Bombardier, SNC-Lavalin, Nortel Networks, Barrick Gold and Noranda. All directly benefit from EDC financing; all gave major donations to the Liberal party.
"Industry is often quite critical of government. But this is one asset that the Canadian government has created that works extremely well,'' Nortel president John Roth told the Commons committee. "My only input would be: Don't change it too much. If it's not broken, don't fix it.''
Also backing the EDC were major manufacturing and aerospace trade associations. Delegations said the EDC assistance was efficient and effective. They also stressed that public disclosure of their deals with the EDC would harm their commercial competitiveness.
``We believe that (EDC) financing information should be protected the same as tax information,'' an autoparts association president said. "The only information that should be disclosed is statistical totals.''
"The Alliance of Manufacturers and Exporters does not want to see the competitive advantages that the EDC currently offers eroded,'' said association chairman Alan Curleigh. "The Alliance would object strongly to any revision of the Export Development Act that would restrict EDC's current capabilities. We would support any amendments that would extend those, increase EDC's appetite for risk, or ensure higher quality service at lower cost.''
The EDC contends that its client base now exceeds 5,000 Canadian companies, of which 4,300 are small and medium-sized enterprises that are acutely vulnerable to failed payments on goods shipped to high-risk countries.
Those companies collectively used $27.6 billion last year from a revolving pool of EDC credit insurance finan-cing. The money, usually lent for 90 days or less, protects Canadian exporters against defaults by their foreign customers.
Independent surveys confirm these exporters highly approve of EDC services.
"Our highest approval ratings are with small and medium-sized businesses,'' says Mr. Siegel.
``They have expressed a very high level of satisfaction with the Corporation because of streamlined services.''
Yet these companies play a minor role in the Canadian economy. Of the one million registered Canadian businesses, only 10 per cent export goods. The EDC, which employs 850 people, assists five per cent of those exporting companies.
Paul McKay is a Citizen reporter.
His email address is pmckay@thecitizen.southam.ca
