APPENDIX 4
Memorandum submitted by the Export Credits
Guarantee Department
(A) ECGD SUPPORT
FOR DEFENCE
BUSINESS IN
INDONESIA
1. In the past ECGD was actively involved
in supporting defence sales to Indonesia, mainly by underwriting
commercially provided loans made available by UK banks to the
Indonesian Ministry of Finance to finance UK defence exports to
Indonesia. Premium was paid to ECGD in respect of these arrangements.
2. Currently of ECGD's total expenditure
of £1.7 billion on Indonesia, support for defence sales represents
about £696 million.
3. At no time did defence business prevent
non-defence business from being underwritten. Based on assessments
at the time, all business was managed within the existing portfolio
constraints for Indonesia, and ECGD's support for defence business
has not prevented support for non-defence business.
4. Since all defence business with Indonesia
has involved the sovereign obligation of the Republic of Indonesia,
no special conditions were attached to such underwriting.
5. The last major Indonesian defence contract
supported by ECGD was in September 1996 and was in respect of
the sale of Alvis Vehicles Limited of the Scorpion family of vehicles.
Since May 1997 ECGD has issued just one new guarantee in respect
of defence sales to Indonesia. This guarantee, valued at just
£1.2 million, was issued in July 1998 in respect of Land
Rovers which, we understand, required export licences due to the
existence of a front winch on the vehicles. This was a cash contract
and full payment has been received.
6. ECGD has insured loans totalling £624
million which were provided to Indonesia to finance the purchase
of Hawk Aircraft. 24 Aircraft were delivered under the first Hawk
contract signed in 1993 and the delivery programme for the second
Hawk contract signed in 1996 and involved 16 aircraft has been
subject to the current EU Indonesian Arms Embargo with the export
licence being suspended.
7. The current state of the Hawks business
overall is that Indonesia has paid some £335 million, both
in direct payments and loan repayments. This represents 42 per
cent of the combined contract value.
8. In view of Indonesia's self-admitted
inability to meet all its external debt obligations in August
1998, members of the Paris Club, including the UK, accepted that
a debt rescheduling represented the best way to recover Indonesia's
sovereign debts, especially since Indonesia had declared its intention
to continue meeting all payments of interest. The re-scheduling
plan agreed in September 1998 aims to re-schedule all repayments
of principal (not just Hawk repayments) falling due in the 19
month period August 1998-March 2000. Three instalments of each
loan will be rescheduled to be repaid over 11 years, which includes
a three year grace period. Hawk repayments amounting to approximately
£132 million will be affected by the re-scheduling. Meanwhile,
Indonesia has not defaulted on interest payments, and ECGD fully
expects this to continue. Likewise, ECGD is confident that Indonesia's
re-scheduled debt will be repaid in line with Paris Club agreements.
9. ECGD's primary role in the provision
of export credit guarantees is to assess the payment risk. Where
an export licence is required, the effectiveness of ECGD's guarantee
is conditional on an export licence being in place, and on each
occasion that a further drawing is needed, the bank advancing
the finance must ensure that the export licence continues to be
valid. All licence applications for defence exports are considered
against the criteria announced by the Foreign Secretary on 28
July.
10. ECGD participated fully in Indonesia's
international debt restructuring arrangement agreed in Paris in
September 1998. Indonesia's official creditors agreed to reschedule
certain sovereign debt payments falling due between 6 August 1998
and 31 March 2000. The debt to be rescheduled relates to principal
payments in respect of contracts entered into prior to 1 July
1997. Indonesia continues to maintain interest payments on this
debt. ECGD expects to reschedule over 200 separate payments totalling
around £260 million over the period, 75 per cent of which
is in respect of defence business. The settlement with creditors
provides for repayments over 11 years which includes a three year
grace period. Any amounts rescheduled are to be recovered in full
without loss to ECGD or the taxpayer.
(B) ECGD SUPPORT
FOR ALL
DEFENCE BUSINESS
11. The attached tables give details of
all defence business where a guarantee was issued in the two periods
1 May 1997-31 December 1997, and 1 January 1998-31 December 1998.
Defence Business Between 1 May 1997 and
31 December 1997
Amounts in £ Sterling
|
| Total Amounts
|
|
| Greece | 18,697,206.00
|
| Indonesia | 3,638,467.59
|
| Korea Republic of | 62,386,969.00
|
| Kuwait | 55,679,778.00
|
| Lithuania | 4,771,565.00
|
| Qatar | 1,952,192.00
|
| Qatar (Project Nile) | 142,911,566.11
|
| Saudi Arabia | 225,000,000.00
|
| Thailand | 27,314,115.00
|
| United Arab Emirates | 9,801,000.00
|
| United States | 54,831,068.00
|
|
| Total for All Markets | 606,983,926.70
|
|
Defence Business Between 1 January 1998 and 31 December
1998
Amounts in £ Sterling
|
| Total Amounts
|
|
| Brazil | 29,349,826.00
|
| Brunei Darussalam | 580,265,045.00
|
| Egypt | 8,832,982.00
|
| India | 14,339,300.00
|
| Indonesia | 19,006,028.08
|
| Italy | 1,514,416.00
|
| Malaysia | 14,622,299.45
|
| Oman | 22,045,266.00
|
| Sweden | 4,064,879.00
|
| Turkey | 35,600,063.00
|
| United States | 10,346,400.00
|
|
| Total for All Markets | 739,986,504.53
|
|
|
