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Mr. Jian-Ye Wang, Mr. Yo Kikuchi, Mr. Sidhartha Choudhury, and Mr. Mario Mansilla

implications for the role of official agencies in the years ahead. Although these changes suggest an increasing marginalization of the official agencies relative to their traditional core business, the number of such agencies has continued to grow as developing countries follow the lead of most OECD countries. Government Policies Reduction of Explicit Subsidies The sharp reduction of explicit subsidies as a result of the OECD Arrangement and the World Trade Organization (WTO) Agreement on Subsidies and Countervailing Measures (SCM) has been one of the key reasons

Mr. Jian-Ye Wang, Mr. Yo Kikuchi, Mr. Sidhartha Choudhury, and Mr. Mario Mansilla

(known as the OECD Arrangement), the privatization of ECA activity in industrial countries and state-owned enterprises in developing countries, the rapid growth of foreign direct investment and intrafirm trade, the increased availability of trade finance from local sources in emerging markets, and the rise of the private sector and other new trade finance providers. These developments have led to changes in the role played by official export credit agencies, particularly those in industrialized countries, and raise questions regarding the need for continued government

Mr. Jian-Ye Wang, Mr. Yo Kikuchi, Mr. Sidhartha Choudhury, and Mr. Mario Mansilla

and trade financing, rather than to serve subsidy or commercial policy purposes. The experience of the ECAs in industrial countries from the 1970s through the 1990s has clearly shown that international subsidy competition is costly and ultimately counterproductive. It has also shown that individual countries have much to gain by joining multilateral efforts to eliminate export subsidies. The OECD Arrangement on Guidelines for Officially Supported Export Credits provides a framework of rules that has helped strengthen the WTO discipline on subsidies. Already, some

Mr. Jian-Ye Wang, Mr. Yo Kikuchi, Mr. Sidhartha Choudhury, and Mr. Mario Mansilla

directs overall policies for government account business. The private account business is regulated by the relevant corporate and/or insurance authority. Under the auspices of the OECD, the participants in the OECD Arrangement negotiate and implement the Arrangement disciplines. The Arrangement sets limits on the terms and conditions for export credits provided by OECD member countries and an institutional framework for orderly use of export credits (see Appendix III ). The Berne Union and Prague Club All of the OECD export credit agencies and many of the

Mr. Jian-Ye Wang, Mr. Yo Kikuchi, Mr. Sidhartha Choudhury, and Mr. Mario Mansilla

, and the subsidy competition that results from that process, is not only unfair and distortionary but also costly and wasteful. The best way to level the trade finance playing field is to eliminate such subsidies. Under the OECD Arrangement and the WTO Agreement on SCM, much has been achieved in this regard but more still needs to be done in eliminating explicit subsidies. While Berne Union ECAs have recorded positive cash flows consistently since 1995, official ECAs continue to benefit from an implicit subsidy because the cost of using government-provided capital is

Mr. Jian-Ye Wang, Mr. Yo Kikuchi, Mr. Sidhartha Choudhury, and Mr. Mario Mansilla

Abstract

This paper assesses the issues of government involvement in international trade finance stemming from the recent changes in global financial markets. This study is based on discussions with representatives of export credit agencies during the period from October 2003 to May 2004. A survey of 27 agencies provided valuable insights. Financial flows facilitated by official export credit agencies are large in comparison with official development assistance and gross lending by international financial institutions to developing countries. However, the importance of officially supported trade finance has been declining relative to the rapid expansion of world trade and total capital flows to developing countries. The study highlights the key challenges facing official export credit agencies, including complementing the private sector, facilitating financing to low-income countries while helping maintain these countries’ debt sustainability, and playing a positive role in the area of trade finance in international efforts to address emerging market financial crises.

Mr. Thomas William Dorsey, Mika Saito, Mrs. Armine Khachatryan, Ms. Irena Asmundson, and Ioana Niculcea
Global merchandise trade sharply declined in late 2008 and early 2009, and some press and financial market reports assigned a large role for the decline to trade finance. However, the available evidence suggests that shocks to trade finance were not the major factor in the decline in trade. Surveys of commercial banks by the IMF and others found that while bank-intermediated trade finance fell in value during the crisis, it fell by less than merchandise trade. As a result, the share of world trade supported by bank-intermediated trade finance increased despite higher pricing margins. Other explanations appear to account for the bulk of the reduction in international trade.
International Monetary Fund. External Relations Dept.
This paper highlights that international flows of capital can promote global economic efficiency and can allow countries with balance-of-payments deficits to strike the right balance between reducing their deficits and financing them. The IMF's evolution into an effective international organization is largely attributable to its ability to adapt its activities, policies, policymaking bodies, procedures, and even its Articles in response to changing circumstances. The growth of developed and developing countries is closely linked, but better policy coordination and financial intermediation are needed.
Mr. David M. Cheney

-aid” or “associated financing” (see box). This practice is subject to only limited regulation under the OECD Arrangement. Mixed or tied-aid credits have an explicit development aid component, and provoke particularly important questions about their effectiveness and efficiency in financing development. Critics of tied-aid credits cite the distortion they create in both trade flows and development assistance by diverting scarce foreign aid funds meant for poorer countries to support commercial export sales, typically in the more advanced developing countries. Advocates