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

the 1980s, new export credit commitments by official export credit agencies quadrupled between 1988 and 1995. 3 Since then, the export credit business has been affected by several financial crises in emerging markets. At the same time, the activity of ECAs has evolved, shaped significantly by the environment in which they operate, particularly government policies and the willingness and capacity of the private sector to provide trade finance. These developments raise important issues. In particular, with the recent changes in global finance, what role do official

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

Abstract

Official export credit agencies were established originally to promote national exports in situations where the private sector was reluctant to do so due to high political and commercial risks. Because their support for exporters also gives importers access to finance (through buyer or supplier credit), and because most agencies also provide insurance for outward direct investment, these institutions have played a significant role in financing for developing countries. However, official export credit agencies are not a homogenous group. Their key mandates and the institutional arrangements for providing official export credit support are summarized in Boxes 2.1 and 2.2. The first box also presents background information on the trade finance market, including key trade finance providers besides official export credit agencies.

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

Abstract

The decisions of the OECD governments to further reduce subsidies and to downsize government-supported businesses in the early 1990s were key factors in setting in motion the retreat of official agencies as suppliers of short-term export credits in industrial countries. Both national and international policies have also had a direct impact on the level, destination, and sectoral allocation of officially supported export credits. The subsequent rise of the private sector represents a fundamental force reshaping the landscape of international trade finance, with long-term implications for official agencies.

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

Abstract

The evidence and analysis in the preceding chapters indicate that, while the promotion of national exports remains the principal role of official export credit agencies, the focus of these agencies has been changing, with notable differences between industrial and developing countries. Official ECAs in industrial countries continue to fill in the trade finance gaps in markets where private sector financing is unavailable or insufficient; but in recent years, a significant share of ECA support has gone to keep national exporters competitive in global markets by countering foreign government support provided to competitors. This is particularly the case in sectors with economies of scale and noncompetitive market structure, such as aircraft and military equipment.

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

Abstract

Over the past decade, the private sector has grown to become capable of providing trade financing adequately and competitively in certain markets previously dominated by official export credit agencies. Official ECAs also have to deal with two other sources of competition originating from economic development in recipient countries: the expansion of domestic banking capacity, and improved access of borrowing countries to other sources of international financing as their income level and creditworthiness rise. The current top markets of ECAs may eventually become self-sufficient in meeting the financing needs for their capital goods imports and even in large project financing. (For instance, such was the case in Spain in the 1960s, Korea in the 1980s, and Mexico and possibly China more recently.) If these factors continue to develop, official ECAs’ share in world trade may decline further. Especially in OECD countries, official ECAs are facing the challenge of private sector competition and an associated adverse selection problem—how to break even while covering the riskiest segments of the market.

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.

Glen Hodgson

-picking the very best commercial credits. Yet because of privatization of their short-term export credit businesses, creditor governments have little or no capacity today to re-open in a crisis country on a shorter-term basis and then gradually extend longer credit terms once a positive payments track record had been established. Therefore, the current state of the credit insurance market is a fundamental constraint to restarting trade credit for crisis countries. Constraints also exist with respect to medium-term credit. Export credit systems differ widely, reflecting

International Monetary Fund

, there was a precipitous decline in export credit activity, and new export credit business remained low throughout the 1980s. 26 In 1989, however, lending activity to middle-income countries started to pick up again, and recent data indicate that this upswing has continued. 27 Data compiled by the Export Credit Group of the OECD suggest that the net flow of export credits to middle-income countries increased by 17 percent in 1991, although lending to low-income countries declined by about 2 percent. Preliminary data for 1992 confirm the continued growth in export

Mr. Christopher J. Jarvis, Mr. Balázs Horváth, and Mr. Michael G. Kuhn

privatization of some of its major shareholders. Short-term export credit insurance in the United Kingdom is also conducted through private companies (NCM-UK and Trade Indemnity). In conducting officially supported export credit business, export credit agencies have varying but often high degrees of independence, and the extent of this independence appears to depend little on whether the agency is formally in the public or private sector. Even when they are governmental agencies, they often operate under charters or legislation that gives them clearly defined powers and

government recognize trade unions. One result of these conditions, and the delays and the administrative burden they cause, is that lenders and investors may investigate the possibility of getting private market cover before turning to the export credit agencies. In other words, for practical business reasons, exporters and their banks may themselves begin to regard export credit agency cover as a last resort. Competition In the past, export credit agencies tended to be national, and so competition in the export credit business was between countries. However, as