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Ms. Chanpen Puckahtikom and Mr. Eduard H. Brau

Abstract

In the current environment of payments difficulties, a principal role of the Fund remains the encouragement and support of timely adjustment policies of member countries.

Mr. Eduard H. Brau

widespread payments arrears and a record number of debt reschedulings in the Paris Club. These adaptations have aligned export credit cover policy more promptly and more closely with progress, or lack thereof, in adjustment made by indebted countries, providing financial support for the adjustment process. Besides helping support adjustment, this flexibility has contributed to a significant increase in export credit exposure at a time when nonguaranteed commercial bank lending has grown only moderately. In the context of a moderate decline in the value of non-oil imports

International Monetary Fund. External Relations Dept.

, reviewed by S. J. Anjaria, September p. 50 INTERNATIONAL MONETARY FUND New Occasional Papers The following Occasional Papers have recently been published by the Fund: Export Credit Cover Policies and Payments Difficulties Occasional Paper No. 37 by Edward H. Brau and Chanpen Puckahtikom This paper reviews developments in the policies and practices of ten major export credit agencies following the external debt-servicing difficulties experienced since 1982, focusing on the effects of the changed environment on the agencies’ practices

International Monetary Fund

to the time when arrears escalated sharply and substantial claims payouts were made. Then they tightened policies sharply. This section has set out in broad terms the general response of agencies and their authorities to countries in differing circumstances. The following sections describe the various policy instruments used by agencies and discuss more specifically how cover policies and export credit programs have been adapted to meet the changing objectives of export credit authorities. Instruments of Export Credit Cover Policy In all of the countries

International Monetary Fund

Consensus Arrangement. In this framework, some agencies rationed the demand for cover under their ceilings by requiring a certificate of priority issued by the Turkish Government. A number of other restrictions were applied on medium-term transactions, including transactions limits, reduced percentage cover, and an extended claims-waiting period. Most agencies applied restrictions on the provision of short-term cover as well. Since 1983, the agencies have been slowly normalizing export credit cover policies to Turkey. During 1984 and 1985, ceilings on medium

Mr. Eduard H. Brau

credits: “… developing countries and export credit agencies, in cooperation with the World Bank and the Fund, should take steps to enhance the development impact of export credits.” It was in this setting that Export Credit Cover Policies and Payments Difficulties 1 was published in August 1985. That paper described the objectives of export credit authorities and the practices of their agencies and focused in particular on their response to the emergence of widespread debt-servicing difficulties. Subsequent to the finalization of the present study, the

Mr. Eduard H. Brau

financing flows and equitable burden sharing with bank creditors. The second issue relates to ways of ensuring a more effective use of new export credits and the importance of better project selection. Provision of Cover for Export Credits as a Substitute for, or Complement to, Official Debt Rescheduling Over the last year and a half, as official export credit cover policies have become more flexible and differentiated, both debtors and creditors have become more aware of the close relationship between debt rescheduling and access to new export credits. In a few

Ms. Miranda Xafa

private sector to undertake the foreign exchange risk that foreign borrowing entails, where markets or other mechanisms to cover this risk are absent. Official assurances could instead take the form of expressions of willingness to provide new credits and cover. This would require export credit cover policies to be made more “transparent” and, in particular, would require an appropriate channel of communication between official creditors and commercial banks. More serious liquidity problems . In cases where liquidity needs are more pronounced, export credits

International Monetary Fund

Abstract

This paper discusses developments and issues concerning export credits from the perspective of the economic adjustment process of indebted developing countries. This emphasis is consistent with the principle that officially supported export credit—whether it takes the form of direct official credits or insurance and guarantees on privately funded credits—is an instrument of commercial financing for exports and not a means of aid finance. All creditor governments have a broad range of objectives in using the economic instruments at their disposal to help overcome the adjustment problems of heavily indebted countries, with which important bilateral trade relations are being maintained. In support of an expansion in world trade and notwithstanding the competitive element, export credit insurance and guarantees may have a special role in helping to catalyze private credit flows, especially since such a role coincides with the interest of private lenders to shift away from general purpose balance of payments finance to trade and project finance.

Mr. Eduard H. Brau

Abstract

At the onset of the debt difficulties in 1982, most export credit authorities applied their traditional principles guiding cover policies, which had been developed over many years to deal with country-specific and isolated debt problems. Medium- and long-term cover was suspended for a large number of debtor countries that rescheduled debts, although short-term cover was generally retained if the debtor country was current on such obligations. Most export credit agencies also began to emphasize more rigorous countryrisk assessment procedures and employed more frequently quantitative instruments to help limit country exposures, such as country ceilings or limits on the size of individual transactions. One agency reported, for example, that the number of countries for which it imposed overall limits had been increased from 10 to 80 over the past few years. Also, in 1982-84, all ten agencies made upward adjustments in the premium rate structure in order to cope with the financial strains of claims payments relating to debt reschedulings and arrears. In many cases, the premium structure has become considerably steeper to reflect country-risk differentials, and at times substantial surcharges have been introduced on a case-by-case basis for high-risk countries.