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

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. Volume of Export Credits Official support for export credits has remained the most important debt financing instrument of official bilateral creditors for developing countries. New commitments by official export credit agencies have shown a procyclical pattern, falling substantially in the

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

export credit agencies play today? Is there a need for continued government involvement in international trade finance? What are the key challenges facing public agencies in industrialized countries? What are the implications for developing countries and the new agencies that have been set up in those nations to promote export development? This study addresses these questions by assessing the available statistical evidence, summarizing the various responses by public and private trade finance providers, and drawing policy implications that may have consequences for

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

.S. Export-Import Bank, which has an explicit policy of not competing with the private sector, recognizes that there is a role for ECAs in higher-risk markets (e.g., sub-Saharan Africa), multibillion-dollar transactions, nonstructured medium-term export financing to noninvestment grade borrowers, and small business exporters. 9 This assessment was broadly shared by private trade finance providers. Between the importers in countries with full and reliable access to private market financing (relatively low risk markets) and those that rely primarily on grants and other

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

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.

International Monetary Fund

finance. In cases where solvent enterprises and exporters in a crisis country are unable to access trade finance, and/or the relevant sovereign’s ability to provide credible guarantees required by external trade finance providers is limited, targeted support to the country’s trade sector could be usefully employed alongside Fund-supported programs. Recent experience suggests that an effective approach could be built around multilateral development bank (MDB) trade finance facilities in support of actions by the country authorities to facilitate a resumption of private

Mr. Jian-Ye Wang

agencies may have played an important role in the process. Most export credit agencies, with a mandate to promote national trade, are required to break even in their operations. In addition, many of them are no longer involved in the provision of short-term trade credits as a consequence of privatization and structural changes over the past decade. World Trade Organization (WTO) rules on subsidies 6 may make it difficult for export credit agencies to undertake countercyclical operations amid a crisis environment. Herd behavior among trade finance providers such as

International Monetary Fund

for ECAs to undertake countercyclical operations amid a crisis environment. Herd behavior among trade finance providers such as banks and trade insurers. Decision making by international providers of trade finance during crises is often dominated by perceptions rather than fundamentals, and a withdrawal by one player tends to trigger similar actions by others. Herd behavior in the form of creditors’ “rush for the exit” and inadequate information about the financial condition of corporate clients or of economy-wide prospects can aggravate risk perceptions and make