1999 International Monetary Fund

Ordering Information



The Changing Role of Export
Credit Agencies

Malcolm Stephens

Contents
Preface
Acknowledgments
Overview
1    Introduction
2    The Development of Export Credit Agencies
3    The Changing World of Export Credit Agencies
4    Export Credit Services for Small Exporters
5    Export Credit Agencies at a Watershed?
Appendices
 I. Statistical Tables on Berne Union Members
 II. Glossary of Terms Commonly Used in Export Credit, Export and Project Finance, and Investment Insurance
 III. The Berne Union and Its Members
 IV.    List of Berne Union Members

 
1.  Introduction
 
The first export credit agency, the Export Credits Guarantee Department (ECGD) of the United Kingdom, was established in 1919. Its original purpose was to encourage and support exports (initially to Russia) that would not otherwise have taken place. Similar motivations led to the establishment of the Export-Import Bank of the United States (the U.S. Eximbank) in 1933. There was little further activity on the export credit front in the 1920s and 1930s, but many such agencies were founded after World War II. As it appears in hindsight, the chain of reasoning for governments becoming involved in this area probably went along the following lines:
  • Certain risks, especially political risks, in some buying countries, although an inherent part of international trade, were regarded by some exporters as unacceptable.
  • A similar view on such risks was also taken by what would in other circumstances have been a source of help or support, namely, banks and insurers.
  • Thus, exports that would have occurred in the absence of these risks were being lost.
  • But an insurance or other risk mitigation facility, provided or backed by the government of the exporting country to the exporter or the exporter's bank, could provide sufficient encouragement and protection to enable these exports to take place.
Thus, against a background of private sector unwillingness to regard political risks as acceptable (a theme that is picked up later in this volume in a number of contexts), the primary motivation of governments was no doubt the stimulation of exports that would otherwise be forgone. Increased exports offered the associated economic and industrial benefits of protecting or creating employment, as well as the political benefits (to the government or regime in power) that would flow therefrom. Added to this were the hoped-for benefits of increased trade for foreign policy, through the cementing of diplomatic relations with trading partners. Inherent, if not necessarily explicit, in these calculations was almost certainly the policy objective of filling a perceived gap in the marketplace--not that of engaging in insurance or banking in competition with the private market. Hence the frequently repeated slogan that official export credit agencies should "complement, not compete" with the private sector.

In the first couple of decades after World War II, more and more countries set up export credit agencies. This trend has continued--in fits and starts--until the present. Table A6 in Appendix III lists the major export credit agencies and the dates they joined the International Union of Credit and Investment Insurers (the Berne Union), the principal international organization of export credit agencies.

As will be shown later in this volume, however, the role and objectives of export credit agencies are now by no means as clear, common, or consistent as they may have been at their founding. In particular, now that the private sector is increasingly willing to underwrite political risks on a substantial and growing scale, many export credit agencies are having for the first time to wrestle with the practicalities of operating under two seemingly conflicting objectives. On the one hand, many governments, especially those subject to keen budgetary pressures, today expect their export credit agencies to break even. On the other hand, these agencies often also remain "insurers of last resort," expected to accept business that private sector insurers are reluctant to take, rather than compete with the private sector for the same business.

Also important in understanding the changing role of export credit agencies is to avoid confusing the facilities they provide either with bilateral aid programs or with industrial support programs for exporting companies or sectors. As noted later in this volume, various considerations relating to aid and industrial policy will often factor into the decision whether or not export credit agencies should provide insurance cover. But these agencies have also been under increasing pressure to meet the requirement, first set within the General Agreement on Tariffs and Trade and now by the World Trade Organization, to break even over time. Yet long-term balance in the accounts of export credit agencies is not a simple, straightforward concept, let alone an easy, specific, and measurable objective.

Activity and Trends

Appendix I presents some detailed statistics on the activities of those export credit agencies (the majority of such agencies worldwide) that belong to the Berne Union (see below). These numbers demonstrate the very large volume of business that these agencies undertake and the vast amount of world trade that they support. For example, in 1997 the 47 members and observers in the Berne Union supported exports of $410 billion. Facilities they issued included $70 billion in new medium- and long-term credits to nonmember countries of the Organization for Economic Cooperation and Development (OECD). And from 1982 to 1997, Berne Union members

  • Supported exports with a total value of $5.6 trillion
  • Paid claims of $154 billion
  • Made recoveries (collections on unpaid debts on which an agency has paid a claim) of about $71 billion
  • Supported investments of $83 billion
  • Supported medium- and long-term credits to non-OECD countries of $550 billion
  • Supported short-term trade finance business (much of it covering commercial risk on exports to OECD countries) of about $4.1 trillion, and
  • Received premium income of about $40 billion.
As of the end of 1997, the combined exposure of Berne Union members was $515 billion, of which about $431 billion was in respect of medium- and long-term export credit, almost all of it on non-OECD countries.

The Berne Union

All of the older export credit agencies, and many of the newer ones that meet the membership criteria, belong to the Berne Union, known formally as the International Union of Credit and Investment Insurers. Appendix III provides a background note on the Berne Union, and Appendix IV lists the organization's members and observers.

But this is no longer the whole story. There are now a number of newer or smaller export credit agencies that do not--yet, at any rate--qualify for membership in the Berne Union. (This group includes a number of export-import banks, or eximbanks, which lend directly for trade transactions as well as insure lending by others.) Some countries with export credit agencies that are not Berne Union members are Bulgaria, Brazil, Chile, Colombia, Croatia, the Islamic Republic of Iran, Kuwait, Latvia, Lithuania, Malta, the Philippines, Romania, Russia, the Slovak Republic, Thailand, Tunisia, and Uzbekistan.

There have also been some efforts toward establishing regional export credit schemes or institutions, for example in the Persian Gulf, in certain other Islamic countries, in Africa, and in the Caribbean. For various reasons--not least the problem of who ultimately should bear the risks and finance the organization--so far none of these plans has developed in any significant way.