Plans laid to unblock the export credit plug

Press, 15 February 1982, Page 12

Plans laid to unblock the export credit plug

By

LIESL GRAZ in Geneva

Developing trade between developing countries is an idea that everyone agrees is good — but difficult to put into practice. When it comes to choosing who is going to win a contract, especially for capital goods, the decision often hangs less on who is selling the best (or even the cheapest) than on who is offering the most favourable terms for the almost inevitable loan.

The bitter experiences of countries just beginning to sell machines instead of raw materials are legion. Classic examples are India and Pakistan, consistently losing out on major contracts in the post-1973 Middle East boom to Europeans or the Japanese. The suppliers simply could not afford to wait for payment while having themselves to pay hard currency for machines and parts and oil. In theory, developing countries could turn to the international markets to borrow what they need to extend export credits. In - practice, with ~ huge external debts already on their books, few are in the bankers '.‘first-class risk” category. Being further down the list makes borrowing correspondingly more expensive until, near the bottom, it becomes impossible.

Several of those developing countries affected, working

within UNCTAD, the United Nations Conference on Trade and Development, have come up with a remedy in the form of an international Export Credit Guarantee Facility (E.C.G.F.). The details are still embryonic, >. but-! the outline exists, and, if all, goes , well the system could be functioning by the end of next year. The Export Credit Guarantee Facility would, involve a three-tier system: credits offered by the exporter are guaranteed successively by his own bank, by a central agency in the exporting country and by E.C.G.F. Then, with the guarantee label attached, the credit paper — like any other promissory note — is offered on the international capital market. Once sold, the money realised immediately returns to the exporting country. There would, of course, be fees for these operations but the financial experts reckon that the borrowing countries should still come but between 0.5 per cent and 3.5 per, cent ahead on each\ transaction. When the credit falls due, the holder of the. note. demands payment from the'importer. In case ? of default, he turns to E.C.G.F., which would immediately pay up and then, in turn, demand repayment from the exporting country. The ultimate risk thus rests

with the exporter, except in the unlikely cases where both importer and the exporting country default simultaneously. Ideally, E.C.G.F. should be selffinancing, with income deriving from fees. No one knows how much aggregate credit might be needed in one year. UNCTAD’s working figure for the total value of manufactured goods eligible for long-term credit exported by developing countries is $15,614.6 million — but not all these exporters will require, or seek help from the new scheme. The initial issued capital for E.C.G.F.. has been estimated as $BOO million with a paid-in capital of $l6O million.

Hitches still exist — no one, for example, has come forward with an offer for even the rather modest sum needed for the working capital — but, exporting countries are generally keen on the scheme because it would be an elegant way around the recurring dilemma of why one should offer better financial terms to a foreign buyer than what can be had on the domestic market.

There is an abstract political need for E.C.G.F., or something like it, even if the international financial situation is hardly favourable to largesse at the moment. — Copyright, London Observer Service.