- International Monetary Fund
- Published Date:
- January 1986
World Economic and Financial Surveys
|April 1986||World Economic Outlook: A Survey by the Staff of the International Monetary Fund.|
|May 1986||Primary Commodities: Market Developments and Outlook, by the Commodities Division of the Research Department.|
|July 1986||Staff Studies for the World Economic Outlook, by the Research Department.|
|July 1986||Export Credits: Developments and Prospects, by Eduard Brau, K. Burke Dillon, Chanpen Puckahtikom, and Miranda Xafa.|
E. Brau and C. Puckahtikom, Export Credit Cover Policies and Payments Difficulties, Occasional Paper No. 37 (Washington: International Monetary Fund, August 1985).
See Brau and Puckahtikom (cited in footnote 1).
OECD, External Debt of Developing Countries: 1983 Survey; Paris, 1984.
For these reasons, and in view of the ready and public availability of BIS/OECD statistics on trade-related claims, analysis of export credit trends in this report, both globally and for individual debtor countries, is based on BIS/OECD data. This contrasts with Occasional Paper No. 37 where the Berne Union data formed the basis for the exhibits on export credit trends during 1980-84 for selected debtor countries.
See BIS/OECD, Statistics on External Indebtedness: Bank and Trade-Related Nonbank External Claims on Individual Borrowing Countries and Territories, various issues.
This type of problem is also present, though to a lesser extent, in the direct measurement of export credit flows to developing countries in the “DAC Statistics,” as published by the OECD in The Geographical Distribution of Financial Flows to Developing Countries.
For technical details and caveats concerning the statistics discussed in this section, see Appendix I.
Officially supported export credits in this report are defined to include (i) guaranteed bank credits, i.e., export credits provided by commercial banks with the guarantees of official export credit agencies; and (ii) nonbank export credits, i.e., export credits provided by suppliers with the guarantees/insurance of official export credit agencies and export credits extended directly by official export financing institutions, which may often be insured by official export credit agencies.
The coverage of developing countries in this report differs from that of the BIS/OECD which was referred to in Occasional Paper No. 37 (cited in footnote 1). For the present report, the coverage has been adjusted (by excluding offshore banking centers and those developing countries that are not Fund members) to be directly comparable with that used by the Fund in, e.g., International Capital Markets: Developments and Prospects, Occasional Paper No. 43 (Washington: International Monetary Fund, February 1986).
For example, the OECD has estimated that in 1983 some 30 percent of nonbank export credits was denominated in U.S. dollars, compared with 90 percent for bank credits. (See page 81 of the OECD survey cited in footnote 3.)
See Appendix I.
Nonbank export credits consist of insured suppliers’ credits and credits extended directly by official export financing institutions. There is no published breakdown of nonbank credits into its two components.
One major agency noted considerable increases in demand for guaranteed bank medium-term transactions for certain countries (e.g., Chile and Colombia) and for the bank facilities established for the Philippines and Nigeria which were so heavily used that about 50 percent of the national exports to these countries have been insured. The medium-term bank-to-bank facility for the Philippines to finance bulk agricultural imports was particularly well used in 1984, although this program was winding down as expected in 1985 once the commercial bank agreement came into effect. In another agency, the demand from banks has also been manifested in the form of a request for 100 percent cover for trade credits, as against a normal 85 percent, and for cover of local costs at a much higher percentage than the traditional 15 percent.
In a few agencies, it was noted that there had been an increase in demand for cover in deteriorating markets with a rapid debt build-up and where banks and suppliers were concerned with payment delays. In these markets, there had also been an increase in demand for credits on extended terms. These types of increases in demand were generally perceived by agencies as calling for caution and signaling deteriorating risks.
Percentage cover is the proportion of any loss suffered by the exporters or banks on which the export credit agency will pay claims. A reduction in percentage cover results in a higher potential cost for the exporters and banks because of the higher proportion of risk being borne by them.
The claims-waiting period is the period for which exporters and banks must wait after transfer delays occur before receiving claims payments from the export credit agency. As a restrictive move, the agency can extend the claims-waiting period beyond that which is customary, in order to signal to the exporters a tighter attitude toward the market in question.
Mixed credits or tied-aid credits are in principle provided for development purposes and are a mixture of aid funds and export credits. Under the current OECD Arrangement on Export Credits, such mixed credits are to be confined to transactions with overall grant elements of at least 25 percent. Although OECD member countries remain divided on the merits of mixed credits, some progress has been made in increasing transparency and discipline in their use.
For a detailed description of policy adaptations in the period through early 1984, see Brau and Puckahtikom (cited in footnote 1).
Although the accounting practices vary, for most agencies the financial position (i.e., the operating surplus/deficit) is measured on a cash basis where claims payments are recorded as expenses, and premium incomes and recoveries are recorded as operating receipts.
The progressivity of the premium structure is related to the degree of country risk and to the maturity structure of the credits. For this agency, for example, the maximum rate for high-risk countries for 10-year credits has been reduced from 9 percent to just under 7 percent.
For example, for countries in the highest-risk category, the premium rate (for political risk only) was raised to 10 percent for long-term coverage. For this agency, the premium increases were designed not only to cope with the large operating deficits recorded since 1983, but also to limit the level of risks in the agency’s portfolio. However, in order to compensate partly for the increased premium costs, the maximum insurable amount was at the same time raised to 95 percent from 90 percent previously.
In the cross-agency arrangement, the two agencies pool their commitments on a specified list of countries and share the payments of all claims arising in connection with these countries over a certain period. The arrangement was designed to help both these agencies diversify and absorb risks, although one of the practical problems encountered was in reaching agreement on the country coverage that involved the same amount of risk.
Whole-turnover or comprehensive policies are policies that provide insurance or guarantee cover for all, or a portion, of the export transactions of a particular supplier, exporter, or bank. See Appendix III for details.
Agreement reached bilaterally between the debtor country and the creditor agencies in each of the creditor countries participating in the Paris Club rescheduling. These agreements establish the legal basis of the debt rescheduling as set forth in the Paris Club Agreed Minute. The deadline for concluding bilateral agreements is now generally eight to nine months from the date of the Paris Club Agreed Minute.
For further details on the practices and developments in multilateral debt reschedulings in the framework of the Paris Club, see K. Burke Dillon and C. Maxwell Watson, Recent Developments in External Debt Restructuring, Occasional Paper No. 40 (Washington: International Monetary Fund, October 1985).
The date before which loans must have been contracted in order for their debt service to be eligible for rescheduling. Creditors are reluctant to change the cutoff date for subsequent reschedulings since, if the cutoff date is advanced, new export credits granted after the initial rescheduling could be subject to the subsequent reschedulings. The possible rescheduling of new credits is considered an important obstacle to normalizing debtor/creditor relations.
See footnote 23.
A national or state account is a separate account maintained by some of the agencies for transactions that are considered too large or too risky for the agencies to undertake. The practices concerning state accounts vary among creditor countries. Such accounts are often held in the agency, with special provisions for its financing through the budget or the central bank.
Most agencies record the payments of claims (which result from arrears or debt rescheduling) as cash expenditure and do not take them into account as income receivable in the form of future recoveries. In the past few years, such a cash accounting practice has created substantial cash flow/operating deficits which are considered the key financial indicators; the operational objective of most agencies is to achieve a financial balance on a cash flow basis over the medium term.
Appendix I draws heavily from the Technical Note on sources of data, coverage, method of integration, and quality of OECD and BIS data (pp. 17-23) in Statistics on External Indebtedness: Bank and Trade-Related Nonbank External Claims on Individual Borrowing Countries and Territories, January 1986, published by the BIS and OECD.
Referred to in the BIS/OECD publication cited in footnote 2 as “official and officially guaranteed or insured trade-related claims.”
The OECD estimated that in 1983 some 30 percent of nonbank export credits was denominated in U.S. dollars, compared with 90 percent for bank credits.