- Chanpen Puckahtikom, and Eduard Brau
- Published Date:
- August 1985
These individual country notes are based on the informal discussions with the ten agencies on how their country exposure policies and practices have evolved for each country. The notes describe, where appropriate, developments during the debt buildup phase, the policy turning point, and prospects and issues. They are also based on data that the agencies report on a regular basis to the Berne Union Secretariat, namely, quarterly reports on the terms of cover and on the level of commitments (medium-term and short-term) of each agency for each of the countries in the sample (except Madagascar). The basis for reporting may vary from agency to agency, and a strict statistical interpretation of the aggregate agency data is therefore not feasible. The interpretation of the commitment trends for the individual countries is difficult unless supported by additional qualitative and agency-specific information. Moreover, there are practical difficulties in measuring policy impact on agencies’ exposure in a given borrowing country; these difficulties are described in more detail in Chapter II (page 9). For these reasons, the descriptions concerning the trend in the exposure of the ten agencies in aggregate for each of the debtor countries included in the sample should be regarded as broadly indicative. The notes reflect information from the informal discussions up to June 1984, and commitment trends through the end of 1984.
The following should be noted in interpreting Charts 1-10. For each debtor country, the top three agencies are identified separately on the basis of medium-term and long-term commitments and short-term commitments, and these top agencies normally are not identical across debtor countries. The ranking is determined at the year of the approximate policy turning point, and can be expected to vary over the observation period 1980 to 1984. For each agency, the annual average percentage change in its commitments is calculated as the average of the quarterly percentage changes (measured over the same quarter in the preceding year); percentage changes for agencies in the aggregate are calculated on the same basis. For each agency, the annual average ratio of short-term commitments to national exports is obtained by dividing the annual sum of quarterly commitments by the annual national exports. The aggregate ratio for the top three and the ten agencies is derived in a similar fashion, that is, by dividing the agency-aggregated quarterly commitments (summed over a year) by aggregated national exports. For all Berne Union agencies, the ratio is derived by dividing the annual sum of quarterly commitments of all agencies by the debtor country’s annual imports.
Debt Buildup Phase
During 1980-81, there was keen interest in the market and almost all agencies maintained liberal cover policies for Argentina. By 1981, however, signs of the deteriorating political and economic situation were becoming apparent to a number of the agencies. Negative factors cited by these agencies included the volatile political scene, accelerated inflation, and an increasingly overvalued exchange rate. Despite these signs, most agencies were reluctant to take restrictive actions. For eight of the ten agencies, their published terms of cover remained liberal and broadly unchanged in 1981. Only one agency attempted, in the second quarter of 1981, to restrict cover through downgrading the market, imposing transaction limits, and considering applications on a stricter case-by-case basis. In the next quarter, one other agency introduced transaction limits. Most agencies maintained a more positive attitude and, at that time, regarded the economic and financial difficulties as temporary and reversible. They also wished to maintain market presence in view of the favorably judged medium-term economic outlook and Argentina’s rich resource base. In an effort to deal partially with Argentina’s deteriorating economic situation, some agencies adopted a more stringent assessment of the commercial risks in lending to private buyers, but, generally, no further attempts were made to restrict cover.
Given the liberal cover policies of most agencies and the buoyant import demand, there were exceptionally large increases in the agencies’ exposure in 1980. Outstanding commitments of the ten agencies in aggregate doubled in that year, although much of the increase came from sharp rises (ranging from 30 percent to over 200 percent) in the exposure of the top three agencies in the market (Chart 1). The trend in 1981 was much less dramatic, in part because of slackened import demand for capitol goods along with growing economic uncertainties. Only one major agency doubled its exposure, while most other agencies saw their exposure decline through the year. Nonetheless, there remained active interest in the market, as evidenced by the generally high levels of outstanding offers. Also, short-term commitments, as a ratio to national exports to Argentina, continued to increase and reached an average of 30 percent in 1981.
Chart 1.Argentina: Trends in Commitments, 1980-84
Sources: Data provided by official export credit agencies; and International Monetary Fund, International Financial Statistics, and staff estimates.
Policy Turning Point
Cover policies for most agencies were reversed abruptly in the second quarter of 1982. In reaction to the South Atlantic conflict in April 1982, seven agencies suspended cover for medium-term transactions; of these agencies, five also withdrew cover for short-term transactions, while the remaining two introduced highly restrictive conditions for short-term transactions. Three agencies did not actively adopt restrictive policies, adopting a wait-and-see attitude, but few applications were approved.
Normal cover policies were not resumed after the South Atlantic conflict ended in May 1982 and since then, for several reasons, policies have been tightened even further. The agencies generally attributed their pessimistic assessment to two sets of factors. First, the domestic economy—already weakened by the conflict—seemed to be deteriorating further in the absence of incisive economic management, coupled with the unsettled political situation. Arrears that had emerged at the time of the conflict remained large and were expected to rise further, making substantial claims payments unavoidable. Second, the external environment had begun to worsen substantively for Argentina, with the virtual closure of international capital markets to Argentina since the second quarter of 1982. The agencies progressively lowered their expectations of Argentina’s short-term financial viability. In September 1982, Argentina began negotiations with the Fund on a financial program supported by a stand-by arrangement and initiated discussions with banks, initially on bridge loans and later on a bank debt restructuring. Agreements with the Fund and with the banks were reached in early 1983.
Overall, reflecting the agencies’ perception of an increasingly uncertain outlook for Argentina and the large and rising arrears, these agencies were unwilling to become more flexible. For medium-term transactions, by the third quarter of 1982, the number of agencies off cover had grown from seven to nine and by the first quarter of 1983, all ten agencies were effectively off cover. While policies for short-term transactions had been more flexible, they remained quite restrictive. By the third quarter of 1982, only five agencies remained prepared to cover such transactions and only with restrictive conditions (such as total commitment limits, payment guarantee requirements, and a reduced percentage of cover).
A few agencies modestly eased their cover policies in early 1983, in response to some economic improvement and given that a Fund-supported adjustment program was put in place at that time. These steps proved short-lived, and virtually all the initial restrictive policy stances had been restored by June 1984.
Trends in Exposure
The steady decline in outstanding commitments during 1982-83 were consistent with the restrictive cover policies of the agencies. Every agency’s medium-term exposure in Argentina declined steadily during this period (Chart 1). The combined exposure of the top three agencies dropped by 9 percent in 1983; commitments of the ten agencies in aggregate (and also of all Berne Union agencies) showed similar movements over the period. The agencies indicated that only marginal new commitments were made. These were confined to exceptional or unique transactions (such as those related to pre-existing capital projects, tied to preliminary offers already committed, directly linked to foreign-exchange-earning projects with retention provisions, or projects with concessional aid financing components).
Short-term commitments (in U.S. dollar terms) for the agencies in aggregate also declined significantly during 1982-83. However, measured against the trade flows, short-term commitments in fact increased sharply in 1982, and then, even after declining in 1983 (at 34 percent of national exports), remained slightly higher than in 1981. This overall pattern can be attributed to three agencies (including the top agency in the market) that maintained comparatively more flexible short-term cover policies; a significant shift in the market share in favor of these three agencies has occurred as a result.
Prospects and Issues
Until late 1983, there had been no discussion of a rescheduling of debt owed to official creditors, and the banks had not made such a rescheduling a condition for their own undertaking. However, owing mainly to the accumulation of arrears, the seriousness of the bank debt problems, and Argentina’s worsened economic outlook, the agencies’ policies have been severely restrictive.
An approach to the Paris Club for a debt rescheduling was signaled in early 1984, although at the time the Argentine proposal left unclear the scope of debt to be rescheduled. With the possibility of rescheduling short-term debt, some agencies that had previously been prepared to consider cover for short-term transactions were then obliged to withdraw short-term cover. By June 1984, all agencies were off cover formally or effectively for medium-term transactions, and over half of the agencies were also off cover on short-term transactions.
Debt Buildup Phase
Cover policies for Brazil during the period 1981 through late 1983, when a major policy shift occurred, may be characterized as moderately restrictive. For medium-term transactions, all agencies were on cover, but eight agencies imposed some form of restriction to control exposure. These restrictions included (for four agencies) a case-by-case consideration of applications, a reduced percentage of cover, and limits on commitments (total outstanding, or new annual commitments, or on the size of individual transactions). Policies for short-term transactions were quite liberal, with restrictions imposed by only two agencies. While this overall policy stance reflected in part the uneven economic performance of Brazil in the early 1980s, several agencies attributed their cautious attitudes to the magnitude (in both absolute and relative terms) of their exposure in Brazil and their desire to limit further increases in an effort to improve portfolio balance. A few agencies have tended to follow restrictive policies as they viewed difficulties in Brazil’s debt-servicing prospects (after the second oil shock) to be more than temporary.
Beginning in late 1982, the agencies were becoming uneasy with the overall situation. Brazil’s latent payments difficulties were at that time exacerbated by the general cutback in bank lending following the liquidity crisis in Mexico of August 1982, and the agencies began to adopt a more critical view of the sustainability of Brazil’s heavy debt burden. However, also in late 1982, Brazil began discussions with the Fund on an adjustment program and approached the banks for a refinancing arrangement. At that time, Brazil did not approach the official creditors for debt relief, and an official debt rescheduling was not generally regarded as essential. In early 1983, agreements were concluded with the Fund on a three-year adjustment program and with the banks on a refinancing package. Against this background, by the first quarter of 1983, only four agencies shifted to a more restrictive stance; by then, only one agency had withdrawn cover on medium-term transactions.
As 1983 progressed, however, some arrears to creditors were emerging, and there was extensive publicity of Brazil’s economic problems. First, Brazil was experiencing difficulties in adhering to the targets and complying with the conditions of the Fund-supported adjustment program. Second (and related to the difficulties with the adjustment program), commercial banks were reluctant to meet fully Brazil’s liquidity needs, and there were growing uncertainties about the package assembled by banks to meet Brazil’s 1983 financing needs. Notwithstanding these signs, most agencies did not shift to a more restrictive policy stance.
Policy Turning Point
In the last few months of 1983, the policy switch for all but one of the agencies was directly attributable to Brazil’s rescheduling of its Paris Club debt. Following months of increasing uncertainties, the agencies received first indications in August 1983 that a Paris Club rescheduling would be necessary. By September, the approach to the Paris Club was confirmed; the request for rescheduling was received in October, and the Fund-supported adjustment program was reactivated after a five-month interruption. The multilateral rescheduling agreement, reached in November, provided for a rescheduling of arrears and maturities (on medium-term debt) due from August 1983 to December 1984, broadly along standard Paris Club terms.
Changes in the agencies’ cover policies for Brazil were well synchronized with the events relating to the Paris Club rescheduling. During the third quarter of 1983, upon the first report of the need for such a rescheduling, most agencies moved to tighten policies (e.g., downgrading the market and reducing the country commitment limits), adopted a wait-and-see attitude, and generally delayed decisions on new medium-term business. Some agencies noted that at that time there was no pressing need for them to quickly impose formal restrictions on medium-term transactions, since credit demand was already being effectively curbed by reduced import demand in Brazil. On short-term transactions, over half of the agencies remained on cover; some transferred transactions to special national interest accounts and monitored more closely their position. For these agencies, more stringent conditions were not considered necessary, since short-term debt was believed to be precluded from the rescheduling and efforts were being made by Brazil to keep current on such obligations. A few agencies, however, introduced more restrictive conditions on short-term transactions (requiring transfer guarantees or imposing tight revolving limits), primarily reflecting their own experience of transfer delays on such transactions.
By the time of the Paris Club request (and in any event no later than November 1983, when the agreement was reached), seven agencies formally or effectively withdrew cover on medium-term transactions. Three agencies remained on cover: one because of national interest considerations and a favorable view of Brazil’s long-term prospects, and the other two because flexibility was considered practical given their relatively moderate exposure in the market.
Regarding short-term transactions, only one agency formally withdrew cover and only because of its standard requirement at the time to withdraw all cover in cases of rescheduling; this requirement has been eased. For all other agencies, some forms of restriction continued to be applied, but for some agencies these restrictions appear to have been slightly eased by the middle of 1984.
Trends in Exposure
The data suggest that agencies were generally unsuccessful in their efforts to contain exposure as risk deteriorated in 1983. In line with the increase in demand for cover, as exporters perceived growing risk in trade with Brazil, the agencies’ commitments grew strongly in the year approaching the policy turning point in late 1983. For the ten agencies, aggregate outstanding commitments rose by 8 percent on average in 1983, after having fallen in the preceding year; the top three agencies in the market experienced a similar increase in commitments (Chart 2).
Chart 2.Brazil: Trends in Commitments, 1980-84
Sources: Data provided by official export credit agencies; and International Monetary Fund, International Financial Statistics, and staff estimates.
The trends for short-term commitments, while similar, were even more pronounced. Whereas trade flows to Brazil in 1983 contracted sharply (by about 20 percent for this group of ten countries), aggregate short-term commitments of these ten agencies in 1983 were almost 20 percent higher than in 1982, with all of the increases attributable to the top three agencies in the market. By 1983, for the ten agencies, short-term commitments as a ratio to national exports reached 34 percent (compared with 23 percent in 1981) and for the top three agencies, the ratio rose even higher, to 40 percent. These ratios continued to rise in 1984, although not quite so sharply as in 1983.
Prospects and Issues
At the same time as the Paris Club rescheduling, efforts were being made to arrange a concerted financing package among some of the agencies. The package was conceived as part of an overall balance of payments financing arrangement and entailed the pledging of target amounts of insurance/guarantee by participating agencies or the national authorities concerned. Support for this concerted package was mixed, with only two agencies expressing unqualified interest. For most participating agencies, the facility had not yet been activated and considerable delays had been encountered in the practical arrangements. For the few agencies that were ready to provide such assistance, there had not been adequate demand for medium-term project financing and the facility remained largely unused. A few agencies also indicated that the facility could be redundant in providing short-term cover insofar as they were already prepared to continue short-term cover. Some agencies considered that trade financing was inappropriate for filling a balance of payments gap.
A notable feature of the agencies’ experience with Brazil was their apparent willingness to continue supporting short-term transactions. As is evident from Chart 2, and as noted earlier, most agencies allowed significant increases in short-term commitments through 1984 and appeared to be covering a much greater proportion of trade. (This pattern is followed—to a lesser degree—by Nigeria and the Philippines, but is in contrast to the experience of Mexico; see below.) The agencies’ willingness was attributed in large measure to Brazil’s effort at redressing its economic problems and the exclusion of short-term debt from the Paris Club rescheduling.
Most of the agencies maintained cautious policies on short-term transactions, and some felt that increases in demand for cover needed to be held in check. A few agencies thought that the debt-servicing problems in Brazil might be long term and that further reschedulings could not be precluded. Some wished to be cautious, since their outstanding commitments were regarded as already too high. One agency introduced revolving limits on short-term commitments designed to accommodate only traditional exporters or existing whole-turnover policy holders, and to preclude abnormal (e.g., transit trade) or rising demand. Revolving limits were thought especially useful in being self-correcting since the limits would be automatically used up if payments were not made in time. Another agency indicated that, while revolving limits or letters of credit conditions had not been imposed, these restrictive conditions could be introduced, should the cutback in the availability of medium-term credit spill over into an excessive increase in demand for short-term cover.
All of the agencies reported that since Madagascar’s first Paris Club debt rescheduling in April 1981 they have suspended cover for Madagascar on all transactions. None of the agencies could suggest that cover might be resumed in the foreseeable future. A number of agencies had become cautious before the 1981 Paris Club rescheduling and had already attempted to limit exposure.
Over the last three years, a few agencies had provided cover on an exceptional basis for essential imports financed under government lines of credit; cover has also been provided for preshipment risks on projects that are aid-financed. Two agencies reported that periodically unique transactions have been covered on a limited scale. For some agencies, ad hoc arrangements for short-term cover have at times been made as a temporary substitute for cover on the state account, when short-term cover was not admissible on the state account. One agency reported retaining cover on short-term transactions, but only with irrevocable letters of credit confirmed prior to the dispatch of the goods by an acceptable bank outside Madagascar. Some agencies also suggested that in this type of market, after years of restriction, demand for cover had in fact become minimal as the market had grown reliant on cash rather than credit.
The agencies considered their cover policy decisions for Madagascar to be relatively clear-cut for two reasons. First, the overall economic situation was regarded as extremely difficult at that time and over the longer term. The debt-servicing difficulties were thus seen as both severe and chronic. Large arrears have accumulated and there were concerns that Madagascar may have difficulty meeting the rescheduled obligations. Second, commercial interest was rather limited, since the market was relatively small. In these circumstances, there seems to be no real dilemma for agencies in balancing risk against competitive interest, and a prudent risk-taking attitude was practical.
Some agencies suggested that the problems of the type faced by Madagascar might better be solved through the provision of direct development assistance, rather than indirectly through exceptional provision of export credits. The main drawback of providing assistance through the export credit system was that the concessional terms and conditions could be seen as precedent-setting and could complicate the rescheduling approaches for other countries. As Madagascar is not included in the countries reported to the Berne Union Secretariat, this section does not contain a description of terms of cover nor an analysis of exposure trends.
Debt Buildup Phase
The debt difficulties of Mexico, which reached a critical stage in August 1982, caught most of the agencies by surprise. The severity of the problem had been underestimated by the agencies in part because the information system on debt (especially on short-term) was too deficient to provide reasonably convincing evidence of deteriorating risks. Also, Mexico’s virtual cutoff from access to international capital markets could not have been anticipated. All of the agencies remained on cover without any effective restrictions, and Mexico had generally been rated a better country risk than most developing countries. As a result, commitments of all but two smaller agencies grew strongly in the one-year period approaching the liquidity crisis in August 1982: during the one-year period ending in the third quarter of 1982, total medium-term commitments of the ten agencies rose by 24 percent, and for the top three agencies in the market the increase was even larger at 29 percent. Similarly, the agencies’ short-term commitments as a percentage of the countries’ exports to Mexico rose steadily from about 21 percent in early 1981 to a peak of 33 percent in the third quarter of 1982 (Chart 3).
Chart 3.Mexico: Trends in Commitments, 1980-84
Sources: Data provided by official export credit agencies; and International Monetary Fund, International Financial Statistics, and staff estimates.
Policy Turning Point
Most agencies reacted to the liquidity crisis of August 1982 by adopting a moderately restrictive policy; the exception was the largest agency in the market, which remained open without restrictions. On medium-term cover, except for one major and two smaller agencies which withdrew cover, other agencies remained open with some restrictions, often with limits on total new commitments (sometimes supported by limits on transaction size) and confining new cover to the public sector borrowers or borrowers with public guarantees. For agencies where the practice is feasible, Mexico was downgraded to the country category with higher premium charges. Where applicable, transactions were transferred to the national interest account.
In late 1982, agreement was reached with the Fund on a three-year adjustment program, and debt restructuring negotiations began with the commercial banks. At that time, there was also a coordinated effort among the monetary authorities of the major creditor countries to assist Mexico. However, a multilateral rescheduling of debt owed to official creditors was not then envisaged. For six agencies in the market, their medium-term and long-term cover policies were in the context of this informal coordination effort related to Mexico’s adjustment program with the Fund. On short-term business, only one agency withdrew cover, but not until the third quarter of 1983, following the Paris Club rescheduling—in line with its standard practice at the time for rescheduling cases and a practice that has since been modified.
Policy Response to Creditor Group Rescheduling
An approach to official creditors was first made in May 1983, and the multilateral rescheduling agreement was reached in June 1983. As a minimum response, and at the latest by the multilateral rescheduling agreement date, most agencies withdrew cover for the type of debt that was subject to rescheduling, that is, the private debt not guaranteed by the Mexican Government, either through a formal announcement or informally through requiring guarantees of the public sector (including banks). At the time of the staff discussions with the agencies, very few agencies had finalized their bilateral agreements, the delays having been caused by the apparent complications in the assumption by the Mexican authorities of the commercial risk of the private debt that became rescheduled.
For most agencies, it was possible to avoid an unduly restrictive policy stance, for several reasons. First, the financial difficulties in Mexico were seen to be of a liquidity nature. Medium-term prospects were regarded as fundamentally favorable, given the country’s resource base and the fact that a Fund-supported adjustment program was put in place promptly to redress the temporary problem. Second, for one of the major agencies, its ability to stay open on cover with minimal restrictions was attributed in part to effective communications, at the initiative of the Mexican authorities, concerning their adjustment program and their intentions on the type of debt to be rescheduled. Third, for another major agency, a positive factor was that its exposure was relatively small and there was scope on portfolio consideration to increase exposure. For all of the agencies, their ability to be open on cover on medium-term for public or publicly guaranteed buyers was influenced by the fact that such debt had been excluded from the 1983 official creditor reschedulings. Fourth, in September 1983, one major agency announced a special guarantee/insurance facility of $500 million to assist Mexico; this facility was expected to be in force in the near future.
Trends in Exposure
The moderately restrictive policy of the export credit agencies, together with the weakened import demand in Mexico, led within one year to a sharp contraction in the agencies’ exposure in Mexico. The volume of outstanding offers plummeted to 30 percent of the previous average, and medium-term commitments declined for virtually all agencies. Within one year after the policy turning point, outstanding medium-term commitments of the ten agencies in aggregate dropped by 10 percent; the same decline was experienced by the top three agencies. More important and somewhat surprising, short-term commitments also fell, from an average of 27 percent of national exports in 1982 to 25 percent in 1983—a level which nonetheless was slightly above the average in the early 1980s. These declining trends continued to be evident in 1984.
Prospects and Issues
For 1984, most of the agencies appeared to favor at least a continuation, and for some an easing, of the 1983 policies. There was a general feeling that for 1984 a coordinated approach on export credit (formally or informally) would not be necessary. Factors contributing to the increasingly positive attitude of the agencies include Mexico’s good economic performance, its compliance with the Fund-supported adjustment program, and the exceptionally short consolidation period (six months). Some of the agencies seemed to be aiming at further increases in commitments for 1984; two agencies have transferred transactions from the national interest account back to the commercial accounts. Among the agencies that were off cover in 1983, several had restored cover on all business by June 1984, although some restrictions continued to apply, especially for transactions with the private sector in Mexico. For most agencies, one important outstanding issue at the time of the staff visit discussions with the authorities concerned was the resolution of the complications of private nonguaranteed debt and the consequent delays in concluding bilateral agreements to implement the multilateral rescheduling agreement.
Debt Buildup Phase
Among the countries in the study, the experience with Nigeria best exemplifies the inherent difficulties in containing exposure in a market of large commercial interest and one without persistent and substantial claims payouts. In this example, agencies did not react consistently to the adverse leading economic indicators. Over half of the agencies were unable to resist exporter and competitive pressures and permitted exceptionally large and steady increases in commitments, despite the signs of weak economic management and rising payments arrears.
During the period 1981 through the first half of 1983, the cover policies for most of the agencies may be described as moderately restrictive. For most of them, medium-term cover was confined to transactions of the public sector or those with public sector guarantees; the public sector was strictly defined by that time and was confined generally to the federal government and excluded local governments. Some agencies attempted to contain growth in exposure by imposing some form of commitment limit which, however, often proved ineffective and had to be raised under intense demand pressure. On short-term transactions, most agencies were already requiring lengthy claims-waiting periods ranging from six months to one year. Such requirements were, however, traditional for Nigeria and reflected administrative bottlenecks in Nigeria and the resultant difficulties in effecting payments on time. For most agencies, no especially restrictive actions were reported as having been adopted to restrain short-term commitments in response to growing difficulties. Irrevocable letters of credit were a frequent requirement, but proved inadequate in curtailing exposure since there was no effective control over the issue of such documents in Nigeria during this period.
Beginning in the second half of 1982, economic and financial developments began to deteriorate when the outlook for the world oil market and Nigeria’s financial prospects were becoming less favorable—especially with considerable uncertainty regarding the magnitude of the decline in oil prices that would ensue. Over the short term, transfer delays became longer and more persistent, and the amounts involved were significantly larger than under normal administrative delays. Also, substantial arrears were emerging for other creditors such as banks and noninsured suppliers. Domestically, there were few signs of corrective policy actions to compensate for the worsened environment: national elections were due shortly deferring a clear shift in policy direction until the new government was installed.
Against this background, only four agencies (one among the top three in the market) attempted in mid-1982, with some success, to restrict cover. For medium-term transactions, new offers were suspended, the market was downgraded, and more stringent selection criteria were applied to confine credits to essential infrastructure and direct foreign exchange earning projects. In practical terms, one agency was effectively off cover, in that decisions were no longer being made on applications; for two other agencies, most applications were being rejected almost routinely. For short-term transactions, tight individual limits were initially imposed. Later, the medium-term outlook worsened, and there were no prospects for an early Fund-supported adjustment program. By early 1983, at least one agency reported the imposition of the strict requirement of confirmed irrevocable letters of credit and confined short-term cover to essential imports such as raw materials and spare parts. Finally, in January 1983, one major agency formally withdrew cover for private buyers following substantial claims payouts.
Half of the agencies did not report that they reacted significantly to the deteriorating situation. Initially, they maintained relatively favorable attitudes toward Nigeria, which reflected their confidence in the oil resources. The difficulties were initially expected to be short-lived, much like the wave of temporary financial problems that occurred between the two oil shocks in the mid-1970s. Later, even with the bleaker medium-term outlook, there remained strong commercial interest in the market and competitive pressures precluded agencies from reacting more decisively.
Trends in Exposure
Analysis of available data indicates a remarkable degree of correlation between the reported policy stances and the trends in commitments. More so than with other countries in the study, the agencies with restrictive policies (relative to others) succeeded in containing risk, while agencies with comparatively relaxed practices experienced large increases in their exposure. Overall, a significant shift in market shares is in evidence since 1982. The net effect of the two trends in exposure, however, was a significant increase in total commitments for Nigeria (Chart 4). On aggregate, medium-term commitments of the ten agencies grew by 47 percent in 1982 and further by 23 percent in 1983. Short-term commitments, measured relative to trade flows, fell in 1982, but rose significantly in 1983—especially for the top three agencies in the market. This short-term trend is noteworthy because for several agencies short-term arrears were already significant and mounting in 1983. Since the first quarter of 1984, however, short-term commitments have declined uniformly across agencies. Relative to trade flows, short-term commitments in 1984 remained, on average, higher than in most recent years.
Chart 4.Nigeria: Trends in Commitments, 1980-84
Prospects and Issues
Since early 1984, all of the agencies had moved effectively to restrict cover. The reasons cited for this shift were, first, by the end of 1983, the need for a Paris Club debt rescheduling was seen clearly by creditors; second, there were now generalized payments arrears and rescheduling discussions with banks and noninsured creditors; and, third, the economic situation seemed to be deteriorating and the negotiations with the Fund on an adjustment program became protracted.
Nigeria’s payments difficulties were centered on short-term maturities, and there were indications that Nigeria would seek to reschedule only short-term arrears and current short-term obligations contracted before a specified date. Although there had not been a request for a rescheduling of medium-term obligations, the agencies were cautious. Most of them either formally or effectively withdrew cover on medium-term transactions; one agency was on cover, but only with severely restrictive terms which included costly premium surcharges. Regarding short-term transactions, despite the need for a rescheduling of short-term arrears, a few agencies remained on cover, albeit on a restricted basis, for example, with revolving commitment limits, presumably because of the Nigerian Government’s pledge to keep current with post-1983 maturities. Reflecting this policy stance, while medium-term exposure has begun to moderate, short-term commitments relative to trade flows continued to increase, especially for the top agencies in the market in 1984.
Resumption of Normal Policies after 1978 Rescheduling
The Paris Club agreement for Peru was concluded in November 1978 and provided for a rescheduling of medium-term principal payments due over a fifteen-month consolidation period. During 1978, agreement was also reached with the Fund on a two-year standby arrangement and rescheduling agreements were concluded with banks and other official creditors. With the Paris Club rescheduling, all agencies, as customary, withdrew cover for medium-term transactions and imposed restrictive conditions for short-term business.
The interval of cover interruption was exceptionally short—probably too short in the view of some of the agencies. Cover policies were eased significantly only one year after the Paris Club agreement. As early as the first quarter of 1980, all of the agencies had resumed medium-term cover, although most with some moderately restrictive conditions; one agency among the top three in the market was open for cover without any restriction. As for short-term transactions, over half of the agencies had been open fully ever since the fourth quarter of 1979; it is noteworthy that, for one of these agencies, this liberal move was taken in exception to its normal policy and was regarded as an “advance” reopening. From 1981 through the first half of 1982, agencies maintained, and a few were able to ease further, their generally relaxed policy stance.
The agencies attributed their flexibility in the case of Peru to the following factors. First, in 1979, there was a dramatic improvement in the economic and balance of payments performance, which reflected, in large part, the copper price boom. Further gains in export earnings and a large balance of payments surplus were registered in 1980. The political environment was also stabilized with the new government which was elected in early 1980. Second, in view of the strong external payments position, in late 1979 the Peruvian authorities decided to forgo the 1980 reschedulings, which had already been agreed in principle with official creditors and banks provided Peru complied with the Fund-supported program. Furthermore, Peru was able to make advance repayments of the amounts rescheduled—another factor which was regarded by the agencies as highly positive.
Overall, the agencies were able to ease cover policies in line with these favorable developments. A few of the agencies indicated that, at the time, they viewed with skepticism the permanence of Peru’s financial improvement, since it was based heavily on volatile copper prices. Nonetheless, given strong exporter interest and competitive pressure, these agencies could not persist in restricting policies against the majority view.
Trends in Exposure
As to be expected, the agencies’ exposure began to increase in line with the easing trend in their cover policies (Chart 5). For the ten agencies in aggregate, medium-term commitments grew by 15 percent in 1980 and further by 9 percent in 1982. The trends for short-term exposure were less pronounced, primarily because the policy shift was much less noticeable.
Chart 5.Peru: Trends in Commitments, 1980-84
Policy Turning Point
Beginning in 1982, the agencies’ attitudes toward Peru became less favorable. Domestically, the economic improvement proved to be short-lived, and by early 1982 the medium-term prospects began to weaken. Externally, the regional Latin American debt problem which occurred during the latter half of 1982 was creating additional concerns about Peru’s debt-servicing ability. In June 1982, a two-year stand-by arrangement with the Fund was put in place. Throughout 1982, the agencies maintained their liberal policy stances; for the few agencies that reported some adjustment in their cover policies, their actions were primarily in the context of agency-wide policy adjustment in the wake of the Mexican liquidity crisis.
In 1983, the economic situation deteriorated further. By the beginning of the second quarter of 1983, after the confirmed report that Peru would seek a Paris Club rescheduling, agencies began to tighten cover policies. By the end of the second quarter, four agencies effectively withdrew cover for medium-term transactions in advance of the Paris Club rescheduling which took place in July; two agencies delayed such action until the fourth quarter of 1983—almost half a year later. On short-term transactions, all agencies but one remained open for cover with moderately restrictive conditions.
Despite the Paris Club rescheduling, four agencies were able to maintain cover for medium-term commitments without severely restrictive conditions; applications were considered on a case-by-case basis and payment guarantees were required. This relatively liberal policy stance was adopted by one other agency that had initially withdrawn cover. For these agencies, the relaxed policy was maintained until early 1984.
Among the agencies that remained relatively liberal, by early 1984 their cover policies were being significantly tightened, primarily in response to Peru’s evident need for another Paris Club rescheduling. About half of the agencies had by June 1984 withdrawn cover for medium-term transactions, while others expressed very cautious attitudes. Aside from the 1984 Paris Club rescheduling, other factors cited by some agencies for their actions included the difficulties in concluding the implementing bilateral agreements, the emergence of payments arrears to some of the agencies, and the periodic complications facing Peru in implementing the Fund-supported adjustment program.
Prospects and Issues
Notable features of agency experience with Peru were, first, the absence of uniform customary reactions to the 1983 Paris Club rescheduling, and second, the apparent weak link between Peru’s approach to debt rescheduling and some agencies’ willingness of accommodation in their cover policy stance.
In discussing policy responses to the 1983 Paris Club rescheduling, the agencies that either had not withdrawn cover, or had significantly delayed such action, gave various reasons for their decisions. Two agencies suggested that the overriding consideration was commercial, given their relatively large exposure, both in terms of the agencies’ own portfolios and the market share; this important commercial interest was further buttressed by their own good claims experience with Peru. The same kind of reasoning led another agency to restrict cover policies in an attempt to correct its market share that was viewed as excessive. One agency took the unusual decision not to go off cover, partly as an experiment for more flexibility in the circumstances of generalized debt-servicing difficulties. It was felt that the experiment was justified since economic information at the time suggested that Peru’s problems were temporary and, in any case, the commercial interest was such that any cover suspension probably could not have been maintained for long. Finally, one agency felt that a formal off-cover position was not needed since demand was already slack.
Concerning Peru’s approach to the 1983 Paris Club debt rescheduling, most agencies did not react negatively to Peru’s initially unclear intention concerning short-term debt, and maintained fairly liberal policies for short-term cover. This relatively relaxed policy stance was reflected in the slight but temporary increase in short-term commitments during 1983.
Debt Buildup Phase
Developments in the case of the Philippines are notable for the exceptional degree of concentration in this market. For medium-term exposure, the top three agencies account for over 80 percent of the market, and the share of each of the top two agencies is over 35 percent. For short-term exposure, the top agency’s share alone is over 80 percent. Thus, except for the top two agencies, the Philippines is regarded by other agencies as a relatively small market in both absolute and portfolio terms.
The agencies reported first signs of economic and financial deterioration in late 1982/early 1983, and there were increasing concerns over the rapid debt buildup. Cover policies of all of the agencies, however, remained liberal. Mild conditions continued to apply to medium-term cover, and for short-term transactions nine agencies remained fully open; for the one agency with restrictions on short-term transactions, it was in the form of a transaction limit that seemed adequate for its market activity. For most agencies, as noted above, exposure was limited in both absolute and relative terms, and a further increase in risk was felt manageable. Only one agency indicated that it was able at that time to reduce its new commitments limit, on the basis of its unfavorable medium-term assessment of the country.
Policy Turning Point
In September 1983, in response to the weakened political situation in the Philippines, and after the full extent of the country’s financial difficulties emerged, one agency moved to tighten policy slightly. In the following two months, the economic situation of the Philippines deteriorated rapidly, capital flight accelerated, and reserves quickly diminished. As a result, the Philippines requested a bank-debt moratorium and approached the Paris Club in November 1983. At that time, seven agencies—all with marginal existing commercial interest in the market—withdrew cover (formally or effectively) on medium-term transactions. For short-term cover, these agencies introduced restrictive conditions that included overall revolving limits, reduced transaction limits, requirements of public guarantee in the Philippines, extended claims-waiting periods, and cover confined to transactions on letters of credits. One agency also withdrew cover on short-term transactions.
By mid-1984, only two agencies remained on cover on medium-term transactions. One of these agencies considered its exposure sufficiently small and elected to maintain cover on all maturities for the traditional exporters. One of the top agencies in the market remained on cover for transactions with the public guarantee of the Philippines and/or conditions of irrevocable letters of credit, and applications were considered on a case-by-case basis. The reasons cited for this flexibility were national interest considerations, the slack demand for imports that needed medium-term support, and the fact that exposure could be effectively monitored since irrevocable letters of credit were being issued under strict control within the Philippines.
Trends in Exposure
An unusual feature of the agencies’ experience with the Philippines is the absence of large (and broad-based) increases in the levels of commitments in the period approaching the policy turning point. Aggregate medium-term and long-term commitments of the ten agencies rose by 5 percent on average during 1981—82, and actually declined marginally in 1983 before the policy turning point later in that year (Chart 6).
Chart 6.Philippines: Trends in Commitments, 1980-84
Comparatively, this trend is considerably more moderate than the experience of most other debtor countries in the study. Furthermore, there was a sharp contrast in the agencies’ experiences even though they maintained a similar policy stance during this period. Virtually all of the increases in commitments for the group occurred only for the top two agencies in the market. The other eight agencies, with their liberal policies, saw steady declines in their exposure over this period. By the fourth quarter of 1983, however, exposure of all ten agencies fell, and at an average annual rate of 12 percent.
The trends for short-term commitments suggest a significant increase in demand for cover in the months ahead of the policy turning point. In particular, for the top three agencies (together accounting for over 90 percent of the market), their short-term commitments measured against their national exports jumped from 23 percent in 1982 to 37 percent in 1983. As the year progressed, there were even sharper increases in short-term commitments for the top two agencies that remained comparatively more liberal than the other agencies. In 1984, short-term commitments on average were at about the same level as in 1983 although they continued to increase relative to trade flows.
Prospects and Issues
At the time of the discussions with the authors, the agencies’ reservations on the Philippine situation concerned the piotracted negotiations of the Fund-supported adjustment program and, consequently, the lengthening interval between the announcement of the payment moratorium and the eventual Paris Club discussion. Medium-term arrears had been increasing since early 1984, and the overall payments situation continued to deteriorate. One agency indicated that its policy stance would not be relaxed once a Fund agreement was reached. Rather, its policy could be further tightened should the discussions with the Fund prove unduly prolonged and the liquidity situation in the Philippines worsen. Overall, most of the agencies seemed to have taken a dimmer view of the medium-term outlook for the Philippines. With the full scale of the country’s heavy debt burden having become known in early 1984, and along with the Philippines’ domestic political uncertainties, some agencies have begun to feel that the Philippines’ need for repeated Paris Club reschedulings could not be precluded.
With the lengthening interval between the approach to and the eventual discussion with the Paris Club, a feature of the agencies’ experience with the Philippines is the apparent increase in demand for short-term cover and its impact on the agencies’ ability to remain on cover. As noted above, in spite of the growing uncertainties and the tight liquidity situation of the Philippines, several agencies retained cover for a time on short-term transactions without tight restrictions; they were willing to do this because there were no transfer delays on this account. A few agencies reported delays on short-term transactions that were concluded before the moratorium date. For some agencies, their flexibility was made possible on the initial expectation of a speedy agreement on a Fund-supported adjustment program. They indicated that their attitude could change as the situation had weakened with the prolonged Fund negotiations, and as they had experienced very sharp increases in their short-term exposure. Some agencies have already, as customary, interpreted this tendency as a sign of deteriorating risk, perhaps reflecting a spillover of demand unmet by other agencies that are relatively more stringent. One agency indicated that much of the increase in demand for cover had not been due to a shift in its market share as such but, rather, from commercial banks for transactions that traditionally had not required cover. With these difficulties and the possibility of short-term arrears, some agencies have moved to tighten short-term cover policies, for example, by withdrawing delegating authority for suppliers’ credits and introducing limitations for banks.
Policy Turning Point
The agencies’ attitudes concerning Romania began to change for the worse in early 1981, reflecting in part the general loss of confidence in the debt situation of the Eastern European region in the wake of the Polish debt crisis. Romania was then regarded as particularly vulnerable to shifts in banks’ sentiments, given its heavy reliance on short-term bank borrowing. Subsequently, as a result of the precipitous drop in short-term financing—especially from banks—Romania’s payments problems quickly worsened and arrears emerged in mid-1981, soon after the conclusion of a stand-by arrangement with the Fund for a three-year adjustment program. During the following two years, Romania concluded a series of multilateral rescheduling agreements with the commercial banks, non-guaranteed suppliers, and with the Paris Club.
Beginning in mid-1981, in response to the worsening arrears situation, most agencies progressively tightened cover policies for Romania. In the following two years through mid-1983, most agencies maintained a very restrictive stance on both medium-term and short-term cover policies. In late 1981, as Romania attempted unsuccessfully to seek bilateral aid (including a debt rescheduling) from certain creditor governments, eight of the ten agencies moved to significantly tighten cover. On medium-term transactions, two agencies (which were by that time certain of Romania’s need to reschedule comprehensively) withdrew cover in practical terms, while four others imposed restrictive conditions, mainly through a case-by-case approach. Similarly, and perhaps more important, for short-term transactions, two agencies were practically off cover, while several others introduced stringent conditions, including the guarantee requirement of the central bank and a reduced percentage cover.
Subsequently, in the first half of 1982, policies were tightened even further upon first report of the central bank’s default against irrevocable letters of credit and that Romania would seek a Paris Club rescheduling. By the time the Paris Club multilateral agreement was reached in July 1982, all agencies were practically, if not formally, off cover on medium-term transactions. On short-term transactions, the agencies had suspended further drawings under lines of credit, and only two agencies reported remaining open.
Even with these severe policy restrictions, some of the agencies tightened policy even further and took extreme actions in 1983. In reaction to Romania’s difficulty in implementing the 1982 Paris Club bilateral agreements and as the situation deteriorated amid growing uncertainty and rumors of likely bank defaults, one agency took the exceptional measure of stopping disbursements. Moreover, the one agency that had so far avoided withdrawing cover decided to suspend cover formally. Partly for noneconomic reasons, one agency took the exceptional measure of withdrawing cover even for existing revolving short-term facilities and for whole-turnover insurance. By March 1983, all agencies were effectively off cover on medium-term transactions and only one agency remained open on short-term transactions.
Trends in Exposure
The exposure trends for Romania have shown a remarkable degree of correlation with the agencies’ policy stance—more so than for the other countries in the study. Given their uniformly restrictive policy stance, the agencies’ exposure in aggregate has been declining significantly and steadily since the policy turning point in early 1982 (Chart 7). This declining trend is especially marked because it is clearly shared by all of the agencies. For the ten agencies combined, medium-term commitments dropped by 7 percent in 1981 and at an even sharper rate of 13 percent in 1983.
Chart 7.Romania: Trends in Commitments, 1980-84
Short-term commitments remained relatively high during a part of the period for the few agencies that maintained cover. As the situation deteriorated in 1983 and as short-term cover policies were tightened for this group of agencies, short-term exposure of virtually all agencies has diminished to a minimal level, with only one agency maintaining reasonably normal short-term exposure.
Prospects and Issues
Since late 1983, about half of the agencies have eased their cover policies for Romania, mainly for short-term transactions. By June 1984, six agencies had reported restoration of short-term cover on a limited basis by requiring, for example, central bank guarantee, maximum credit terms of six months, and an extended claims-waiting period. On medium-term transactions, three agencies (one in the top three) have restored cover, one on a case-by-case basis and the others with annual commitment limits. There has been some easing of these conditions in recent months. For the first agency that restored cover on medium-term transactions, its decision was influenced by its low exposure in absolute and relative terms, and the action was regarded as a goodwill gesture, in part as an informal quid pro quo agreed in the negotiations of the 1983 Paris Club bilateral agreement.
Since 1982, Romania’s external position has improved significantly, with growing surpluses on the current account of the balance of payments. However, for most of the agencies, the policy stance remained cautious, in spite of Romania’s successful avoidance of another Paris Club rescheduling for the 1984 maturities and its improved record in implementing the 1983 Paris Club bilateral agreements. Even with the improved payments experience since 1983, some of the agencies continued to have some reservations about Romania and cited several factors for their hesitancy. First, the improved economic performance was perceived by some agencies to be based on a probably unsustainably large deflation of the economy. Second, although payments to the agencies themselves had become current, certain uninsured arrears remained, and for at least two agencies, this fact had adversely influenced their cover policy decisions. Third, for some smaller agencies, policies could continue to be guarded and cautious since there was no effective pressure from exporters to reopen cover. Finally, for some of the large agencies, their relative exposure in Romania had reached such a level that policy needed to be cautious in any case.
A notable feature of the agencies’ experience with Romania is the agencies’ indication that at times they might have overreacted and might have acted in a more cautious manner than needed. The two reasons most often cited for this tendency were, first, that communications by Romania were initially flawed with Romania giving the impression of being not ready to disclose essential economic and financial information for the agencies’ assessment, and, second, agencies took a dim view of Romania’s initial attempt to negotiate bilaterally with creditors, both official and nonofficial.
Resumption of Normal Policies after 1978, 1979, and 1980 Reschedulings
Turkey’s external position deteriorated sharply during the mid-1970s, and significant payments arrears emerged in 1976. In the late 1970s, with rapidly mounting arrears, the liquidity crisis culminated in a series of comprehensive debt reschedulings with official creditors, commercial banks, and nonguaranteed suppliers. For the official creditors, the reschedulings took place in 1978, 1979, and 1980, all under the aegis of the OECD. These reschedulings provided for comprehensive and exceptional debt relief, including extraordinarily broad coverage of debt to be rescheduled (such as arrears and current maturities on short term); the 1980 agreement also included a rescheduling of maturities extending through June 1983.
In response to the official debt rescheduling of 1978, the agencies adopted a very restrictive policy stance, and virtually all regular programs were closed to Turkey. Over the next five years through early 1983, this tight policy stance was substantially unchanged. The reasons cited for this policy stance included, first, Turkey’s evident need for repeated and increasingly comprehensive debt reschedulings, and, later on, the extension into June 1983 of the debt consolidation period agreed for the 1980 rescheduling. Second, for several agencies, the bilateral rescheduling agreements were for a long time not successfully implemented, and during a substantial part of this five-year period, arrears continued to exist. Overall, most agencies indicated that in a strict sense they were off cover for medium-term transactions; for short-term transactions, half of the agencies withdrew cover while the other half required extreme conditions, such as confirmed irrevocable letters of credit.
During this period, partly on national interest considerations and given the existence of a Fund-supported adjustment program, some agencies were able to provide cover on an exceptional basis in the context of the OECD Consortium arrangement. Under this framework, the agencies provided medium-term cover under tight commitment limits, with added conditions to ensure that only the most essential imports would be financed. Even then, on short-term transactions, business was often conducted under confirmed irrevocable letters of credit. For several agencies, cover was provided only for externally financed or aid-financed projects. Some agencies also reported the underusage of short-term revolving limits (against irrevocable letters of credit), owing in part to the change in the market structure in Turkey from credit-financed to cash-financed.
Policy Turning Point
Significant improvements in Turkey’s external position as well as in its overall economic situation became noticeable beginning in 1981. However, it was not until the middle of 1983 that a few agencies began to relax cover policies and began to provide cover outside the context of the OECD arrangement.
Beginning in early 1981, as a result of the improved financial situation, Turkey was able to service unrescheduled debt as well as to keep current on most payments under the rescheduling agreements to most agencies. Moreover, the Fund-supported adjustment program was proceeding satisfactorily, with drawings made on schedule. In spite of these positive developments, some agencies suggested that they remained reluctant to ease cover policies since medium-term claims payments were still being made, given that the consolidation period would only end in June 1983. Other agencies indicated that, owing to information lags, the financial improvement could be confirmed only with significant delays. Also, one agency indicated that the financial loss associated with the reschedulings of the 1970s was so heavy that there was a need to be especially cautious. Finally, a few agencies indicated that there remained some arrears relating to the rescheduling agreements.
It is significant that the agencies in the study delayed their return to normal cover policies behind the commercial banks. Already, the 1982 bank restructuring for Turkey took place in circumstances of much better relations. Turkey succeeded in obtaining terms and conditions more favorable than previously, and agreement was reached in early 1982 on the first medium-term syndicated bank credit since 1979.
In mid-1983, a few agencies began to ease cover policies, citing the following principal considerations. First, the economic progress since 1982, especially the sharp improvement in export performance, was continuing into 1983 and was now seen to be more significant. Second, the change in government was seen as a positive factor for the continuation of adequate economic management. Third, the debt consolidation period had ended and agencies were no longer paying claims, and, for some agencies, the arrears had been eliminated.
Given that the medium-term outlook nevertheless remained difficult, these few agencies were cautious in their first moves. Special efforts were taken to keep exposure under tight control and to ensure that the additional financing would be economically sound. For one major agency, cover on short-term transactions was restored only gradually, with limits on the transaction size, maximum maturities of 180 days, and confined to whole-turnover policy holders who were national exporters. With the condition of central bank guarantee, there was also a stringent assessment of commodities eligible for cover. Gradually, limits were raised, and the scope and the types of commodities or the group of exporters eligible for cover were widened to include, for example, investment goods under two years. Moreover, there was a variety of single limits for selected projects. Another agency took the unusual move (for this agency) of establishing an annual commitment limit coupled with an individual transaction limit. These limits were established as guidelines for the Turkish authorities in their attempt, at the agencies’ request, to prescreen the types of public sector projects suitable for support. One other agency was able to restore medium-term cover only with a tight market limit coupled with a special risk-sharing arrangement with commercial banks to limit its exposure. One exception to this overall cautious trend was one agency with relatively small exposure that was prepared to approve a large increase in commitments, but this was on the basis of commercial consideration of a possible large project.
More than half of the agencies initially remained cautious and did not ease policies in substantive terms, taking the view that Turkey’s medium-term payment ability was still in doubt, given the bunching of scheduled debt-service payments beginning in 1985 when the previously rescheduled payments would fall due. Overall, another debt rescheduling was seen as a possibility. These agencies, however, had begun to reassess their initial positions, given the more liberal attitudes of other agencies and the apparent increasing optimism on the part of commercial banks, and had eased their cover policies further by June 1984.
Trends in Exposure
The exposure trends for Turkey are mixed. During the period 1981-83, there were periodic increases in medium-term commitments of certain agencies that were in a position to participate directly in the OECD Consortium arrangement. For other agencies, where efforts to assist Turkey were in the context of direct aid outside of the agencies proper, there were steady declines in their medium-term commitments for Turkey, in line with the tight cover policy stance. Overall, for the ten agencies in aggregate, medium-term commitments declined throughout this period by an average of 5 percent per annum (Chart 8). Conversely, for the recovery phase, it is noteworthy that, following the apparent easing of policy in 1983, there was a sharp upturn in agencies’ exposure in 1984.
Chart 8.Turkey: Trends in Commitments, 1980-84
The trends for short-term commitments were particularly erratic across agencies in the early 1980s and do not lend themselves to a clear-cut interpretation. For all ten agencies in the aggregate, short-term commitments measured relative to trade flows dropped especially sharply in 1981, possibly reflecting the sharp tightening of short-term cover policy for the major agencies following the comprehensive 1980 debt rescheduling. However, from 1982 onward, when a few agencies began to resume cover on short term, aggregate commitments have recovered significantly. For the top three agencies in the market, their short-term commitments almost doubled in 1982 as a ratio to their national exports, and rose further to 20 percent in 1984.
Prospects and Issues
Significant increases in exposure have followed the shift in policy stance with considerable delay. One agency ascribed this delay, not to the lack of the underlying demand, but to the administrative delays involved in rationing the exceptionally large pent-up demand after years of restriction. As noted earlier, special efforts have been taken by two agencies in an attempt to direct medium-term lending to sound projects of appropriate size. The problems of ensuring a proper project selection were seen to be particularly serious by some agencies. The smaller agencies in the market are not in a position to transfer the task of project prescreening to the Turkish authorities as had been possible for one agency. Generally, agencies are not in a position to appraise projects from the perspective of economic viability for Turkey. Some agencies indicated that their ability to resume cover on medium-term transactions could be enhanced should there be an investment plan with an appropriate project composition that would serve to guide their cover policy decisions.
Trends in Exposure
Until early 1983, the agencies had maintained a wide-open approach for Venezuela.6 Given its oil resources, Venezuela had been considered an excellent credit risk by banks and had enjoyed easy access to capital markets. Consequently, demand for cover had been low and the agencies’ exposure had remained relatively small for the market size.
Throughout 1982, the oil market deteriorated and Venezuela’s credit standing in capital markets weakened. This reflected in part the regional debt problem following the Mexican liquidity crisis of August 1982, Venezuela’s weak economic performance, and its heavy debt burden. During the second half of 1982, Venezuela experienced significant increases in the spread over the London interbank offered rate for its Euromarket borrowings. Furthermore, the program to restructure its bank debt, to correct the excessive concentration of short-term maturities, began to run into difficulties. By year-end, there were doubts about the viability of the exchange rate and capital flight accelerated. As the overall situation deteriorated, only two agencies reported having tightened policies slightly. One introduced a limit on total commitments, albeit a generous one, and another began to consider applications for over five-year credit terms on a case-by-case basis.
Despite their liberal policy stance, the agencies’ exposure in this market declined broadly, owing to slack demand (Chart 9). Only two agencies (including the top agency) saw significant increases in their total medium-term commitments in 1982 compared with those in 1980; during this two-year period, the other eight agencies registered marginal increases or declines (as much as 35 percent at an annual rate). Short-term commitments also fell sharply in dollar terms and appeared to have declined as a ratio to national exports as well.
Chart 9.Venezuela: Trends in Commitments, 1980-84
Policy Turning Point
By early 1983, arrears had emerged and there was considerable capital flight. With a deteriorating external position, Venezuela introduced tight restrictions on the exchange system in early 1983. These restrictions included a three-tier exchange rate system that provided, inter alia, for different exchange rates for the servicing of the public debt and of the different types of private debt. Debt owed or guaranteed by the public sector and certain vaguely defined private debt were to be serviced at a preferential exchange rate, while other types of debt were to be serviced at a free market (and much more depreciated) exchange rate. The administrative arrangements were complicated and imprecise. In particular, significant payments delays arose from the practical complications and uncertainties surrounding the eligibility requirements for the preferential exchange rate. Arrears were accumulated initially on nonpreferential private debt and later on public debt.
In the first half of 1983, most agencies began to tighten cover policies significantly, mainly in reaction to substantial arrears accumulation and transfer difficulties for the private sector and growing uncertainties concerning the exchange arrangement. One agency adopted a restrictive attitude, not because of its own claims experience as such, but because the claims experience of others had been worse. Initially, some agencies attempted to tighten policies only for the private sector (where transfer difficulties had first been experienced) and continued to provide cover for the public sector on a more cautious basis. In the first quarter of 1983, two agencies withdrew cover on all transactions and six agencies followed in the next quarter by imposing severe restrictions, especially on the private buyers.
By the third quarter of 1983, for medium-term transactions, four agencies had withdrawn cover, while one agency had suspended cover for the private buyers; the other five agencies had adopted a case-by-case approach. For short-term transactions, three agencies had gone off cover and one had withdrawn cover for the private buyers; the others had imposed restrictive conditions. The severe restrictions on short-term transactions were imposed mainly as a result of Venezuela’s attempt to unilaterally reschedule short-term private sector debt into three-year maturities.
By late 1983, significant arrears had also emerged for the public sector debt and the agencies had ceased to make distinctions in cover policies in favor of the public sector. Through mid-1984, most agencies progressively tightened policies and, by that time, virtually all agencies had suspended medium-term cover in practical terms, while some had withdrawn short-term cover as well. A few agencies remained open for transactions with the public sector, but did not expect to do much business, as the public sector demand for imports had been marginal.
Trends in commitments through 1984 have already reflected this overall restrictive stance. In the fourth quarter of 1983, medium-term commitments of the ten agencies in aggregate fell by 23 percent, compared with a year earlier. The declines are broadly based and range from some 10 percent for the smaller agencies in the market to a high of 42 percent for one of the top three agencies. Short-term commitments for the latter half of 1983 also fell more sharply than national exports. These trends became more pronounced in 1984.
Prospects and Issues
Most agencies continued to regard Venezuela’s medium-term prospects as favorable and considered its current difficulties as temporary, reflecting the weak maturity structure of debt, and amenable to solution. However, the agencies’ actions have been severely restrictive over the short term in response to the approach taken by Venezuela in resolving this temporary liquidity problem. They indicated that a resumption of normal policies would be conditional on the satisfactory resolution of the arrears problem, which included a rescheduling arrangement with the official creditors and the active cooperation of Venezuela with the banks and, in the view of some agencies, cooperation with the Fund as well.
The agencies’ major difficulties with Venezuela centered around the arrears that had been accumulating and the differential and, for the agencies, unsatisfactory treatment given to debt owed by the Venezuelan private sector. Since the introduction of the multiple exchange rate system in early 1983, it has been intended that the servicing of the public sector debt (contracted before February 18, 1983) would be kept current and would be with guaranteed access to the preferential exchange rate. In the event, owing in part to foreign exchange shortages, arrears have accumulated even on the public sector debt.
Concerning Venezuela’s private sector debt, a less favorable arrangement has been made for its servicing. It seems that the servicing of such debt at a preferential exchange rate has been provided for only on the rescheduled terms and conditions that have been set unilaterally by the Venezuelan authorities. This unilateral rescheduling arrangement (known as the “Recadi”) has not been accepted by the agencies and, since early 1984, concerted efforts have been made to resolve this issue via a multilateral approach. Paris Club creditors were disappointed that repeated requests from them to the Venezuelan authorities for clarification of the official policies, vis-a-vis debt servicing of official credits, had gone unanswered. Some agencies have informally indicated that should a Paris Club discussion prove impractical (in the absence of a Fund-supported adjustment program in the upper credit tranches), a multilateral rescheduling along the Paris Club format might suffice, provided that a credible adjustment program has been adopted. In June 1984, the dispute remained unresolved, bank refinancing discussions were progressing slowly, and arrears were accumulating.
Policy Turning Point
Yugoslavia entered into a three-year stand-by arrangement with the Fund in January 1981 and was able to purchase the full amount available under the arrangement. Despite the improved current account performance, the overall external position of Yugoslavia began to weaken in the second half of 1981, when significant net capital outflows occurred. By that time, commercial banks had begun to sharply cut back new lending, which reflected growing concerns with the overall debt situation in Eastern Europe following the Polish debt crisis and with the rapid buildup of the Yugoslav short-term debt. At that point, three agencies moved to tighten terms of cover; one agency (among the top three in the market) went as far as suspending cover in practical terms.
Most agencies began to significantly tighten the terms of cover during the second half of 1982. Yugoslavia’s problem of liquidity and confidence was aggravated in March-April 1982, when one of the Yugoslav regional commercial banks encountered serious debt-servicing difficulties and there were serious transfer delays. The country’s access to capital markets became jeopardized, along with substantial outflows of capital owing to the confidence crisis. By the fourth quarter of 1982, in response to arrears accumulation, three agencies had withdrawn cover for medium-term transactions, while four others had imposed restrictive conditions. As for short-term transactions, one agency withdrew cover, while only two agencies retained cover without any restriction.
In early 1983 and in the context of the Fund-supported adjustment program, an approach was made to banks and official creditors for special assistance to meet the 1983 financing need. In the event, governments agreed by referendum (referred to as the Berne Agreement) to provide assistance for export credits, including some rollover of maturities. In January 1984, agreement was reached with official creditors to formally refinance 100 percent of principal payments due in 1984. Since 1983, for most agencies, cover policies for Yugoslavia have been in the context of the Berne Agreement, and disbursements are expected to continue. Governments have also confirmed their willingness to provide credits or guarantees outside the official package.
Experience with Berne Agreement
Under the 1983 Berne Agreement, the agencies were committed to provide export credit assistance to Yugoslavia in broad terms, and in a variety of forms that, however, were not clearly specified in advance. Meanwhile, all regular facilities and programs had been suspended. Most agencies suggested that the normal programs would not be reactivated while the special arrangement was in effect.
Concerning cover policies in the context of the Berne Agreement, the agencies have taken different approaches and have had mixed experiences. Two agencies indicated that their commitments for medium-term cover under the Berne package were sufficient and equivalent to a de facto refinancing loan during the year. Several agencies reported the provision of credit lines for short-term cover for raw materials and essential imports, which were to be utilized under the Yugoslav priority system; one of these agencies had, at the same time, suspended medium-term cover. One agency reported that its experience with the credit line arrangement had been discouraging. First, there was a delay of about ten months before the credit line became effective, as practical difficulties were encountered in agreeing on the provisions and the types of goods to be covered. Moreover, once effective, the credit line was not much used owing to the strict import control in Yugoslavia. In contrast to this experience, one agency indicated that a more positive response—in that its short-term facility with irrevocable letters of credit conditions had been well utilized up to the specified revolving limits.
The experience regarding medium-term and long-term credit facilities under the Berne Agreement was also uneven. Only one agency reported the full use of its target committed under the Berne Agreement, since it succeeded in matching the Yugoslav need for certain imports (e.g., for the production of exportables) and in obtaining payment guarantee of the specified Yugoslav bank. Several agencies explained that their facilities for medium-term insurance cover had not been well used, in part because of stringent control within Yugoslavia regarding projects to be externally financed, that is, the Yugoslav wish to confine the use of export credits to noncapital goods for export-oriented industries. Moreover, a few agencies expressed reservations concerning some of the specifics of the facility, particularly in the effort to provide balance of payments financing through covering trade under abnormal credit terms (e.g., providing three-year to five-year credit terms for consumer goods which would normally be covered under short term). For these agencies, the abnormal terms provision may have been a factor in the low utilization of the facility.
Trends in Exposure
A feature of the agencies’ experience with Yugoslavia is the absence of the debt buildup phase (except for short-term exposure) that has been noticeable for several countries in the study. In the period ahead of the policy turning point, medium-term commitments for nine of the ten agencies registered significant declines. In 1981, medium-term commitments of the top three agencies, as well as of the ten agencies combined, fell by 16 percent (Chart 10). These declining trends were to continue into 1982—the difficult period—and into the rescue year of 1983, although at an increasingly moderate pace. These tendencies are consistent with the absence of Yugoslav demand for capital goods imports, given the system of tight import and investment restrictions during this period.
Chart 10.Yugoslavia: Trends in Commitments, 1980-84
The trends in short-term commitments seem indicative of the agencies’ willingness to support trade finance for Yugoslavia. Total short-term commitments measured relative to trade flows have increased since 1981, and reached 18 percent of national exports by 1983 for the ten agencies in aggregate. This rising trend is all the more notable because it has been achieved through a sharp shift in the market shares among the top three agencies in the market.
Prospects and Issues
For 1984, there was no formal concerted financing package (of the type arranged in 1983) for Yugoslavia. Disbursements remained to be made for most agencies on the 1983 Berne Agreement, and there was a formal rescheduling agreement for 1984 maturities (see below). For 1984, only one agency indicated that its contribution would be along the lines of its successful facility that was provided in 1983. For several other agencies, the views were mixed and some were adopting a wait-and-see attitude. One agency indicated that the 1983 arrangement in fact had not yet been activated after long delays, since arrears remained outstanding.
Some agencies suggested that regular facilities could not be introduced until after the special arrangements had been completely utilized. In this connection, a few also observed that had the special arrangement not been made they may have been off cover for a few months, but market interest would be such that a resumption of cover on a limited scale would have become necessary in any case. One agency considered that the existence of a special facility, providing cover at abnormal credit terms, may have hindered its ability to provide cover under regular programs. Also, several viewed the difficulties in Yugoslavia as temporary—mainly in the weak capital account, owing to an inappropriate interest rate policy. Once policies are adopted to correct the difficulties, and in the absence of a special arrangement, they would be prepared to resume the normal approach.
A feature of the 1984 financing arrangement for Yugoslavia was the rescheduling of medium-term debt owed to official creditors, which was not formally undertaken in the 1983 arrangement. Following this rescheduling, a few agencies have resumed medium-term cover with some restrictions and on a case-by-case basis. Short-term cover has been retained by most on a limited basis, for example, with conditions of irrevocable letters of credit issued by the agency’s resident banks. Some agencies also indicated that they viewed favorably the Yugoslav effort to confine the 1984 rescheduling to the principal amount. This narrow coverage of rescheduling was regarded as a confidence factor, indicative of the mild degree of financial difficulties faced by Yugoslavia. One agency felt its cover policy decision could be positively influenced, since there was an implicit link between the terms and conditions of new cover and the agency’s financial burden of debt rescheduling. However, another agency, perhaps less affected by the financial cost of debt rescheduling, suggested that, while Yugoslavia’s ability and willingness to be current on interest payments may have been a positive influence, the decisive factor remained the political will of governments to assist Yugoslavia.
This note describes the technical and operational aspects of export credits and export credit cover policies. It also provides additional explanation for, and definition of, some terms relating to export credits that are used in this study, particularly as background to the country descriptions in Appendix I.
Founded in 1934, the Union is an association of 36 export credit agencies, all participating as insurers and not as representatives of their governments. The main purposes of the Union are to work for sound principles of export credit insurance and maintenance of discipline in the terms of credit in international trade. To this end, members exchange information and furnish the Union with relevant information, consult together on a continuing basis, and cooperate closely.
Payments made by export credit agencies to the suppliers or banks (the insurees) to compensate for transfer delays and for losses under the terms of the guarantee or insurance contracts.
These terms are used interchangeably in this paper. The descriptions of trends in exposure/commitments and the charts in Appendix I have been based mainly on the data on commitments reported to the Berne Union Secretariat. As noted in Chapter II, caution must be exercised in the interpretation of trends and aggregated figures. The definition of terms for these data, according to the standard basis of reporting established by the Berne Union agencies, may be described as follows.
Commitments are defined to include principal and contractual interest payable by the importing country on disbursed and undisbursed credits. They are defined as total payment obligations of the importing country and not just the maximum liabilities of the agency. Thus, commitment figures will include, among other things, the percentage of loss that could be borne by the exporter bank, nontransferable amounts, and adjustments for possible price increases where premiums have been paid. The data are reported in U.S. dollars, corrected for exchange rate variations for contracts expressed in local currencies.
For most agencies, commitments refer to insured suppliers’ credits and guaranteed buyers’ credits or financial credits provided by banks or other financial institutions. Commitment data for the Eximbank and the Export Development Corporation include export credits extended directly by these agencies. Most other agencies in this sample also guarantee or insure a large part, if not all, of export credits extended by official financial institutions, and such guaranteed or insured export credits are included in the commitment figures for these agencies as well.
The maturity classification is by type of insurance or guarantee policy, that is, short-term transaction relates to comprehensive or whole-turnover policies, while all other transactions are related to other policies, such as specific financial or suppliers’ credit guarantee policies.
Short-term commitments usually are commitments for sales of consumer goods and raw materials, which are normally covered under comprehensive or whole-turnover policies for which credit terms longer than six months are not normal. For some agencies, owing to their specific guarantee or accounting system, short-term commitments may be up to two years.
Short-term commitment data entail elements of estimation. Since most of the transactions are covered under comprehensive or whole-turnover policies, commitment figures are estimates based on exporters’ declarations. Agencies adopt different methods of estimation, depending on the guarantee system, the quality and availability of exporters’ information, and the pattern of trade.
Medium-term and long-term commitments in this paper are all commitments other than short-term, including unallocated commitments. The data may include, for example, commitments whose specific terms are not yet known and amounts overdue (including claims under examination and not yet paid). They also include special project-type business that is payable in cash or on short credit terms, which are normally covered under specific financial or suppliers’ credit guarantee.
Cover and Cover Policy
The provision, and the related policy, of export credit guarantee or insurance against risks of payment delay or nonpayment for export transactions. Cover is usually, though not always, provided both for commercial risk and for political risk.
Policy measures can be classified broadly by measures affecting the supply (availability) of insurance or guarantee and measures affecting the pricing of cover.
In generally increasing order of restrictiveness, supply measures can be summarized as follows.
Ceilings on commitments. Ceilings are commonly applied to medium-cover and long-term maturities and can be in various forms. Most agencies in the study maintain individual country limits for total commitments/exposure. Across agencies, the formality and the degree of restrictiveness of these ceilings differ, and for some agencies, the ceilings may be renewable and subject to easy upward modification. For other agencies, some limits may merely represent informal administrative guidelines, while others serve as strict ceilings for approving applications, depending on the intended policy stance at the time. One agency suggested that ceilings imposed by an agency are a less effective control than those set by an interministerial committee because the former is subject to more frequent review and modification. Ceilings on short-term commitments have been used rarely, chiefly because of the difficulty of maintaining up-to-date figures of the extent to which agreed cover is actually being used. When short-term ceilings are imposed, they are usually revolving limits.
Ceilings may also be limits imposed on new commitments during a specified period, usually for a year or less. They may also be limits imposed on individual transaction size—a practice favored by some major agencies. Such ceilings have been considered by a few major agencies as highly effective in controlling exposure, not only for the magnitude but also the type of project eligible for cover. Others tend to avoid these ceilings on the grounds that for the debtor countries smaller transactions may not necessarily be more economic than large transactions.
Security requirement. Agencies could call for additional security as a restrictive condition for cover, with the type of security requirement varying primarily with the legal and administrative setting within the borrowing country. Frequently, the security is initially in the form of an irrevocable letter of credit, if the issuance of such a document is believed to be effectively controlled by the debtor country; such control could be exercised through the system of foreign exchange allocation, or some central system of approval by the monetary authorities or authorized banks. If an internal check within the borrowing country is absent, the agency could require additional security in the form of a confirmed irrevocable letter of credit, confirmed by a third-country bank or a bank of the agency’s choosing who takes over the cross-border risk; in these circumstances, the agency is effectively, if not formally, off cover.
Several variants of security requirement have proliferated in recent years. For instance, with the experience of the better debt-servicing record of debt owed or guaranteed by the public sector, the agencies have increasingly required a payment guarantee by the public sector as the condition of cover. However, this type of guarantee would be an effective protection only if sufficient foreign exchange were available and only if transfer delays had been caused by problems in the administrative system of rationing foreign exchange. When there are serious foreign exchange shortages, such a guarantee is at best symbolic and cannot realistically be enforced.
In extreme cases, external or third-country guarantors could be required for unique transactions, and there could be other collateral requirements, such as mortgages on real properties, or the provision of cover tied to the retention of foreign exchange earned by the projects (e.g., through escrow accounts). In these instances, however, the agencies are still faced with the possibility of worsened commercial risks of the project, for example, by fluctuations in export earnings owing to volatile prices. In some instances, such collateral and escrow accounts have not proved effective.
Selective cover. The next restrictive move, after more stringent commitment limits and security requirements, is to adhere to firmer criteria for project selection, with priority given (or cover confined) to selected buyers, economic sectors, or projects with a direct foreign exchange linkage and with more compelling economic justification.
Off cover (cover suspension). Cover can be suspended, generally though not necessarily, first on long-term transactions, next on medium-term, and last on short-term. Cover can be provided from the date of contract or date of shipment, and a decision to suspend cover usually applies to both. An exporter who has been provided cover from date of the shipment only would be without cover for future shipments. For an exporter with cover from the date of contract, the agency must decide whether or not goods should be delivered or projects should be completed. If the agency decides that the goods should not be shipped or the project should not be completed, the agency must settle the claim immediately.
These measures consist of two direct elements, the basic premium and the surcharge, and a variety of indirect elements, for example, varying the claims-waiting period and the percentage of cover.
Premium structure. Agencies maintain differing structures of basic premiums and charges that are not readily comparable. In broad terms, the premium rates generally vary with maturities, mainly between short-term and medium-term transactions. For some agencies, the premium rates also vary with the country risk. For others, the rate structure also distinguishes between public and private buyers—with the rate being lower for public buyers, the premise being that the public buyers are less risky and payments collection is better managed, and that assessing the creditworthiness of the private buyers is more costly and payments collection more cumbersome. Aside from the basic premium, premium surcharges can be imposed on an ad hoc basis to help limit exposure and to partially compensate for the increased cost of providing cover in exceptionally risky situations.
Claims-waiting period. The period for which exporters/banks must wait after transfer delays occur before claims payments are made. The normal claims-waiting period varies slightly across agencies, but tends to be about three months. As a restrictive move, the claims-waiting period can be extended to signal to exporters the agency’s attitude toward a particular market. An extended claims-waiting period may not necessarily signify that a restrictive policy is in place. For markets where transfer delays can normally be expected because of administrative bottlenecks, an extended waiting period beyond the customary three months may be a neutral move—for example, Nigeria in 1980-81. When the agency extends the period (beyond that which is customary for the market) as a restrictive move, the deferral of claims payments provides the agency with a financial respite.
Reducing percentage cover. Percentage cover is the proportion of any loss suffered by the exporter on which the agency will pay claims. A reduction in percentage cover results in a higher cost for the exporter because of the higher proportion of risk being borne by the exporter. To gradually increase the degree of policy restrictiveness, the agency can reduce the percentage cover in steps, from a normal 90 to 95 percent down to as low as 70 percent, beyond which the required degree of self-insurance becomes prohibitive. When the percentage cover is reduced, the exporters are not normally permitted to seek reinsurance through private insurers of the portion uncovered. Even when reinsurance is permitted, there is substantial additional cost. Two major agencies reported they have not relied on varying the percentage of cover, mainly because the cost burden to exporters could not be justified.
In this paper, two broad and frequently overlapping types of officially supported export credits have been described.
(1) Export credits with guarantees or insurance provided by official export credit agencies of the exporting countries. The financing (as opposed to the guarantee/insurance element) may come from a variety of sources, for example, through the commercial banks as financial trade-related credits and provided either to the suppliers (suppliers’ credits) or to the importers (buyers’ credits); or directly through the suppliers (also suppliers’ credits); or through the direct support of the export credit agency itself or of another public financial institution specializing in export promotion.
(2) Export credits extended directly by official institutions of the exporting countries, usually through long-term finance as a supplement to resources of the private sector, and generally for promoting export of capital equipment and large-scale, long-term projects.
The role of the official export credit agency and the scope of its export credit facility, in terms of providing insurance/guarantee and direct export finance, differs across countries. In many countries (e.g., eight of the ten agencies participating in this study, excepting the Eximbank of the United States and the Export Development Corporation of Canada), the export credit agencies provide only guarantee or insurance and do not extend direct export credits. These agencies, however, also guarantee or insure a large part of export credits extended by other official institutions.
OECD Export Credit and Credit Guarantees Group
A forum in which 22 OECD member countries participate in the arrangement on Guidelines for Officially Supported Export Credits, that is, the “Consensus Arrangement,” which became effective on April 1, 1978. Under the current guidelines, the matrix of minimum interest rates applicable to medium-term and long-term credits (the consensus matrix) is adjusted bianually in accordance with the formula adopted by participating countries in October 1983, which reflects the weighted average of long-term government bond yields of SDR currencies. Aside from coordinating export credit terms, the OECD Export Credit Group has also served as a forum for exchange of country information and agency practices; the regular meeting of the Group is attended by representatives of export credit agencies and their guardian authorities.
Amounts for which agencies are committed to provide cover if the exporter succeeds in obtaining the contract. The amounts cannot be exact and normally do not include interest. The figures provided to the Berne Union Secretariat by agencies will often overlap, as more than one agency will compete for the same project. If an agency has made more than one offer of cover in relation to a particular project, not more than the total obligation of the importing country on that business should be reported. Most agencies do not make offers for normal short-term business; the agencies who do are not required to report such data, and offers data should refer only to medium-term and long-term business.
Delays experienced by creditors in securing payments from debtors on the due date. In this paper, transfer delays refer only to those delays caused by the failure of the authorities of a debtor country to effect a transfer of foreign exchange on behalf of the debtors to settle on the due date an external payments obligation, after the debtor has made the required local currency deposit.
|End-December 1982||End-December 1983|
|Total trade-related credits (1) + (2)||Total trade-related credits (1) + (2)|
|Guaranteed bank credits (1)||Nonbank traderelated credits (direct/insured) (2)||In millions of U.S. dollars||In percent of nonguaranteed bank credits||Guaranteed Bank Credits (1)||Nonbank traderelated credits (direct/insured) (2)||In millions of U.S. dollars||In percent of nonguaranteed bank credits|
|Total eleven countries||15,443||25,090||40,553||21.3||16,212||24,707||40,919||22.0|
|Sample countries as|
percentage of all
|Relations with export credit agencies|
|Emergence of transfer delays1||1981 Q31||1983 Q2||1981 Q31||1982 Q21||1981 Q31||1982 Q3|
|Paris Club multilateral agreement date(s)||…||November 1983||April 1981||June 19832||…||November 1978|
|July 1982||July 1983|
|March 1984||June 1984|
|Coverage of debt consolidated3||…||P, I, A||P, I, R, A||P, At||…||P, I|
|Consolidation period3||…||17 months||18 months||6 months||…||15 months|
|Relations with commercial banks|
|Restructuring agreement date||…||February 1983||July-November 1981||August 1983||July 1983||June 1978|
|January 1984||September 1983||September 1983||December 1978|
|Relations with Fund|
|Board approval of program||January 19834||March 1983||June 19804||January 1983||…||June 19824|
|April 19814||April 1984|
|Type of program3||SBA||EFF||SBA||EFF||…||SBA|
|Relations with export credit agencies|
|Emergence of transfer delays1||1983 Q4||1982 Q2||1981 Q31||1982 Q3||1983 Ql|
|Paris Club multilateral agreement date(s)||May 19782|
|July 1982||July 19792|
|…||May 1983||July 19802||…||January 19822|
|Coverage of debt consolidated3||…||P||Pt, It, At, R||…||P|
|Consolidation period3||…||12 months||36 months||…||12 months|
|Relations with commercial banks|
|Restructuring agreement date||…||…||June 1979||…||October 1983|
|August 1979||May 1984|
|Relations with Fund|
|Board approval of program||February 19804||June 19814||June 19804||…||June 19804|
|February 19834||June 19834||January 19814|
|April 1984||April 1984|
|Type of program3||SBA||SBA||SBA||…||SBA|
|P||Principal, medium-term and long-term|
|Pt||Principal, debt of all maturities|
|I||Interest, medium-term and long-term debt|
|It||Interest, debt of all maturities|
|A||Arrears on principal and interest, medium-term and long-term debt|
|As||Arrears on principal and interest, short-term debt|
|At||Arrears on principal and interest, debt of all maturities|
|Ap||Arrears on principal, medium-term and long-term debt|
|R||Previously rescheduled debt|
|EFF||Extended Fund facility|
Country may have incurred arrears before the third quarter (Q3) of 1981.
Non-Paris Club, mainly OECD Consortium arrangement.
Refers to the most recent arrangement.
Canceled or expired as of June 30, 1984.
All debt service on loans contracted prior to the cutoff date is subject to rescheduling.
This section is not intended to be an exhaustive listing of all policy instruments and gradations of restrictiveness available to the agencies. Rather, it is intended to serve as a background to the account of policy applications to the eleven countries discussed in Appendix I.
Given the complexities of the premium rate structures and the diversities of the indirect cost elements across agencies, it is not possible, for the purpose of the present study, to make a strict comparison of the degree of effective increases in the premium costs for the agencies in the study. Some agencies felt that the current level of premiums was broadly competitive across agencies.
The agencies’ responses to reschedulings other than the Paris Club (such as commercial banks) were more diverse and less clearcut. The principles and practices in connection with these non-Paris Club debt reschedulings are beyond the scope of the present study, except for the isolated instances mentioned in the case studies in Appendix I.
All debt service on loans contracted prior to the cutoff date is subject to rescheduling.
The Berne Union quarterly data for Venezuela are incomplete for much of the period 1980-82 and therefore the discussion in this section is less complete.
Occasional Papers of the International Monetary Fund
1. International Capital Markets: Recent Developments and Short-Term Prospects, by a Staff Team Headed by R.C. Williams, Exchange and Trade Relations Department. 1980.
2. Economic Stabilization and Growth in Portugal, by Hans O. Schmitt. 1981.
3. External Indebtedness of Developing Countries, by a Staff Team Headed by Bahram Nowzad and Richard C. Williams. 1981.
4. World Economic Outlook: A Survey by the Staff of the International Monetary Fund. 1981.
5. Trade Policy Developments in Industrial Countries, by S.J. Anjaria, Z. Iqbal, L.L. Perez, and W.S. Tseng. 1981.
6. The Multilateral System of Payments: Keynes, Convertibility, and the International Monetary Fund’s Articles of Agreement, by Joseph Gold. 1981.
7. International Capital Markets: Recent Developments and Short-Term Prospects, 1981, by a Staff Team Headed by Richard C. Williams, with G.G. Johnson. 1981.
8. Taxation in Sub-Saharan Africa. Part I: Tax Policy and Administration in Sub-Saharan Africa, by Carlos A. Aguirre, Peter S. Griffith, and M. Zuhtu Yucelik. Part II: A Statistical Evaluation of Taxation in Sub-Saharan Africa, by Vito Tanzi. 1981.
9. World Economic Outlook: A Survey by the Staff of the International Monetary Fund. 1982.
10. International Comparisons of Government Expenditure, by Alan A. Tait and Peter S. Heller. 1982.
11. Payments Arrangements and the Expansion of Trade in Eastern and Southern Africa, by Shailendra J. Anjaria, Sena Eken, and John F. Laker. 1982.
12. Effects of Slowdown in Industrial Countries on Growth in Non-Oil Developing Countries, by Morris Goldstein and Mohsin S. Khan. 1982.
13. Currency Convertibility in the Economic Community of West African States, by John B. McLenaghan, Saleh M. Nsouli, and Klaus-Walter Riechel. 1982.
14. International Capital Markets: Developments and Prospects, 1982, by a Staff Team Headed by Richard C. Williams, with G.G. Johnson. 1982.
15. Hungary: An Economic Survey, by a Staff Team Headed by Patrick de Fontenay. 1982.
16. Developments in International Trade Policy, by S.J. Anjaria, Z. Iqbal, N. Kirmani, and L.L. Perez. 1982.
17. Aspects of the International Banking Safety Net, by G.G. Johnson, with Richard K. Abrams. 1983.
18. Oil Exporters’ Economic Development in an Interdependent World, by Jahangir Amuzegar. 1983.
19. The European Monetary System: The Experience, 1979-82, by Horst Ungerer, with Owen Evans and Peter Nyberg. 1983.
20. Alternatives to the Central Bank in the Developing World, by Charles Collyns. 1983.
21. World Economic Outlook: A Survey by the Staff of the International Monetary Fund. 1983.
22. Interest Rate Policies in Developing Countries: A Study by the Research Department of the International Monetary Fund. 1983.
23. International Capital Markets: Developments and Prospects, 1983, by Richard Williams, Peter Keller, John Lipsky, and Donald Mathieson. 1983.
24. Government Employment and Pay: Some International Comparisons, by Peter S. Heller and Alan A. Tait. 1983. Revised 1984.
25. Recent Multilateral Debt Restructurings with Official and Bank Creditors, by a Staff Team Headed by E. Brau and R.C. Williams, with P.M. Keller and M. Nowak. 1983.
26. The Fund, Commercial Banks, and Member Countries, by Paul Mentre. 1984.
27. World Economic Outlook: A Survey by the Staff of the International Monetary Fund. 1984.
28. Exchange Rate Volatility and World Trade: A Study by the Research Department of the International Monetary Fund. 1984.
29. Issues in the Assessment of the Exchange Rates of Industrial Countries: A Study by the Research Department of the International Monetary Fund. 1984
30. The Exchange Rate System—Lessons of the Past and Options for the Future: A Study by the Research Department of the International Monetary Fund. 1984
31. International Capital Markets: Developments and Prospects, 1984, by Maxwell Watson, Peter Keller, and Donald Mathieson. 1984.
32. World Economic Outlook, September 1984: Revised Projections by the Staff of the International Monetary Fund. 1984.
33. Foreign Private Investment in Developing Countries: A Study by the Research Department of the International Monetary Fund. 1985.
34. Adjustment Programs in Africa: The Recent Experience, by Justin B. Zulu and Saleh M. Nsouli. 1985.
35. The West African Monetary Union: An Analytical Review, by Rattan J. Bhatia. 1985.
36. Formulation of Exchange Rate Policies in Adjustment Programs, by a Staff Team Headed by G.G. Johnson. 1985.
37. Export Credit Cover Policies and Payments Difficulties, by Eduard H. Brau and Chanpen Puckahtikom. 1985.
International Monetary Fund, Washington, D.C. 20431, U.S.A.
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