V Concluding Observations

International Monetary Fund
Published Date:
January 1988
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Export credit agencies have, over the past few years, been adopting a progressively more open stance. This is true with respect to short-term cover generally and, with respect to medium-term cover, for countries that have rescheduled their debts but are implementing adjustment programs and adhering to Paris Club agreements. Export credit agencies and their governmental authorities are virtually unanimous in citing as the main factor behind this more open stance the priority given by both debtors and creditors to the servicing of short-term trade credits and to maintaining the cutoff date unchanged where a series of reschedulings is required. Adherence to the strategy of giving priority to the servicing of short-term credits and of new export credits generally will therefore be crucial to sustaining this move to a more open policy stance. With this strategy firmly in place, individual debtors can expect to see a staged reopening in their access to cover as they re-establish a record of implementing sound economic policies. This process would be facilitated by greater efforts by all parties to conclude promptly bilateral agreements implementing Paris Club reschedulings and, where debtors are successfully implementing past reschedulings, a more general willingness by creditors either to maintain cover while the bilateral agreements are being negotiated or to continue to accept and process applications on a conditional basis during this time.

Despite this more open stance, the volume of new medium-term credit and cover commitments to developing countries appears to have fallen off sharply over the past two years. While for some debtors the operative constraint is clearly on the supply of new credits and cover, this is not the general case and, indeed, agencies reported net repayments from some countries for which they were wide open for new business. Possible reasons for this phenomenon have been explored in Section III, but the main explanation would appear to be that developing countries simply are not initiating investment projects at anywhere near the rate they were in earlier years. To the extent that this decline represents a pause as countries reappraise and restructure investment programs, it is to be welcomed and could be expected to be temporary. It is likely, however, that it also reflects the fact that adjustment in some debtor countries has fallen disproportionately on investment. In this situation debtors may continue to seek general purpose budget and balance of payments support, including debt relief, to maintain levels of public and private consumption, while sources available to finance sound investment projects remain untapped.

A number of agencies also considered that a factor behind the decline in both investment and export credits to support that investment could be the terms on which such credits are available. In earlier years, when general purpose balance of payments financing was readily available, less attention may have been focused on whether the financing terms matched the payback period for a particular project. With substantially increased uncertainty about the availability of financing, such considerations may today be playing a much greater role in the investment decisions made by developing countries. On the other hand, the recent shift toward short-term credits and cover could indicate that, faced with restrictive policies on medium-term business, some debtors and exporters were resorting to short-term finance for capital goods; a continuation of this trend would be undesirable and unsustainable.

Another factor that may be limiting the role of officially supported export credits in the present environment is the distinct preference many, although not all, agencies have for providing credits and cover to public sector borrowers, or at least under governmental guarantee. Agencies’ willingness to provide cover to private buyers varies sharply between developing countries and depends primarily on the availability of normal commercial security and on the experience with the protection granted foreign creditors under the debtor’s legal system. Although this is a complex question, it is one that debtors would need to address if export credits are to play an important role in a development strategy which, for many developing countries, is putting greatly increased emphasis on the role of the private sector in generating investment and growth.

A reorientation of public sector expenditure in developing countries toward investment could be expected to lead to a recovery in export credits. In that event, increased attention would need to be paid to the quality of projects receiving official support if the mistakes of the past are to be avoided and if new investment is to generate the resources necessary to service the new debt. Some export credit agencies have in place a capacity for project appraisal, while others are turning more frequently to the multilateral development banks for project assessments. Nevertheless, it would appear that, overall, project quality tends to be a determining factor in decisions on new credits and cover only when the agency is attempting to ration exporter demand within a ceiling or exposure objective. While export credit agencies and their authorities recognize that it is in their interest as a group to ensure that only projects with a good economic rate of return are supported, they maintain that competitive pressures generally do not permit individual agencies to make decisions on that basis. They would, therefore, support the World Bank’s efforts with debtors to develop and review investment programs and strengthen mechanisms for ensuring that requests for project finance are consistent with them. For debtor countries where the agencies are in the process of reopening, the assessments of the multilateral development banks can have a direct impact on new credit and cover decisions. In that context, a number of agencies considered that ad hoc meetings, such as the Brussels meeting on Mexico in September 1986, could be an efficient and effective means of focusing on these questions.

The absence of reliable, exchange rate adjusted data on officially supported export credits, reported on a consistent basis by all creditor countries, is a significant impediment to the analysis of the debt situation of developing countries and of the role of various creditor groups in addressing that situation. Governments and their export credit agencies will need to cooperate fully with the efforts now under way in the OECD and Berne Union if this situation is to be rectified.

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