Appendix I: Cover Policies Toward Fourteen Developing Countries

International Monetary Fund
Published Date:
January 1988
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To better understand agencies’ cover policy response in various situations, the staff discussed with the 11 agencies and their export credit authorities the evolution of cover policies toward a sample of 14 developing countries. That sample was selected for both geographical distribution and the representation of countries in a wide range of circumstances regarding their external position and their relations with official creditors.

Case studies of the agencies’ response over time to developments in these 14 countries are presented below. Charts showing trends in agency exposure, including short-term exposure, on an exchange rate adjusted basis and using both BIS/OECD and Berne Union data, are also presented, both for each of the 14 countries and broken down between countries that did and did not have payments difficulties (Charts 3 through 8). As explained in Section III, there are many problems with these numbers and they should be considered in the light of all of the caveats given in that section and Appendix II. Given these shortcomings, no attempt has been made to explain them in the text of each case study or to reconcile the story told by the agencies with the trends shown in the numbers. For some countries, however, features of the trends shown in the charts are noted or commented on at the end of the country discussion.

Chart 3.Algeria, Argentina, Brazil, and Chile: Export Credit Exposure, 1982–861

(Exchange rate adjusted stocks; in billions of U.S. dollars)

1 Data do not represent net flows and should be used with caution in the light of explanations provided in Section III and in Appendix II. The concept “exchange rate adjusted stocks” is described at the end of Appendix II.

2 Total commitments, that is, both principal and interest on disbursed and undisbursed credits, including amounts in arrears when reported as unrecovered claims; excludes Colombia.

3 Disbursed principal only.

Chart 4.China, Colombia, Côte d’Ivoire, and Egypt: Export Credit Exposure, 1982–861

(Exchange rate adjusted stocks; in billions of U.S. dollars)

1 Data do not represent net flows and should be used with caution in the light of explanations provided in Section III and in Appendix II. The concept “exchange rate adjusted stocks” is described at the end of Appendix II.

2 Total commitments, that is, both principal and interest on disbursed and undisbursed credits, including amounts in arrears when reported as unrecovered claims.

3 Disbursed principal only.

Chart 5.Indonesia, Kenya, Mexico, and Nigeria: Export Credit Exposure, 1982–861

(Exchange rate adjusted stocks; in billions of U.S. dollars)

1 Data do not represent net flows and should be used with caution in the light of explanations provided in Section III and in Appendix II. The concept “exchange rate adjusted stocks” is described at the end of Appendix II.

2 Total commitments, that is, both principal and interest on disbursed and undisbursed credits, including amounts in arrears when reported as unrecovered claims.

3 Disbursed principal only.

Chart 6.Turkey and Yugoslavia: Export Credit Exposure, 1982–861

(Exchange rate adjusted stocks; in billions of U.S. dollars)

1 Data do not represent net flows and should be used with caution in the light of explanations provided in Section III and in Appendix II. The concept “exchange rate adjusted stocks” is described at the end of Appendix II.

2 Total commitments, that is, both principal and interest on disbursed and undisbursed credits, including amounts in arrears when reported as unrecovered claims.

3 Disbursed principal only.

Chart 7.Countries With Payments Difficulties1: Export Credit Exposure, 1982–862

(Exchange rate adjusted stocks; in billions of U.S. dollars)

1 Includes Argentina, Brazil, Chile, Côte d’Ivoire, Egypt, Mexico, Nigeria, and Yugoslavia.

2 Data do not represent net flows and should be used with caution in the light of explanations provided in Section III and in Appendix II. The concept “exchange rate adjusted stocks” is described at the end of Appendix II.

3 Total commitments, that is, both principal and interest on disbursed and undisbursed credits, including amounts in arrears when reported as unrecovered claims.

4 Disbursed principal only.

Chart 8.Countries Without Payments Difficulties:1 Export Credit Exposure, 1982–862

(Exchange rate adjusted stocks; in billions of U.S. dollars)

1 Includes Algeria, China, Colombia, Indonesia, Kenya, and Turkey.

2 Data do not represent net flows and should be used with caution in the light of explanations provided in Section III and in Appendix II. The concept “exchange rate adjusted stocks” is described at the end of Appendix II.

3 Total commitments, that is, both principal and interest on disbursed and undisbursed credits, including amounts in arrears when reported as unrecovered claims; excludes Colombia.

4 Disbursed principal only.

The reader should be reminded that two creditor countries do not report rescheduled export credits to the OECD and four do not report rescheduled credits to the Berne Union. For some of these, it is also believed that the reported numbers do not include arrears. For the debtor countries where these omissions could have an important impact on the trends, the share that agencies which do not report reschedulings had in the total commitments of the 11 agencies to these countries at the outset of the debt crisis is as follows:

Share of Agencies That Do Not Report Reschedulings in Total Commitments of the Eleven Agencies as of End-19821(In percent)
Not Reporting to OECDNot Reporting to Berne Union
Côte d’Ivoire4548

Based on total outstanding commitments reported to the Berne Union as of December 31, 1982.

Based on total outstanding commitments reported to the Berne Union as of December 31, 1982.

The export credit exposure indicated in the charts is understated for each of these countries by the amounts that have been rescheduled by these creditors and, in some cases, by amounts in arrears. For debtors that have had a series of reschedulings, the discrepancy increases over time.

Given the rough nature of the exchange rate adjustments, little importance should be attached to the absolute magnitudes of the movements shown in the accompanying charts. Nevertheless, after allowing for the bias created by the omission of reschedulings, the direction of those movements is of interest, as is a comparison of the trends in the two different exposure series. The Berne Union numbers represent agencies’ total credit and cover commitments—that is, including both principal and interest and undisbursed as well as disbursed amounts. The BIS/OECD numbers are on the basis of disbursed principal only. Therefore, it would normally be expected that the Berne Union numbers would better reflect agencies’ current policy stance, and that the trends in the BIS/OECD numbers would follow movements in the Berne Union series with a lag. However, as noted in Section III, the BIS/ OECD series also captures direct export credits granted by official entities other than the Berne Union agencies, so the two series can diverge.

The stance of the 11 agencies’ short-term and medium-term cover policies toward these 14 countries as of April/May 1987 has been summarized in Tables 1 and 2 in Section II.


In the first half of the 1980s the Algerian economy grew rapidly, and the ratio of investment to gross domestic product was maintained at a comparatively high level. The country’s external position remained strong as the current account was in near balance and external debt was managed prudently. Given that Algeria’s economy depends heavily on the oil and natural gas sectors, economic developments since early 1986 were dominated by the substantial weakening of the oil market.

The Algerian authorities responded to the strong deterioration in the country’s terms of trade by undertaking a re-examination of the investment program and reducing authorizations under the annual import program. The authorities continued to abide by their earlier strategy of containing medium-term borrowing to the level of amortization payments due and, in the event, residual financing needs were met mainly through short-term trade credits and a decline in reserves. The agencies viewed favorably the authorities’ strong adjustment efforts, which were undertaken without requesting the support of the international financial community.

Agencies began to become concerned about developments in Algeria in the latter part of 1986 as a number of agencies reported commercial payments delays rising above normal levels. While increased payments delays on medium-term credits were to some extent attributable to legal disputes, there were also arrears on short-term trade credits. During the first half of 1987, however, the volume of outstanding payments delays began to trend downward toward more normal levels. It would appear that these developments reflected, at least in part, the introduction in mid-1986 of a new system (“the annual payments program”) whereby enterprises were required to submit in advance a schedule of payments due and to effect these payments through their corresponding commercial banks in accordance with that schedule. As this new system was being put in place, certain technical difficulties were experienced which led to some payments delays.

The agencies had also become somewhat concerned when the Algerian authorities approached about half of the agencies with requests for new credit lines and longer-than-normal terms for imports normally financed on a short-term basis. Based on past experience with other debtors, the agencies generally consider such requests to be harbingers of payments difficulties. In the event, however, this did not, in itself, trigger a tightening of the agencies’ cover policy stance toward Algeria. Indeed, one of the main agencies in this market said that a lengthening of the credit terms was not inconsistent with a prudent debt management strategy. Some of the agencies approached responded affirmatively to the request for longer credit terms; others granted credit lines with normal conditions. Nevertheless, as the result of the worsening of Algeria’s medium-term prospects and of the emergence of transfer delays to some agencies, a number of agencies decided to try to reduce somewhat their very high exposure in this market.

Since mid-1986, three agencies have downgraded Algeria to a higher risk category and/or applied higher premium rates. Two of these agencies also reduced their commitments ceilings on medium-term transactions or the percentage of each transaction covered by agency guarantees, while another introduced a transactions limit. However, these restrictions were generally not binding, since practically all of the agencies reported that demand for credits and cover had been falling off faster than the desired exposure. Regarding short-term cover, the few restrictions that the agencies applied had generally been in place for some time and were geared to avoiding claims payouts to exporters arising from administrative delays in scheduled payments. Three agencies thus applied an extended claims-waiting period, but short-term cover was otherwise generally unrestricted despite the emergence of arrears on short-term obligations to two of the agencies.


The economic and other uncertainties occasioned by the South Atlantic conflict in the second quarter of 1982 led to an abrupt tightening of cover policies. The few agencies that did not suspend cover adopted a wait-and-see attitude, and few applications were approved. Economic difficulties persisted even after the end of the conflict, and by early 1983 all agencies were formally or effectively off cover for medium-term transactions. Short-term cover policies, while more flexible, also were quite restrictive. Cover policies were eased modestly in the first half of 1983 when Argentina initiated a Fund-supported adjustment effort that produced some economic improvement, but this was short-lived and restrictive cover policy stances were restored. Also, Argentina had not at that time requested a Paris Club rescheduling, since the Argentine authorities were not aware of the extent to which private sector debt was insured by export credit agencies. In the event, these debts were not serviced and arrears accumulated on officially supported export credits.

The government that took office in December 1983 began to formulate a new adjustment program, and in early 1984 the Argentine authorities informed the Paris Club of their intention to request a rescheduling of debt service to official creditors. That request appeared to leave open the possibility that Argentina might seek a rescheduling of short-term debt, and three of the five agencies that were open for short-term cover at the end of 1983 went off cover in the first quarter of 1984. A new stand-by arrangement was approved by the Fund at the end of 1984, and the Paris Club met to consider Argentina’s request for rescheduling in January 1985, by which time arrears to official creditors were substantial.

Following the Paris Club rescheduling in early 1985, the existing restrictions on short-term cover were eased somewhat, but medium-term cover generally remained severely restricted or suspended. During 1985 and most of 1986, cover policies generally remained restrictive because of exceptionally lengthy delays in negotiating and implementing the bilateral agreements associated with the 1985 rescheduling. By the end of 1986, only four agencies had resumed medium-term cover, subject to numerous restrictions and security requirements, while a fifth one reopened cover briefly in mid-1986 but suspended cover a few months later owing to mounting arrears. Two other agencies resumed medium-term cover in early 1987 in response to the signing or implementation of the bilateral agreements from the 1985 rescheduling.

As a result of these various developments, the five major agencies in the market had remained off medium-term cover over practically the entire period since 1982. Agencies generally made no distinction between the private and public sectors, given uncertainties concerning Argentina’s exchange arrangements and the transfer difficulties that had been encountered by the private sector. Outstanding export credit commitments thus declined steadily through 1985. In explaining their guarded policy stance, the agencies cited both the lack of consistent implementation of adjustment policies and the difficulties experienced in the conclusion and implementation of the bilateral agreements from the January 1985 Paris Club. The latter difficulties were attributed both to administrative delays, including delays in the reconciliation of debt figures, and to delays in effecting payments.

At the time of the staff visits, the request for a second Paris Club had been received, although the actual rescheduling did not take place until late May. Among the five agencies that remained off medium-term cover, the conditions most often cited for cover resumption on a limited scale were, first, concrete indications of the Argentine authorities’ commitment to the Fund-supported economic program adopted in early 1987 and, second, the conclusion and implementation of bilateral agreements from the May 1987 rescheduling. Exporter pressure to reopen was cited as strong, but was being resisted. All of the six agencies that remained open for medium-term cover, notwithstanding the rescheduling request, imposed numerous restrictions in the form of limits on commitments, new business, and/or transactions; some also applied an extended claims-waiting period, a premium surcharge, or a reduced percentage cover. The restrictions were intended to prevent an undesired increase in exposure, particularly since some demand for export credits was being diverted from the agencies that were off cover. All of the agencies that were open were experiencing strong demand for credits and cover, particularly from the public sector in Argentina.

As of May 1987, all but two agencies were open for short-term cover. In most cases this was subject to restrictions in the form of a reduced percentage cover or an extended claims-waiting period, with only three agencies providing unrestricted short-term cover. About one half of the agencies required an irrevocable letter of credit from commercial banks in Argentina; agencies considered that local banks’ familiarity with exchange control regulations could expedite payments transfers.


Most agencies tightened their cover policies considerably in late 1982 and 1983 as Brazil’s debt problems became evident and were responded to by a Fund-supported program and commercial bank refinancing; Brazil did not request a multilateral official rescheduling until later in 1983. With the Paris Club of November 1983, all but three agencies effectively went off cover on medium-term business; short-term cover, where available, was restricted. During 1984, cover policies generally were eased with the conclusion and satisfactory implementation of most Paris Club bilateral agreements and with Brazil’s improving external economic performance. Short-term cover restrictions were removed by most agencies, and limits for medium-term cover were raised by major agencies.

In January 1985 the Brazilian authorities informed Paris Club creditors of their intention to seek a further rescheduling and, in the meantime, to suspend all debt service payments to official creditors except service on short-term debt, previously rescheduled debt, and loans contracted after the cutoff date established in the 1983 agreement. Two agencies went off cover for medium-term business in the first quarter of 1985 and remained off cover until early 1987. In general, agencies took a wait-and-see attitude, as they were reluctant to go off cover for a major market—Brazil is the developing country to which the agencies have the highest exposure—and they were expecting a new adjustment program to be put in place promptly. As time passed, however, they viewed with increasing concern Brazil’s suspension of both principal and interest payments to official creditors at a time when reserves were ample and interest was being paid to bank creditors. In early 1986, a major agency changed from being open to considering requests on a case-by-case basis for medium-term cover; with the continued accumulation of arrears, it went off cover in August 1986. Another major agency also went off medium-term cover in the third quarter of 1986. Following discussions over the course of 1986, Brazil becoming current on interest payments falling due after May 1986, and the payment of some arrears, the Paris Club in January 1987 agreed to the rescheduling of remaining arrears and of obligations falling due in the first half of 1987, with the 1987 portion being conditional upon a midyear assessment of Brazil’s economic policies and on satisfactory financing arrangements having been concluded between Brazil and its bank creditors. Brazil also undertook to become current on principal payments from July 1987.19

Agencies reacted cautiously to the January 1987 Paris Club accord. As of May 1987, one agency had opened without restriction for medium-term cover and another had remained open throughout, but most agencies maintained a wait-and-see attitude pending the appraisal of Brazil’s economic program and the decision on whether or not the 1987 rescheduling was to take effect. A number of agencies stressed that any reopening would have to await the implementation of adjustment measures. Some also expressed concern that the January 1987 Paris Club rescheduling had taken place in the absence of an arrangement with the Fund. Reflecting Brazil’s good record on servicing short-term debt, roughly half the agencies remained open on short-term cover; others were on limited cover or had a case-by-case stance. In general, where agencies were open, they reported demand to be very slack.


In 1984, adverse developments in Chile’s terms of trade, together with the possibility of a debt rescheduling, caused most export credit agencies to tighten their terms of cover. A few agencies suspended medium-term cover despite Chile’s good payments record because of the worsened outlook for copper and other traditional exports. A debt rescheduling with bank creditors, who hold the bulk of external claims on Chile, was agreed in principle in June 1985 and concluded in November 1985. A parallel agreement with official creditors was reached in July 1985. In contrast to the then standard practice, the Paris Club rescheduling did not affect the cover policy stance of most agencies, for several reasons. First, the rescheduling was limited to 65 percent of the principal due by the public sector. Second, Chile had remained current on all its obligations to all official creditors prior to the rescheduling and the prospects for observance of the rescheduling agreement were good. Third, official creditors realized that Chile had approached the Paris Club reluctantly and only at the insistence of Chile’s bank creditors. They thought this would be the last Paris Club for Chile.

The Chilean authorities strengthened their adjustment efforts in 1985 by adopting a three-year economic program which was later supported by an extended Fund arrangement and by two structural adjustment loans from the World Bank. Over the year following the Paris Club rescheduling in mid-1985, existing restrictions on the provision of cover were gradually eased as considerable progress was made in achieving the objectives of the Government’s program and the official debt rescheduling agreement was fully implemented. By mid-1986, only two smaller agencies remained off cover for medium-term transactions, and a third agency suspended cover in late 1986; in all three cases, the reasons for cover suspension were noneconomic. The remaining agencies imposed ceilings on commitments or limits on the size of individual transactions, which were generally not restrictive. Given that private sector debt was not covered by the rescheduling, some of the agencies maintained more liberal cover policies toward that sector.

In February 1987, the Chilean authorities reached agreement in principle with bank creditors on the rescheduling of principal falling due over 1988–91, in addition to the 1987 maturities that had already been rescheduled under the 1985 agreement; the bank agreement was signed in June 1987. An agreement with Paris Club creditors was reached in April 1987. The rescheduling was confined to only a portion of the principal due by the public sector, as had been done under the 1985 agreement. Again, creditors viewed favorably the narrow coverage of the rescheduling, as well as Chile’s adherence to its Fund-supported economic program and good payments record. Only one agency suspended medium-term cover after the 1987 rescheduling, and that agency was prepared to resume cover upon the conclusion of its bilateral agreement with Chile. Aside from the three agencies that had been off cover for some time, all others maintained cover. Ceilings continued to apply but were not restrictive, despite rising demand for credits and cover reported by some of the agencies. The majority of agencies provided unrestricted short-term cover.


This is the one case study for which there was no evolution of agency policies during the period under consideration. Throughout this time all agencies were quite open and eager to do new business with China. The export credit flows were, therefore, completely demand driven. Exchange rate adjusted data indicate a large decline in the stock of disbursed credits in 1985.20 It might be noted, however, that China has received an important amount of export financing through mixed credits, which would not be fully reflected in the numbers on export credits.


Colombia’s economic fundamentals have remained strong compared with those of other countries in the region since the onset of widespread debt-servicing difficulties in 1982. Both the public and private sectors have remained generally current on their external obligations, and there has been no multilateral rescheduling with commercial banks or official creditors. Reflecting this, export credit agencies have maintained relatively liberal cover policies throughout the period since 1982. Indeed, for some of the agencies, Colombia was the only Latin American country on which they stayed open for cover throughout this period. The balance of payments difficulties that Colombia faced in 1983 and 1984 prompted some of the agencies to tighten the terms of cover or introduce security requirements. Only one agency went off cover; that was in late 1984, and the agency reopened in mid-1985 when Colombia reached agreement in principle with commercial banks on a large syndicated loan. The loan agreement was reached on the basis of economic programs adopted by the Colombian authorities for 1985 and 1986, for which the Fund provided a monitoring arrangement approved in July 1985. In both years, the authorities met all of their targets with sizable margins. Aided by the increase in coffee prices, in 1986 the current account shifted into surplus for the first time in several years.

Since 1985, agencies have progressively lifted the restrictions that were imposed in 1983 and 1984. Colombia has maintained a good payments record and there have been only a few isolated instances where claims payments were made; many of these were subsequently recovered. As of May 1987, several agencies continued to apply ceilings on medium-term commitments, but these were generally not restrictive. About one third of the agencies imposed limits on the size of individual transactions, although requests for larger transactions were reviewed on a case-by-case basis and were generally not turned down.

The agencies viewed favorably Colombia’s economic policies and prospects, since the adverse impact of the recent decline in coffee prices had been largely offset by the rapid expansion of exports of coal, petroleum, and nontraditional products. One agency reported rising transfer delays, but these had not affected cover policies, since they were not outstanding long enough to give rise to claims payments.

Berne Union data are not available on Colombia prior to 1986, but BIS/OECD data show a very broad-based increase in disbursed credits, with almost every agency showing a sharp rise in outstanding stocks on an exchange rate adjusted basis. At the time of the staff visits, however, the experience of the agencies regarding demand for further new credits and cover was mixed. While some said demand was weak, others reported a good volume of new business. A number of agencies noted that they had been tentatively approached about many transactions that never came to fruition.

Côte d’Ivoire

A number of agencies suspended cover for Côte d’Ivoire in late 1983, when significant arrears emerged on public sector debt. By the time Côte d’Ivoire’s first Paris Club request was received in early 1984, virtually all agencies had suspended medium-term cover, in line with their normal practice. Two agencies, including one of the largest in the market, retained cover for the private sector, since the debt of that sector was not covered by the rescheduling request. Two others continued to consider applications for cover on a case-by-case basis subject to commitment limits or Ministry of Finance guarantees for public buyers and bank guarantees for private buyers. Cover for short-term transactions, which were regularly serviced and excluded from the rescheduling, was maintained by all agencies, with restrictions imposed by only two smaller agencies.

By early 1985 most agencies had resumed medium-term cover subject to certain restrictions, as Côte d’Ivoire had concluded and implemented promptly the bilateral agreements from the May 1984 Paris Club. Moreover, the agencies viewed favorably the conclusion of a parallel agreement with commercial bank creditors. These factors, together with Côte d’Ivoire’s successful implementation of its Fund-supported economic program, contributed to an optimistic assessment of the country’s prospects. Thus, following a second Paris Club in June 1985, none of the agencies that had resumed cover after the 1984 rescheduling agreement suspended cover. As of mid-1985, only three agencies remained off cover; a fourth agency was off cover for public buyers, but was open for private buyers subject to a transactions limit.

Cover policies were gradually eased over the year to mid-1986 as the bilateral agreements from the 1985 Paris Club were concluded and as medium-term prospects continued to improve. By mid 1986, practically all agencies were open for medium-term cover subject to certain conditions such as commitment ceilings, limits on the size of individual transactions, or reduced percentage cover. However, the trend in commitments appears to have been downward notwithstanding the easing of the cover policy stance.

Cover policies toward the private sector have generally been less restrictive than for the public sector; one agency remained open for the private sector throughout the period of debt-servicing difficulties, while another suspended cover for the private sector for only a few months in 1984 because of specific commercial claims. Another agency maintained a higher commitments ceiling for the private than for the public sector. These positive attitudes toward the private sector resulted from the absence of transfer risk, given the convertibility of the country’s currency under the statutes of the West African Monetary Union, of which it is a member.

In early 1986 economic and financial prospects had improved to the point that external financing requirements could be met without recourse to interest rescheduling. Paris Club creditors concluded a three-year multiyear rescheduling agreement (MYRA) with Côte d’Ivoire in June 1986 which provided for rescheduling of a declining percentage of principal. Export credit agencies maintained a positive attitude and, at that time, regarded the financial difficulties as temporary and reversible. They viewed the MYRA favorably insofar as it firmly fixed the cutoff date for future debt relief under the MYRA and demonstrated an increasing capacity to service debt. A parallel MYRA was concluded with commercial banks. Reflecting the assessment that Côte d’Ivoire was at the exit phase of its debt-servicing problems and given the satisfactory implementation of bilateral agreements under the previous Paris Club reschedulings, not a single export credit agency went off cover following the conclusion of the MYRA.

Although a number of restrictions on medium-term cover continued to apply in the spring of 1987, these were being gradually liberalized and ceilings were not binding. Only two agencies applied a reduced percentage cover and none had an extended claims-waiting period. Demand was low, with intermittent pressures against the ceilings coming from lumpy, project-related transactions. By that time, the agencies were generally aware of the adverse developments in Côte d’Ivoire’s balance of payments resulting from the recent decline in coffee and cocoa prices. Nevertheless, most of them did not envisage tightening the cover policy stance if the MYRA were reopened and a higher percentage of principal rescheduled, provided that the original cutoff date under the MYRA was maintained; the latter was considered essential to a continued open stance. On May 25, 1987, Côte d’Ivoire announced a moratorium on debt service payments to all foreign creditors.

Given that Côte d’Ivoire’s largest creditor does not report rescheduled credits, it is quite possible that agency exposure was in fact increasing over 1985 and 1986, rather than declining as indicated in the accompanying charts.


The structural weakness in Egypt’s balance of payments became increasingly apparent with the sharp decline of oil prices from the end of 1985 and the associated decline in expatriate remittances. The shortage of official foreign exchange led to the accumulation of significant external arrears in 1986. These external difficulties reflected long-standing domestic imbalances upon which the oil price decline was superimposed. Until 1986, the balance of payments remained manageable through continued access to commercial borrowing abroad and the buildup of some external arrears.

Despite the increasingly uncertain payments outlook and the emergence of external arrears, most export credit agencies continued to provide export credits and cover until 1986 or early 1987. In part, this liberal cover policy stance reflected the strategic importance that creditor governments attached to Egypt. Moreover, the payment delays that Egypt incurred tended to approximate the agencies’ claims-waiting periods, thus avoiding the payment of claims to exporters and thereby postponing the decision to suspend or restrict cover. Agencies did, however, begin to tighten policies over 1985. Two agencies formally suspended medium-term cover in 1985. The other agencies continued to provide such cover but subject to commitments limits and security requirements. Some of the agencies also applied transactions limits and/or extended claims-waiting periods. Similar restrictive conditions applied to short-term cover; by the end of 1985, only three agencies posted an unrestricted short-term cover policy stance. However, demand for credits remained buoyant and the restrictions did not prevent a substantial increase in the exposure of the agencies to Egypt.

The severe foreign exchange shortages that developed in 1986 gave rise to an escalation of external arrears and to substantial claims payments by some of the agencies. Six agencies went effectively off cover between end-1985 and early 1987, and one of them took the unusual step of withdrawing existing offers for projects that had not yet been awarded to the exporter.21 Another agency decided to maintain cover for the private sector as long as private buyers’ access to foreign exchange was not curtailed. The private sector’s payments record was better than that of the public sector because of its access to foreign exchange in the free market which operated alongside the official foreign exchange pools. This better payments record prompted one of the agencies to maintain a shorter claims-waiting period for private than for public sector transactions. A number of agencies rated Egypt in their highest risk category, making no distinction between the private and public sectors, and a few applied premium surcharges. Short-term cover was subject to restrictive conditions by a number of agencies, despite the fact that short-term debt had been serviced fairly regularly.

The trend in the agencies’ exposure to Egypt continued to be upward through 1986 notwithstanding their more guarded cover policy stance, reflecting both continued disbursements under previous commitments and, for two agencies, substantial new commitments. Some of the agencies also undertook new commitments on a case-by-case basis. New commitments were generally, but not exclusively, made under the creditor countries’ “national interest accounts” or in the context of mixed credits. Several agencies reported that demand for credits and cover was strong, including for projects whose viability was questionable. They also noted that the continued high level of disbursements also reflected cost overruns that had occurred because of administrative problems and delays in the implementation of projects.

The Fund approved an 18-month stand-by arrangement for Egypt on May 15, 1987 and an agreement to reschedule public and publicly guaranteed debt service obligations was reached with Paris Club creditors on May 22. Parallel action from commercial banks was not sought because medium-term bank claims on Egypt were not large after the retrenchment of banks from Egypt since 1984. The agencies expected to maintain a cautious attitude toward Egypt, reflecting the apparent need for continued reliance on comprehensive debt relief. Skepticism over the possibility of maintaining in subsequent reschedulings the October 1986 cutoff date that had been set in the Paris Club agreement contributed to the agencies’ reluctance to extend new credits and cover. A number of agencies nevertheless expected to resume cover on a case-by-case basis following—and in some cases prior to—the conclusion of the bilateral agreements, provided there were concrete indications that Egypt’s adjustment program was being implemented.

Although exposure measured on the Berne Union basis would normally be much larger than on the BIS/ OECD basis, that is not the case for Egypt, as indicated in the accompanying charts. This apparently reflects the importance in this instance of lending by entities that are not export credit agencies and are not therefore covered in the Berne Union series.


External and internal imbalances in Indonesia emerged with the softening of the oil market since 1981, and were compounded by the sharp decline in oil prices in 1986. The concurrent depreciation of the U.S. dollar relative to other major currencies brought about a sizable increase in the dollar value of Indonesia’s external debt and debt service. In response to these developments, the Indonesian authorities implemented a comprehensive adjustment strategy including actions in all major policy areas.

Export credit agencies had maintained a positive attitude toward Indonesia throughout the period since 1982. This policy stance reflected Indonesia’s rich oil resources and confidence in the authorities’ ability to manage the economy. Notwithstanding the adverse external developments in 1986, cover policies remained practically unrestricted, as the Indonesian authorities responded with a determined adjustment effort and the country maintained a good payments record. Moreover, the demand for export credits and cover weakened substantially, perhaps pre-empting a tightening of cover policies, as imports contracted sharply under the adjustment program. One major creditor agency removed its ceiling in late 1985 because it had not been restrictive in practice. The weak demand for export credits may also have reflected the Indonesian authorities’ greater reliance on bilateral aid and mixed credits to finance large projects as part of their external debt management policies.

Agencies generally regarded Indonesia’s present economic difficulties as temporary and reversible. Although a few agencies considered it possible that, should oil markets not recover, Indonesia might have to request a limited debt rescheduling to deal with a bunching of payments, they thought any payments difficulty would also be temporary. Eight agencies were providing unrestricted medium-term cover as of May 1987, including the largest two in the market, and the remaining agencies imposed ceilings on total commitments that were generally not restrictive. No agency applied either a reduced percent cover or an extended claims-waiting period. One of the smaller agencies, which was presently open without restrictions, was considering a tightening of policies, and another agency had shifted Indonesian business to the “national interest account.” Three agencies sought the Indonesian Government’s guarantee for public sector transactions, which was difficult to obtain, or, in its absence, explicit government approval of large projects. Some of the agencies were cautious in their attitude toward the private sector because of claims payments made in connection with commercial difficulties with small private buyers and, in one case, because of difficulties that had been encountered with the legal enforcement of contracts or guarantees. The effects of the large devaluation of the rupiah in September 1986 on corporate balance sheets was perceived to have increased the commercial risk associated with private buyers. However, no difficulties with transfer risk had arisen given the Indonesian authorities’ flexible exchange rate policy. Indonesia was generally included in a middle-premium category, and only one agency applied a premium surcharge. All agencies provided unrestricted short-term cover.


Export credit agencies tightened cover policies to Kenya in 1982, partly because of concern with the debt-servicing difficulties of other countries in the region, but also because of the arrears reported by some agencies with respect to Kenya. Two agencies suspended cover to Kenya for at least a year over the period 1982–84 in response to large payments arrears, which were subsequently cleared, and to uncertainties about the implementation of Kenya’s Fund-supported economic program. Throughout the period 1981–85, Kenya made considerable progress in reducing internal and external imbalances by implementing adjustment policies supported by a series of Fund arrangements. A severe drought in 1984 reduced export receipts, giving rise to a tight liquidity situation and a sharp deterioration in the balance of payments in 1985. However, Kenya’s external position strengthened rapidly, reflecting a combination of prudent economic policies, bumper crops resulting from favorable weather and attractive producer prices, and a strong improvement in Kenya’s terms of trade in 1986.

Since 1984, agencies have been open for medium-term cover subject to certain restrictions, which have been gradually eased. By the spring of 1987, two agencies had removed all restrictions on medium-term cover, while the remaining agencies imposed ceilings on total commitments, or limits on the size of individual transactions, that were flexibly applied. While two agencies had done substantial new business in this market, most reported that demand was relatively weak and that there was room for more transactions under the existing ceilings. Kenya’s recent payments record had been good. Only two agencies had made recent claims payments and these were related to commercial risk. Nearly all agencies provided unrestricted short-term cover.

Despite the drop in coffee prices since late 1986, the outlook for Kenya was generally viewed as being favorable. Key factors in the agencies’ positive attitude were Kenya’s demonstrated ability to implement adjustment policies, the avoidance of debt reschedulings, notwithstanding adverse external and weather-related developments, and the country’s good payments record. A number of agencies that currently had little exposure in Kenya were willing to increase it.


Following the cessation of payments to bank creditors in August 1982, most agencies progressively tightened their cover policies for Mexico. Agreement on a three-year economic program supported by an extended Fund arrangement was reached in late 1982 and negotiations were begun with commercial banks on a restructuring of Mexico’s external debt. A Paris Club rescheduling agreement was concluded in June 1983 covering only private sector debt, which official creditors had been unwilling to have treated under a more general scheme for the debt of the private sector that Mexico had introduced in early 1983. By the time the Paris Club agreement was concluded, all but one of the export credit agencies had either formally suspended medium-term cover for the private sector or had done so effectively by requiring guarantees from the Mexican Government. A number of agencies introduced limits on total medium-term commitments and a few transferred Mexican business to the “national interest account.”

Significant progress toward external adjustment was made in 1983 and 1984, and agreement in principle on a MYRA with commercial banks was reached in September 1984. On this basis, export credit agencies gradually eased their cover policies, and by early 1985 most agencies had restored cover to the private sector with some security requirements and subject to transaction limits. The protracted restrictiveness of cover policies following the 1983 Paris Club rescheduling reflected, in part, delays in the conclusion of the bilateral agreements. Those delays stemmed largely from an unusual provision in the Paris Club Agreed Minute that entailed the Mexican Government assuming the commercial risk on private sector obligations. Substantial debt service payments were nevertheless received despite the delays.

Export credit agencies maintained their liberal cover policies through 1985, although there were signs that financial policies had gone off track and that Mexico was encountering difficulties in adhering to its economic program. The demand for export credits and cover by the private sector remained weak, but public sector demand picked up, particularly for large projects.

In response to the sharp drop in oil prices in early 1986, several of the major agencies, but not the largest in this market, tightened the terms of cover, and two other agencies withdrew medium-term cover. By mid-1986 the Mexican authorities had developed a revised program to address the more difficult situation Mexico then faced. In support of that program, an 18-month stand-by arrangement was approved in principle in September 1986, pending assurances from creditors on the financing arrangements. Shortly thereafter, Paris Club creditors agreed in principle to reschedule public sector obligations, and agreement in principle with commercial banks was reached in late September. The Paris Club agreement took effect pari passu with the stand-by arrangement in November 1986. An exceptional feature of the 1986 Paris Club rescheduling with Mexico was that it defined a different cutoff date for private sector debt, which was covered by the 1983 rescheduling, and public sector debt, which was rescheduled in 1986 for the first time. This was not considered to be a change in the cutoff date.

Not a single agency suspended cover to Mexico as a result of the 1986 rescheduling, and indeed some agencies that had tightened earlier liberalized their cover policy stance after the Paris Club meeting.22 In part, this reflected the agencies’ greater flexibility in circumstances of generalized debt-servicing difficulties, as well as broader efforts to support Mexico’s program. The fact that Mexico stayed current with Paris Club creditors right up to the September 1986 rescheduling was one reason the export credit agencies remained favorably disposed toward Mexico. Also, through its new untied loan programs, JEXIM provided a sizable credit that was linked to ongoing projects but provided effective balance of payments support. The loan agreement was not linked to Japanese exports and permitted some retroactive financing of expenditures already incurred in connection with the projects.

An exceptional feature of the agencies’ response to Mexico’s situation in 1986 was an ad hoc meeting of 12 agencies that was convened shortly after the standby arrangement was approved. This meeting was convened at the initiative of one of the agencies to discuss Mexico’s adjustment program and economic prospects. A Mexican delegation presented the country’s program, and the meeting was also attended by staff from the Fund, the World Bank, and the Inter-American Development Bank. The meeting focused not only on Mexico’s macroeconomic situation and prospects but also on Mexico’s investment program and the growth prospects for various sectors; that is, questions that would be of particular concern to the agencies as they considered specific credit and cover requests. Although there was no attempt to coordinate export credit policies, the agencies’ positive assessment of Mexico’s adjustment efforts, as well as competitive pressures arising from the announcement by some of the agencies of their intention to stay open for cover on Mexico, may have contributed to the liberal policy stance that was generally adopted. Mexico performed well under the economic program during the second half of 1986 and the first quarter of 1987, with a balance of payments outcome stronger than anticipated.

In the spring of 1987, all agencies were open for medium-term cover. Negotiations on the bilateral agreements from the 1986 reschedulings had been expeditiously completed, and by May 1987 practically all of them had been signed. The largest agency in the market, which had not suspended cover at any time since 1982, was open without restrictions. The other agencies were open with ceilings, sometimes supported by limits on the size of individual transactions. Most agencies said there was ample room available under the ceilings to meet all present demand. Two agencies applied an extended claims-waiting period, and one had a reduced percent cover and a premium surcharge.

The attitude toward the private sector remained guarded because of the large claims payouts that the agencies had made in the past as a consequence not only of the 1983 rescheduling but, more importantly, owing to commercial risk. Several agencies reviewed applications for medium-term cover on a case-by-case basis, and most private sector business was conducted through the nationalized commercial banks in Mexico. One agency never resumed medium-term cover to the private sector following the 1983 rescheduling, while another required a government guarantee. Demand for medium-term cover by the private sector had remained weak over the past few years, reflecting the combined effects of a decline in imports and the reluctance of private buyers to undertake the foreign exchange risk that foreign borrowing entailed. Reflecting the perceived exchange risk, most business conducted with the private sector was short term. However, some agencies had indications from commercial banks in Mexico that demand was picking up. Demand by the public sector had also slowed considerably since the sharp downturn in petroleum prices in early 1986. However, the volume of cover applications indicated that demand by the public sector was increasing as well.

Short-term cover was effectively fairly unrestricted. A few agencies reviewed applications for short-term transactions with the private sector on a case-by-case basis, while others required an irrevocable letter of credit. Concerning prospective cover policies, most agencies favored a continuation, and possibly an easing, of present cover policies under the case-by-case approach.

The divergent movements in the BIS/OECD series and Berne Union series shown in the accompanying charts would appear to reflect the activities of certain entities that report to the OECD but not the Berne Union—for example, JEXIM and the U.S. Commodity Credit Corporation.


In the late 1970s and early 1980s Nigeria borrowed heavily on the strength of buoyant earnings from petroleum exports. Financial policies were not immediately adjusted to reflect the downward trend in petroleum prices after 1981, and the naira was allowed to appreciate strongly in real terms. By 1983, significant external payments arrears had accumulated and they continued to mount in subsequent years.

Export credit agencies began to tighten their cover policies to Nigeria starting in 1982. Initially, however, confidence in Nigeria’s rich oil resources, as well as competitive pressures arising from Nigeria’s importance as a commercial market, prevented an effective restraint on the provision of export credits and cover. In the event, the agencies’ exposure continued to increase over the two years to 1984. Notwithstanding Nigeria’s worsening balance of payments prospects, most agencies did not take decisive action to tighten cover policies until 1984, by which time sizable arrears were outstanding and large claims payments had been made. Agreements on the rescheduling of short-term arrears had been reached with commercial banks in late 1983 and with uninsured suppliers in mid-1984. Practically all agencies went off cover for medium-term business in 1984, although substantial disbursements under previous commitments continued. Some of the agencies retained short-term cover on a restricted basis, despite the obvious need for a Paris Club rescheduling that would cover short-term arrears, which were sizable.

A progressive tightening of administrative controls on imports contributed to an improvement in the balance of payments in 1984, slowing the accumulation of external arrears. This improvement was reversed in 1986, when the sharp fall in oil prices reduced export earnings substantially, giving rise to a further accumulation of arrears. In mid-1986 the Nigerian authorities initiated an adjustment effort with the support of both the Fund and the World Bank. Agreement in principle was reached with commercial banks in November 1986 on the rescheduling of outstanding arrears and current maturities. A 12-month stand-by arrangement was approved in principle by the Executive Board of the Fund in December 1986 and became effective in January 1987. A comprehensive rescheduling agreement with Paris Club creditors was concluded in December 1986.

All agencies remained off medium-term cover for Nigeria following the December 1986 rescheduling. By May 1987, only a few agencies were nearing agreement with Nigeria on the bilateral agreements and none of the agencies had resumed medium-term cover. Nigeria was consistently rated in the country category where the highest premium applied. Short-term cover continued to be provided by only a few agencies on highly restrictive terms. The few agencies that were open for short-term cover imposed revolving commitment limits, in most cases under whole turnover policies to existing policyholders and/or on the basis of confirmed irrevocable letters of credit.

Agencies emphasized the problems being incurred in reconciling with the Nigerian authorities records on the amounts due and reschedulable under the Paris Club agreement. For most agencies, such a reconciliation is a precondition for the conclusion of the bilateral agreement. While one of the agencies had completed its reconciliation by May 1987, others thought the process might take a year or more. The debt reconciliation problems were particularly acute because the Paris Club agreement provided for the rescheduling of short-term arrears which involved a very large volume of small transactions, many of which had been outstanding since late 1983. In some cases agencies and their authorities expressed concern that these reconciliation problems might impede the conclusion of bilaterals and the reopening of cover at a time when Nigeria was undertaking a difficult adjustment effort. In light of this concern, at least two agencies were prepared to conclude the bilaterals on a conditional basis pending a full reconciliation. Some others said they would be willing to seek ways to address this problem, provided Nigeria adhered firmly to its adjustment program.

On the other hand, most agencies indicated that, despite buoyant demand for cover and strong exporter pressure, the conclusion of the bilateral agreements would not be a sufficient condition for the resumption of cover for medium-term transactions; for some agencies, it would not even be a sufficient condition for reopening short-term cover. The main conditions for cover resumption were a demonstrated ability to implement both an adjustment program and the Paris Club rescheduling agreement. One agency indicated that the payment of the unrescheduled portion of short-term debt was a necessary condition for cover resumption. However, the largest agency in the market intended to reopen, subject to a ceiling, after the conclusion of the bilateral agreement, provided that Nigeria was implementing its economic program. Another major agency intended to reopen with a large ceiling after the bilateral agreement was signed, based on a positive assessment of Nigeria’s medium-term outlook and an anticipated large volume of new business.

Given that a number of projects in Nigeria had been disrupted for lack of financing, one of the agencies commended the Nigerian authorities’ decision in 1985 to stop nonpriority projects and concentrate on oil-related, foreign exchange earning projects. Agencies expressed interest in using the World Bank’s expertise in selecting projects, possibly in cofinancing arrangements with the Bank, to facilitate a gradual reopening to Nigeria.


Turkey’s external position deteriorated sharply in the mid-1970s, and by 1978 sizable arrears had accumulated. In 1978, the Turkish authorities adopted a three-year economic recovery program supported by Fund resources. Three consecutive agreements with official creditors were concluded in 1978, 1979, and 1980, the most recent one covering a three-year consolidation period. The agreements, which took place under the aegis of the OECD, covered debt of all maturities as well as arrears.

Corrective measures implemented since 1978, and intensified in 1980, led to a gradual improvement in Turkey’s external position. These measures included internal restructuring policies and were accompanied by rapid growth in gross domestic product. In 1983, there was a setback in economic performance stemming from a relaxation of financial policies and a weather-related decline in agricultural production. Some progress toward adjustment was made in 1984, and by 1985—the first year not covered by a rescheduling agreement or a Fund-supported program—external performance had strengthened considerably. Another setback was suffered in 1986, when growth in domestic demand led to renewed pressures on Turkey’s balance of payments. Nevertheless, Turkey maintained a good debt-servicing record after 1983.

During the period ended in 1983, some agencies provided cover on a limited basis, mainly on the “national interest account” where applicable, in the context of the OECD Consensus Arrangement. In this framework, some agencies rationed the demand for cover under their ceilings by requiring a certificate of priority issued by the Turkish Government. A number of other restrictions were applied on medium-term transactions, including transactions limits, reduced percentage cover, and an extended claims-waiting period. Most agencies applied restrictions on the provision of short-term cover as well.

Since 1983, the agencies have been slowly normalizing export credit cover policies to Turkey. During 1984 and 1985, ceilings on medium-term commitments were adjusted upward in stages by several agencies to accommodate strong exporter demand. A few agencies normalized the percentage cover and claims-waiting period, and larger amounts of exposure were accepted under agencies’ own accounts. By early 1985, all agencies had resumed cover subject to restrictions, which were applied flexibly. The progressive normalization of policies over this period was facilitated by Turkey’s satisfactory implementation of the rescheduling agreements and its Fund-supported economic program.

The gradual liberalization of cover policies has continued. For 1987, several agencies dropped their commitment ceilings or transactions limits or raised the amounts available under the existing ceilings. Others, however, were reluctant to increase their exposure to Turkey, which they limited through restrictive ceilings on medium-term transactions and high premium charges. Certain restrictions on the provision of short-term cover, in the form of an extended claims-waiting period or the requirement of an irrevocable letter of credit, continued to apply. Most agencies monitored carefully their exposure to Turkey in view of its weakening external position and a bunching of repayments in 1987–89 as the grace periods under the earlier rescheduling agreements come to an end. Concern was also expressed about the maturity structure of Turkey’s external debt.

Out of concern that available export credit lines were not being utilized by Turkish importers, the Turkish authorities began talks in late 1986 with a number of agencies regarding a possible Central Bank guarantee for export credit lines covered by them. Under this scheme, the Central Bank of Turkey would assume the exchange risk and would extend local currency financing to the Turkish importer. In June 1987, an agreement of this nature was reached with the U.S. Eximbank for cover on up to US$100 million of U.S. exports, fully guaranteed by the Central Bank of Turkey. The credit available to Turkey under this scheme is to be augmented by US$70 million extended by commercial banks as part of the package but not formally tied to the facility agreed with Eximbank.

Turkey was the one country in the sample where agencies were both generally open for cover and experiencing strong demand. As noted above, some agencies sought to limit the increase in their exposure by introducing various restrictions. A number of agencies also expressed concern about the quality of projects being supported and sought means to ration demand in a way that reflected project quality. Three agencies were still implementing a system whereby priority declarations were sought from the Turkish Government. One agency was considering tying its cover policies to World Bank certification of projects, reflecting the view that tighter control of project selection than under the present system might be necessary. This view was also expressed by another agency, which followed an internal guideline of seeking the Bank’s advice on large projects.


Following a deterioration in economic conditions in 1981–82, Yugoslavia implemented an adjustment program in early 1983 that was supported by an international financial package involving official creditors, commercial banks, and multilateral institutions, including the Fund. The official portion consisted of pledges of export credits and/or refinancing credits—the “Berne Agreement”—which remained over the following years the principal framework for export credits to Yugoslavia. Most agencies suspended cover under their regular facilities in late 1983 or early 1984. The special procedural requirements for utilization of credits under the Berne Agreement—including in some cases the requirement of a declaration of priority by the Yugoslav authorities—contributed to a low effective utilization rate of those facilities. At the same time, the existence of unused balances within Berne Agreement pledges kept many agencies from making cover available under their normal, more flexible conditions. In addition to procedural impediments, however, slack import demand and perceived exchange rate risk have also been referred to as factors that contributed to low utilization rates.

In contrast to the approach taken in 1983, Yugoslavia reached formal rescheduling agreements with official creditors in May 1984 and May 1985, in the context of adjustment programs supported by Fund stand-by arrangements. Assessments of economic prospects generally improved, and most agencies eased cover policies over 1984 and 1985. One of the two agencies that was still off cover at end-1985 reopened with a ceiling in the first quarter of 1986. A further rescheduling for Yugoslavia in May 1986, which provided for an additional tranche that could take effect in 1987, was the first official debt rescheduling on the basis of enhanced Fund surveillance.

By May 1987 agencies generally considered that the outlook had become less favorable, and some expressed concern about the insufficiency of corrective actions. These concerns delayed somewhat official creditors’ decisions to put into effect in mid-1987 the second tranche of the rescheduling that had been agreed in May 1986. One major agency had remained off cover since early 1984 on medium-term business and open with limits for short-term business. All other agencies were open, generally with various restrictions; in most cases ceilings were far from being fully utilized. One agency that had previously been wide open for cover introduced restrictions in the second half of 1986.

Most agencies anticipated remaining open, but with a cautious stance, given uncertainties related to economic policies; one of the largest agencies in the market was restricting new credits to amortization taking place in order to avoid increasing exposure, but several others would be willing to increase limits if these become binding. With one exception related to a single large project, agencies reported weak demand but with some signs of increase.

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