The overall trend since the fall of 1985 has been a distinct movement toward a further liberalization of export credit and cover policies. This trend can be seen not only in changes in various programs introduced by the agencies and in their use of policy instruments but also in the evolution over the period since 1982 in their policy stance toward a sample of 14 debtor countries. The evolution of policies toward these 14 countries was reviewed with each agency.4

General Stance of Credit and Cover Policies

The overall trend since the fall of 1985 has been a distinct movement toward a further liberalization of export credit and cover policies. This trend can be seen not only in changes in various programs introduced by the agencies and in their use of policy instruments but also in the evolution over the period since 1982 in their policy stance toward a sample of 14 debtor countries. The evolution of policies toward these 14 countries was reviewed with each agency.4

The sample of debtor countries was selected with a view to geographical distribution and to the inclusion of countries in a wide range of circumstances regarding their external position and their relations with official creditors. (Brief case studies for these 14 countries are provided in Appendix I, and a summary of the policy stance of the 11 agencies toward each of these countries at the time of the staff visits is presented in Tables 1 and 2.) In only one of the creditor countries visited did the governmental authorities indicate that the intention was to move toward more restrictive policies, and even then the more cautious position was not yet readily apparent in the actual stance toward individual debtor countries.

Table 1.

Summary of Medium-Term Cover Policy Toward Fourteen Countries

(In number of agencies recording indicated stance)

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Sources: The 11 export credit agencies visited (see Preface). Reflects position as of April/May 1987.

If cover is provided over and above ceilings or under the national interest account, the agency is classified as “open with restrictions” and as having a nonrestrictive ceiling.

Includes cases where only security requirements are imposed.

Includes agencies that consider applications only on a case-by-case basis.

For one agency, applies to private sector only; restrictions apply on public sector.

Private sector only.

Table 2.

Summary of Short-Term Cover Policy Toward Fourteen Countries

(In number of agencies recording indicated stance)

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Sources: The 11 export credit agencies visited (see Preface). Reflects position as of April/May 1987.

Includes cases where only security requirements are imposed.

Includes agencies that consider applications only on a case-by-case basis.

The move toward a more open stance has taken various forms. For some agencies it is reflected in specific decisions which, in one step, liberalized the policy stance toward a broad group of countries. More typically it has been the result of decisions taken on a case-by-case basis. This trend is evident in the policy stance regarding both short-term and medium-term credits and cover, and it is seen most particularly in the stance toward countries that have had debt-servicing difficulties but are undertaking adjustment programs and have regularized their position with official creditors by concluding and implementing Paris Club rescheduling agreements. Also, while the present study is focused on export credit and cover policies toward developing countries, an important current development is that many agencies are making efforts to increase their activity in covering trade with other developed countries. This trend is motivated by a desire to increase premium income, or maintain it at a time when exports are being increasingly directed toward OECD markets.

Policy attitudes and reactions can vary markedly from agency to agency, and for any one agency the stance can be quite different toward individual debtor countries that might appear to be in similar circumstances. Numerous caveats must, therefore, apply to any generalization. Nevertheless, certain characterizations of agencies’ stance toward various groupings of countries would appear to be broadly valid.

For debtor countries that have not experienced debt-servicing difficulties, the agencies generally maintain a very open stance and, indeed, are competing aggressively for new business. Policies toward such countries had, in some cases, been tightened in the immediate aftermath of the events of 1982 but were subsequently liberalized as it became apparent that the spread, and particularly the regionalization, of payments difficulties had been contained. Of the countries in the sample discussed with agencies, five had not sought an official debt rescheduling, that is, Algeria, Colombia, Indonesia, Kenya, and the People’s Republic of China. For two of these countries at least some agencies had earlier gone off cover, or tightened policies sharply, in response to a temporary emergence of arrears and/or the payments difficulties of neighboring countries. All agencies were by mid-1987 quite open for both short- and medium-term cover for these five countries, although for three of them policies had recently become somewhat more cautious in response to sharp declines in commodity prices.

Credit and cover policies are also quite open for countries that have had a Paris Club rescheduling, provided that the debtor has established a record of fairly consistent implementation of adjustment policies, prompt conclusion of bilateral agreements under previous Paris Club reschedulings, and regular payment of amounts due under those reschedulings. For example, at the time of their most recent Paris Club reschedulings, only one agency had gone off cover for Chile and none had gone off cover for Côte d’Ivoire. Agencies were somewhat more restrictive where countries were implementing previous Paris Club agreements, but it was considered that more time was needed to judge the firmness of the authorities’ policy implementation. Also, the governmental authorities visited believed that export credits on commercial terms were not the appropriate form of support for the development efforts of heavily indebted low-income countries. Such support is provided instead through development assistance programs on concessional terms. Most agencies were, however, open for short-term trade cover to such countries provided that the debtor was servicing such credits on a timely basis.

For countries that have only recently initiated an adjustment effort and have yet to conclude or implement the bilateral agreements from their first Paris Club rescheduling, the agencies and their authorities generally take a very cautious stance (see, e.g., Egypt and Nigeria, Appendix I). Agencies tend to maintain that cautious stance at least until there is firm evidence of the authorities’ willingness to take needed measures and, sometimes, until there is a record of consistency in implementation. Agencies generally also adopt quite restrictive policies for countries they consider not to have been consistent in their pursuit of an adjustment strategy, or where there have been substantial delays in concluding and implementing Paris Club agreements (see, e.g., Argentina and Brazil, Appendix I). In all of these types of cases the agencies may, however, remain open for short-term cover provided that the debtor has continued to service short-term debt regularly.

As discussed above, the first Fund staff study on export credits had concluded that agencies had tended to stay too open for too long in the debt buildup phase, enabling debtors to postpone adjustment and, thereby, contributing to the eventual emergence of payments difficulties. Agencies and their authorities had generally agreed with this assessment but argued that competitive pressures were such that agencies normally could not tighten significantly without hard evidence of payments difficulties. Although some agencies have subsequently made efforts to base their policies on more forward-looking assessments, this is one area in which attitudes and practices have changed little since 1984. Most agencies acknowledge this and, indeed, some cited recent examples where they had been fully cognizant of growing internal and external imbalances in the debtor country but had stayed quite open and continued to bid aggressively for new business right up to the time when arrears escalated sharply and substantial claims payouts were made. Then they tightened policies sharply.

This section has set out in broad terms the general response of agencies and their authorities to countries in differing circumstances. The following sections describe the various policy instruments used by agencies and discuss more specifically how cover policies and export credit programs have been adapted to meet the changing objectives of export credit authorities.

Instruments of Export Credit Cover Policy

In all of the countries visited, a system for the guarantee/insurance (jointly referred to as “cover”) of suppliers’ credits or bank-financed buyers’ credits is a key element of the export promotion system. For Belgium, the Netherlands, and the United Kingdom, such guarantee/insurance programs are the only regular vehicle for official support of export financing on commercial terms. However, most creditor countries also stand ready to provide direct commercial finance for exports, usually in the form of buyers’ credits. Only in the United States and Canada is the export credit agency the main provider both of guarantee/ insurance programs and of direct credit facilities. In the other countries visited, direct credits are provided by a different arm of the government, but in these cases the entity actually doing the direct lending normally requires the insurance of the export credit agency. In this way the cover policy stance of the agency is reflected in the direct lending activity and the direct credits provided are picked up in the statistics on officially supported export credits.5

The discussion in this section focuses on the use of policy instruments either to limit the supply of officially supported export credits and cover or to reduce the effective demand of suppliers and banks for cover. Most guarantee and insurance operations are undertaken for the agency’s own account. At times, however, its governmental authorities may, for political or commercial reasons, wish to support certain transactions involving greater than normal risks or unusually large amounts. For this reason, five of the countries visited have in place a “national interest account” system; in most, business conducted under these accounts is undertaken explicitly at the direction of the government, and it is sometimes directly for the account of the government.6 Export credit guarantees/ insurance normally cover both political (i.e., transfer) risk and commercial risk, although different provisions generally apply regarding claims payouts against these two types of risk.


Agencies maintain structures of premiums and charges for export credit cover that are not readily comparable across agencies. Premiums vary with the maturity of the export credit, both between short-term and medium-term and, for medium-term credits, generally with—but not in proportion to—the length of the credit. Most agencies also have a system of country risk categories, and the premium increases with the perceived country risk. One agency sometimes classifies public and private buyers in a given country in different country risk categories and may differentiate premiums by exporter for short-term transactions, in light of the payments experience with that exporter’s buyers. More generally, within any country risk category, agencies’ rate structures also distinguish among buyers, for example, sovereign buyers and one or several categories of nonsovereign buyers. Aside from the basic premium, premium surcharges can be imposed on an ad hoc basis to help limit exposure or to compensate partially for the increased risk of providing cover on certain projects or in certain circumstances.

In the period 1982–84, export credit agencies made upward adjustments in both the level and the progressivity of the premium rate structures in an effort to reflect more clearly the changed pattern of country risks and to offset the financial losses related to the payment of claims arising from debt rescheduling and arrears. More recently, increases in premium rates have been rare, and no agency has made a general upward adjustment in the rates since mid-1985. However, the trend toward further differentiation among market risks has continued.

Until recently, Germany and the United States had been the only countries among those visited that did not differentiate premiums according to perceived country risk. In May 1987, however, the U.S. Exim-bank introduced a new premium structure based on five country risk categories. In announcing this change in policy, Eximbank officials said the new premium structure would enable them to remain open longer and in more markets and charge for the associated risk.7 In early 1986, another major agency introduced a system of discounts and surcharges which also have the effect of changing the structure of premiums by making it steeper.8 A number of other agencies have undertaken reviews of the country classifications which have changed the effective structure of charges and, in some cases, increased the average premium.

While the general upward adjustment in rates over the past few years has resulted in a significant increase in the premiums charged for cover to most developing countries, for most agencies actual premium income has declined as the increase in premium rates has been more than offset by the falloff in new business (see Section III). Nevertheless, agencies are generally of the view that the increase in premium rates has not been an important factor contributing to the decline in business. This assessment is based on their experience in reclassifying individual debtor countries where, particularly for countries that have had debt-servicing difficulties, even fairly large increases in premiums have had little or no apparent effect on the demand for cover by exporters and banks. At the same time, a number of agencies thought that they might be able to increase their coverage of exports to industrial country markets by reducing the premiums charged on these transactions. The new premium structure announced by the U.S. Eximbank resulted in lower rates for industrial country markets and, as noted above, one other major agency has begun to offer discounts in low-risk markets. Three other agencies were considering lowering premium rates for countries in the one or two lowest risk categories, while keeping the rest of the premium structure unchanged.

Country Ceilings or Guidelines

Most agencies will employ country ceilings where they wish to limit their exposure in a particular market, and the frequency with which such ceilings are applied has increased sharply since 1982. Ceilings can take various forms, but there are three basic types: ceilings on outstanding commitments (“exposure” ceilings); annual ceilings on new commitments; and cumulative ceilings on new commitments, counted from the date the ceiling was set and running until the limit is approached or the policy is reviewed for other reasons.9

Ceilings may or may not be restrictive. Most appear to be set to provide ample room for the anticipated volume of business. In such cases they serve more as warning lights, intended to trigger a review by the agency’s board or the governmental authorities as the ceilings are approached. The result of such a review might simply be a decision to increase the ceiling in line with the increased volume of business. If the decision is to accommodate the increased demand only partly, a strategy might be adopted of raising the ceiling somewhat and, at the same time, bringing into play some of the instruments discussed below to reduce or ration demand. It might be decided that the ceiling should in fact be maintained, in which case the ceiling would be restrictive and the agency would normally begin reviewing applications carefully on a case-by-case basis. When the ceiling was reached, the agency would be effectively off cover; even then, additional business might be undertaken for the “national interest account.” For the 14 country cases reviewed with agencies, ceilings were rarely in practice restrictive. In part this may have reflected the low level of demand, but it also reflected that the true restrictive “ceiling” is an off-cover position.

Given that ceilings are rarely in practice the effective restraint as long as an agency remains on cover, two of the agencies visited were considering shifting explicitly to a concept of “exposure guidelines,” against which the actual course of new commitments would be reviewed periodically.

Transactions Limits

Another instrument used fairly frequently by some agencies is a limit on either (a) the value of each insured transaction or (b) the amount of insurance provided per transaction. In the latter case, insurance on a large transaction can still be obtained, provided that the exporter is willing to accept the risk on the uninsured part of the transaction. Also, some agencies are making increasing use of risk-sharing arrangements, where all or part of the risk that is not covered by the agency is borne by banks and/or private insurance companies rather than by the exporter.

Transaction limits are most often used to ration business among exporters when the agency is trying to limit or slow the growth of its exposure; in this case, transaction limits may permit the agency to stay on cover and yet remain within its country ceiling. Generous transactions limits may be imposed when an agency is willing to cover regular exports to a market but wants to trigger a review for any large projects that might arise. Also, one agency said that it imposes low transactions limits where the debtor country gives preference to small transactions in permitting payments transfers. Overall, transactions limits would appear to be more effective in limiting increases in exposure than are country ceilings when used alone, perhaps because exporter pressure is diffused.

Reduced Percent Cover

Although practices vary, agencies generally provide insurance or guarantees covering between 85 and 95 percent of the value of the transaction, with the balance of the risk being carried by the exporter or a bank. A number of agencies provide a higher percentage of cover for political than for commercial risk, and some cover a greater part of the risk on buyers’ credits than on suppliers’ credits. To curb the effective demand for cover in a particular market, some agencies reduce the percentage cover provided on exports to that country. This instrument can be a very effective brake on cover demand, since it requires the exporter or bank to absorb a larger proportion of the risk. Moreover, some agencies base the insurance premium on the value of the transaction, rather than on the insured amount, and in these cases a reduction in percent cover also implies an increase in the effective premium rate. Although lower percentages were reported, agencies in practice rarely reduced the percent cover below 70 or 75 percent, because banks and exporters would generally forgo new business in uncertain markets rather than accept a higher portion of the risk. Indeed, the main reason some agencies do not use this instrument, and most use it only very rarely, would appear to be the strong resistance of banks and exporters.

Extended Claims-Waiting Period

It is standard practice for agencies to specify in the guarantee/insurance contract a time period that must elapse between the due date of an insured payment and the payment of a claim. During this time the exporter or bank must absorb the foregone interest on the overdue amounts or attempt to recover from the importer. The normal claims-waiting period is three to four months. However, a longer claims-waiting period may be specified for exports to a given debtor country, or even to a particular category of buyers within a country. This instrument, which is not used by all agencies, is most typically employed where there are persistent but relatively stable delays in payments from a particular market. Agencies consider that the use of an extended waiting period permits them to stay on cover in a market even when payments delays are relatively long by passing the cost on to the exporter or bank who, in turn, probably generally succeeds in passing it on to the importer through higher prices. Normally, an extended claims-waiting period will not exceed 12 to 15 months, although in very exceptional circumstances some agencies have gone well beyond that period.

Security Requirements

For markets where there has been either a record of transfer delays or a higher incidence of commercial defaults, agencies may impose security requirements beyond those they would normally require. These most typically would be government guarantees (either of payment transfer alone or for all risks, including commercial risks), irrevocable letters of credit or, in extreme cases, confirmed irrevocable letters of credit. Such security requirements are generally not intended to limit demand—although they may have that effect—but to reduce the risk of claims payouts. The question of security requirements for cover for private sector buyers is discussed further in Section IV.

Recent Developments in Policies and Programs

As is evident from the preceding discussion, the impact of export credit cover policies depends not only on whether agencies are open or closed but, where they are open, on the range of instruments used and the restrictiveness with which they are applied. Indeed, it is only by a process of trial and error that the agencies attempt to arrive at a policy stance consistent with their exposure objectives in a market. While it would be extremely difficult to quantify the impact of any set of policies on the volume of new business, it is normally fairly clear whether a move is toward a more or a less restrictive position.

As discussed above, agencies have generally moved toward a progressively more open stance for countries that avoided or overcame payments difficulties in the period since 1982 or that have rescheduled but have met certain criteria for good performance. The way this process has progressed is illustrated by the case studies in Appendix I. Most typically, agencies will reopen slowly in a market, that is, with a low ceiling and/or a low transactions limit and frequently with reduced percent cover and special security requirements. If payments experience is good, ceilings and transactions limits will be raised over time and other restrictions loosened or eliminated. Finally, ceilings and/or transactions limits may be abandoned.

Although most liberalization has taken place through such case-by-case responses, sometimes agencies or their authorities take policy decisions that affect a broad group of countries. For example, in introducing the new graduated system of premiums discussed above, the U.S. Eximbank announced that, with this new system in place, it intended to be open in more countries and stay open longer, avoiding the off again, on again policies that prevented exporters from establishing themselves in certain markets; at the same time, the normal percent cover for commercial risk on medium-term transactions was raised from 85 percent to 98 percent. Another agency recently introduced a special program to permit opening on a limited basis for countries where the agency would under its normal criteria be formally or effectively off cover. Initially, cover was opened for 23 countries under this program, subject to small ceilings, reduced percent cover, and premium surcharges and with the additional conditions that the export be beneficial to the economic recovery of the debtor country and that the exporter have a past record of selling in the market concerned. If the experience with reopening under these conditions is good, cover policies could be gradually liberalized. Despite the conditions attached, the agency reported that demand for cover under this program was strong.

Other agencies have introduced programs targeted specifically to more liberal provision of short-term cover. One agency took a decision in 1986 to open short-term cover for all but four developing countries; where the agency is closed for medium-term cover, applications for short-term cover are considered on a case-by-case basis. In another case, the export credit authorities decided that, contrary to previous policy, when the agency was off cover for medium-term business, cover of up to 360 days could be provided for exports of capital goods and other exports that would normally be financed on a medium-term basis. In a third case, the governing board of an agency recently decided to delegate authority to the head of the agency, up to certain relatively high limits per country, for setting short-term cover policies, thus permitting greater flexibility in the agencies’ response to developments in debtor countries.

As noted above, the export credit authorities of one agency intended to take a more restrictive policy stance in order to reduce the very high cost of the export credit support system. They intended to be off cover in more markets and, in particular, to introduce greater automaticity in the decision to go off cover, particularly when arrears emerged. It was not anticipated, however, that policies would be tightened for countries that were in the recovery phase, implementing adjustment programs, and complying with Paris Club rescheduling agreements.

In addition to reducing effective premium rates for countries in the-lowest risk categories, agencies are taking other measures intended to increase their coverage of exports to developed country markets. Two agencies that normally require that policies cover both political and commercial risk have recently begun to offer insurance against only commercial risk for exports to OECD countries. Also, to encourage exporters to cover their business under comprehensive (whole turnover) policies, some agencies are permitting exporters to exclude certain types of transactions or risks, such as exports to affiliated companies or political risk in certain markets.

In an effort to increase business and premium income, agencies have also introduced a wide variety of new facilities or changes in existing programs. The two most general trends have been for agencies to introduce policies covering confirmed letters of credit and to offer policies denominated and payable in foreign currencies. With an irrevocable letter of credit (ILC), the confirming bank still faces the risk that the issuing bank will not be permitted to transfer funds. Recently, exporters had been encountering increasing difficulty in obtaining confirmation from banks, particularly where the confirming bank might need to provision against the contingent liability. To facilitate trade on an ILC basis, a number of export credit agencies have recently begun to offer, or are considering introducing, policies to insure against the transfer risk on confirmed letters of credit. Such an insured confirmed ILC would not be considered as exposure of the confirming bank to the country of the issuing bank.

Although the export credit agencies of Canada, Italy, and the United Kingdom have for many years offered policies denominated and payable in foreign currencies, most agencies until quite recently have offered only policies denominated in the domestic currency. A local bank or exporter could, additionally, purchase limited cover against exchange rate risk, but such policies were quite expensive and rarely used. Recently, however, the agencies of Belgium, France, the Netherlands, Spain, and Sweden have all begun to offer policies denominated in foreign currencies. While the earlier exchange rate risk insurance was intended to protect the exporter or bank against the risks involved in funding in domestic currency and lending in foreign currency, policies denominated in foreign currency are intended to protect against the risk of nonpayment when the credit is granted and funded in foreign currency. The introduction of such policies would appear to be in response not only to the desire of banks and exporters to avoid currency mismatch but also to the possibility that international capital markets might provide a cheaper or more flexible source of financing for exports. Some agencies that previously provided export credit guarantees only for local banks have recently also begun to offer such cover for foreign bank financing of domestic exports.

Special Programs Introduced by Japan

The recent decision of the Japanese authorities to use the untied loan facility of the Export Import Bank of Japan to provide substantial financing to certain developing countries is by far the most important new program that has been introduced by any of the institutions covered in this study. It is, nonetheless, somewhat outside the scope of this study, since untied loans are not export credits and similar programs would be outside the operating mandate of most or all of the other institutions visited.

Export credit insurance in Japan is provided by EID/MITI. JEXIM is the lending arm of the Japanese export credit system. JEXIM provides yen finance to local exporters, who in turn insure their export proceeds with EID/MITI. Acting in tandem with Japanese banks, JEXIM also provides direct buyers’ credits, the bank-financed portion being guaranteed by EID/ MITI. JEXIM’s operations have never been limited to export financing. In addition to providing import financing, JEXIM introduced many years ago an untied loan program for the finance of resource development in countries from which Japan imports raw materials. It is within the authority of this latter program that JEXIM has now begun to make loans that are neither tied to Japanese exports nor necessarily linked to resource development.

The modalities of the untied loan program are cofinancings with multilateral development banks, direct loans to foreign governments, public organizations, banks and multilateral development organizations, and acquisitions of public bonds. The loans will normally carry fixed interest rates set at market-related levels. The first untied loan as a cofinancing with a multilateral development bank was a cofinancing with the World Bank for Colombia. Subsequently, a US$1 billion package was provided for Mexico and, in accordance with Japan’s “New Programs to Expand the Financial Flow to the Developing Countries,” cofinancings with the World Bank for Indonesia, the Philippines, Turkey, and Argentina have been approved. Loans to certain other countries are under consideration.

Both JEXIM and EID/MITI have also stepped up their activity in other areas outside the scope of export promotion. In 1983, JEXIM extended its import financing facility, previously limited primarily to resource imports, to manufactured goods. In the spring of 1987, EID/MITI introduced a range of new programs, including an import insurance program against the risk of nondelivery and an intermediary trade insurance program intended to facilitate the role of Japanese firms in promoting exports of developing countries to third-country markets.