The changing landscape of export credit agencies in the context of the global financial crisis
FERN | March 2010
The changing landscape of export credit agencies in the context of the global financial crisis
Kavaljit Singh
Executive Summary
With the onset of the global financial crisis and the subsequent squeeze in credit
and insurance markets, we are seeing a renewed global demand for export credits.
As much as 90 per cent of the world’s trade transactions involve elements of credit or
insurance or guarantee. Commercial banks, private insurers, regional or multilateral
banks and export credit agencies are the key players of trade finance.
ECAs are quasi-governmental institutions, and an integral part of many national
governments’ industrial, foreign aid, trade and investment promotion strategies.
Their prime objective is to take risk away from exporters and investors. This risk is
borne by the ECAs and ultimately by their governments. As leading players in project
finance, particularly large infrastructural and industrial projects, ECAs by and large
provide guarantees for financing commercial banks’ trade and investment.
With the recent global financial crisis, international commercial banks and private
insurers became more risk averse and reduced support for cross-border trade and
investments. A sharp contraction in global demand for goods has badly affected the
volume of world trade, leading to the largest decline of the past 80 years. The result
has been that demand for trade finance far exceeded supply. The deterioration
of trade finance markets made trade finance transactions highly expensive. To
mitigate against these negative impacts, several policy measures were announced
by national governments, ECAs and regional and multilateral developmental banks
at various levels.
Despite previous predictions of the demise of official ECAs, the current global
financial crisis has reasserted their position as dominant players in the trade finance
markets as they have stepped-in to fill the huge gap left by the private market. The
crisis dramatically changed the landscape of ECAs for example, several countries
took steps to launch their own Export-Import bank. Many ECAs have lately started
offering new products to their clients: direct lending and working capital loan
guarantees on a short-term basis. New commitments made by ECAs have been also
on the rise.
Most ECAs have reported an increase in the total volume of guarantees during the
crisis. Some have reported an increase of new commitments in their portfolios of
between 30 and 50 per cent. Since early 2009, several new agreements between
development banks and ECAs have been signed or are under negotiations. These
closer ties between ECAs and regional and multilateral development banks could
lead to the development of new co-financing structures and arrangements. In the
coming days, public-private partnerships will be used to enter new markets and
issue new products. In many ways, such partnerships would blur the traditional
lines between official ECAs and private players.
However, new signs of vulnerability and risks are fast emerging at the global level
too. First, the deterioration in the public finances of many countries could constrain
the ability of national authorities to raise new funds for ECAs. The other constraining
factor could be payment defaults, as an increase in claims has been reported in the
post-crisis period – this could make their business model unviable.
The report concluded that since the operations and structures of ECAs will adapt
in relation to new developments in global trade and financial systems, it is very
important for civil society actors to analyse these developments as well as develop
campaign tools and strategies that take this wider context into account.
A glossary is added at the end to explain some of the most widely used terms used
in the document.
