Export Credit Agency – Not Without Critics

An export credit agency, or ECA, is a specialist organization designed to facilitate export activity by providing government-supported financing to domestic private sector exporters. Most of its transactions help exporters trade with organizations, including governments, based in developing countries. Organizations in these countries are higher risk, hence accentuating the role for the government-backed financing provided by an ECA.

Most industrialized nations have at least one ECA, which is usually a government or quasi-government organization. The financings they provide can take a variety of forms including export credits, insurance, guarantees and direct loans. The common element of all these financings is that the risk of non-payment by the buyer is borne by the ECA, not the exporter.

ECAs are best known for their export credit financing. These deals essentially ensure the exporter receives payment even if the buying company defaults on payment. A credit-assisted trade transaction is usually structured so that credits are extended to the exporter, also known as supplier's credits . Alternately, the credits may go to the importer, in which case they are known as buyer's credits . Credits extend for a variety of terms ranging up to ten years.

Collectively, ECAs are a major force in international trade and finance. They represent the single largest source of the several trillion dollars of debt owed by developing countries. Indicatively, some sources estimate ECA's account for more than 25% of developing country debt. This position exists even though ECAs do not have a direct mandate to assist economic development in the developing world. The amount of debt owed to ECAs by developing countries far exceeds the amount they owe to the major development institutions such as the World Bank, the various regional development banks, bilateral aid flows and multilateral aid flows.

The main view of ECAs is that they are a positive force assisting economic development around the world. Counselors appeal their activities underwrite trade flows, and indirectly investments, that would not otherwise proceed. Without ECAs, developing countries would suffer a lower rate of development.

On the other hand, ECAs often receive heavy condemnation. Some critics regard them as economic imperialists. They argue that ECA transactions give with one hand and take with the other. Their transactions do provide benefits to a recipient country; however, they also imposes a host of obligations and restrictions. Once the cost of these is recognized, the overall deals are usually a negative for the recipient countries with the costs outweigh the benefits.

Source by Kevin Shaper

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