The cavalry of commerce. export-import banks ride to the rescue
The cavalry of commerce.
Apr 8th 2009
From The Economist print edition
With G20 cash in their saddlebags, export-import banks ride to the rescue
TRADE is shrinking at the fastest rate since the second world war. The global economy’s woes are largely to blame, but scarce trade finance, especially in emerging markets, hardly helps. In November the World Trade Organisation put the shortfall at $25 billion, but by March the gap had widened to between $100 billion and $300 billion. At the G20 summit on April 2nd, the leaders vowed to reverse this trend by ensuring the availability of at least $250 billion over the next two years to support trade finance.
What that lofty figure represents is unclear. The little official information there is suggests that as much as $200 billion would flow through export-credit agencies (ECAs), such as America’s Export-Import Bank, which specialise in trade finance. The G20 suggested that up to $50 billion of “trade liquidity support” would come via the World Bank.
ECAs have long thrived in obscurity. They are “the unsung giants of international trade and finance,” in the words of Delio Gianturco, author of a book on the industry. Some agencies are government-sponsored, others private, and others a bit of both. Euler Hermes, for instance, is the public ECA in Germany, but also competes privately in other markets.
One of the ECAs’ main tasks is to insure payment to exporters between the time when their goods are delivered and when they receive money for them. With liquidity tight, the risk of non-payment has risen hugely. The ECAs have been asked to stump up additional cover.
Few object to the goal of reinvigorating trade. Many, however, are less sanguine about the role of the ECAs. In the past, they have aroused the suspicions of both free-market advocates and non-governmental organisations (NGOs). The first group frets that cheap, government-subsidised insurance not only distorts investment decisions but also risks politicising them. They also contend that government backing crowds out private competition. NGOs worry about what they see as a lack of environmental and social awareness among the agencies.
Much of this criticism is outdated, say the ECAs. Previously they may have supported national champions, but now they are professionally—and independently—run. Private insurers cover large swathes of the market—indeed, some ECAs are purely private. The public ECAs argue that they mainly insure exports to high-risk countries which the private sector would steer well clear of. But this argument does not always wash with the critics. Why, they ask, should taxpayers be daredevils in places where private investors are not?
Nevertheless, could this be the public ECAs’ moment in the sun? During the credit crunch, they have had more flexibility with capital and liquidity than their private-sector counterparts. Often, their charter is simply to break even in the long run, which should give them an edge in times of crisis. But there is also a danger that they will once again attempt to pick winners. In that case the politicians’ push for more trade may come at the expense of fair trade |
