OECD Export Credit Agencies: Supplementing Short-Term Export Credit Insurance during the 2008 Financial Crisis

ABSTRACT

The 2008 financial crisis impacted international trade in part due to decreases in trade finance and export credit insurance. This article shows that Organization for Economic Cooperation and Development (OECD) member states used their public Export Credit Agencies (ECAs) to supplement the lack of private short-term export credit insurance as a means to increase trade. All OECD states, except Greece and Estonia, either increased the capacity of their ECAs to provide short-term export credit insurance, or they developed new products for this purpose. More generally, states that changed their short-term export credit insurance programs had major trading partners with defaults.

KEYWORDS:

• 2008 Global Financial Crisis
• European Union
• export credit agencies
• international trade
• OECD
• short-term export credit insurance

Acknowledgments

I would like to thank Delio Gianturco, Erin Hannah, Andrew Moravcsik, and the anonymous reviewers for comments and suggestions on earlier drafts. I would also like to thank individuals from the U.S. Export-Import Bank and Fabrice Morel from the Berne Union for speaking with me. Clayton Lukes provided research assistance.

Funding

Research support was provided through the Office of Research and Sponsored Programs at Pennsylvania State University, Altoona under Grant 276–11.

Notes

¹ From 2008 to 2009, the OECD changed the countries for inclusion as part of the non-OECD. I used the same countries for 2008 data that were used for 2009 in order to have an accurate comparison of the changes in export percentages (see OECD Factbook 2009, 2010, 2013, 2014, p. 85; 2010, p. 75).

² Only two of the top 10 exporters are not OECD member states: China and Russia. OECD member states comprised 76.4% of total world merchandise trade in 2000, with this percentage falling to 65.1% by 2010 (OECD 2013, p. 85).

³ Data were not available for 2011.

⁴ In an article about trade finance, The Economist noted, “ECAs have long thrived in obscurity” (The Economist April 11, 2009, p. 75).

⁵ See http://www.berneunion.org/about-the-berne-union/.

⁶ Members of the Berne Union include export credit agencies and investment insurers; thus, it is these institutions and not their governments that are members (Stephens 1999, p. 71). The Berne Union has 10 guiding principles on export credit and investment insurance, whereby members agree to conduct business in a manner that expands global trade and investment based on applicable laws and relevant international agreements. However, there is little in the way of an enforcement mechanism for violators of the principles, as noted on the website: http://www.berneunion.org/about-the-berne-union/our-principles/. The main benefit of being a Berne Union member is likely through the access of information about the business and finance activities of other members, in addition to the sharing of information during the two annual meetings and at various workshops and seminars.

⁷ See http://www.lawdonut.co.uk/news/law/government-guarantee-scheme-to-secure-payment-for-exporters. The Guarantee was only available to firms exporting to the emerging markets of Brazil, India, China, and Croatia; thus, this program was designed to help small- and medium-sized firms get guaranteed letters of credit for short-term business but not to “marketable risk” countries such as those under the exception (EU and OECD countries). It expired in April 2011 (OECD 2009, p. 62).

⁸ They do not distinguish between short-term and medium- or long-term guarantees, but they do note that the provision of Hermes guarantees per firm rose significantly in 2010, which they attribute to the easing of the OECD Arrangement during 2009–12, in which the list of marketable risk countries was increased (p. 8).

⁹ In e-mail correspondence with Mr. Jean Le Cocguic of the Export Credits Division at the OECD, I asked whether any additional information about the measures taken by Participant states was available and he informed me that any public information on measures taken by Participant states was on the export credits webpage (Personal e-mail correspondence with the author, July 1, 2014).

¹⁰ Certainly, the states of the EU are constrained by the regulatory framework established by the European Commission, but that is a national regulatory body applying only to EU states. The International Credit Insurance and Surety Association (ICISA) is comprised of companies that provide trade credit and insurance and is more a forum for the exchange of ideas and information, as is the Berne Union, which is the primary association for export credit and investment insurance offered by the public and private sectors. Neither of these associations has binding or regulatory powers; they provide information and hold annual meetings for their members; see www.berneunion.org; www.icisa.org.

¹¹ Berne Union data and publications will be used throughout the article since a comprehensive set of international statistics is not available for trade insurance (Hallaert 2011). Indeed, Auboin (2009, p. 11) points out that, currently, the only available and reliable sources of statistics about trade insurance come from the Berne Union database.

¹² Portugal’s request was still listed as “under assessment.”

¹³ While the government of Estonia indicated that there was a “plan” to increase capacity from its ECA for short-term export credit insurance, this never happened. There was no information on Estonia’s actions in the subsequent G20 Trade Finance Meeting Document (G20 2012, pp. 6–31; OECD 2009, p. 27).

¹⁴ Cassa Depositi e Prestiti (CDP) is a joint stock company owned by the State (70%) and Banking Foundations (30%) and it was authorized to provide funding at market conditions to banks benefitting from SACE’s guarantees. The notes section explained that if banks were unable to finance the transaction, CDP could act as a direct lender with SACE’s guarantee (G20 Trade Finance Meeting: Background on OECD Efforts to Maintain Trade Finance Flows 2012, p. 17).

¹⁵ Chauffour and Saborowski (2010) analyzed trends in world trade and insurance volumes and concluded, “(e)CAs may have played a significant role in stabilizing the trade finance market, and thus helped reduce credit risks and allowed exporters to offer open account terms in competitive markets in an environment characterized by heightened systemic and counter-party risks.” See http://voxeu.org/article/export-credit-agencies-rescue. Also, see Auboin and Engemann (2012b), whose results “stress the importance of trade finance for international trade both in crisis and in non-crisis periods”; http://voxeu.org/article/why-does-finance-matter-trade-evidence-new-data.