Business undertaken by members of the Berne Union in recent years has been
The use of export credits declined in the 1990s as lenders were increasingly
willing to assume risk in developing countries without this cover, and investment
insurance followed a similar trend, but this trend reversed after the Asian crisis of
1997, in which signiﬁcant losses were made by uninsured investors and lenders.
Berne Union members’ outstanding exposure of $516 billion of export credits
(short and medium/long term) at the end of 1999 represented about a quarter of
developing countries’ $2200 billion of debt.
As the ﬁgures indicate, a large proportion of ECA business is for short-term
trade ﬁnance; this aspect of ECA business is increasingly being privatized (i.e.,
carried out without public-sector support) and of course has no relevance to proj-
Project ﬁnance is a relatively new area of business for ECAs; their ﬁnance for
major projects had traditionally been in the form of buyer credits to large utilities
in the country concerned, often secured by a Host Government guarantee. They
have now had to adopt new ﬁnancing products, as such major projects have been
increasingly ﬁnanced in the private sector rather than by the Host Government.
ECAs have only a small number of staff working on project ﬁnance: a number
of ECAs therefore use outside ﬁnancial advisors to help them assess project ﬁ-
§11.3 EXPORT CREDITS
Export credits used in project ﬁnance are normally buyer credits (i.e., direct
loans provided to the importer by the exporter’s bank or the ECA itself) rather than
supplier credits (i.e., loans provided by the exporter to the importer, with ﬁnance
from the exporter’s bank or ECA). Therefore, formally speaking, ECAs deal with
§11.3 Export Credits 219
Business Undertaken by Berne Union Members
($ billions) 1995 1996 1997 1998 1999 2000
Export credits 398 407 349 373 465 491
of which: medium / long term
87 79 64 61 62 71
Outstanding exposure at year end 570 561 469 482 446 453
Investment insurance 10 15 9 12 14 13
Outstanding exposure 36 43 40 43 61 57
Project ﬁnance is included in this category.
Source: Berne Union Yearbook, 2002
the exporter or the exporter’s bank rather than the Project Company, although
Sponsors of major projects usually have their own direct discussions with ECAs.
ECA ﬁnancial support for exports (i.e., offering ﬁnance at low rates) is pro-
vided in two different ways:
Direct loans. Some countries, such as the United States, Canada, and Japan,
have Export–Import Banks that can lend directly to the Project Company in a
similar wayto a private-sector commercial bank, but at lowﬁxed interest rates.
Interest rate subsidies. Other countries, such as France (COFACE), Italy
(SACE), and the United Kingdom (ECGD), rely on the commercial banking
market to fund export credits, but provide an interest rate subsidy. In effect,
the ECA enters into an interest rate swap agreement with the commercial
banks (cf. §9.2.1), enabling them to provide the Project Company with a low
ﬁxed rate of interest. (In some countries the interest rate support is provided
by a different body than the provider of the export credit insurance—
Similarly, ECA credit support for exports (i.e., assumption of political and
other risks) is also provided in two different ways:
Direct loans. If the ECA provides a direct loan it takes the whole credit risk of
the project on to its own books, although in some cases a commercial bank
guarantee is needed (e.g., for the completion risk).
Credit insurance. Other ECAs insure or guarantee loans made by private-
sector banks (i.e., provide full cover) or speciﬁc risks under the loans, such
as political risks (i.e., provide political risk cover). ECA-covered loans are
attractive to commercial banks because their banking regulatory authorities
normally allow them to allocate less of their own capital to support such
In most cases where the ECAs insure loans, an insurance payment is trig-
gered only if the covered risks lead to a default in payment by the Project
Company (i.e., these are payment guarantees not performance guarantees).
Many ECAs do not then repay the commercial banks’ loan immediately, but
only according to its original repayment schedule (with interest).
Some countries, such as the United Kingdom, are now advocating abolition of
ﬁnancial support (i.e., low-rate loans or subsidized interest rates) for exports, with
the aim of restricting ECAs to providing “pure cover” (i.e., credit insurance for ex-
ports, but with ﬁnance at market interest rates).
220 Chapter 11 Political Risk Guarantees, Insurance, and Finance