Export Credit Agency - Polemic On ECAs

Polemic On ECAs

Observers argue for and against export credits. Some observers view them as nothing more than export subsidies by a different name. Others argue that export credits may further the burden of debt that poor countries already suffer. The activities of ECAs are considered by some to be a type of welfare for large corporations. ECAs are also criticised for insuring companies against political actions which aim to protect workers' rights, other human rights or the natural environment in the countries where the investment is being made. Advocates of ECAs have assertions of their own, such as the following: export credits allow impoverished importers to purchase needed goods that would otherwise be unaffordable; export credits are components of a broader strategy of trade policies; and government involvement can achieve results that the private sector cannot, such as applying greater pressure on a recalcitrant borrower. These arguments for and against export credits are not new, having been studied at length in academic literature (for a good general discussion, see Baron, David P. The Export-Import Bank: An Economic Analysis. Academic Press. 1983.; or Eaton, Jonathan. “Credit Policy and International Competition.” Strategic Trade Policy and the New International Economics, ed. Paul Krugman. MIT Press, Cambridge Mass. 1988.). Of course, these arguments also spill over into broader literature and it is certainly important not to confuse the agency that applies the export credits, the ECA, with the actual policy of providing guarantees or direct lending support to facilitate exports. For example, some accuse the Canadian Wheat Board of providing export credits (for a strident representation of this argument, see Goodloe, Carol. “The Canadian Wheat Board: Government Guarantees and Hidden Subsidies?” The Estey Centre Journal of International Law and Trade Policy, Vol 5 No 2, p 102-122. 2004.).

ECAs are increasingly requiring member countries to undertake anti-corruption due diligence when applying for export credit. This is due to the increased international enforcement of anti-bribery laws.

ECAs play a pivotal role of getting new projects financed so the economy can be turned around from this recession. Most commercial banks are closed for new business and project funding is a scarce resource. The favourable Commercial Interest Reference Rate (CIRR is the reference rate laid down by the OECD for its member states as the minimum interest rate for officially supported financing of exports) is helping to keep your cost of capital down. But even more important is it that ECAs enables start ups to get financing, which again implies that projects are being realized.