FINANCE FOR TRADE IN CENTRAL AND EASTERN EUROPE

Consultative Meeting on Strengthening Export Finance Support

in Central and Eastern Europe

Geneva, 28-29 October 1996

Senior bankers and financial experts from some of Europe's top export financing agencies met at the Palais des Nations in Geneva to explore new ways of supporting trade finance for central and eastern Europe. The meeting was organized by the United Nations Economic Commission for Europe (UN/ECE) and the International Trade Centre UNCTAD/WTO (ITC) with the participation of the Berne Union and the European Bank for Reconstruction and Development (EBRD).

More than 90 managers from private and public institutions concerned with trade financing agreed that while considerable potential existed for exports in transition countries, inadequate trade finance facilities were a major constraint faced by exporters.

They identified a number of priority actions to facilitate export development. One of them is the improvement of the export finance system, including adequate pre- and post-shipment short-term financing, which in some countries is totally inadequate. Improving access to medium-term funds through the euro-market is also an important issue for potential exporters, as is access to reinsurance. Institutional capacity building, including training for the effective operation of export credit agencies and other new institutions, is also needed to strengthen trade finance systems in these countries.

The meeting reviewed trade finance needs in the region, the main existing programmes and recent developments on trade finance. In this connection, EBRD's trade financing programme and its new risk-sharing scheme with local Export Credit Agencies and the EU's multi-country trade development programme for central and eastern Europe were also presented.

The meeting came up with recommendations to enhance regional cooperation for export finance. These recommendations relate to pre-shipment/working capital guarantee schemes; setting up databases on credit information including risk assessment to promote a better management of risk; regional training schemes and research and information sharing on the privatization of short-term export credit insurance.

For further details on the outcome of the meeting, please contact:

Mr. G. Sambucini
United Nations Economic Commission for Europe (UN/ECE)
Palais des Nations, Room 329-3
CH-1211 Geneva 10
Switzerland

Tel: +41 22 917 11 78
Fax: +41 22 917 00 36

ANNEX

UN/ECE-ITC CONSULTATIVE MEETING

The Strengthening of Export Finance Support

in Central and Eastern Europe

Geneva, 28-29 October 1996

Conclusions of the Meeting

INTRODUCTION

The needs of the region were discussed for a more effective trade finance system which would serve the interests of both large and small enterprises.

The different economic situation and consequent differentiated needs of each country in the region were recognized. This suggests potential to learn from each other, as well as from more advanced and experienced institutions in OECD countries and requires a flexible approach to tackling export finance problems.

It was recognized that increasing export performance through improved export finance is not only of crucial importance to the countries of the region but to all States.

A. EXPORT FINANCE NEEDS IN THE COUNTRIES OF CENTRAL AND EASTERN EUROPE

Main Needs

The main needs were identified as follows:

institutional capacity building and training;

pre-shipment, working capital financing guarantees;

short-term post-shipment financing;

greater access to reinsurance;

export credit guarantee facilities in some countries;

competitive medium and long-term financing of capital goods and projects;

support to promote intra-regional trade, especially with the CIS.

Holistic Approach and the Need for Proper Sequencing

The need to take a holistic approach to the development of trade finance systems, i.e. that all elements of the system as well as the legal and regulatory framework should be in place and working well, was recognized. It was further recognized that an appropriate sequence should be worked out in each case since all elements of the system cannot be put in place overnight.

Capacity Building and Training

Parallel to the implementation of these tasks is the need to build up the capacity in the institutions and personnel which will deliver the new and improved financial products and services to exporters.

Training for improving the effectiveness of export credit agencies and other new institutions should be given high priority.

Programmes addressing the needs

The EBRD informed the meeting about its comprehensive trade financing programme (EBRD's trade facilitation programme) and its new component, the risk sharing scheme with local ECAs. The EU's Multicountry Trade Development Programme for Central and Eastern Europe was also considered to be highly relevant. The work of COFACE, ACECRIM (Austria) and other training facilities was noted.

B. BASIC PRINCIPLES FOR FINANCING

Availability of Funds

The meeting was informed that in general there was sufficient bank funding available for short-term needs. However there might be a need for longer term financing through facilitated access to the EURO market.

Interest Rates Compensation

The meeting reviewed the key aspects of the OECD's Consensus Arrangement and the need for the Region to compensate interest rates to compete with OECD Exporters. Subsidies to take rates below the OECD consensus rates were discouraged. The Meeting was informed of the risk of subsidizing short-term interest rates.

Promotion of the Private Sector

While recognizing a public-sector role to promote exports, the meeting generally strongly favoured private sector provision of financial services to the fullest extent feasible. The rapidly growing availability of private reinsurers offering combined commercial and political risk insurance was welcomed. This should provide ECAs in the region with increasing capacity in their operations.

The privatization of short-term credit Insurance in some western countries, e.g. the United Kingdom and France, was noted. These experiences had been positive. After privatization the capacity of agencies in these countries to provide comprehensive coverage to exporters has not only been retained but indeed expanded.

C. SOME NEW PROPOSALS ARISING FROM THE DISCUSSION

The Pre-shipment/Working Capital Guarantee Scheme

The meeting agreed that an important objective for most countries undergoing economic transition in central and eastern Europe and the CIS, was to address the issue of pre-shipment working capital guarantee schemes in order to facilitate export development. The East Asian approach in establishing schemes for pre-shipment finance was noted.

The objective of the scheme is to support banks to lend pre-shipment/working capital to exporters which for various reasons have difficult access to such facilities. The guarantees provided by the scheme would serve as collateral for the related funding.

Such a facility however cannot be designed to provide money to companies who otherwise would not have the necessary credit worthiness.

Regional Enhancement Programme for Export Finance

The programme could contain the following elements:

Setting up databases on credit information including risk assessment to promote a better management of risk.

Regional training schemes, as appropriate.

Research and information sharing on how to approach privatization of short-term export credit insurance.

Holding a series of workshops on specific topics.

ECAs, banks and other institutions interested in participation in such regional activities, could consider voluntarily forming a group/association to further pursue these proposals.

A Regional Export Reinsurance Company

Some scope for the establishment of a regional reinsurance facility to cover both commercial and political risk was discussed.

D. NEXT STEPS

The cooperation between ITC and UN/ECE has enabled the meeting successfully to address the issues and come up with possible recommendations.

The outcome of this consultative meeting will be reported to the ECE Committee on the Development of Trade at its meeting in December 1996. The interested parties and organizations are invited to attend this meeting when further steps will be considered.

It was noted with pleasure that the representative of the EU Multicountry Trade Development Programme for Central and Eastern Europe would take account of the recommendations from this consultative meeting in drawing up their own programme of action.

It was stressed that these recommendations will also be useful for the ECAs in preparing their requests for technical assistance to many of the agencies concerned namely EU, ITC and national technical assistance agencies.