Develop a Goal Statement corresponding to the Problem Statement
A six sigma team is meant to concentrate on the solutions and not on the problems. It is for this reason that once the problem has been identified, it must be quickly turned in to a goal statement that will guide the execution of the project. What is a Goal Statement ? The Problem statement […]
Goods and Services Tax: The Pros and Cons
India is the second largest consumer market in the world. There are over a billion consumers, and companies from all over the world are making inroads into this developing nation to get a piece of the action. The Indian growth story has been remarkable and resilient. It has been resilient because the growth has happened […]
Symptoms of an Overheating Economy
The IMF recently asked the Philippines to take measures to rein in its overheating economy. This is not the first time the IMF has made such a statement. In fact, IMF commonly asks countries to take measures to prevent “overheating.” However, the problem is that there is no standard definition which defines the phenomenon of […]
How to Prepare a Business Continuity Management Program?
The previous articles have mentioned about the need for a business continuity management program and the components of a typical business continuity plan. This article looks at how to prepare your organization for emergencies and the steps that are needed to be taken to prepare for contingencies. For starters, the business continuity program that your […]
Will Automation Kill the Economy ?
Automation is the next big thing! Right from the time of the printing press, automation has always been making headlines. It fundamentally changes the way jobs are performed. However, given the rapid technological advancement in the recent past, there has been an unusually high level of scaremongering regarding how automation is going to affect the […]
Export credit agencies are quasi-government agencies. These agencies are usually backed by government institutions. This means that they are under the purview of government authorities and also have access to taxpayer funds.
All developed countries in the world have created their own export credit agencies. Collectively these agencies wield a tremendous amount of influence on world trade. It is estimated that the ECA backed exports amount to more than $200 billion each year.
Economic textbooks often portray export credit rating agencies as a positive force which helps improve international trade.
However, there are also many criticisms which are leveled against these agencies. In this article, we will have a closer look at the reasons which make ECA’s dangerous and harmful for the economy.
The credit provided by Export Credit Agencies (ECA’s) can be thought off as a store credit card. Just like a store credit card provides loans to consumers at high-interest rates, export credit agencies also provide finance to importers from poor countries at high-interest rates.
Export credit agencies sometimes offer direct finance to foreign governments. In other cases, they provide indirect finance. This means that finance is actually provided by a private party.
However, it is guaranteed by export credit agencies meaning that the loan becomes risk-free for the borrowers. Many times transactions between private parties end up becoming transactions between public institutions.
For instance, if exporter A and importer A use export credit finance, then their transactions may be insured by the ECAs of both countries!
The problem is that importers only take credit from export credit agencies after they have exhausted all other options. This means that the projects funded by ECA’s are inherently risky.
A lot of times this means that the project fails and the importer is unable to pay back the loans. It is surprising to find out that ECA’s are amongst the leading creditors for many third world countries.
For instance, export credits amount to about 64% of all the external debt which is owed by Nigeria! Similarly, this number stands at 42% for the Republic of Congo.
This is the reason why export credit agencies are often called debt traps by analysts in these third world countries. They are the Trojan horse which seems friendly at first but end up being more harmful than the bigwigs like World Bank and International Monetary Fund.
As mentioned above, export credit is generally opted for by buyers who are unable to obtain any other source of finance.
As a result, they lead to a higher percentage of bad loans than normal. The ECA’s charge a higher interest rate to make up for the loss.
However, a significant percentage of the loans lent out by the ECAs are never repaid.
This is a big problem since it is a hidden transfer of wealth from the taxpayers to the exporters. The exporters end up being the beneficiary of these loans.
On the other hand, taxpayers who have no idea about the underlying situation end up paying for these loans.
It is a known fact that export credit agencies have hidden interests. Although, the ECA’s themselves are supposed to be non-profit institutions, the employees at these institutions are often patronized by corporations. As a result, a lot of the policies created by ECAs are biased and have hidden agendas.
A lot of times these policies take the shape of priority sectors. Under the guise of providing financing to important sectors, the taxpayer money is redirected to a particular industry or even a particular company.
Many analysts have also noted that sometimes the ECAs are keener on guaranteeing the loans and liabilities of some particular financial institutions.
In the more recent past, ECA’s have been blamed for the trade wars that have now become a part of global economics. This is because, in some cases, the ECAs often provide subsidized finance to importers.
As such, the ECA’s make an exported product more attractive for the importer as compared to goods produced locally.
In many cases, this does not go down well with governments. As such, they end up increasing the import duty to offset the financing advantage. This increased duty is seen as a sign of aggression and the other country also ends up levying countervailing duties on the other country.
Therefore, ECAs are a way of covertly capturing market share in another country. Many countries have now become aware of this strategy and hence these agencies are at the root of several trade wars.
Lastly, critics argue that for the amount of power and influence these credit rating agencies have, they have very little accountability. In many countries, they are not even audited! Even if they are audited, their records are not made public.
Hence, there is an opaqueness to these transactions which makes them appear inherently shady. Leaving apart the financial aspects, there is no control over the social and environmental effects of the projects which are funded by these agencies.
The bottom line is that the export credit agencies are also a government agency. Just like other government agencies, they are also prone to bureaucracy, red tape and corruption.
Your email address will not be published. Required fields are marked *
