Export guarantees in unstable markets

  • 2003-10-23
  • By Aleksei Gunter
TALLINN - Kredex, Estonia's state-owned credit-guarantee foundation, has devised a new long-term guarantee for local exporters. The service, available starting Oct. 8, will protect Estonian companies from the uncertainty common in countries where corrupti

Valid for every deal with a payment deadline of one to 10 years, the new guarantee covers the risks of a foreign company buying Estonian goods, which in turn helps the buyer receive the necessary loan from the bank to purchase the goods. And in those cases where no bank is involved, the guarantee alleviates the risks of the Estonian exporter.
The risk limit covered by the new guarantee, developed in cooperation with the Danish state export credit agency EKF, is about 2 million euros per deal.
The new system will show its strength in regards to the CIS countries. With its accession to the EU, Estonia's trade to these countries is expected to soar. But as all surveys show, the risk of doing business in CIS countries is alarmingly high.
Overall export growth will roughly make 10 percent a year, according to Maive Rute, chairman of Kredex.
"The main difference between a short-term and a long-term guarantee is that the latter is a combination of insurance and buyer-funding, which is a major advantage. Without the necessary funding a potential buyer can often remain just a potential buyer," Heinaru says.
Kredex claims the credit insurance market in Estonia has not developed. Local insurance companies do not offer it, and international credit insurers are not participating directly but working via brokers.
According to the State Export Guarantees Act, the limit for simultaneously valid state guarantees is set to 300 million kroons (20 million euros). Up to 100 percent of the export-related political risks and up to 90 percent of the commercial risks can be covered.
The political risks are mostly related to money transfer from abroad. For example, the government of the country from where the buyer comes can impose currency outflow restrictions like what recently happened in Argentina. Although the buyer actually did transfer the money it did not reach the Estonian company because the government intervened.
Kredex estimates the credit insurance market in Estonia is underdeveloped. Local insurance companies do not offer credit insurance, and international credit insurers are not directly participating but available via brokers.
Jako Kruuse, the underwriter of medium- and long-term guarantees in Kredex, says that because the capital commodities dominate Estonian export the main beneficiaries of the new guarantee will be manufacturers of machinery and construction companies.