increase in the first period if it is possible to borrow from a future period provided the
consumer has a large discount rate.
Our study contends that if the secondary benefits arise from an export credit
program in terms of a cost saving to the importing country, the decision on how much to
import is likely influenced by the budget constraint of the importing country. Moreover,
we presume that the cost saving may be viewed as an additional income to the importing
country. Alternatively, our study supposes that the secondary benefits of an export credit
program, received by the importing country, can be represented as a fixed discount rate
‘d’ on its import payment. We use ‘d’ as a general measure to capture the secondary
benefits arising from many of the potential policy parameters of export credit programs
such as (i) down payments, (ii) annual subsidized or guaranteed interests with the export
credits, (iii) annual discount rates (or market rates without export credits), and (iv)
payments per year, length of repayments, grace periods, and fee rate which is expressed
as a percent of value.
We consider one possibility such that ‘d’ is the difference of two present value
streams. The first present value stream ( PV1 ) is calculated under the scenario of which
there is no subsidy element being offered to the importing country such as when the
importing borrowing in its home country. The second present value stream ( PV2 ) is
calculated under the scenario in of which there is a subsidy element being offered to the
importing country through an export credit program. Thus, the fixed discount rate ‘d’ can
be calculated as,
d=
PV - PV
PV1 PV2 *100
PV1
(1)
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