these countries. The export credits would provide vital short-term liquidity and facilitate
the imports of capital goods that were necessary to renew their economic growth, since
following their debt crisis, most foreign commercial banks and private lending
institutions were reluctant to lend to them (Brau et al., 1986). By 1998, the IMF
estimated that the total export credit exposure to the developing countries and economies
in transition by the ECAs of developed countries had reached US $550 billion
(Gianturco, 2001). Between 1995 and 1998, the total value of export credits provided on
agricultural trade by fifteen OECD countries increased from US $5.5 to $7.9 billion
(OECD, 2000).
However, the flow of export credits to least-developed and developing countries
is not free from controversy, and the use of export credits has become a highly politicized
issue in trade policy (Abraham and Dewit, 2000; and Leathers, 2001). Prior to
multilateral agreements among member countries of the OECD to establish benchmarks
on terms and conditions offered through export credits, various ECAs could aggressively
use their export credits to underbid their competitors by offering lower interest rates,
longer, and more favorable conditions on loan credits, tied and/or untied aid2, and mixed
credits3 to importing countries. For example, the European ECAs offered lower interest
rates through their export credits to importers than the rates charged by private markets.
In contrast, the Export-Import Bank (Eximbank) of the United States (U.S.) charged
interest rates close to market rates but offered longer terms for repayment, which the
2 Tied aid is aid which is in effect tied to the procurement of goods and/or services from the donor country
and a limited number of other countries. Untied aid is aid whose proceeds are fully and freely available for
procurement of goods and/or services from all OECD countries and substantially from non-OECD
countries (OECD, 1998).
3 A mixed credit is a mixture of the direct loan credit and grant element (or the subsidy on the loan) as
foreign aid to produce concessional financing packages having a grant element between official export
credits and official development assistance (Fleisig and Hill, 1984).