European ECAs and private markets would not offer. In addition, to match the
consessional export financing granted by other exporting countries and attempting to
persuade them to eliminate such practices, the U.S. Congress gave a mandate to and
equipped with sufficient funds for the Eximbank to match the consessional export
financing granted by other nations (Baron, 1983). Due to aggressive practices of
underbidding and/or matching export financing offers among the ECAs from different
countries with the financial supports from their governments, export credits have become
known as officially supported export credits4.
Consequently, the export credit races from underbidding practices became
expensive to finance and resulted in inefficient use of financial resources for those
countries that used such strategy to increase their exports. In addition, the export credit
races gave significant power to importing countries to bargain for more favorable import
contracts among different exporting countries (Fleigsig and Hill, 1984; Fitzgerald and
Monson, 1988; and Rodriguez, 1987). They further argue that the economic costs are
substantially greater than the economic benefits of providing export credits. They also
assert that to reduce unemployment or improve the balance of payments, governments
can implement fiscal and/or monetary policies, instead of using export credits to promote
exports.
Unlike other studies, Baron (1983) points out that the economic costs may be
greater than the economic benefits under matching the consessional export financing if
only the consessional export financing is permanent so that importing countries could
permanently withdraw resources from the sector that benefited from foreign consessional
4 According to the OECD (1998), an officially supported export credit program is a program with the
involvement of government such as: (i) directly offering credit, (ii) offering interest rate subsidies, (iii)
assuming risk for private loans, and (iv) offering supported insurance to private lenders.