Export Finance: Comparative Analysis of U.S. and European Union Export
Credit Agencies (Letter Report, 10/24/95, GAO/GGD-96-1).

Pursuant to a congressional request, GAO reviewed the types of
export-financing assistance that the United States and five European
Union (EU) countries provide to exporters, focusing on the: (1) types of
export-financing delivery systems used in the countries; (2) differences
in and types of trade-offs among U.S. and EU member state programs; and
(3) status of international efforts to limit the use of
government-supported export financing.

GAO found that: (1) the Export-Import Bank (Eximbank) financed $15.1
billion of U.S. exports in 1993 and the five EU member states
collectively financed $74.8 billion of their total exports in that same
year; (2) Eximbank provides a wide range of export-financing assistance
to the U.S. exporting community, including direct loans, loan
guarantees, and export credit insurance; (3) the five EU member states
use a single government agency, as well as private and public sector
providers to deliver export-financing capital; (4) Eximbank medium- and
long-term loan guarantees are unconditional, and Eximbank assumes most
of the risk involved in export transactions; (5) there are trade-offs
between the time export credit agencies (ECA) spend scrutinizing loan
applications and the time that elapses before the claims are paid, the
level of risk assumed by ECA and participating banks, and the premium
levels charged for financing assistance; (6) the Organization for
Economic Cooperation and Development (OECD) has implemented an agreement
that limits government subsidies and provides common guidelines for
national export-financing assistance programs; and (7) this agreement
does not currently apply to the premiums charged for export credits
relating to defense goods or agricultural products.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  GGD-96-1
     TITLE:  Export Finance: Comparative Analysis of U.S. and European 
             Union Export Credit Agencies
      DATE:  10/24/95
   SUBJECT:  International trade
             Export regulation
             Comparative analysis
             Exporting
             Economic assistance
             Foreign governments
             Foreign trade policies
             International economic relations
             Direct loans
             International organizations
IDENTIFIER:  France
             Austria
             Belgium
             Denmark
             Germany
             Finland
             Greece
             Italy
             Ireland
             Luxembourg
             Netherlands
             Portugal
             Spain
             Sweden
             United Kingdom
             Israel
             Egypt
             NATO
             DOD Foreign Military Financing Program
             
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Cover
================================================================ COVER


Report to the Honorable
Barney Frank, House of Representatives

October 1995

EXPORT FINANCE - COMPARATIVE
ANALYSIS OF U.S.  AND EUROPEAN
UNION EXPORT CREDIT AGENCIES

GAO/GGD-96-1

Export Financing Assistance

(280096)


Abbreviations
=============================================================== ABBREV

  AKA - AKA Ausfuhrkredit Gesellschaft mbH
  ANVAR - Agence Nationale pour la Valorisation de la Rï¿½cherche
  BFCE - Banque Franï¿½aise du Commerce Extï¿½rieur
  CIRR - commercial interest reference rates
  COFACE - Compagnie Franï¿½aise pour le Commerce Extï¿½rieur
  DM - German marks (deutsche marks)
  DOD - Department of Defense
  DREE - Direction des Relations Economies Extï¿½rieures
  EC - European Commission
  ECA - export credit agency
  ECGD - Export Credits Guarantee Department
  ERP - European Recovery Program
  EU - European Union
  Eximbank - Export-Import Bank of the United States
  FF - French francs
  FMF - Foreign Military Financing
  FSU - former Soviet Union
  GDP - gross domestic product
  GNP - gross national product
  IBRD - International Bank for Reconstruction and Development (World
     Bank)
  ICRAS - Interagency Country Risk Assessment System
  INA - Istituto Nazionale delle Assicurazioni
  KfW - Kreditanstalt fï¿½r Wiederaufbau
  L - Italian lira
  NATO - North Atlantic Treaty Organization
  NCM - Nederlandsche Credietverzekering Maatschappij N.V. 
  NIS - newly independent states
  NLG - Dutch guilders
  OECD - Organization for Economic Cooperation and Development
  OMB - Office of Management and Budget
  OPIC - Overseas Private Investment Corporation
  PEFCO - Private Export Funding Corporation
  SACE - Sezione Speciale per l'Assicurazione del Credito
     all'Esportazione
  SME - small- and medium-sized enterprises
  UK - United Kingdom

Letter
=============================================================== LETTER


B-260226

October 24, 1995

The Honorable Barney Frank
House of Representatives

Dear Mr.  Frank: 

As you requested, we reviewed the types of export-financing
assistance that national governments provide to exporters and banks
in the United States (particularly through the U.S.  Export-Import
Bank (Eximbank))\1 and in the five largest exporting countries of the
European Union (EU)--France, Germany, Italy, the Netherlands, and the
United Kingdom (U.K.).\2 The distinguishing characteristic of this
type of financing is that it is generally tied to the export of goods
and services from the countries providing the export financing
assistance. 

Congressional decisionmakers are currently debating the level of
resources that the Eximbank should receive in supporting U.S. 
exporters.  Some believe that the Eximbank has an important function
by correcting market failures and helping U.S.  exporters compete on
a level playing field against their foreign counterparts.  Others
believe that the Eximbank distorts capital markets and provides
unwarranted taxpayer subsidies to U.S.  exporters. 

In response to your request and to provide congressional
decisionmakers with information on what competitor export credit
agencies (ECA)\3 do that may be relevant to the current debate on the
Eximbank, we (1) identified the magnitude of export financing that
the United States and five EU countries provide, (2) described the
types of export-financing delivery systems used in these countries,
(3) highlighted key differences in and types of trade-offs among U.S. 
and EU member state programs, and (4) summarized the status of
international efforts to limit the use of government-supported export
financing. 

Although this report focuses with regard to U.S.  programs primarily
on the Eximbank's export-financing assistance, we included some
information on the overseas investment insurance programs of the
Overseas Private Investment Corporation (OPIC).  OPIC is a U.S. 
government agency that promotes economic growth in developing
countries by encouraging U.S.  private investment in those nations. 
While OPIC is not an ECA because none of its programs are tied to the
export of U.S.  goods and services, this information is included to
make the comparisons more complete because the ECAs of the five EU
countries all provide overseas investment insurance as part of their
regular product offerings. 


--------------------
\1 The Eximbank is an independent U.S.  government agency responsible
for helping banks and exporters finance U.S.  export transactions. 

\2 The EU, formerly the European Community, is a political and
economic union of 15 European countries.  The EU's member states are
Austria, Belgium, Denmark, Germany, Finland, France, Greece, Italy,
Ireland, Luxembourg, the Netherlands, Portugal, Spain, Sweden, and
the U.K. 

\3 Organizations that provide government-supported export-financing
assistance, such as the Eximbank, are referred to as ECAs. 


   BACKGROUND
------------------------------------------------------------ Letter :1

Exporters and their customers sometimes need export financing to make
export transactions.  Export financing includes export loans, loan
guarantees, and export credit insurance.\4 Export loan guarantees and
export credit insurance are referred to as "export cover." Although
export financing is available from commercial banks and private
insurers, governments also provide export-financing assistance as
part of their national trade promotion strategies.  In general,
governments focus their support on exports financed with longer term
credits to relatively riskier markets. 

Exporters from the five EU member states we reviewed are major
competitors of U.S.  exporters.  Collectively, the five countries
represent an economy about 83 percent as large as the United States
in terms of gross domestic product (GDP) and accounted for 79 percent
of the EU's total exports in 1993.  However, these countries are more
heavily dependent on export markets than the United States.  While
exports in the United States represented only 7.4 percent of GDP in
1993, exports from these five countries represented between 16.4
percent and 45 percent of their GDP in the same year.  (See table 1.)



                                Table 1
                
                Export Position of the United States and
                        Five EU Countries, 1993

                         (Dollars in billions)

                                                   Ratio of   Ratio of
                                                   extra-EU      total
                                                    exports    exports
Country                           GDP    Exports   to GDP\a     to GDP
--------------------------  ---------  ---------  ---------  ---------
United States                  $6,245       $465         NA       7.4%
Five EU members                 5,204      1,057       9.2%       20.3
France                          1,254        206        6.6       16.4
Germany                         1,713        365       11.1       21.3
Italy                           1,000        168        7.9       16.9
Netherlands                       309        139       11.5       45.0
U.K.                              927        178       10.1       19.2
----------------------------------------------------------------------
Legend:

NA = not applicable

Note:  Totals for the five EU members may not add due to rounding. 

\a Extra-EU exports are exports from EU countries to non-EU
countries. 

Source:  US-EC Facts and Figures, Office of Public Affairs, United
States Mission to the European Communities (Oct.  1994). 


--------------------
\4 Loan guarantees to commercial lenders provide repayment protection
for loans to foreign buyers of exports.  Export credit insurance
protects exporters against the failure of foreign buyers to pay their
credit obligations. 


   RESULTS IN BRIEF
------------------------------------------------------------ Letter :2

The United States and the five EU member states provide
significant--although varying--levels of export-financing assistance
for their exporters.  (See app.  I for a detailed discussion of the
six nations' government-supported export- financing programs).  In
1993, the Eximbank financed about $15.1 billion of U.S. 
exports--about 3.2 percent of total U.S.  exports.  In comparison,
ECAs in the five EU member states collectively supported at least
$74.8 billion of their total exports--about 7.1 percent of these
countries' total exports--in the same year. 

The government costs of these programs are substantial.  However,
comparisons of the government costs for these programs are difficult
to make because the countries use different budgeting techniques to
record their costs.  Since 1991, the cost of the Eximbank's programs
represent the total estimated subsidy cost of the new credit-related
assistance provided in a given year plus the cost of liquidating
credit obligations incurred before the onset of federal credit reform
in October 1991.  In contrast, the level of support reported by the
five EU governments represents the net cash flows associated with
their programs in a particular year.  In 1993, the U.S.  government
provided about $1.8 billion for Eximbank programs.\5 In the same
year, the five EU governments collectively spent at least three times
this amount--$5.76 billion--on similar export-financing assistance
programs.\6

The United States and the five EU member states use different
organizational approaches to deliver similar types of
export-financing assistance.  Despite these different approaches to
program delivery, however, governments in both the United States and
the five EU member states all ultimately set policies and assume the
financial liabilities for these programs.  The Eximbank provides a
wide range of export-financing assistance to the U.S.  exporting
community, including direct loans, loan guarantees, and export credit
insurance.  This assistance is complemented by OPIC's programs for
insuring overseas investments.  The five EU member states use a
variety of approaches--ranging from a single government agency to a
mix of private and public sector providers--to deliver similar
assistance. 

The Eximbank and ECAs in the five EU member states offer similar
types of export-financing assistance but under terms that differ. 
These differences have important implications for exporters and
banks.  Specifically, (1) the Eximbank assumes more of the risks of
an export transaction than do ECAs in the five EU member states; and
(2) the Eximbank's medium- and long-term loan guarantees, which
constitute virtually all of its total medium- and long-term cover
business, are "unconditional."\7 These features increase the
attractiveness of the Eximbank's program to exporters.  In contrast,
ECAs in four of the five EU countries require exporters and banks to
share some--usually at least 5 percent to as much as 15 percent--of
the risks of an export transaction.  They also offer this coverage on
a more conditional basis. 

Exporters, banks, and governments face important trade-offs due to
the differences between the Eximbank's and the EU ECAs'
export-financing assistance.  These trade-offs involve the following: 

  There is a trade-off between the time ECAs spend scrutinizing
     applications and the time elapsed before claims are paid.  The
     Eximbank spends more time reviewing applications up front and
     pays off claims more rapidly, while EU ECAs spend less time up
     front and pay off claims more slowly. 

  There is a trade-off between the level of risk assumed by sharing
     between ECAs and participating banks.  The Eximbank generally
     assumes all of the risks of the loan guarantees that it issues,
     while most EU ECAs share some of the risks of covered
     transactions with banks and exporters. 

  There is a trade-off between fiscal discipline and premium levels
     charged.  Only one of the countries reviewed--the U.K.--requires
     its ECA to be self-funded on cover business undertaken since
     1991.  Therefore, to meet this requirement, the U.K.  ECA
     generally charges higher premiums in high-risk markets, which
     U.K.  exporters said places them at a disadvantage compared with
     other exporters.  In contrast, none of the other ECAs are
     required to be self-funded.  (Despite this self-funding
     requirement, the U.K.  ECA offers interest rate subsidies
     through a separate program.)

International organizations, including the Organization for Economic
Cooperation and Development (OECD)\8 and the EU, have implemented
agreements or initiated efforts to limit government subsidies and
provide common guidelines for national export-financing assistance
programs.  The OECD's Arrangement on Guidelines for Officially
Supported Export Credits set terms and conditions for
government-supported export loans.  The agreement has been
progressively strengthened since it was first established in 1978. 
It was last modified in 1994 to require member countries to use only
market-based interest rates on all government-provided export loans. 
However, the OECD agreement does not currently apply to the premiums
charged for export cover or to export credits relating to exports of
defense goods or agricultural products.  The EU is also renewing
previous efforts to harmonize the export credit insurance systems of
EU member states. 


--------------------
\5 In 1993, the Eximbank received an appropriation of $1.778 billion;
$803 million to fund the costs of its 1993 programs and $975 million
to liquidate the pre-fiscal year 1992 obligations incurred before the
Federal Credit Reform Act of 1990 (Public Law 101-508, Nov.  5, 1990)
went into effect. 

\6 The EU totals include the amounts spent on member state export
cover programs (i.e., guarantee and insurance) and the amounts spent
on interest rate subsidy programs. 

\7 As defined by the Eximbank, medium-term cover for capital goods
and related services is financing of $10 million or less, with a
usual repayment term of 1 to 5 years; long-term cover is financing of
more than $10 million or repayment terms of greater than 5 years. 
"Unconditional" means that exporters or participating banks are
unconditionally reimbursed in the event of a default due to political
or commercial risks. 

\8 OECD is an international forum for coordinating economic policies
among 25 industrialized countries, which include the economically
developed, free market democracies of North America, Western Europe,
and the Pacific. 


   SCOPE AND METHODOLOGY
------------------------------------------------------------ Letter :3

To identify the magnitude of the government support provided to each
ECA, we analyzed financial reports and budgetary information obtained
from central governments and held discussions with ECA and Treasury
representatives in the United States and in each of the five
countries we visited.  We interviewed officials from the Eximbank and
OPIC in the United States; Compagnie Franï¿½aise pour le Commerce
Extï¿½rieur (COFACE) and the Banque Franï¿½aise du Commerce Extï¿½rieur
(BFCE) in France; AKA Ausfuhrkredit Gesellschaft mbH (AKA), Hermes
Kreditversicherungs AG (Hermes), and Kreditanstalt fï¿½r Wiederaufbau
(KfW) in Germany; Sezione Speciale per l'Assicurazione del Credito
all'Esportazione (SACE) and Mediocredito Centrale in Italy;
Nederlandsche Credietverzekering Maatschappij N.V.  (NCM) in the
Netherlands; and the Export Credits Guarantee Department (ECGD) in
the U.K. 

To describe and compare the key organizational approaches and
programs of the major EU ECAs with those of the Eximbank, we spoke
with representatives of and reviewed documents from ECAs, government
ministries, the EU Commission,\9 commercial banks, OECD, and the
International Monetary Fund.  The documents that we reviewed included
annual reports, brochures, and export finance studies. 

To compare trade-offs among U.S.  and EU member state programs, we
interviewed ECA representatives and analyzed reports commenting on
various aspects of these trade-offs.  To compare premiums for export
credit cover available from the Eximbank and the EU ECAs, we analyzed
Eximbank data that were based on a survey of 1994 premiums charged by
eight ECAs in 26 major markets.  We were unable to verify the
accuracy of these data, which are self-reported by the individual
ECAs and are based on varying data sources and measurement
techniques. 

To describe international efforts to reduce disparities in
government-supported export-financing programs among ECAs, we
analyzed publications issued by and held discussions with officials
of OECD, the EU, and the International Union of Credit and Investment
Insurers (the Berne Union).  We did not include the export-financing
assistance programs of any multilateral institutions within the scope
of our review since we focused on national ECAs comparable to the
Eximbank.  The information in this report does not reflect original
analysis of foreign laws, but was obtained from interviews and
secondary sources. 

We did our work from June 1994 to June 1995 in accordance with
generally accepted government auditing standards.  We requested
comments on a draft of this report from the President of the
Eximbank, the President of the Overseas Private Investment
Corporation, and the Secretary of the Treasury, or their designees. 
Officials from these agencies provided oral comments that are
discussed on page 20.  We also obtained the views of representatives
of ECAs in France, Germany, Italy, the Netherlands, and the U.K.  on
country-specific information. 


--------------------
\9 The European Commission functions as the executive body of the EU. 
It drafts and proposes EU legislation and enforces the implementation
of EU laws. 


   EXPORT-FINANCING ASSISTANCE
   PROGRAMS COST BILLIONS
------------------------------------------------------------ Letter :4

The United States and the EU provide varying levels of support for
their exporters through their ECAs.  In 1993, the Eximbank financed
about 3.2 percent of total U.S.  exports, the low end of the range
financed by ECAs in the five EU member states.\10 (See table 2.)



                                Table 2
                
                Exports Supported by U.S. and EU Export
                         Credit Agencies, 1993

                       (U.S. dollars in billions)

                                           Total   Value of    Percent
                                         exports    exports         of
                                              of  financed\    exports
Country                     Provider     country          a   financed
--------------------------  ---------  ---------  ---------  ---------
United States               Eximbank      $464.8      $15.1       3.2%
Five EU members                           1057.5       74.8        7.1
France                      COFACE         206.3       35.7       17.3
Germany                     Hermes         365.3       20.4        5.6
Italy                       SACE           168.5        5.7        3.4
Netherlands                 NCM            139.1        6.9        5.0
U.K.\b                      ECGD           178.3        6.1        3.4
----------------------------------------------------------------------
\a The figures for Germany include the total value of exports
supported.  The figures for the other countries represent the
financed value of the export contract.  In the United States, this
financing support includes loans.  For the other countries, this
total reflects only cover (insurance and guarantees).  The value of
exports separately supported through EU ECA loan subsidy programs was
not available.  However, the value of exports supported through EU
ECA cover programs generally includes the value of the exports
supported under separate loan subsidy programs because EU ECAs
generally obtain ECA cover on exports supported under loan subsidy
programs. 

\b Figures for the U.K.  are for ECGD fiscal year 1993-1994, which
begins on April 1 and ends on March 31. 

Sources:  ECA annual reports; interviews; and US-EC Facts and
Figures, October 1994. 

The United States and the five EU member state governments have spent
billions of dollars on export-financing assistance programs.  In
1993, the U.S.  government provided about $1.8 billion to support the
Eximbank's export-financing activities--down 54 percent from the
$3.94 billion provided in 1992.  In 1993, the five EU governments
collectively spent at least $5.76 billion to support their export
cover programs--a slight increase from the $5.56 billion spent in
1992.  (See table 3.) The net cash deficits for the five EU
government programs ranged from a low of $110 million in the
Netherlands to a high of $3.09 billion in Germany.  ECA officials
attributed these deficits to various factors, including the economic
upheaval in the newly independent states of the former Soviet Union. 

The costs of these programs are difficult to compare because
countries use different budgeting techniques to record their costs. 
Except for the Eximbank's costs for 1992 and 1993, the level of
support shown in table 3 represents the net cash flows associated
with the five EU member state programs rather than the estimated
long-term program costs.  We compared net cash flows because this was
the only common basis of comparison among the five EU member states. 



                                Table 3
                
                  Cost of Government-Supported Export-
                Financing Programs in the United States
                     and Five EU Countries, 1991-93

                       (U.S. dollars in millions)

Country                             1991           1992           1993
-------------------------  -------------  -------------  -------------
United States\a                     $923         $3,936         $1,778
Five EU members\b                  6,197          5,561          5,758
France                             1,802          1,378          1,016
Germany                            1,155          1,478          3,088
Italy                              1,468          1,479          1,334
Netherlands                           53            113            110
U.K.\c                             1,719          1,113            210
----------------------------------------------------------------------
Note:  The costs of U.S.  programs for 1992-93 are the total fiscal
year appropriations under credit reform for Eximbank.  The costs of
the 1991 U.S.  and 1991-93 EU program are the net cash deficits
incurred by governments in a given year. 

\a U.S.  totals include the Eximbank's 1992-93 appropriations for
credit and related expenses of $641 million and $802.7 million,
respectively.  The remainder of the U.S.  balances for 1992 and 1993
represents the annual appropriations that Eximbank received to meet
the cost of business originated before October 1, 1991.  U.S.  totals
do not include the cost of the export-financing assistance separately
provided by the U.S.  Department of Defense (DOD) through the Foreign
Military Financing (FMF) program or the Department of Agriculture. 
The FMF program is largely a grant program that enables selected U.S. 
allies--primarily Israel and Egypt--to obtain U.S.  military
equipment and related services.  According to DOD officials, FMF is
provided to advance U.S.  foreign policy and national security
interests rather than to promote U.S.  exports.  In fiscal year 1993,
the FMF program received about $3.4 billion in appropriations. 
According to the U.S.  Foreign Agricultural Service, total U.S. 
agriculture spending was $16 billion in fiscal year 1993, including
$1.2 billion in direct export subsidies. 

\b The EU figures, except for Germany, include the amount spent on
interest rate subsidy programs.  The German, French, and U.K.  ECAs
we reviewed all provided some level of export-financing assistance
for defense exporters.  In 1993, approximately 48 percent, 21
percent, and 1 percent, respectively, of U.K., French, and German
export cover was provided to defense exporters.  Figures on defense
export expenditures for Italy and the Netherlands were unavailable. 
The EU figures do not include amounts spent under separate EU
agricultural programs.  According to the U.S.  Foreign Agricultural
Service, total EU agriculture spending was $44.4 billion in 1993,
including $11.7 billion in direct export subsidies. 

\c Figures for the U.K.  are for U.K.  fiscal years (April 1 through
March 31). 

Source:  GAO analysis of information obtained from U.S.  and EU ECAs. 

The Eximbank's budgeting practices changed significantly with the
passage of the Federal Credit Reform Act of 1990.  The act, which
became effective on October 1, 1991, requires the Eximbank to
estimate the total long-term costs--instead of just the cash
flows--of its direct loans and guarantees in the year they are
authorized.  The Eximbank's export credit insurance programs are also
covered under the act.  Under the act, the Eximbank also may not
incur new obligations or commitments unless Congress specifically
appropriates the budget authority for these transactions in advance. 

The governments of the five EU member states budget for the cost of
their export-financing operations on a cash basis.\11 Under this
approach, the government reimburses the ECA for the total cash losses
sustained on government-supported operation during the year. 
However, total cash losses for any 1 year are not indicative of
current-year performance because losses on prior-year loans are
included in this total.  Although not subject to the same budgeting
requirements as the Eximbank, the U.K.'s ECA is subject to relatively
stringent financial discipline.  Unlike the five other governments,
the U.K.  government's policy is that its ECA should break even
financially on its cover policies issued since 1991, with a
reasonable level of confidence, by establishing sufficient reserves
and charging risk-based fees. 

The Eximbank and the EU ECAs we reviewed generally try to limit the
total amount of export-financing assistance they provide, as well as
the amount they provide for exports to specific countries. 
Interministerial committees or legislative bodies generally set
annual limits for each ECA. 


--------------------
\10 In comparing the amounts of exports supported through the U.S. 
and major competitor EU ECAs, it is important to note that the types
of exports supported through ECAs differ.  The U.S.  ECA totals on
the levels of exports supported do not include U.S.  exports financed
separately by the Departments of Defense and Agriculture.  EU ECA
figures for Germany, France, and the U.K.  include support for
defense exports.  However, EU ECA figures exclude exports supported
through separate EU-wide agricultural support programs. 

\11 Under cash-based budgeting, receipts are recorded when received
and expenditures are recorded when paid regardless of the accounting
period in which the receipts are earned or the costs incurred. 


   GOVERNMENTS PROVIDE SIMILAR
   TYPES OF EXPORT-FINANCING
   ASSISTANCE THROUGH DIFFERENT
   APPROACHES
------------------------------------------------------------ Letter :5

The United States provides U.S.  exporters with a wide range of
export-financing assistance, primarily through the Eximbank.  The
Eximbank offers export credit insurance and loan guarantees to
protect exporters and banks against a wide range of nonpayment risks. 
The Eximbank also provides exporters with fixed-interest-rate export
loans.  The United States provides overseas investment insurance
through OPIC.  OPIC insurance protects U.S.  investors from the
political risks associated with investments in overseas markets.\12

Like the United States, all five EU member states have export credit
insurance and loan guarantee programs to protect their exporters and
banks against various nonpayment risks.  They also have overseas
investment insurance programs.  Unlike the United States, which
offers export loans through the Eximbank, the five EU member states
provide interest rate subsidies for export loans obtained from
commercial banks.  These subsidies allow banks to offer lower
fixed-interest-rate loans to exporters.  All of the five EU member
states' government- supported interest rate subsidy programs and
export loans, like the Eximbank's export loans, are subject to
minimum OECD interest rates. 

The U.K.  uses a single government agency to deliver an entire range
of export-financing assistance.  Italy uses a government agency to
deliver government-supported export cover (guarantees and insurance)
but also uses a state-owned bank to provide interest rate subsidies
for export loans.  France, Germany, and the Netherlands use
commercial insurance companies to deliver government-supported export
cover and use other entities to provide interest rate subsidies for
export loans.  The French, German, and Dutch governments reimburse
these insurance companies for the administrative costs of providing
these government services.  In all five EU member states, the same
organization that delivers export cover also provides overseas
investment insurance. 

Table 4 summarizes the types of export-financing assistance that
governments in the six countries provide and the organizations used
to deliver this assistance. 



                                     Table 4
                     
                      Types of Government-Supported Export-
                       Financing Assistance Offered by Six
                                 Countries, 1993


Co                                     Overseas
un               Export     Export     invest-                          Interest
tr               credit     loan       ment                  Direct     rate
y   Provider     insurance  guarantee  insurance  Other\a    loans      subsidies
--  -----------  ---------  ---------  ---------  ---------  ---------  ---------
Un  Eximbank     X          X                                X
it
ed
St
at
es

    OPIC\b                             X

Fr  COFACE       X          X          X          X
an
ce

    BFCE                                                                X

Ge  Hermes       X          X          X          X
rm
an
y

    KfW\c                                                    X

    AKA\d                                                               X

It  SACE\e       X          X          X          X
al
y

    Mediocredit                                                         X
    o
    Centrale

Ne  NCM          X          X          X          X
th
er
la
nd
s

    Ministry                                                            X
    of
    Economic
    Affairs

U.  ECGD\e       X          X          X          X                     X
K.
---------------------------------------------------------------------------------
Legend:

x = provided

Note:  Blank spaces indicate that cover or support is not provided. 

\a "Other" includes things such as cover for foreign exchange risks,
construction trade fairs, or marketing surveys. 

\b Although OPIC's financing activities may indirectly benefit U.S. 
exporters, its programs are intended to facilitate U.S.  private
investment in developing countries and emerging markets.  Overseas
investment insurance constitutes the bulk of its assistance.  This
insurance protects investors against losses due to (1) war,
revolution, insurrection, or civil strife; (2) expropriation; and (3)
the inability to convert foreign currency into dollars.  OPIC also
provides investment loans and loan guarantees to U.S.  investors and
lenders. 

\c KfW provides some direct loans involving funds from the German
government. 

\d AKA may refinance some export loans through the German Central
Bank (Deutsche Bundesbank).  However, the Bundesbank plans to
discontinue this support in June 1996. 

\e Export credit reinsurance is also offered for short-term policies. 

Source:  GAO analysis of information obtained from U.S.  and EU ECAs. 

Governments in the United States and the five EU countries set
policies and assume the ultimate financial risks of these programs
regardless of whether commercial insurers, government agencies, or
credit institutions administer these programs.  In the United States,
the Eximbank's policies and operations are overseen by Congress and a
seven-member board of directors (including two ex-officio members: 
the Secretary of Commerce and the U.S.  Trade Representative).  OPIC
is governed by a 15-member board of directors; its Chairman is the
Administrator of the Agency for International Development; its
Vice-Chairman is the Deputy U.S.  Trade Representative.  In the EU
member states, interministerial government committees establish and
coordinate policies for their export-financing assistance programs. 
These committees typically include representatives from government
ministries, including treasury, trade, and foreign assistance, and
from ECAs that administer the programs.  Although EU ECAs themselves
can generally approve routine applications for export-financing
assistance, the interministerial committees must approve applications
that involve relatively large or potentially controversial export
transactions. 


--------------------
\12 OPIC also provides investment guarantees, loans, and
preinvestment support services, such as trade missions and business
outreach.  In 1994, OPIC provided about $6 billion worth of
investment insurance and $1.7 billion worth of investment loans and
loan guarantees. 


   PROGRAM DIFFERENCES HAVE
   IMPORTANT IMPLICATIONS FOR
   EXPORTERS
------------------------------------------------------------ Letter :6

The Eximbank's export-financing assistance differs in several key
respects from the assistance offered by the ECAs in the five EU
member states.  These differences have important implications for
exporters, banks, and governments. 

The Eximbank provides greater risk protection on export transactions
by giving exporters 100-percent political and commercial risk
protection on most of the medium- and long-term cover it issues.  In
addition, the Eximbank's loan guarantees, which constituted virtually
all (92 percent) of its 1994 medium- and long-term cover business,
provide exporters with unconditional repayment protection.  These
features increase the attractiveness of the Eximbank's programs to
exporters.  In contrast, four of the EU ECAs require exporters and
banks to share some--usually at least 5 percent to as much as 15
percent--of an export transaction's risk.  In addition, the coverage
the four EU ECAs offer is more conditional in that an ECA is to
reimburse claims only if specified conditions have been met.  The
U.K.'s ECA is the only EU ECA that offers unconditional 100-percent
risk coverage.  The maximum risk levels that these six ECAs can cover
are summarized in table 5. 



                                Table 5
                
                Maximum Risk Levels Covered by Six ECAs


                                  Politic            Politic
                                       al  Commerci       al  Commerci
Country                 Provider    risks  al risks    risks  al risks
----------------------  --------  -------  --------  -------  --------
United                  Eximbank     100%      100%     100%      100%
 States
France                  COFACE         90        85       95        95
Germany                 Hermes         90        85       95        95
Italy                   SACE           90        90       95        95
Netherlands             NCM            95        90       95        90
U.K.                    ECGD        100\a     100\a      100       100
----------------------------------------------------------------------
\a 100-percent cover is available only after satisfactory contractual
performance by the exporter and buyer.  Cover is initially limited to
90 percent. 

Sources:  The Eximbank and EU ECAs. 

Exporters, banks, and governments face a number of trade-offs due to
the differences in the Eximbank's and EU ECAs' programs. 

First, the time needed to approve applications and pay claims differs
between the Eximbank and other EU ECAs.  For those transactions in
which the Eximbank provides 100-percent unconditional risk
protection, it assumes all of the risks of the export transactions it
covers.  Hence, the Eximbank must thoroughly assess the suitability
of such transactions before giving approval for cover.  These
comprehensive reviews tend to lengthen the application process and
decrease the attractiveness of the Eximbank's programs to exporters,
according to Eximbank and EU ECA officials. 

The Eximbank's requirements for careful up-front reviews have led to
persistent complaints from U.S.  exporters.  According to the
Eximbank's annual assessment of its competitiveness vis-ï¿½-vis its
major competitors,\13 U.S.  exporters and commercial bankers that the
Eximbank surveyed praised the attractiveness of specific Eximbank
programs and products but complained in 1992 and 1993 about the
Eximbank's slow processing times and excessive paperwork
requirements.  However, because the Eximbank reviews applications in
detail before giving its approval, it can reimburse relatively
quickly customers who later make claims for export losses (within
about 1 week for the Eximbank's loan guarantees).  This increases the
attractiveness of the Eximbank's programs to exporters and
participating banks. 

In contrast, because ECAs in four of the five EU countries offer more
conditional cover, they can quickly approve applications--in some
cases, within 1 to 2 days--after receiving the initial application. 
However, the trade-off is that these EU ECAs require exporters to
prove the validity of any later claims made after they issue cover
policies.  Thus, exporters can wait months to receive reimbursement
for export losses.  Dutch banking officials noted that the waiting
period for claims reimbursements is typically 3 to 6 months from when
losses occur.  A French ECA official noted that small claims ($3,000
or less) are paid within 2 months and all other claims within 5
months of when they are submitted.  Recognizing these trade-offs and
concerns about up-front processing times, the Eximbank introduced a
more conditional medium-term insurance policy for exporters and banks
in 1994.  The Eximbank expects the conditionality of the policy to
result in faster application processing times. 

Second, the level of risk-sharing between ECAs and participating
banks may influence bank behavior.  The Eximbank assumes 100 percent
of the risks on most of the medium- and long-term cover that it
issues.  This feature increases the attractiveness of the program to
exporters, according to Eximbank and EU ECA officials, but reduces
some of the incentive for cautious lending behavior among the banks
that obtain these guarantees.  The Eximbank thus assumes more of the
responsibility and the associated administrative costs of reviewing
applications for export- financing assistance since it does not
require banks to share the risks of these transactions. 

In contrast, most EU ECAs share some of the risks of covered
transactions with exporters and banks.  Thus, exporters and
participating banks review the financial soundness of proposed export
transactions more carefully, according to EU ECA officials. 
According to EU government and banking industry officials, such risk
sharing helps shift some of the responsibility and associated
administrative costs of reviewing cover applications from ECAs to
exporters and financing institutions.  Some risk sharing may soon be
an EU-wide requirement.  The EU has issued proposed rules that would
require some minimum level of private-sector risk sharing in most EU
ECA covered transactions.  EU officials believe that exporters will
make more responsible judgments if they stand to lose money in a bad
deal. 

Finally, trade-offs exist between fiscal discipline and premium
levels charged to exporters and banks.  To reduce the government
costs of its program, the U.K.  has required its ECA to be
self-funding on any new cover business undertaken after 1991.  Since
this requirement went into effect, the U.K.  ECA has charged
relatively high prices for its products, particularly in high-risk
markets.  According to U.K.  exporters, this puts them at a
competitive disadvantage vis-ï¿½-vis the other nations' exporters.  In
contrast, none of the other EU ECAs or the Eximbank are required to
be self-funded.  Despite offering a higher quality product
(unconditional and greater risk coverage), the Eximbank generally
charges lower premiums than those charged by other ECAs (the
exception being premiums charged for medium-term financing to
low-risk countries).\14 (See figs.  1 and 2.)

   Figure 1:  Comparison of
   Eximbank Medium-Term (5-year)
   Premiums to Those of Major
   Competitors, 1994

   (See figure in printed
   edition.)

Note:  Figure based on comparisons of 1994 exposure fees charged by
Eximbank and 7 competitor export credit agencies--Canada, France,
Germany, Italy, Japan, Spain, and the U.K.--in 26 markets. 

Source:  Eximbank. 

   Figure 2:  Comparison of
   Eximbank Long-Term (8.5- Year)
   Premiums to Those of Major
   Competitors, 1994

   (See figure in printed
   edition.)

Note:  Figure based on comparisons of 1994 exposure fees charged by
Eximbank and 7 competitor ECAs--Canada, France, Germany, Italy,
Japan, Spain, and the U.K.--in 26 markets. 

Source:  Eximbank. 


--------------------
\13 See Export-Import Bank of the United States, Report to the U.S. 
Congress on Export Credit Competition and the Export-Import Bank of
the United States (Washington, D.C.:  Eximbank, July 1994).  Congress
mandates the Eximbank to conduct an annual survey of the exporters
and commercial lending institutions that use the Eximbank's programs. 

\14 In August 1994, Eximbank raised its fees for cover in medium- and
high-risk markets for transactions with repayment terms greater than
5 years.  Most 1994 financing was completed under the former fee
schedule.  In September 1995, Eximbank officials said additional fee
increases were being considered. 


   INTERNATIONAL EFFORTS TO LIMIT
   GOVERNMENT SUPPORT FOR EXPORT
   FINANCING CONTINUE
------------------------------------------------------------ Letter :7

Since the late 1970s, the United States and other countries have
sought to limit government support for export financing, particularly
through OECD.  Since 1978, OECD countries, including the United
States and the five EU member states, have agreed to abide by the
rules of the OECD Arrangement on Guidelines for Officially Supported
Export Credits.  This voluntary agreement, also referred to as the
"OECD Consensus" or "Arrangement," established terms and conditions
under which governments could support export credits with repayment
terms of 2 years or more.  The OECD Consensus terms and conditions
include minimum downpayments, interest rates, credit terms, and
maximum repayment periods. 

Since the OECD Consensus was first established, the United States and
other OECD countries have agreed on a series of measures to
strengthen the agreement.  In their most recent agreement in 1994,
OECD countries agreed to phase in the use of market-based interest
rates over the next 2 years on all official financing supported by
way of direct credit, refinancing, or interest rate subsidy. 

Previously, participants were allowed to use below-market rates
established by the agreement in specified markets. 

Participants also agreed to discuss expanding the guidelines to
include (1) the premiums charged on government-supported export cover
and (2) agricultural products.  The OECD Consensus does not currently
apply either to the premiums charged for export cover or to
agricultural products. 

The EU has renewed previous efforts to harmonize export credit
insurance and loan guarantee programs among its member states.  After
relatively unsuccessful attempts to achieve such harmonization in the
1970s, the EU proposed legislation in July 1994 that would harmonize
officially supported medium- and long-term export credit insurance
systems among its member states.  The proposed legislation is still
under review within the EU and among the member states.  The EU is
also considering a proposal that would prevent member states from
subsidizing export credit insurance or loan guarantees for certain
short-term risks that the private sector can cover. 

Finally, the Berne Union serves as an international forum for export
insurers from 34 countries to exchange views and information on their
export credit programs.  Members of the Berne Union, which include
the Eximbank and the ECAs of the five EU countries, have also agreed
to a "General Understanding" and other agreements.  The General
Understanding governs terms on downpayments, starting points for
credit terms, and repayment schedules on certain export transactions. 
Berne Union members who deviate from agreements are obliged to inform
other members of such intentions and allow them to match the
differing conditions.  Although the Berne Union's agreements are
voluntary, Berne Union officials believe that pressures from other
members encourage ECAs to abide by these agreements. 


   AGENCY COMMENTS
------------------------------------------------------------ Letter :8

We requested comments on a draft of this report from the Secretary of
the Treasury and the President of the Eximbank, or their designees. 
On August 29, 1995, we obtained oral comments from U.S.  Department
of the Treasury officials, including the Director, Office of Trade
Finance; on September 7, 1995, we obtained oral comments from
Eximbank officials, including the Vice President, Policy and
Planning; and on September 8, 1995, we obtained oral comments from
OPIC officials, including the Vice President for Finance.  These
officials generally agreed with the information presented in the
draft report.  In addition, they provided some technical comments,
which we incorporated in the report where appropriate.  We also
discussed country-specific information with representatives of ECAs
in France, Germany, Italy, the Netherlands, and the U.K.  and with
officials from OECD, the EU, and the Berne Union.  The officials
agreed with our characterization of their countries' programs.  We
incorporated their suggested technical changes in the report where
appropriate. 


---------------------------------------------------------- Letter :8.1

We are sending copies of this report to the President of the Eximbank
and the Secretary of the Treasury.  We will also make copies
available to other interested parties upon request. 

If you have any questions concerning this report, please contact me
at (202) 512-4812.  Major contributors to this report are listed in
appendix III. 

Sincerely yours,

Allan I.  Mendelowitz, Managing Director
International Trade, Finance,
 and Competitiveness Issues


SIX NATIONS' GOVERNMENT-SUPPORTED
EXPORT-FINANCING PROGRAMS
=========================================================== Appendix I

The United States and the five European Union (EU) member states we
reviewed--France, Germany, Italy, the Netherlands, and the United
Kingdom (U.K.) use different organizational approaches in providing
export-financing assistance.  But these countries generally offer
similar types of assistance.  Although the costs of these programs
vary, all the export credit agencies (ECA) we reviewed have sustained
large net cash deficits on these programs. 


   THE UNITED STATES
--------------------------------------------------------- Appendix I:1


      BACKGROUND
------------------------------------------------------- Appendix I:1.1

The U.S.  economy is the largest in the world, with a population of
about 258.2 million and a gross domestic product (GDP) of $6,245.4
billion in 1993.  In 1993, the United States exported $464.8 billion
of products, about 7.4 percent of GDP.  Compared to the five EU
competitors we reviewed, U.S.  exports constitute a lower percentage
of GDP. 


      FINANCING ORGANIZATIONS
------------------------------------------------------- Appendix I:1.2

The Export-Import Bank of the United States (Eximbank) is an
independent U.S.  government agency responsible for assisting U.S. 
exporters.  Created in 1934, the Eximbank is to offer terms
competitive with those of other governments' export-financing
agencies and absorb risks that the private sector is reluctant to
cover.  For the Eximbank to continue operating as an independent U.S. 
corporate agency, Congress must periodically reauthorize it.  Its
current authorization extends through September 30, 1997. 

The Private Export Funding Corporation (PEFCO), a corporation founded
in 1970, is an additional source of financing for U.S.  exporters. 
PEFCO's stock is owned by 35 commercial banks, 7 industrial
companies, and 3 financial services companies.  It serves as a
supplemental source of medium- and long-term loans to foreign
purchasers of U.S.  goods and services.  The Eximbank unconditionally
guarantees all PEFCO loans and maintains a measure of control over
PEFCO's loan commitments as well as its borrowings.  Since it began,
PEFCO has made export loan commitments in excess of $8 billion,
mostly to borrowers in developing countries.  These loans have
supported a wide variety of capital goods and projects, including
aircraft, power generation plants and equipment, mining projects, and
industrial and municipal facilities.  In 1994, PEFCO made $395
million in new loan commitments. 

OPIC is a self-sustaining U.S.  government agency that encourages
U.S.  private investment in developing countries and emerging market
economies.  OPIC is an investment insurer and not an export credit
agency.  OPIC primarily offers the following types of services: 
overseas investment insurance; investment guarantees; direct loans;
and preinvestment support services, such as trade missions and
business outreach.  Like the Eximbank, some of OPIC's activities are
subject to the Federal Credit Reform Act of 1990.  During 1994, OPIC
received $84.6 million in appropriations to cover the net present
value of the anticipated long-term cost to the government of its
direct and guaranteed loans as well as the administrative costs
related to its credit program.  In 1992 and 1993, it received an
appropriation for credit and related administrative costs of $17.1
million and $17.9 million, respectively.  According to OPIC
officials, these funds were returned to the U.S.  Treasury because of
OPIC's self-sustaining status. 


      EXPORT-FINANCING PROGRAMS
------------------------------------------------------- Appendix I:1.3

In 1994, the Eximbank authorized about $14.9 billion in loans, loan
guarantees, and insurance for U.S.  exports, slightly less than
1993's record authorizations of $15.1 billion (see table I.1).  Loan
guarantees and insurance are the main programs the Eximbank uses to
help U.S.  exporters. 



                               Table I.1
                
                The Eximbank's Financing Authorizations,
                          Fiscal Years 1992-94

                         (Dollars in billions)

Eximbank program                      1992          1993          1994
----------------------------  ------------  ------------  ------------
Loans                               $0.816        $1.748        $3.016
Loan guarantees                      7.301         9.094         7.609
Insurance                            4.220         4.229         4.261
======================================================================
Total                              $12.337       $15.071       $14.886
----------------------------------------------------------------------
Source:  Eximbank. 

The Eximbank offers a wide range of financing services: 

  direct and intermediary loans to foreign buyers of U.S.  exports,
     helping U.S.  exporters match officially supported foreign
     competition;

  guarantees to commercial lenders, providing repayment protection
     for loans to foreign buyers of U.S.  exports;

  working capital guarantees, encouraging commercial lenders to make
     loans to companies that have exporting potential but need funds
     to produce or market goods or services to export; and

  export credit insurance to exporters protecting them against the
     failure of foreign buyers to pay their credit obligations. 

Although loan guarantees and insurance both reduce the risks of
exporting by providing protection against various political and
commercial risks, the Eximbank's loan guarantees unconditionally
cover a loan's principal and interest against the political and
commercial risks of nonpayment.  Insurance coverage is more
conditional in that the policy insures against specific risks under
specified conditions.  The Eximbank provided 100-percent risk
protection on all of the medium- and long-term guarantees that it
issued between 1992 and 1994.  These guarantees comprised 95 percent
and 92 percent of the Eximbank's total medium- and long-term
authorizations in 1993 and 1994, respectively. 


         PROJECT FINANCING
----------------------------------------------------- Appendix I:1.3.1

In response to the growing world demand for project finance support
services, the Eximbank created a new Project Finance Division in
1994.  In a project finance transaction, the Eximbank relies on the
revenue stream of the project itself and not on the guarantee of the
host government for repayment.  To bolster its expertise in project
finance, the Eximbank hired two private- sector specialists to lead
the new division.  In addition, the division includes three loan
officers with project finance experience. 

In late 1994, the project finance division had reviewed 10 requests
for funding, totaling $3.5 billion in financing.  For this type of
financing, the Eximbank will cover U.S.  exports plus up to 15
percent of a project's local costs\1 as well as interest charges
accrued during the construction phase.  The Eximbank also has no
minimum or maximum requirements for project size, which enables it to
support both small and large infrastructure projects. 


--------------------
\1 Local costs are the expenses incurred for goods or services
purchased from suppliers in the buyer's country. 


         PROGRAM EMPHASIS
----------------------------------------------------- Appendix I:1.3.2

In 1994, Latin America continued to be the Eximbank's largest market. 
The Eximbank supported $5.2 billion in financing authorizations to
that region in 1994, about equal to the prior year's total.  In 1994,
the Eximbank supported $4.6 billion in authorizations to Asia, an
increase of 15 percent over 1993.  This expanded activity reflected
the dynamic growth of many Asian markets and the increasing success
of U.S.  exporters in that market. 

By country, the Eximbank's largest customers in fiscal year 1994 were
Brazil, with $1.8 billion in authorizations; Mexico, with $1.4
billion; Russia, with $1.3 billion; and China, with $1.1 billion. 
Mexico is the Eximbank's largest customer, with $6.4 billion of
outstanding loans, guarantees, and insurance as of September 1994. 
The Eximbank signed an Oil and Gas Framework Agreement with Russia in
July 1993 that would enable it to support $2 billion or more in
financing for rehabilitating Russia's energy sector.  The agreement
should provide sales opportunities for U.S.  exporters of oil and gas
production equipment to Russia's energy sector. 

Recent legislation (Public Law 103-428, Oct.  31, 1994) allows the
Eximbank to provide financing on its own initiative, subject to
certain conditions, for the export of nonlethal defense articles and
services when the primary end use will be for civilian purposes.  For
example, the Eximbank can now finance radars for air traffic control
systems. 


         SMALL- AND MEDIUM-SIZED
         ENTERPRISES (SME)
         FINANCING
----------------------------------------------------- Appendix I:1.3.3

The Eximbank's legislation requires it to make at least 10 percent of
its aggregate budget authority available to finance small business
exports.\2 In fiscal year 1994, the Eximbank supported $1.7 billion
in small business authorizations--about 11.4 percent of its total
program authorizations.\3


--------------------
\2 A "small business" is defined as a sole proprietorship,
partnership, or corporation that meets the U.S.  Small Business
Administration's definition of small business.  "Small" relates to
total sales volume or number of employees, depending on the company's
Standard Industrial Classification code. 

\3 The Eximbank's small business activity reported in fiscal year
1993 and after excludes the indirect support included in reports for
earlier years. 


         RISK ASSESSMENT AND
         PRICING
----------------------------------------------------- Appendix I:1.3.4

The Office of Management and Budget (OMB) serves as Chairman, and the
Eximbank serves as the secretariat of the executive branch's working
group known as the "Interagency Country Risk Assessment System"
(ICRAS).  This working group is charged with assessing the country
risk (the risk that a country will default on its debts) contained in
foreign loans and guarantees.  OMB requires executive branch agencies
to calculate the costs of foreign loans and guarantees using annually
updated ICRAS ratings.  Throughout the life of the loan or guarantee,
OMB guidance requires agencies to make annual reestimates of costs.\4


--------------------
\4 For more information about the executive branch's method for
calculating country risk ratings and cost estimates for foreign loans
and loan guarantees, see our report:  Credit Reform:  U.S.  Needs
Better Method for Estimating Cost of Foreign Loans and Guarantees
(GAO/NSIAD/GGD-95-31, Dec.  19, 1994). 


      PROGRAM BUDGETING AND
      RESULTS
------------------------------------------------------- Appendix I:1.4

The budgeting for the government costs of the Eximbank's programs
reflects significant changes instituted with the passage of the
Federal Credit Reform Act of 1990.  The act required U.S.  agencies,
beginning in fiscal year 1992, to estimate and budget for the
long-term costs of a loan or guarantee in the year the loan or
guarantee is authorized, using present value analysis.\5 The act
changed the budget treatment of credit programs so that their costs
can be compared more accurately with each other and with the costs of
other federal spending. 

Before credit reform, credit programs--like other U.S.  government
programs--were reported in the budget on a cash basis.  This created
a bias in favor of loan guarantees over direct loans.  Loan
guarantees appeared to be free, while direct loans appeared to be
expensive because the budget did not recognize that at least some of
the loan guarantees would default and that some direct loans would be
repaid. 

The Federal Credit Reform Act has significantly changed the manner in
which the Eximbank finances its credit activities.  Under the act,
the President's budget for fiscal year 1992 and after must include
the total estimated cost to the Eximbank, instead of just the cash
flows, of its direct loans, guarantees, and insurance.  Under the
act, the Eximbank may not incur new obligations or commitments unless
Congress specifically appropriates budget authority to cover the
estimated costs of these obligations and commitments in advance. 
Credit reform, in effect, increases congressional involvement in the
Eximbank's decision making process about which countries should
receive export credits.  Congress should now know the estimated costs
involved in potential transactions up front--during the budget
process. 

In fiscal year 1994, the Eximbank received a net appropriation of
$1,749.5 million (see table I.2).  Of this amount, $717.1 million was
used to repay borrowings originated before credit reform was
implemented in October 1991.  The remainder of this appropriation,
$1,032.4 million, was used to cover the estimated subsidy cost of
providing new financing--$987 million--and the associated
administrative costs of providing these programs--$45.4 million. 



                               Table I.2
                
                      The Eximbank's Credit Reform
                  Appropriations, Fiscal Years 1992-94

                         (Dollars in millions)

                                        Fiscal      Fiscal      Fiscal
Eximbank appropriations\a received   year 1992   year 1993   year 1994
----------------------------------  ----------  ----------  ----------
For liquidation of pre-fiscal year
 1992 obligations
                                      $3,294.5      $974.9      $717.1
For credit subsidies and
 related administrative
 costs                                   641.0       802.7     1,032.4
======================================================================
Total received                        $3,935.5    $1,777.6    $1,749.5

Eximbank obligations
----------------------------------------------------------------------
For liquidation of pre-
 fiscal year 1992
 obligations                           3,294.5       974.9       717.1
For credit subsidies and
 related administrative
 costs                                   639.0       681.2       980.7
======================================================================
Total obligations                     $3,933.5    $1,656.1    $1,697.8
Remaining balance\b                          0       121.4        50.3
----------------------------------------------------------------------
\a Appropriations in 1993 and 1994 are net appropriations. 

\b The remaining balance is available for tied aid authorizations
(foreign assistance linked to the purchase of exports from the
country extending the assistance).  This balance does not include
lapsed unobligated balances of $2 million, $.1 million, and $1.4
million for fiscal years 1992-94, respectively. 

Sources:  Eximbank annual reports, 1993 and 1994. 


--------------------
\5 Present value analysis calculates the value today of a future
stream of income or cost. 


   FRANCE
--------------------------------------------------------- Appendix I:2


      BACKGROUND
------------------------------------------------------- Appendix I:2.1

France has the second largest economy within the EU, with a
population of 57.7 million and a GDP of $1,254.4 billion in 1993.\6
In 1993, its merchandise exports totaled about $206.3 billion, or
16.4 percent of GDP; about 60 percent of these exports were sent to
other EU countries. 

France's business environment is fundamentally different from that of
the United States.  Historically, the French have believed that
government must play a major role in the economy.  Consequently,
state-owned enterprises represent a significant portion of French
GDP.  At the beginning of 1993, 70 state-owned enterprises accounted
for approximately 30 percent of French GDP.  However, the French
government plans to privatize many of these companies over the next
several years. 


--------------------
\6 We converted French francs (FF) to dollars using the average 1993
exchange rate of 5.662 FF/$1. 


      FINANCING ORGANIZATIONS
------------------------------------------------------- Appendix I:2.2

According to French government officials, French export credit policy
is jointly formulated within the Ministï¿½re de l'Economie et des
Finances--the Ministry of Economics and Finance--by two separate
entities:  the Directeur des Relations Economiques Extï¿½rieures (the
Directorate for External Economic Relations-- DREE), and the Trï¿½sor
(the Treasury).  The two entities are considered "equal partners"
within the ministry.  DREE is an advocate for French exporters and
actively promotes increased export assistance for French businesses,
while the Treasury tends to be more cautious and sensitive to the
budgetary and financial implications of export credit decisions. 
Ministry export credit policies are implemented through two financial
sector intermediaries, a quasi-public insurance company--the
Compagnie Franï¿½aise d'Assurance pour le Commerce Extï¿½rieur
(COFACE)--and a quasi-private bank--the Banque Franï¿½aise du Commerce
Extï¿½rieur (BFCE). 

COFACE, established in 1946, and BFCE act as France's ECAs.  COFACE
administers and delivers the export credit assistance that is
provided through the French government.  According to COFACE
officials, the French government maintains an indirect equity
interest in COFACE through its shareholdings in the state-owned banks
and insurance companies that are COFACE's major shareholders. 
Although COFACE is gradually being privatized as part of a broader
government strategy to reduce state involvement in the business
sector, the French government estimated that it would control about
one-third of COFACE shares at the end of 1994. 

COFACE exercises a dual role by insuring some risks on its own
account and other risks on behalf of the French government. 
Specifically, COFACE insures (1) short-term commercial risks and
political risks to Organization for Economic Cooperation and
Development (OECD) countries (except Turkey) on its own account and
(2) longer term commercial risks and political risks in non-OECD
countries (and Turkey) on behalf of the French government. 

When insuring on its own account, COFACE is responsible for its
underwriting decisions.  On business run on behalf of the government,
COFACE is guided by the decisions of an interagency governmental
committee, the Commission des Garanties et du Crï¿½dit au Commerce
Extï¿½rieur, that DREE chairs.  The interagency committee is made up of
representatives from the Ministry of Economic Affairs and Finance,
the Ministry of Foreign Affairs, relevant technical ministries, the
Banque de France (French central bank), COFACE, and BFCE.  According
to French government officials, this committee meets every 2 weeks to
review and set cover (insurance and loan guarantee program) policies
for French exporters, particularly for those transactions that are
potentially sensitive--large exposures or exposures to countries with
high levels of risk. 

COFACE has a delivery network of 22 regional offices and 5 overseas
offices.  COFACE officials estimated that about 650 staff handled the
government account business in 1993.  The French government annually
reimburses COFACE for the administrative costs of delivering the
government-backed export credit services.  In 1993, the French
government paid COFACE 473 million FF ($83 million) for providing
these services. 

Government interest rate support is provided through BFCE, a
government-owned bank that performs various public service roles,
including subsidizing interest rates on export credits.  France's
central bank, the Banque de France, holds 11 percent of BFCE's
capital.  Other state-owned or partially state-owned companies hold a
majority of the remaining capital.  According to French government
officials, BFCE's role in the French export credit system has changed
in the last few years.  In 1989, it stopped extending long-term
financing on behalf of the French government, but it is still
involved in providing interest rate subsidies to eligible French
exporters. 


      EXPORT-FINANCING PROGRAMS
------------------------------------------------------- Appendix I:2.3

COFACE offers a wide variety of export credit cover programs that the
French government backs.  This cover is available on loans made by
banks (buyer credits) and loans made by exporters (supplier credits)
to buyers for financing export sales.  COFACE does not offer direct
financing for export credits (e.g., loans). 

Unlike the Eximbank, COFACE generally does not offer 100-percent
coverage of the risks of an export transaction, thus requiring all
policyholders to retain some element of the transaction's risk.  The
maximum cover that COFACE offers ranges between 85 and 95 percent
depending on the type of export loan insured.  For buyer credits,
COFACE covers up to 95 percent of the amount financed by banks for
both political and commercial risks.  For supplier credits, COFACE
covers up to 90 percent of political risks and 85 percent of
commercial risks. 

In addition, COFACE guarantees are more conditional than Eximbank
guarantees and only cover the particular risks that are specified in
the export insurance contracts.  COFACE is only liable for losses
provided that the exporter has complied with all of the relevant
contract provisions and policy conditions.  Thus, little practical
distinction exists between COFACE insurance and guarantees.  In case
of a dispute between the exporter and the buyer, COFACE will not pay
a claim until a final judgment or an arbitration award has been
handed down.  COFACE officials told us that in some cases exporters
must wait several months before claims are paid.  COFACE policy is
that small claims ($3,000 or less) will be paid in 2 months and
others will be paid within 5 months. 

Although direct loans to exporters are not offered in the French
export-financing system, BFCE offers interest rate support for export
credits of 24 months or more to developing countries.  This support
is allowed under the guidelines that OECD members adopted.  COFACE
cover is compulsory for credits financed through BFCE intervention. 

Some programs that COFACE offers--market survey insurance, foreign
exchange risk insurance, and overseas investment insurance--are not
available from the Eximbank. 

  Market survey insurance pays for some of an exporter's costs
     associated with prospecting for foreign sales, including market
     research expenses, advertising, and the costs of adapting
     products to local needs.  A simplified version of this program
     is available for small firms whose overall sales do not exceed
     300 million FF (approximately $60 million).\7

  Foreign exchange risk insurance allows exporters to quote prices
     and sell their products in a number of foreign currencies
     without incurring any of the risks due to the adverse
     fluctuations of the currencies relative to the FF during the
     bidding and negotiation process of a contact. 

  Overseas investment insurance covers the political risks associated
     with investing in foreign countries, including the risks of
     expropriation, war, revolution, changes in local legislation
     dealing with foreign investment, and transfer risks.\8 (This
     type of insurance is available in the United States through
     OPIC.)


--------------------
\7 Using the June 1, 1995, exchange rate of 4.999 FF/$1. 

\8 Transfer risk is the risk that a borrower will not be able to
convert local currency into foreign exchange and so will be unable to
make debt service payments. 


         PROJECT FINANCING
----------------------------------------------------- Appendix I:2.3.1

According to COFACE officials, COFACE reviewed approximately 15
project finance applications during 1994; only 3 of these
applications are likely to be approved.  COFACE has hired a financial
specialist to help complete detailed analysis of expected project
cash flows.  COFACE officials believe this additional in-house
expertise on project finance is necessary to provide greater
assurances that financial projections for private sector undertakings
are complete and accurate. 


         PROGRAM EMPHASIS
----------------------------------------------------- Appendix I:2.3.2

According to French government officials, the French offer liberal
export credit insurance coverage in a number of markets, especially
for countries that have had close, historic ties to France, such as
its former colonies in Africa.  Unlike the U.S.  government, the
French government does not formally target particular regions of the
world for special export promotion and financing assistance.  Most of
France's export-financing assistance is directed toward non-OECD
countries that have had long-standing commercial relationships with
France. 

Current French government budgetary pressures and past losses in the
newly independent states (NIS) of the former Soviet Union (FSU) have
slowed the issuance of additional cover to the NIS.  According to
French government data, industry sectors that are major beneficiaries
of French export credit assistance include large projects, military
goods, aircraft and shipbuilding, and capital goods.\9 In 1992,
support for these sectors represented 35.8, 21.4, 15.4, and 16.3
percent, respectively, of COFACE's total state account activity. 


--------------------
\9 In the United States, export-financing assistance for defense
goods is separately provided through the Department of Defense (DOD). 


         SME FINANCING
----------------------------------------------------- Appendix I:2.3.3

The French government supports small- and medium-sized enterprises
through its export-financing programs.  According to French
officials, "small businesses" are generally defined as companies with
fewer than 500 employees.  Support for small business exporters is
provided through a variety of sources, including simplified COFACE
policies designed for small companies, programs provided through the
Agence Nationale pour la Valorisation de la Rï¿½cherche (ANVAR), and
programs provided by regional councils.  ANVAR promotes and finances
innovations in technology, particularly for small- and medium-sized
businesses.  It provides financial support for research and
development activities, including interest-free loans for market
research overseas and technical development.  If the venture results
in failure, the loan is forgiven up to a prespecified maximum. 


         RISK ASSESSMENT AND
         PRICING
----------------------------------------------------- Appendix I:2.3.4

According to COFACE officials, the rates the French charge for their
export credit insurance are considered moderate relative to the rates
of major ECAs.  Country cover and premium policies are based on a
country risk scheme that separates countries into one of four
separate categories of risk.  These country risk categories are based
on a weighing of a variety of quantitative measures, including debt
payment and financial, economic, and political indicators.  These
data are collected through an overseas network of financial and
commercial attachï¿½s, in-house sources, and outside consultants. 


      PROGRAM BUDGETING AND
      RESULTS
------------------------------------------------------- Appendix I:2.4

Unlike Eximbank requirements under the Federal Credit Reform Act of
1990, the French government's budgeting for the cost of COFACE
operations is performed on a cash basis, according to French
government officials.  Under this approach, the government reimburses
COFACE for the net cash deficits it sustains on its
government-supported operations during the year.  However, the cash
deficit for any 1 year is not indicative of current-year performance
because losses on prior-year loans are included in this total.  And
the government does not require COFACE to estimate separately the
long-run costs of new policies when they are issued or obtain advance
legislative authority to make new obligations.  COFACE's annual
reports provide some information on its activities.  However, since
COFACE operates under French insurance company accounting rules, it
is difficult to assess program results for any given year. 

Some overall program discipline is imposed, however.  To limit its
exposure, the French government sets an overall exposure limit and
individual country ceilings for COFACE annually.  And, as previously
mentioned, an interagency committee meets regularly to discuss and
review new applications for COFACE cover. 

In 1993, the French government reported that it had sustained a net
cash deficit of about 5.750 FF billion ($1.016 billion) on its
export-financing assistance activities--a deficit of 5.250 billion FF
($927 million) on COFACE activities and 0.500 billion FF ($88
million) on BFCE activities.  (See table I.3.) Although sizable, the
amount of the government's losses has declined since 1991.  In 1993,
the French government covered about $35.66 billion of exports through
COFACE programs, about 17.3 percent of total French exports. 



                               Table I.3
                
                 Net Cash Outlays of French Government
                    for Export-financing Assistance
                           Programs, 1991-93

                   (FFs and U.S. dollars in billions)

Export-financing assistance
program                                   1991        1992        1993
----------------------------------  ----------  ----------  ----------
COFACE cover                          9.054 FF    6.430 FF    5.250 FF
                                       $ 1.605      $1.215       $.927
BFCE interest rate subsidies\a        1.111 FF    0.864 FF    0.500 FF
                                         $.197       $.163       $.088
======================================================================
Total\b                              10.165 FF    7.294 FF    5.750 FF
                                        $1.802      $1.378      $1.016
----------------------------------------------------------------------
\a Administered by BFCE on behalf of the French Treasury. 

\b Exchange rates used:  1991, 5.641FF/$1; 1992, 5.294FF/$1; 1993,
5.662FF/$1.  Totals may not add due to rounding. 

Sources:  COFACE annual report 1993; French Treasury information. 


   GERMANY
--------------------------------------------------------- Appendix I:3


      BACKGROUND
------------------------------------------------------- Appendix I:3.1

Germany represents the largest economy in the EU, with a population
of 81.1 million and a GDP of $1,712.9 billion in 1993.  In 1993, its
merchandise exports totaled $365.3 billion, about 21.3 percent of its
GDP. 


      FINANCING ORGANIZATIONS
------------------------------------------------------- Appendix I:3.2

The German government provides export-financing assistance for banks
and exporters through several private and public institutions,
including the Hermes/C&L Treuarbeit consortium (Hermes),
Kreditanstalt fï¿½r Wiederaufbau (KfW), and AKA Ausfuhrkredit
Gesellschaft mbH (AKA). 

Hermes Kreditversicherungs-AG, a private credit insurance company,
and C&L Treuarbeit Deutsche Revision AG, an auditing firm, have
jointly administered the German government's export credit guarantee
and insurance program since 1948.  Hermes plays the leading role in
the consortium.  In addition to operating the government's export
credit insurance and loan guarantee program under their consortium,
the two companies also operate their own private businesses.  An
interministerial committee, with representatives from the German
Ministries of Economics, Finance, Foreign Affairs, and Economic
Cooperation and Development functions as the central decisionmaking
body for the Hermes program.  However, it generally allows Hermes to
approve cover for export transactions with values of up to German
marks (DM) 5 million ($3.5 million)\10 or up to DM 2.5 million ($1.8
million) for transactions with relatively higher risks. 

KfW is a government-owned bank that supports the objectives of the
German government's economic policy.\11 Although it receives some
funds from the German central government, KfW raises most of its own
funds from the capital markets.  KfW functions as the German
government's development bank, providing support for both the
domestic German economy and the economies of developing countries. 
Since German reunification, KfW has targeted much of its assistance
to new German states in the former East Germany.  KfW is supervised
by the German Ministry of Finance and a board of supervisory
directors with representatives from other federal government
ministries, the German state governments, private industry, trade
unions, and other institutions. 

AKA, established in 1952, is a private consortium of 43 German banks
whose goal is to provide commercial export financing.  As a private
bank, AKA is subject to routine government supervision under
Germany's banking law.  Most of AKA's loans, which include both buyer
and supplier credits, do not receive official support.  However, one
of AKA's four loan facilities (Plafond B) allows AKA to refinance
supplier credits through Germany's central bank (the Deutsche
Bundesbank).  In March 1995, the Deutsche Bundesbank decided to
reduce this support in 1995 and eliminate it entirely by June 1996. 


--------------------
\10 DM values for 1993, 1992, and 1991 operations were converted into
dollars using the respective average exchange rates of DM1.653,
DM1.562, and DM1.659 = $1.  All other DM values were converted into
dollars at the June 1, 1995, exchange rate of DM1.423 = $1. 

\11 KfW is 80-percent owned by the German federal government and
20-percent owned by the German state governments. 


      EXPORT-FINANCING PROGRAMS
------------------------------------------------------- Appendix I:3.3

The German government provides export-financing assistance through
export credit cover for banks and exporters and through direct export
loans, special types of cover, and interest rate support. 


         EXPORT CREDIT INSURANCE
----------------------------------------------------- Appendix I:3.3.1

Hermes offers insurance to German exporters who extend loans to their
foreign buyers.  Policies can cover a single short-, medium-, or
long-term export transaction, multiple short-term transactions
involving the same foreign buyer over a 1-year period (revolving
cover), or an exporter's entire short-term business with several
foreign buyers over a maximum 2-year period (comprehensive cover). 
Hermes insurance generally covers both political and commercial risks
simultaneously.  However, Hermes may cover political risks only on
some policies on a case-by-case basis.  Exporters must bear some of
the risks, since Hermes' cover is limited to 90 percent of political
risks and 85 percent of commercial risks. 

Hermes offers exporters policies against risks both before and after
goods are shipped or services are rendered.  Terms of cover vary
depending on whether the foreign buyer is a public or private entity. 
Hermes' export credit insurance policies are conditional, in that
exporters must prove that all terms of the original policy that
Hermes issued were fulfilled.  In addition to covering goods and
services, Hermes' policies may also cover leasing contracts and
overseas construction works. 


         EXPORT LOAN GUARANTEES
----------------------------------------------------- Appendix I:3.3.2

Hermes offers export loan guarantees to banks that extend buyer
credits to foreign buyers of German exports.  Hermes covers up to 95
percent of the amount that banks finance for both political and
commercial risks.  However, banks must bear the remaining 5 percent
of the loan without recourse to the exporter.  Hermes' guarantees to
banks are conditional.  When claims are filed, banks must prove that
all terms of the original Hermes-guaranteed policy were fulfilled. 


         OTHER TYPES OF
         GUARANTEES/INSURANCE
----------------------------------------------------- Appendix I:3.3.3

The German government offers overseas investment insurance through a
separate program of the Hermes/C&L Treuarbeit consortium, for which
Treuarbeit plays the leading role.  The program provides cover up to
95 percent of investments abroad for political risks such as
nationalization, expropriation, war, rebellion, and currency
conversion. 


         EXPORT LOANS
----------------------------------------------------- Appendix I:3.3.4

Export loans are available to German exporters from KfW, AKA, and
other banks.  However, only some of KfW's and AKA's export loans
receive government support. 

Under one of its export-financing programs, KfW offers long-term
loans of at least 4 years for the export of German capital goods and
services, using its own funds and European Recovery Program (ERP)\12
funds from the German government.  KfW must abide by OECD's interest
rate guidelines when extending these loans.  KfW may provide export
loans using these funds of up to DM170 million ($119 million) but
requires that the financing be covered by Hermes.  Only exports to
developing countries, as OECD defines them, are eligible for loans
under ERP. 


--------------------
\12 KfW was originally founded in 1948 to administer U.S.  Marshall
Plan funds through ERP in order to finance reconstruction projects in
Germany. 


         INTEREST RATE SUPPORT
----------------------------------------------------- Appendix I:3.3.5

The German government provides interest rate support for AKA's
Plafond B supplier credits\13 through the Deutsche Bundesbank.  AKA
provides these loans at an interest rate of 0.75 percent above the
Deutsche Bundesbank's official discount rate.\14 AKA may then
refinance the loans through the Deutsche Bundesbank at the official
discount rate.  Exporters must self-finance 30 percent of an export
contract's value to be eligible for Plafond B loans.  Furthermore,
according to AKA officials, AKA member banks generally may only use
Plafond B loans to refinance up to 55 percent of an export contract's
value. 

AKA loans extended through Plafond B are limited to a ceiling of
DM2.25 billion ($1.58 billion), about 9 percent of AKA's overall
lending ceiling, and are available for export transactions with
combined production and credit periods of between 1 and 4 years.  In
March 1995, the Deutsche Bundesbank decided to reduce the overall
Plafond B ceiling to DM1.25 billion ($878 million) as of June 1,
1995, and to eliminate the facility entirely as of June 1, 1996. 

AKA loans involving Plafond B funds with credit periods of at least 2
years are subject to OECD minimum interest rates and generally
require Hermes cover.  If the effective interest rate on such loans
falls below the applicable OECD minimum interest rate, the exporter
must pay additional interest to the Carl Duisberg Gesellschaft, e.V.,
a German nonprofit institution for international training and
personnel development. 


--------------------
\13 For these loans, AKA member banks discount exporters' DM
promissory notes (written promises from exporters' customers to pay
exporters within specified time frames). 

\14 The "discount rate" is the interest rate that a central bank
charges member banks for loans.  The discount rate represents a floor
on interest rates in a particular country, since banks generally set
interest rates on the loans that they extend at levels above the
discount rate. 


         PROJECT FINANCING
----------------------------------------------------- Appendix I:3.3.6

Hermes has a small group of staff dedicated to examining applications
for export credit cover for project financing.  Treuarbeit staff
typically evaluate project feasibility studies for such applications. 
According to KfW officials, KfW has not established a separate
organizational unit to handle project financing. 


         PROGRAM EMPHASIS
----------------------------------------------------- Appendix I:3.3.7

The government-supported export-financing assistance programs
administered by Hermes, KfW, and AKA are generally available for all
types of exports.  However, most exports assisted through these
programs involve high-value capital goods and services.  In addition,
since German reunification, the programs have focused on assisting
exporters in the former East Germany. 

Hermes covered a wide range of exports in 1993, particularly
production facilities, machinery, ships, electronics, aircraft, and
automobiles.  According to Hermes officials, less than 1 percent of
Hermes' policies covered defense-related exports in 1993, which were
generally restricted to countries that belong to the North Atlantic
Treaty Organization (NATO).  By the end of 1993, 65.5 percent of
Hermes' cover involved exports to developing countries and members of
the Organization of Petroleum Exporting Countries, while Central and
East European countries accounted for 24 percent of the total. 

KfW/ERP loans are available for exports of capital goods and related
services to developing countries.  In 1993, most KfW loans involved
exports in the mechanical engineering, vehicle construction,
electrical engineering, and telecommunications industries. 


         SME FINANCING
----------------------------------------------------- Appendix I:3.3.8

The German government does not specifically target SMEs under its
export-financing assistance programs.  Nevertheless, SMEs can access
these programs, as well as other types of financial support, from
both the public and private sector.  For example, under its private
business, Hermes offers a commercial insurance policy to SMEs with
annual sales up to DM4 million ($2.8 million).  This policy protects
SMEs from customers who do not pay their debts. 

Many of KfW's efforts to promote the domestic German economy also
involve programs for SMEs.  Using funds from its own resources and
the German government, KfW makes loans available to SMEs and
investors in SMEs for business modernization, expansion, equipment,
research and development, and overseas projects.  Recently, much of
this assistance has gone to support SMEs in eastern Germany with
traditional markets in Central and Eastern Europe and the FSU.  In
addition, German SMEs have traditionally received considerable
support for export promotion from local chambers of commerce. 


         RISK ASSESSMENT AND
         PRICING
----------------------------------------------------- Appendix I:3.3.9

Hermes charges premiums for export credit guarantees and insurance on
the basis of country risks.  The German government classifies each
export market into one of five country risk categories.  (Before July
1994, premiums for Hermes cover did not vary by country risk.  The
German government introduced the five-category system in anticipation
of EU harmonization in this area.) In addition, premium levels vary
depending on the status of the buyer (public or private) and the type
of policy involved (comprehensive or single transactions).  KfW/ERP
loans and AKA loans of at least 2 years that involve Plafond B funds
are subject to minimum OECD interest rates and payment terms. 


      PROGRAM BUDGETING AND
      RESULTS
------------------------------------------------------- Appendix I:3.4

The German government funds the Hermes cover program on a cash basis. 
The German government reimburses the consortium for the program's
operational and administrative costs and pays it a fee for running
the program.  The German government does not require Hermes to
estimate or set aside funds for the long-term costs of new policies
before it issues them.  In 1993, the Hermes program resulted in a net
cash deficit for the German government of DM5.104 billion ($3.088
billion).  (See table I.4.) Hermes attributed much of this deficit to
loan defaults from FSU countries. 



                               Table I.4
                
                 Net Cash Outlays of German Government
                    for Export-Financing Assistance
                           Programs, 1991-93

                (German DM and U.S. dollars in millions)

Export-financing assistance
program                                   1991        1992        1993
----------------------------------  ----------  ----------  ----------
Hermes/Treuarbeit                      DM1,916     DM2,309     DM5,104
 cover\a                                $1,155      $1,478      $3,088
KfW/ERP loans                               NA          NA          NA
Deutsche Bundesbank                         NA          NA          NA
 refinancing of AKA
 Plafond B loans
----------------------------------------------------------------------
Legend

NA = not available

\a Does not include figures for overseas investment insurance.  These
figures were not available. 

Source:  Hermes/Treuarbeit. 

Each year, the German government establishes a limit on the overall
amount of cover that Hermes can offer.  It also sets country-specific
limits for certain markets considered to have higher risks, such as
FSU countries.  For 1993, the government established an overall
exposure limit of DM180 billion ($109 billion) for the Hermes
program.  By the end of 1993, the cumulative exposure of the German
government under the Hermes program reached DM166.7 billion ($100.8
billion).  During that same year, the Hermes program covered new
export transactions worth DM33.7 billion ($20.4 billion), about 5.6
percent of total German exports. 

The German government supports KfW/ERP export loans through an annual
appropriation from the German federal budget.  The German government
does not require KfW to estimate the long-term costs of new KfW/ERP
loans before the bank extends them.  However, the German government
expects KfW to reimburse these funds as the loans amortize.  When
extending these loans, KfW combines the government's ERP funds with
funds it raises in capital markets in a ratio of 1 to 3 (or more). 
In 1993, KFW extended new KfW/ERP loans of about DM486 million ($294
million). 

The German government provides interest rate support for AKA's
Plafond B supplier credits through a refinancing facility of the
Deutsche Bundesbank.  In 1993, AKA approved 326 new Plafond B loans
totaling DM1.453 billion ($879 million), about 16 percent of the
value of all new loans that AKA extended that year.  As of the end of
1993, Plafond B loans represented about 5 percent of AKA's
outstanding loans. 


   ITALY
--------------------------------------------------------- Appendix I:4


      BACKGROUND
------------------------------------------------------- Appendix I:4.1

Italy represents the third largest economy in the EU, with a
population of 58 million and a GDP of $999.7 billion in 1993. 
Italian exports, totaling about $168.5 billion, represented about
16.9 percent of Italian GDP in 1993. 


      FINANCING ORGANIZATIONS
------------------------------------------------------- Appendix I:4.2

Italy offers government export-financing assistance through the
Sezione Speciale per l'Assicurazione del Credito all'Esportazione
(SACE, the Special Section for Export Credit Insurance) and the
Istituto Centrale per il Credito a Medio Termine (Mediocredito
Centrale, the Central Institute for Medium-Term Credits).  Italy
established its current export credit system in 1977 by creating SACE
and specifying new functions and responsibilities for Mediocredito
Centrale. 

The Comitato Interministeriale per la Programmazione Economica (the
Interministerial Committee for Economic Planning) coordinates the
Italian government's policies on export credit support programs
administered through SACE and Mediocredito Centrale.  According to
Italian officials, the Interministerial Committee consists of
representatives from the Ministries of Budget and Economic Planning,
Foreign Affairs, the Treasury, Agriculture and Forestry, Industry and
Commerce, and Foreign Trade. 

SACE provides export credit insurance, loan guarantees, and
reinsurance that the Italian government ultimately backs.  SACE is a
public institution and operates as an autonomous section of the
state-owned insurance group Istituto Nazionale delle Assicurazioni
(INA, the National Insurance Institute).  SACE maintains budgetary,
financial, and management autonomy from INA.  Although INA is
currently undergoing privatization and restructuring, SACE officials
indicated that SACE would continue to be a public institution. 

SACE is supervised by the Italian Treasury and governed by a
management board comprising seven representatives from various
government ministries, INA, and Mediocredito Centrale.  The board
decides on major policies and authorizes insurance transactions for
SACE.  However, the board delegates responsibility for authorizing
cover worth less than Italian lira (L) 5 billion ($3 million)\15 to
the Director of SACE.  In addition, the Treasury must approve cover
for all credit terms exceeding 5 years. 

Mediocredito Centrale is a public financial institution that provides
loans and interest rate subsidies to Italian businesses for both
domestic and overseas operations.  Established in 1952, Mediocredito
Centrale administers several programs and funds on behalf of the
Italian government, including aid to developing countries, loans and
grants to SMEs, and interest rate subsidies on export credits. 
However, Mediocredito Centrale also functions as a commercial bank,
extending direct loans (including export loans) from its own
resources and activities without government support.  In 1994,
Mediocredito Centrale became a joint stock company but will remain
state-owned and state-controlled. 

Mediocredito Centrale is overseen by a general council and a board of
directors, whose members are appointed by the Italian government.  As
an Italian credit institution, Mediocredito Centrale is subject to
bank supervision by the Bank of Italy. 


--------------------
\15 Italian lira values for 1993, 1992, and 1991 operations were
converted into dollars using the respective average exchange rates of
L1,572.0, L1,232.0, and L1,245.4 = $1.  All other lira values were
converted into dollars at the June 1, 1995, exchange rate of L1,649.0
= $1. 


      EXPORT-FINANCING PROGRAMS
------------------------------------------------------- Appendix I:4.3

The Italian government provides export-financing assistance through
export credit cover for banks and exporters and interest rate support
for commercial export credits. 


         EXPORT CREDIT INSURANCE
----------------------------------------------------- Appendix I:4.3.1

SACE insures political and commercial risks for short-, medium-, and
long-term export loans.  SACE cover is available for loans made by
banks (buyer credits) and loans made by exporters (supplier credits)
for financing Italian exports.  For medium- and long-term loans, SACE
offers individual policies covering political risks up to 90 percent
of supplier credits and 95 percent of buyer credits.  Comprehensive
policies are available for covering an exporter's entire short-term
business.  The level of SACE cover for political and commercial risks
varies on a case-by-case basis.  However, the level of cover for
commercial risks may not exceed that offered for political risks. 


         EXPORT CREDIT GUARANTEES
----------------------------------------------------- Appendix I:4.3.2

SACE guarantees short-, medium-, and long-term political and
commercial risks for Italian and foreign banks providing export loans
and lines of credit.  SACE may cover up to 95 percent of the amount
financed. 


         OTHER TYPES OF
         GUARANTEES/INSURANCE
----------------------------------------------------- Appendix I:4.3.3

SACE also offers export credit insurance policies for risks
associated with fluctuations in currency exchange rates, bond
payments, overseas investments, market surveys, and public works
contracts.  In addition, SACE reinsures all short-term export credit
guarantees issued by two commercial credit insurers in Italy (Societï¿½
Italiana Assicurazione Crediti and, according to Italian officials,
Viscontea), except for those policies involving markets in which SACE
does not offer cover.  The reinsurance policies cover up to 95
percent of political and 30 percent of commercial risks, subject to
an annual ceiling of L4.5 trillion ($2.77 billion).  According to
Italian officials, one of the advantages of these reinsurance
arrangements is to allow the commercial insurers to benefit from
SACE's statutory exemption from Italian taxes on insurance premiums. 


         EXPORT LOANS
----------------------------------------------------- Appendix I:4.3.4

The Italian government does not offer export loans directly.  Medium-
and long-term export loans (over 18 months) are available from
specialized financial institutions and certain large commercial banks
in Italy and abroad.  Such credits are eligible for interest rate
subsidies from Mediocredito Centrale.  Short-term loans are available
from commercial banks without Mediocredito Centrale support.  For
certain markets, according to Italian officials, forfaiting\16 is
important for Italian exporters to finance their exports.  Forfaiting
transactions are eligible for Mediocredito Centrale subsidies as
well. 


--------------------
\16 Forfaiting is a method of trade finance whereby an exporter sells
a receivable to a purchaser ("forfaiter") at a discount for cash. 
The forfaiter has no recourse to the exporter if the original party
to the transaction defaults. 


         INTEREST RATE SUPPORT
----------------------------------------------------- Appendix I:4.3.5

Mediocredito Centrale subsidizes interest rates on medium- and
long-term export loans on behalf of the Italian government.  Under
this program, Mediocredito Centrale can subsidize buyer and supplier
credits with a minimum maturity of 18 months.  However, those credits
with a maturity of at least 2 years are subject to the minimum
interest rates specified in the OECD Consensus.  Eligible export
credits may be denominated in lira or foreign currencies and issued
by Italian or foreign banks.  SACE cover is not required for
obtaining Mediocredito Centrale's interest rate subsidy.  However,
according to Italian officials, most transactions that benefit from
Mediocredito Centrale's interest rate support also receive SACE
cover. 


         PROJECT FINANCING
----------------------------------------------------- Appendix I:4.3.6

SACE has recently established a separate group to review requests for
SACE assistance with project financing.  According to SACE officials,
SACE has assisted in about 10 project finance deals and several other
similar limited recourse arrangements since 1988.  Mediocredito
Centrale has begun to develop expertise in reviewing and arranging
financing operations for proposed projects. 


         PROGRAM EMPHASIS
----------------------------------------------------- Appendix I:4.3.7

In 1993, SACE insured new export transactions worth L8.889 trillion
($5.655 billion), about 3.4 percent of total Italian exports. 

By the end of 1993, 93.1 percent of the cumulative exposure of the
Italian government under the SACE program was concentrated in
nonindustrialized countries.  According to SACE officials, SACE is
most heavily exposed to the possibility of loan defaults by Algeria,
Russia, and Iran. 

For new transactions approved in 1993, Mediocredito Centrale's
interest rate subsidies for export credits were geographically
distributed (in terms of the value of the underlying credits) among
developing countries (66 percent), non-EU industrialized countries
(16 percent), East European countries (16 percent), and EU countries
(2 percent). 


         SME FINANCING
----------------------------------------------------- Appendix I:4.3.8

SACE has no special programs for SMEs.  However, according to Italian
government and industry officials, SMEs constitute a significant
proportion of Italian exporters and are major SACE customers. 
Mediocredito Centrale also does not have a special scheme for
promoting SMEs within its interest rate subsidy program for export
credits.  However, Mediocredito Centrale provides financing and
refinancing support to SMEs for various activities.  Such loans are
available for SMEs to finance their acquisition of equipment and
transportation of goods in a variety of industries. 


         RISK ASSESSMENT AND
         PRICING
----------------------------------------------------- Appendix I:4.3.9

SACE's policy is to assess premiums based on the country risk
associated with a particular market, the type of risk covered, the
length of the credit term, and the existence of bank guarantees. 
SACE classifies markets into six country risk categories. 


      PROGRAM BUDGETING AND
      RESULTS
------------------------------------------------------- Appendix I:4.4

SACE operates within statutory limits set annually by the Italian
government and Parliament.  For short-term cover (credits of up to 2
years), SACE operated within a statutory ceiling of L18 trillion
($11.5 billion) in 1993.  For medium- and long-term cover (credits
over 2 years), the Italian government establishes an annual ceiling
on new commitments for SACE in the budget, which was set at L12
trillion ($7.6 billion) for 1993.  SACE also establishes exposure
ceilings for individual countries. 

In principle, SACE is expected to fund itself primarily from its
operating income and an endowment fund financed by the Italian
government.  In practice, however, SACE has been operating at a net
cash deficit that the Italian government has funded.  In 1993, SACE
insured L8.889 trillion ($5.655 billion) worth of new exports, about
3.4 percent of total exports.  During the same year, SACE operated at
a net cash deficit of L1.661 trillion ($1.057 billion).  (See table
I.5.)



                               Table I.5
                
                 Net Cash Outlays of Italian Government
                    for Export-Financing Assistance
                           Programs, 1991-93

                   (Italian lira and U.S. dollars in
                               millions)

Program                             1991           1992           1993
-------------------------  -------------  -------------  -------------
SACE insurance and            L1,458,877     L1,451,452     L1,661,406
 guarantees                       $1,171         $1,178         $1,057
Mediocredito
 Centrale
 interest rate
 subsidies for                  L369,767       L370,971       L435,394
 export loans                       $297           $301           $277
======================================================================
Total                         L1,828,644     L1,822,423     L2,096,800
                                  $1,468         $1,479         $1,334
----------------------------------------------------------------------
Sources:  SACE and Mediocredito Centrale. 

SACE does not publicly disclose the estimated long-term liabilities
and assets of its portfolio, such as expected losses and recoveries,
on an accrual basis.  However, according to Italian officials, it
annually estimates its expected cash needs for the Italian
government.  SACE's total commitments outstanding as of the end of
1993 amounted to L45.818 trillion ($29.146 billion). 

Mediocredito Centrale receives funds from the Treasury to provide
interest subsidies on export loans on behalf of the government.  To
finance its other commercial and public-oriented activities,
Mediocredito Centrale borrows from Italian and foreign banks and uses
its state-financed endowment fund.  In 1993, the government provided
L435,394 million ($277 million) to fund Mediocredito Centrale's
interest rate subsidies for export loans. 


   THE NETHERLANDS
--------------------------------------------------------- Appendix I:5


      BACKGROUND
------------------------------------------------------- Appendix I:5.1

The Netherlands, the sixth largest economy within the EU, with a
population of about 15 million, is heavily dependent on foreign
trade.  In 1993, merchandise exports were $139.1 billion, or 45
percent of the Netherlands' GDP of $309.4 billion; about 74 percent
of these exports were sent to other EU countries. 


      FINANCING ORGANIZATIONS
------------------------------------------------------- Appendix I:5.2

Nederlandsche Credietverzekering Maatschappij N.V.  (NCM) delivers
export-financing assistance to Dutch banks and exporters on behalf of
the Dutch government.  NCM is a subsidiary of NCM Holding N.V., which
is owned by major Dutch banks and insurance companies as well as
several foreign insurance companies.  NCM's holdings include the
Insurance Services Group, the short-term credit insurance arm of the
U.K.'s Export Credits Guarantee Department (ECGD), which was acquired
in 1991. 

NCM was founded in 1925.  A 1932 agreement with the Dutch government
established a reinsurance arrangement between NCM and the Dutch
government.  Under this agreement, NCM is to insure the commercial
risks of Dutch exporters on its own account and reinsure
noncommercial risks with the Dutch government.\17 NCM handles all
activities related to government-supported export credit insurance
transactions, including processing applications and paying claims. 
Thus, under the Dutch system, exporters deal exclusively with a
single private-sector provider that supplies a full range of export
credit insurance services, according to Dutch government officials. 

According to Dutch government officials, the Dutch government pays
NCM a management fee for delivering and administering these insurance
services--in 1993, the Dutch government paid NCM 31 million Dutch
guilders (NLG) (about $16.7 million\18 ) for providing these
services.  According to NCM officials, about 185 staff of the 608 NCM
employees are dedicated to the government account business. 

Three separate government organizations--the Central Bank of the
Netherlands, the Ministry of Finance, and the Ministry of Economic
Affairs--are involved in approving applications for cover that exceed
NCM's approval ceiling of NLG10 million (approximately $6.29
million).\19 A unique feature of the Dutch system is that the central
bank is involved in approving applications for export credit cover,
according to Dutch officials.  The central bank approves requests for
export credit cover between NLG10 million and NLG25 million
(approximately $15.72 million), and the Ministry of Finance and the
Ministry of Economic Affairs jointly approve requests for export
credit cover over NLG25 million.  Dutch government officials said
that the Ministry of Finance and the Ministry of Economic Affairs are
equal partners in this arrangement.  The risks of the
government-insured transactions are reinsured through the budget of
the Ministry of Finance. 

A committee of private and public officials advises the Ministry of
Finance and the Ministry of Economic Affairs on matters involving
general export credit insurance.  This advisory committee includes
representatives of banks, industry, and trade and insurance
companies, as well as government officials from the Dutch ministries
of Finance, Economic Affairs, and the Central Bank. 


--------------------
\17 NCM is to reinsure (with the Dutch government) commercial risks
for which no cover in the private market is available as well as
other risks, such as foreign exchange risks and political risks
assumed under investments in developing and East European countries. 

\18 The exchange rate used was the 1993 average exchange rate of
NLG1.857/$1. 

\19 At the June 1, 1995, exchange rate of NLG1.590/$1. 


      EXPORT-FINANCING PROGRAMS
------------------------------------------------------- Appendix I:5.3

NCM supports Dutch banks and exporters by offering government-
supported export credit cover, overseas investment insurance, and
other special types of cover.  This cover is available on loans made
by banks and loans made by exporters to buyers for financing export
sales.  The government does not provide direct loans to exporters. 


         EXPORT CREDIT INSURANCE
----------------------------------------------------- Appendix I:5.3.1

NCM insurance is available for short-, medium-, and long-term
transactions.\20 Short-term (1 year or less) cover is offered for
consumer goods, raw materials, semifinished goods, and services.  The
amount of cover provided for short-term business is usually 75
percent.  In some cases, short-term cover up to 95 percent of the
export credit is offered.  Medium- and long-term cover is available
for capital goods, construction works, and engineering services.  For
medium- and long-term business, the maximum percentage of cover is
usually 90 percent for commercial risks and 95 percent for political
risks, according to Dutch government officials. 

According to Dutch officials, the maximum cover policy of 95 percent
offered by NCM requires exporters and financing banks to share some
of the risks of an export transaction.  Consequently, this policy
minimizes the number of frivolous applications for export credit
cover.  These officials also told us that this risk-sharing
requirement for export credit insurance also helps speed application
processing because less up-front exporter scrutiny and examinations
of the applicant's financial status are required. 


--------------------
\20 According to OECD, export credits are generally divided into
short-term (usually below 2 years), medium-term (usually 2 to 5
years), and long-term (usually over 5 years) credits. 


         OTHER TYPES OF INSURANCE
----------------------------------------------------- Appendix I:5.3.2

NCM offers other types of government-supported export credit cover,
such as lease insurance, foreign exchange risk insurance, and
overseas investment insurance.  Lease insurance covers the risks due
to nonpayment of leases.  Exchange risk insurance covers the losses
due to foreign exchange rate fluctuations on contracts not
denominated in Dutch guilders.  Overseas investment insurance covers
the political risks of investing in developing countries, East
European countries, and FSU countries. 


         INTEREST RATE SUPPORT
----------------------------------------------------- Appendix I:5.3.3

The Dutch government operates an interest rate subsidy program
through the Ministry of Economic Affairs.  Under this program, the
government can subsidize the difference between market interest rates
and minimum interest rates specified by the OECD Consensus, according
to Dutch government officials.  Both buyer and supplier credits of at
least 2 years' duration are eligible for the subsidies. 


         PROJECT FINANCING
----------------------------------------------------- Appendix I:5.3.4

NCM officials told us that NCM's medium-term export credit risk
department is involved in project financing as an adviser and an
underwriter.  However, it does not provide any of the actual
financing assistance that is needed to complete specific capital
projects.  No special project finance unit has yet been formed to
deal with project finance issues because the Dutch government is
still formulating a response to this issue, Dutch officials said. 


         PROGRAM EMPHASIS
----------------------------------------------------- Appendix I:5.3.5

According to Dutch government officials, the Netherlands does not
have a strategy that focuses on particular countries, industries, or
business sectors.  Unlike the United States, no "big emerging
markets" have been identified for intensive export financing and
promotion efforts.  No general restrictions exist on providing export
cover for defense goods other than for nuclear materials and products
that require an export license.  Agriculture exports are eligible for
export credit coverage from the government as well. 


         SME FINANCING
----------------------------------------------------- Appendix I:5.3.6

According to Dutch officials, the Dutch government has no export
credit insurance programs designed specifically for the needs of
small business.  However, the officials stated that small firms are
eligible for the full range of programs for which large businesses
are eligible. 


         RISK ASSESSMENT AND
         PRICING
----------------------------------------------------- Appendix I:5.3.7

According to OECD, the Netherlands divides all countries into four
categories for risk premium purposes.  Within each category,
different rates apply to public buyers, private buyers, and banks. 
NCM premium rates are based on a variety of factors, including the
types of goods involved, the maturity of the transaction, the
percentage of cover, the market risks, and other pertinent factors. 
According to Dutch government officials, premiums have been raised
twice in the last 10 years--in 1985 and in 1993--to more closely
correspond to market realities. 


      PROGRAM BUDGETING AND
      RESULTS
------------------------------------------------------- Appendix I:5.4

The Dutch government calculates the cost of its export credit program
through a cash-flow approach, according to Dutch government
officials.  Unlike the requirements imposed on the Eximbank through
the 1990 Federal Credit Reform Act, the long-term costs of the Dutch
government's export-financing programs are not estimated and budgeted
for in the year they are authorized.  In addition, Dutch government
officials told us that the Dutch Parliament does not require advance
notification before existing exposure ceilings are exceeded. 

In 1993, the Dutch government covered $6.95 billion of exports, about
5 percent of total Dutch exports.  According to Dutch officials, the
government raised its exposure ceiling to NLG25 billion in 1994 from
NLG10 billion in 1993.  Even though the Dutch government has strived
to reduce the costs of its export credit insurance program, the
government sustained a net cash deficit of about NLG204 million
(about $110 million) in 1993.  This figure includes the management
fee of NLG31 million (about $16.7 million) that was given to NCM to
administer the Dutch government's export credit system.  In 1993,
approximately NLG41 million (approximately $22.08 million) was spent
on the Ministry of Economic Affairs' interest rate subsidization
scheme.  (See table I.6.)



                               Table I.6
                
                Net Cash Outlays of Dutch Government for
                 Export-Financing Assistance Programs,
                                1991-93

                   (NLG and U.S. dollars in millions)

Export-financing assistance
program                                   1991        1992        1993
----------------------------------  ----------  ----------  ----------
NCM reinsurance                        NLG78.0    NLG174.0    NLG163.0
                                         $41.7       $99.0       $87.8
Ministry of Economic                   NLG22.0     NLG24.0     NLG41.0
 Affairs interest                        $11.8       $13.7       $22.1
 rate subsidies\a
======================================================================
Total\b                               NLG100.0    NLG198.0    NLG204.0
                                         $53.5      $112.6      $109.9
----------------------------------------------------------------------
\a Administered by the Netherlands' Ministry of Economic Affairs. 

\b Exchange rates used:  1991, NLG1.870/$1; 1992, NLG1.758/$1; 1993,
NLG1.857/$1.  Totals may not add due to rounding. 

Source:  Dutch Ministry of Finance. 


   THE UNITED KINGDOM
--------------------------------------------------------- Appendix I:6


      BACKGROUND
------------------------------------------------------- Appendix I:6.1

The U.K.  represents the fourth largest economy in the EU, with a
population of 58 million and a GDP of $927.4 billion in 1993.  U.K. 
exports totaled about $178.3 billion and represented about 19 percent
of U.K.  GDP in 1993. 


      FINANCING ORGANIZATIONS
------------------------------------------------------- Appendix I:6.2

The U.K.  ECGD, an independent U.K.  government department, serves as
the sole export credit agency for project and capital goods exports. 
ECGD was created in 1919 to promote U.K.  exports by insuring banks
and exporters against the risks of nonpayment by overseas buyers.  It
also provides overseas investment insurance and reinsurance to two
private sector credit insurers for short-term export credit cover and
administers the U.K.  government's interest rate support scheme for
private export financing.  ECGD does not offer direct export credits. 

ECGD is regulated by the U.K.  Export and Investment Guarantees Act
of 1991 and is responsible to the U.K.  Secretary of State for Trade
and Industry.  The act requires the U.K.  Treasury to approve every
guarantee that ECGD gives.  However, ECGD officials indicated that in
practice, it delegates this authority to ECGD for the vast majority
of its transactions.  For certain contentious transactions, ECGD is
to first consult with the U.K.  Treasury and other U.K.  government
departments.  ECGD is also to seek advice on its operations from the
Export Guarantees Advisory Council, a statutory body consisting of
senior-level representatives from the banking, commercial, and
industrial sectors appointed by the Secretary of State for Trade and
Industry. 


      EXPORT-FINANCING PROGRAMS
------------------------------------------------------- Appendix I:6.3

ECGD offers insurance to exporters against nonpayment from foreign
buyers, guarantees to banks providing export loans, reinsurance to
private insurers for certain short-term transactions, interest rate
support to banks for export loans, and overseas investment insurance. 


         EXPORT CREDIT INSURANCE
----------------------------------------------------- Appendix I:6.3.1

ECGD offers U.K.  exporters insurance for medium- and long-term
supplier credits through its "specific guarantee" facility.  Specific
guarantees are restricted to U.K.  companies or foreign companies
carrying on business in the U.K.  that export U.K.  goods and
services. 

ECGD's specific guarantee policies cover exporters against a range of
defined commercial and political risks.  Normally, ECGD limits cover
to 90 percent of the amount financed but may raise it to 100 percent
after a period of satisfactory contractual performance by both the
exporter and buyer.  As a supplement to buyer credits that ECGD
guarantees, exporters can also use specific guarantees to cover the
prefinancing period. 

ECGD previously also offered short-term policies for exporters. 
However, it sold off this business to the private credit insurance
company NCM in 1991.  As discussed in the following section, ECGD
continues to reinsure some of these policies. 


         EXPORT LOAN GUARANTEES
----------------------------------------------------- Appendix I:6.3.2

ECGD provides guarantees to banks for export-related buyer credits,
lines of credit, and supplier credits.  To be eligible for these
guarantees, loans must last a minimum of 2 years and finance a
maximum of 85 percent of the total value of the export contract. 

For buyer credits, ECGD guarantees banks the repayment of loans made
to overseas purchasers of major U.K.  exports valued at a minimum of
pounds sterling (ï¿½)5 million ($8 million).\21 Guarantees normally
cover 100 percent of the financed principal and interest. 

ECGD offers similar guarantees for lines of credit extended by U.K. 
banks to overseas buyers' banks, used for transactions involving
multiple U.K.  suppliers.  Guarantees for lines of credit, which
usually involve loans paid over 2 to 5 years, also cover 100 percent
of the principal and interest. 

In addition, ECGD offers guarantees to banks for transactions in
which banks purchase from U.K.  exporters bills of exchange or
promissory notes issued by foreign buyers.  ECGD unconditionally
covers 100 percent of the amount financed in these transactions. 


--------------------
\21 Pound sterling values for 1993, 1992, and 1991 operations were
converted into dollars using the respective average exchange rates of
ï¿½0.666, ï¿½0.570, and ï¿½0.569 = $1.  All other ï¿½ values were converted
into dollars at the June 1, 1995, exchange rate of ï¿½0.629 = $1. 


         OTHER TYPES OF
         GUARANTEES/INSURANCE
----------------------------------------------------- Appendix I:6.3.3

ECGD also offers insurance for overseas investments, bond risks, and
foreign exchange rate movements and reinsurance for some short-term
policies. 

ECGD's overseas investment insurance protects long-term equity and
loan investments that U.K.  companies make abroad.  U.K.  goods do
not need to be exported as part of the investment.  The program
covers foreign investments for political risks, such as
expropriation, war, and currency conversion. 

ECGD also offers insurance for bond risks and foreign exchange rate
movements.  ECGD's bond risk cover insures exporters against a
premature call for bond repayment beyond the control of the exporter. 
Cover is normally available for public sector entities buying U.K. 
exports.  ECGD also offers cover for exporters against the risks of
currency exchange rates fluctuating during the bidding process for
major overseas projects. 

Finally, ECGD also provides reinsurance to support some short-term
credit insurance policies issued by NCM (U.K.) Holdings Ltd. 
(NCM-U.K.) and Trade Indemnity.  To ensure that U.K.  exporters do
not suffer from a sudden shortfall in the availability of short-term
cover, ECGD provides reinsurance support to NCM-U.K.  ECGD extends
this support when NCM-U.K.  is unable to obtain reinsurance
completely from the private sector.  However, according to ECGD
officials, NCM-U.K.  obtains over 90 percent of its reinsurance from
private sources.  ECGD also provides 100-percent reinsurance support
to NCM-U.K.  for a few markets considered to be in the national
interest.  According to ECGD officials, in 1993, ECGD made some of
its reinsurance support available to another credit insurer (Trade
Indemnity). 


         INTEREST RATE SUPPORT
----------------------------------------------------- Appendix I:6.3.4

Under its Fixed Rate Export Finance scheme, ECGD offers interest rate
support for export loans provided by banks for U.K.  capital goods
and projects overseas involving U.K.  companies.  To be eligible,
export loans must last at least 2 years and be insured by ECGD. 
Through this program, banks lend to U.K.  exporters or overseas
borrowers at fixed interest rates determined by the OECD Consensus. 
Banks receive an agreed rate of return, consisting of the floating
commercial market interest rate plus a margin.  When the agreed rate
is higher than the relevant fixed interest rate, ECGD pays the
difference to the banks.  Conversely, ECGD receives the difference
from banks when the agreed rate is lower than the fixed rate. 


         PROJECT FINANCING
----------------------------------------------------- Appendix I:6.3.5

Under its project-financing program, ECGD guarantees loans extended
by banks for projects where repayment depends on the revenue-earning
capacity of the project, rather than on guarantees from project
sponsors or third parties.  ECGD revised and expanded the program in
1994 to make it more flexible.  ECGD's guarantees cover either
political risks only or both political and commercial risks combined. 
It decides on the amount of cover on a case-by-case basis.  Although
ECGD generally expects the minimum value of the U.K.  export loan to
be ï¿½20 million ($32 million), it will consider covering smaller loans
as well.  To administer the scheme, according to ECGD officials, ECGD
recently established a project-financing unit using existing ECGD
staff and expertise.  According to these officials, ECGD is currently
reviewing 30 project-financing proposals, 6 or 7 of which appear
potentially viable. 


         PROGRAM EMPHASIS
----------------------------------------------------- Appendix I:6.3.6

In fiscal year 1993-94,\22 ECGD export credit insurance and loan
guarantees (excluding overseas investment insurance and reinsurance)
covered U.K.  exports worth ï¿½4.086 billion ($6.135 billion).  The
exports accounted for about 3.4 percent of the U.K.'s total
merchandise exports of ï¿½178.3 billion in 1993.  During the same year,
ECGD's overseas investment insurance program covered eight new
agreements valued at over ï¿½28 million ($42 million).  At the end of
fiscal year 1993-94, ECGD supported a total of ï¿½5.935 billion ($8.911
billion) in outstanding fixed-rate export financing. 

ECGD export-financing assistance generally involves high-value U.K. 
capital goods, services, and project exports.  Defense-related
exports, notably military aircraft, military vehicles, and naval
vessels for countries in the Middle East, accounted for about 48.3
percent of ECGD business in fiscal year 1993-94.  However, according
to ECGD officials, the proportion of guarantees issued by ECGD for
defense-related business fell back to around 20 percent in fiscal
year 1994-95, which is within the "normal" range of 10 percent to 30
percent.  Aerospace exports, primarily involving British Aerospace's
wings for Airbus aircraft and Rolls Royce aircraft engines, also were
a significant part (14.8 percent) of ECGD's business, with other
civilian exports accounting for the rest (36.9 percent). 

Export markets in the Middle East and Asia accounted for much of
ECGD's new business in U.K.  fiscal year 1993-94, with the top 10 (in
descending order) being Saudi Arabia, Kuwait, Hong Kong, Oman, South
Africa, Qatar, India, Singapore, China, and Ireland. 


--------------------
\22 The U.K.  government's and ECGD's fiscal year begins on April 1
and ends on March 31.  All references to fiscal years in this section
are based on the U.K.  fiscal year. 


         SME FINANCING
----------------------------------------------------- Appendix I:6.3.7

According to ECGD officials, ECGD does not target SMEs for export
credit support through specific programs.  Nevertheless, the U.K. 
government does support SMEs through broader export promotion
efforts.  Most recently, the U.K.  government has begun to establish
a planned national network of 200 "Business Links." These will serve
as one-stop shops for advice and information, particularly for SMEs,
on U.K.  government programs for export promotion available to U.K. 
companies.  Business Links will be formed by local partnerships of
business support providers and the U.K.  Department of Trade and
Industry. 


         RISK ASSESSMENT AND
         PRICING
----------------------------------------------------- Appendix I:6.3.8

ECGD assesses the risks of proposed transactions and charges fees for
its support using a portfolio management system.  The system is
designed for ECGD to manage its cover policies issued since 1991 with
a reasonable level of assurance, as determined by the U.K. 
government, of breaking even financially.  Through this approach,
ECGD assesses the risks of proposed transactions and charges fees for
support to closely match such risks.\23 ECGD adopted the portfolio
management system in 1991 to reduce the risks of ECGD losses and the
related burden it imposed on U.K.  taxpayers.  ECGD's portfolio
management system does not cover ECGD's interest rate support and
foreign currency exchange rate insurance programs, which the U.K. 
government funds directly. 

According to ECGD officials, the portfolio management system approach
initially resulted in unfavorably high premiums for cover,
particularly in high-risk markets.  Due to concerns from U.K. 
exporters about ECGD's competitiveness compared to other ECAs, ECGD
subsequently reduced its premiums in 1992 and 1993.  However, ECGD
officials said that this reduction in premiums is still consistent
with their overall goal of breaking even. 


--------------------
\23 Under the portfolio management system, ECGD calculates risks in
individual countries to help it decide on the amount of cover to
provide and the premium level to charge on specific transactions. 
For each country, ECGD makes 10-year forward projections of foreign
currency earnings and debt repayments of individual countries, then
calculates probabilities of default and probable loss. 


      PROGRAM BUDGETING AND
      RESULTS
------------------------------------------------------- Appendix I:6.4

The U.K.  government's policy is for ECGD to generate sufficient
funds from its cover operations conducted since 1991 to break even
financially.  ECGD's portfolio management system is aimed at meeting
this goal.  In addition, the U.K.  government aims to limit ECGD's
exposure in a group of countries called the "amber zone" that pose
high risks for its overall portfolio.  The U.K.  government considers
countries in the amber zone to have high risks either because of
their specific market risks or because ECGD's exposure on those
markets is already highly concentrated.  At the end of U.K.  fiscal
year 1993-94, ECGD's total exposure stood at ï¿½23.991 billion ($36.023
billion). 

Under the portfolio management system, ECGD uses two accounts,
prepared on an accrual basis, for its guarantee, insurance, and
reinsurance business.  These accounts, named "Account 1" and "Account
2," distinguish between ECGD's business undertaken before (Account 1)
and after (Account 2) the introduction of the portfolio management
system in 1991.  Account 2 also includes all of ECGD's overseas
investment insurance policies and reinsurance support.  ECGD's
financial objective for Account 1 is to manage the portfolio of
assets and liabilities in order to minimize the cost to the taxpayer. 
ECGD's financial objective for Account 2 is to maintain sufficient
reserves to allow ECGD to break even over time. 

For fiscal year 1993-94, ECGD operated at a cash deficit of ï¿½198.1
million ($297.4 million) for Accounts 1 and 2 combined.  (See table
I.7).  Account 1 experienced a cash deficit of ï¿½359.2 million ($539.3
million), while Account 2 experienced a cash surplus of ï¿½161 million
($241.7 million).  However, on an accrual basis, ECGD's operations
(or "trading results") for fiscal year 1993-94 resulted in surpluses
of ï¿½380.8 million ($571.8 million) for Account 1 and ï¿½26.7 million
($40.1 million) for Account 2.  (See table I.8.)



                               Table I.7
                
                Net Cash Outlays of U.K. Government for
                 Export-Financing Assistance Programs,
                       U.K. Fiscal Years 1991-93

                 (U.K. ï¿½ and U.S. dollars in millions)

Export-financing assistance
program                                   1991        1992        1993
----------------------------------  ----------  ----------  ----------
ECGD insurance,                         ï¿½739.0      ï¿½517.9      ï¿½198.1
 guarantees, and                      $1,298.8      $908.6      $297.4
 reinsurance
 (Accounts 1 and 2)
ECGD interest rate                      ï¿½237.0      ï¿½111.0     (ï¿½53.0)
 support                                $416.5      $194.7     ($79.6)
ECGD foreign exchange                     ï¿½1.8        ï¿½5.7      (ï¿½5.2)
 rate insurance                           $3.2       $10.0      ($7.8)
======================================================================
Total                                   ï¿½977.8      ï¿½634.6      ï¿½139.9
                                      $1,718.5    $1,113.3      $210.0
----------------------------------------------------------------------
Note:  Figures in parentheses indicate cash inflows.  Figures are for
ECGD fiscal years which begin on April 1 and end on March 31. 

Source:  ECGD. 



                               Table I.8
                
                 Accrual-Based Trading Results of ECGD
                Export Cover Accounts, U.K. Fiscal Years
                                1991-93

                 (U.K. ï¿½ and U.S. dollars in millions)

ECGD account                          1991          1992          1993
----------------------------  ------------  ------------  ------------
Account 1                           ï¿½319.4        ï¿½518.5        ï¿½380.8
                                    $561.3        $909.6        $571.8
Account 2                            ï¿½20.8         ï¿½51.6         ï¿½26.7
                                     $36.6         $90.5         $40.1
======================================================================
Total                               ï¿½340.2        ï¿½570.1        ï¿½407.5
                                    $597.9      $1,000.2        $611.9
----------------------------------------------------------------------
Note:  Positive figures indicate surpluses.  Figures are for ECGD
fiscal years, which begin on April 1 and end on March 31. 

Source:  ECGD. 

Accounts 1 and 2 do not cover ECGD's interest rate support program
and insurance program for foreign exchange rates.  For these
programs, ECGD uses separate funds that the U.K.  government provides
directly.  For the first time in its existence, ECGD's interest rate
support program resulted in a net cash surplus for the U.K. 
government of ï¿½53 million ($79.6 million) in fiscal year 1993-94. 
During the same fiscal year, the cover program for foreign exchange
rates resulted in a net cash surplus for the U.K.  government of ï¿½5.2
million ($7.8 million).  (See table I.7.)


INTERNATIONAL EFFORTS TO ADDRESS
GOVERNMENT SUPPORT FOR EXPORT
FINANCING CONTINUE
========================================================== Appendix II

The United States, EU member states, and other countries have agreed
or are attempting to limit government subsidies and create a level
playing field among their ECAs through various international forums,
including OECD and the Berne Union, and within the EU. 


   OECD
-------------------------------------------------------- Appendix II:1

OECD is an international forum for monitoring economic trends and
coordinating economic policy among 25 developed countries, including
the United States and all 15 EU member states.\1 Under the OECD
Arrangement on Guidelines for Officially Supported Export Credits,
most OECD member countries have voluntarily agreed to terms and
conditions under which their governments support credits with
repayment terms of 2 years or more.\2

The agreement--also known as the OECD Consensus--aims to discourage
member countries from competing for exports on the basis of financing
terms.  To help reach this goal, countries participating in the OECD
Consensus have periodically strengthened the agreement since it was
first established in 1978.\3

The OECD Consensus imposes several conditions on officially supported
export credits of 2 or more years.  First, the OECD Consensus
requires the buyer to make a minimum cash downpayment of 15 percent
of the value of the export contract.  Second, the OECD Consensus
limits repayment periods to a maximum of 5 years (8.5 years with
prior notification) for export loans to relatively rich "Category I"
countries, or 10 years for relatively poor "Category II" countries.\4
Third, the OECD Consensus sets minimum interest rates, based on
prevailing market rates, that apply to governments providing official
financing support by way of direct credit, refinancing, or interest
rate subsidy.\5 Finally, the OECD Consensus specifies conditions
under which member governments may extend tied aid (foreign
assistance linked to the purchase of exports from the country
extending the assistance).\6

In addition to these conditions for general export credits, OECD
Consensus participants have also negotiated unique terms and
conditions for officially supported export credits involving ships,
civil aircraft, and conventional and nuclear power plants. 

Under the OECD Consensus, a country that offers support for export
credits that does not conform to the agreement's terms must notify
other countries.  The other countries may then make their own offers
that match the original offer. 

The OECD Consensus does not currently include guidelines on premiums
for officially supported export credit insurance or fees for loan
guarantees.  In addition, the agreement does not apply to exports of
military equipment or agricultural commodities.  However, in August
1994, participants to the OECD Consensus agreed to discuss the
development of guidelines on premiums for export credit insurance, as
well as for export credits for agricultural products. 


--------------------
\1 Other member countries of OECD are Australia, Canada, Iceland,
Japan, Mexico, New Zealand, Norway, Switzerland, and Turkey. 

\2 Only three OECD countries--Iceland, Mexico, and Turkey--do not
currently participate in this agreement. 

\3 The provisions of the OECD Consensus were last modified in August
1994 and are being phased in over 2 years. 

\4 In August 1994, participants of the OECD Consensus agreed to
define "Category I" countries as those that have graduated from
International Bank for Reconstruction and Development (IBRD, or World
Bank) lending--currently those with a per capita gross national
product (GNP) of over $4,715--and "Category II" as all other
countries.  Previously, the OECD Consensus specified three country
categories with different maximum repayment terms. 

\5 OECD establishes these minimum interest rates, called "commercial
interest reference rates" (CIRR), for various currencies each month. 
CIRRs are based on the yields of certain government bonds.  By
setting minimum OECD Consensus rates at CIRRs, which already
correspond closely to commercial interest rates, OECD minimizes
government subsidies that allow financial institutions to offer
export financing at below commercial interest rates.  Before August
1994, the OECD Consensus had a more complex system for determining
minimum interest rates.  CIRRs applied to export credits to
relatively rich countries, while a "matrix" of interest rates
negotiated among OECD members applied to other countries. 

\6 The OECD's 1992 tied aid agreement, sometimes referred to as "the
Helsinki package," builds on previously established guidelines
contained in the 1987 and 1990 versions of the OECD Consensus.  These
guidelines are intended to minimize the trade distortions that can
result from the use of tied aid.  For more information on tied aid
programs of the Eximbank and other major ECAs, see our report,
International Trade:  Competitors' Tied Aid Practices Affect U.S. 
Exports (GAO/GGD-94-81, May 25, 1994). 


      THE EU
------------------------------------------------------ Appendix II:1.1

The EU is a union of 15 European countries or "member states" and was
known as the European Community (EC) before 1994.\7 Its goals include
economic and monetary union, common defense policy, and cooperation
on social issues. 

The EU has recently revived efforts to harmonize export credit
insurance systems among its member states.  According to EU
officials, the EC's earlier attempts to achieve such harmonization
during the 1970s proved relatively unsuccessful.  In 1991, the EC
asked a team of experts to examine ways to harmonize medium- and
long-term export credit insurance among its member states.  On the
basis of this team's findings, the European Commission proposed a
directive\8 in July 1994 that would harmonize the medium- and
long-term export credit guarantee systems of EU member states. 

The proposal included several major provisions.  First, it would
establish common principles for ECAs to follow when granting cover
and paying claims.  Significantly, the proposal would generally limit
cover to 95 percent for buyer credits and 90 percent for seller
credits, and it would require lenders to retain the remaining risk. 
Second, the proposal would also establish guidelines for ECAs to set
premiums at levels that would reflect the risk involved and cover the
long-term costs of claims.  Third, the proposal would call for member
states to limit the amount of export credit insurance or loan
guarantees that their ECAs could extend to any specific country,
depending on various risk factors and the amount of cover that an ECA
already provided to that country.  Finally, the proposal also
specifies notification and consultation procedures for member states
that deviate from its provisions.  The proposal would not affect
member state ECAs' practice of matching more generous terms that
non-EU ECAs may offer on specific transactions.  The EU's Council of
Ministers and European Parliament are currently reviewing the
proposal. 

The European Commission is also developing a proposal that would
require EU member states to remove government subsidies from their
ECAs' cover policies for commercial risks on short-term export
credits to OECD countries, except Turkey and Mexico.  However, the
proposal has not yet been officially issued because of continuing
disagreement among member states over existing short-term reinsurance
arrangements in the U.K.  and Italy. 


--------------------
\7 The Treaty of Maastricht, ratified on November 1, 1993, formally
restructured the EC as the EU. 

\8 The European Commission is the executive body of the European
Union.  A directive is one type of EU legislation that requires
member states to ensure that their national laws and regulations
conform to the directives' provisions within specified time frames. 


      BERNE UNION
------------------------------------------------------ Appendix II:1.2

The International Union of Credit and Investment Insurers, known as
the "Berne Union," serves as an international forum for cooperation
among ECAs that insure export credits or overseas investments. 
Founded in 1934, the Berne Union has 43 member ECAs\9 from 34
countries and serves as a forum for members to exchange views and
information about the nature and extent of their actual and proposed
activities. 

Member ECAs of the Berne Union have also agreed to a "General
Understanding," which includes provisions on terms of payments,
starting points for credit terms, and repayment schedules on certain
export transactions.  Berne Union members that offer cover that
deviates from the agreement are obliged to inform other members and
allow them to match the offer.  Berne Union members have also reached
agreements on maximum credit terms that ECAs can grant for particular
types of exports, including breeding animals, paper and pulp,
fertilizers and insecticides, buses, containers and semitrailers,
wool exports, trucks, and agricultural vegetable reproduction
material. 

Agreements among Berne Union members are voluntary.  However,
according to Berne Union officials, Berne Union member ECAs generally
do not deviate from these agreements without good reason or lengthy
prior consultation with other members. 


--------------------
\9 The Eximbank, OPIC, and the government-supported export credit
insurers of the five EU member states that we reviewed are members of
the Berne Union. 


MAJOR CONTRIBUTORS TO THIS REPORT
========================================================= Appendix III

GENERAL GOVERNMENT DIVISION,
WASHINGTON, D.C. 

John Hutton, Assistant Director
Rona Mendelsohn, Senior Evaluator (Communications Analyst)

EUROPEAN OFFICE

Stephen M.  Lord, Evaluator-in-Charge
David G.  Artadi, Senior Evaluator


GLOSSARY
============================================================ Chapter 0


      BERNE UNION
-------------------------------------------------------- Chapter 0:0.1

The International Union of Credit and Investment Insurers, known as
the "Berne Union," is an international forum for cooperation and
information exchanges among participating export credit insurance
agencies.  Founded in 1934, the Berne Union has 43 member export
credit insurance agencies from 34 countries and 1 multilateral
institution. 


      BUDGETING, CASH BASIS
-------------------------------------------------------- Chapter 0:0.2

A budgeting method whereby receipts are recorded when received and
expenditures are recorded when paid, regardless of the accounting
period in which the receipts are earned or the costs incurred. 


      BUDGETING, ACCRUAL BASIS
-------------------------------------------------------- Chapter 0:0.3

A budgeting method whereby transactions and events are recognized
when they occur, regardless of when cash is actually received or
paid. 


      BUYERS CREDIT
-------------------------------------------------------- Chapter 0:0.4

A loan made by an ECA, bank, or other financial intermediary in the
exporting country to a foreign buyer or to a bank in the importing
country to finance the purchase of goods and services from the
exporting country. 


      COVER
-------------------------------------------------------- Chapter 0:0.5

OECD defines cover as export credit insurance or loan guarantees
given to exporters or lending institutions. 


      CREDIT SUBSIDY COST
-------------------------------------------------------- Chapter 0:0.6

The estimated long-term cost to the government of a direct loan or
loan guarantee, calculated on a net present value basis, and
excluding administrative costs. 


      CREDIT REFORM
-------------------------------------------------------- Chapter 0:0.7

The revised method of controlling and accounting for credit programs
in the U.S.  federal budget.  The Federal Credit Reform Act of 1990
requires that the net present value of the estimated long-term cost
to the government of new direct loans and loan guarantees (the credit
subsidy cost) be financed from new budget authority and be recorded
as budget outlays at the time the direct or guaranteed loans are
disbursed. 


      EUROPEAN UNION
-------------------------------------------------------- Chapter 0:0.8

The European Union, formerly the European Community, is a political
and economic union of European countries established under the Treaty
of Maastricht, which was ratified on November 1, 1993.  The EU's 15
member states are Austria, Belgium, Denmark, Germany, Finland,
France, Greece, Italy, Ireland, Luxembourg, the Netherlands,
Portugal, Spain, Sweden, and the U.K. 


      EXPORT CREDIT
-------------------------------------------------------- Chapter 0:0.9

As defined by OECD, an export credit arises whenever a foreign buyer
of exported goods or services is allowed to defer payment.  Export
credits are generally divided into short-term (usually less than 2
years), medium-term (usually 2 to 5 years), and long- term credits
(usually over 5 years).  They may take the form of "buyer credits,"
where the exporter's bank or financial institution lends to the buyer
(or his or her bank), or of "supplier credits," extended by the
exporter. 


      EXPORT CREDIT AGENCY
------------------------------------------------------- Chapter 0:0.10

An organization that administers officially supported export finance
programs. 


      EXPORT CREDIT INSURANCE
------------------------------------------------------- Chapter 0:0.11

Insurance coverage that permits an exporter (seller) who is granting
credit terms to a foreign buyer to shift the nonpayment risks to the
insurer. 


      EXPORT FINANCING
------------------------------------------------------- Chapter 0:0.12

Export financing refers to any form of financing of export
transactions.  Export financing generally includes loans, loan
guarantees, and export credit insurance. 


      EXPORT-IMPORT BANK OF THE
      UNITED STATES
------------------------------------------------------- Chapter 0:0.13

A U.S.  government institution that administers programs to assist
the U.S.  exporting community, including providing direct lending and
issuing guarantees or insurance to minimize risk for private banks
and exporters. 


      FORFAITING
------------------------------------------------------- Chapter 0:0.14

A form of supplier credit in which an exporter surrenders possession
of export receivables in exchange for cash. 


      GROSS DOMESTIC PRODUCT
------------------------------------------------------- Chapter 0:0.15

The value of all final goods and services produced within the borders
of a country in a given period of time, whether produced by residents
or nonresidents. 


      LOAN GUARANTEE
------------------------------------------------------- Chapter 0:0.16

An agreement to pay, in whole or in part, the loan to a lender or
holder of a security in the event of default by the borrower. 
Because ECA loan guarantees are usually conditional, there is little
practical distinction between credits that are guaranteed and credits
that are subject to export credit insurance. 


      ORGANIZATION FOR ECONOMIC
      COOPERATION AND DEVELOPMENT
------------------------------------------------------- Chapter 0:0.17

OECD is a forum for monitoring economic trends and coordinating
economic policy among its 25 member countries. 


      PROJECT FINANCING
------------------------------------------------------- Chapter 0:0.18

The term "project finance" refers to the financing of projects that
are dependent on the project cash flows for repayment as defined by
the contractual relationships within each project. 


      RISK, COMMERCIAL
------------------------------------------------------- Chapter 0:0.19

The risk of nonpayment by a nonsovereign or private sector buyer or
borrower in his home currency because of default, insolvency, and/or
the failure to take up goods that have been shipped according to the
supply contract. 


      RISK, POLITICAL
------------------------------------------------------- Chapter 0:0.20

The risk of actions on the part of a borrower country government that
may prevent, or delay, the repayment of export credits.  Many ECAs
define political risks to include such events as war, civil war,
revolution, or other disturbances that may prevent the exporter from
performing under the supply contract or the buyer from making
payment. 


      REINSURANCE
------------------------------------------------------- Chapter 0:0.21

Insurance coverage for insurance companies.  For example, a private
insurer may wish to keep the commercial risks of a loan on its own
books but seek to have the political risks reinsured. 


      SUPPLIER CREDIT
------------------------------------------------------- Chapter 0:0.22

A financing arrangement in which the supplier (exporter) extends
credit to the buyer in the importing country.