Op Ed contribution by Wiert Wiertsema
(Het Financieele Dagblad, Amsterdam, 13 May 2008) It is high time to subject the export credit facility to an independent evaluation to assess the coherence of the Dutch policy with sustainable development objectives. For 75 years the Netherlands has managed a re-insurance system for export credits. The State reinsures export credits that are insured by Atradius DSB (previously known as the Dutch Export Credit Insurance Company).
Currently a proposed law is on the agenda of the Parliament that aims to make arrangements for the State itself to issue export credit insurances. The measure will cut operational costs by around 15%. Since the export credit insurance is supposed to operate on a break-even basis, the savings should be returned to the corporations that use it.
Also an insurance with the State will mean that banks will no longer be required to maintain a reserve for these credits, as required under the international Basel-2 agreement (PDF file) . Exporters and their financiers have to be served better in parking with the State the risks associated with doing business in developing countries.
The proposed change of law also aims to provide for a legal framework for an active risk management, through which the State tries to pass on credit risks to other parties. For that purpose it uses instruments such as exposure swaps, re-insurances with commercial export credit insurance companies, re-insurances with the export credit agencies of other countries and also credit derivatives. The aim of this active risk management is to optimize the use of the available insurance space.
Once the maximum amount of risks that the State is prepared to take on a specific country is reached, they try to transfer a part of these risks to other parties, so as to generate new space for extra export credit insurances. Very concretely, this is the case with Indonesia, as the Netherlands already reinsured exports to this country for a maximum amount of € 1.5 billion. By reinsuring part of those risks with third parties, or otherwise selling them on, the Netherlands is generating new space to serve other Dutch exporters to that country with export credit insurances. This however results in Indonesia increasing its potential debt burden by an equal amount.
From the angle of sustainable development an important objection to the proposed change of law is that it aims for a maximisation of the support for Dutch corporations, without taking into account the consequences for individual developing countries. Vulnerable groups and also the environment are under threat of being victimised by this policy.
An additional objection is that contrary to the old situation, the supervision on the new export credit facility of the State has not been taken care of. While just now a consensus is emerging that better supervision is required on credit providers, the absence of an independent supervision on the balancing of the export credit insurances is hard to justify.
Wiert Wiertsema is senior policy advisor of Both Ends