Export Credit State Guarantee System
The export credit state guarantee system is a type of guarantee system operated by various governments to support exports and foreign investments originating in its own companies.The system provides either partial or total guarantee to a debt being incurred by an exporter. It is designed to increase the marketability of the debt and also to reduce the cost of credit extended to exporters.
In recent years, with the rapid growth of foreign investment and the increased number of foreign related transactions, the demand for guarantee systems has also increased. Governments are increasingly willing to provide their own support to both domestic exporters and foreign investors.
The basic principle behind an export credit state guarantee system is that the government is ultimately responsible for the debts incurred by its companies or investments. This means that the government provides a guarantee which is a promise to repay the debt if the borrower fails to meet the required obligations or does not have the fund to pay the debt.
The main advantages of an export credit state guarantee system are that it allows companies to borrow at lower rates than they could otherwise access in their domestic market. It also reduces the risk of bad debt, as the government is backing the loan. This makes the country more attractive to potential investors, as they know that their investment will be backed by a government guarantee.
The debtors will also benefit from the system, as the interest rates may be lower and longer repayment periods may be allowed. This means that they will be able to borrow at a lower rate then they would otherwise be able to, and they will be able to repay the debt without incurring high levels of interest.
The debtors are also protected against potential changes in the economy, as the government is ultimately responsible for the debt. If the economy changes, making it difficult for the debtors to repay their loans, the government will be there to support them and make sure that their investments remain viable.
The main disadvantage of an export credit state guarantee system is that it is not a perfect solution. If the borrower defaults on their loan, the government may still be required to pay the debt. This could lead to a large deficit, which could be difficult for the government to finance.
In addition, the government may have difficulty in determining the level of support provided to each borrower. This could lead to situations where some borrowers receive more support than others, or the government fails to assess the level of risk that a borrower may pose.
The export credit state guarantee system remains an effective tool for promoting domestic exports and investments. It helps reduce the cost of credit and provides some protection to the economy against potential changes. However, it is important to remember that the system is not without its risks and should only be used when it is absolutely necessary.
