Need for Expanding Export Finance

Seminar addresses expanding export finance and insurance to further increase exports and help Korean firms overseas

The civilian-government task force on export finance and insurance held a seminar on Sept. 7 at the Korea Investment and Trade Promotion Agency (KOTRA) building in downtown Seoul on strengthening export finance, insurance and reform measures on leading systems with some 40 representatives of industry, academics, journalism and related government agencies in attendance.
The task force announced its five-year plan for strengthening support measures for export finance and insurance as a means to spur trade transactions, and the gathering took on the subject for discussion.
The shortage of liquidity caused by reductions in export finance has emerged as the biggest difficulty facing Korean exporters according to Director Roh Sung-ho of the International Trade Institute and Manager Won Yong-shik of the Korea Export Insurance Corp. in their papers presented at the seminar.
They said risks in collecting payments for exports have been rising with the export market becoming a buyer’s market, causing an expansion of trade based on letters of credit.
They pointed out that export finance and insurance need to be expanded to ensure stable exports and the exploration of new markets, suggesting 12 tasks in three major areas to solve the problems.
The first item the seminar discussed was the creation of a fund to make loans against letters of credit as pledges to allow SME exporters to purchase raw materials based on letters of credit regardless of their export track records.
They also urged the set up of an export credit guarantee system to help out SMEs with no collateral acquire loans to secure raw materials.
The seminar also agreed to recommend the current system of credit analysis to be expanded to include more details, such as the ability to undertake exports, R&D capacity and advantageous points, rather than just going over the financial statements for the past several years.
They also recommended an investigation on the low use rate of local letters of credit and the refusal to issue purchase confirmation certificates and to find out the reasons and come up with alternative means to help the vendors.
They urged the financial authorities to find a system for the issuance of export insurance to export-related organizations and individual export firms operating department stores, home appliance stores and other outlets to spur exports, conduct marketing and operate after services systems.
The seminar also recommended the authorities select 1,000 firms annually for the next three years and provide them with tailor-made insurance and guarantees so that they would be able to export more than $5 million each within four years and be fostered as export firms making investments overseas as well.
The participants in the seminar agreed that the government should consider the introduction of insurance coverage to help importers secure such materials as energy related and other key raw materials without having to incur losses on a stable basis and invigorating import transactions.
They also urged the government to introduce the guarantee swap system with foreign countries where Korean firms operate production bases, intermediary trade and other overseas business activities to help them borrow funds from local banks under the swap guarantees.
They also requested the government to expand the role of the National Pension Fund by lending its funds to Korean firms operating overseas in cooperation with international banks against guarantees issued by the Korea Export Insurance Corp. as a way of expanding export finance projects on a medium and long-term basis. They recommended that loans not exceed $500 million per case and less than 50 percent of all loans should be jointly made with foreign banks. Korea Export Insurance Corp. will cover all loans with guarantees.
They also recommended the government cooperate with Korean export insurance firms operating overseas to better cope with foreign rival insurers.
The participants in the seminar included representatives from private companies; export support firms such as export insurance, credit guarantee and technology credit guarantee organizations; banks including Woori and Industrial Bank of Korea; academics; and the Ministry of Knowledge Economy. They had deep discussions on the papers presented at the seminar to determine their appropriateness and effectiveness. nw