UK exporters press for extended credit cover

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THE Chancellor, Norman Lamont, is under pressure to announce further help for UK exporters following accusations that restrictions on credit insurance cover still put them at a severe disadvantage to rivals.

In his Autumn Statement in November, Mr Lamont said the Export Credits Guarantee Department, the state-owned agency that insures capital goods exporters against non-payment, would provide an extra pounds 700m of cover.

This would be used to unblock bottlenecks in fast-growing markets, especially in the Far East; pounds 200m would be available in the current financial year.

One of the countries affected most was Indonesia, where UK companies have been especially successful, but at the beginning of February ECGD told exporters no further cover was available during this financial year.

Even though some of the pounds 200m was used to boost Indonesian cover, a dollars 500m order for 48 British Aerospace Hawk trainer aircraft, announced in October, had pushed ECGD over its limit. 'This is worrying other companies at an advanced stage of negotiation on Indonesian contracts,' one credit insurance expert said. He was optimistic extra cover would be announced, possibly in tomorrow's Budget.

Exporters have also complained that the Government has not done enough to reduce premium rates, which are much higher than those paid by the opposition in a number of important markets.

ECGD is carrying out its annual review of rates, and there are particular hopes that premiums for India, one of the most important capital goods markets, will be cut. John Major visited Delhi in January and was repeatedly pressed to reduce rates by businessmen accompanying him.

A company wanting ECGD cover for India on a five-year credit risk - the supply of a gas turbine, for example - would pay a premium of 8-10 per cent of the contract value. This contrasts with 0.75 per cent charged by the Italian agency Sace, 2 per cent by the French CoFace and 3.5 per cent by Hermes of Germany.

The Government had hoped that its policy of matching premiums more accurately to risk, introduced in 1991 as the Portfolio Management System, would encourage other governments to follow suit. It backtracked a year ago by reducing rates on 50 markets, but exporters say it must go further in fast-developing countries.

In Pakistan, the ECGD premium rate is 7 to 8 per cent, compared with 4 per cent from CoFace; in Indonesia, cover - when available - costs about 5.5 per cent, against CoFace's 2 per cent; and the rate for Hong Kong is double that charged by the French.

Exporters say the ECGD is reticent about pointing out that it is comparatively cheap in less risky countries because it does not want to take pressure off other governments to raise their rates. All export credit agencies built up losses as a result of the debt crisis, but only the UK has made a determined attempt to claw them back.