UK EXPORT CREDIT INSURER CUTS RATES

UK EXPORT CREDIT INSURER CUTS RATES

The United Kingdom's government is cutting the cost of export credit guarantees. Tim Sainsbury, trade minister, announced this week that rates for state-backed export credit insurance will be halved for some of the third- world countries with which British firms trade. Smaller but still substantial premium rate reductions will apply to other countries.

Around 50 countries in all, mostly hitherto regarded as high risk, will be affected. Some of Britain's biggest exporters have complained loudly that their competitors elsewhere in Europe have enjoyed a competitive advantage by virtue of cheaper state-backed export credit insurance.The British Government has pushed for international agreement to phase out the state subsidies that currently keep the cost of insurance on exports to the developing world artificially low. In the meanwhile, it raised premiums to British exports through a new rate-setting mechanism introduced last year known as the Portfolio Management System.

This was designed to tailor premiums paid by exporters more closely to the the risks assumed by the state export credit agency, the Export Credits Guarantee Department. Premiums soared as the subsidy element in the rates was reduced. Mr. Sainsbury claimed the economic performance of the export markets in question has proved better than expected, enabling the PMS rates to be reduced.