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Success with country-specific trade facilitation projects convinces EBRD to launch region-wide programme
A new "omnibus" trade facilitation programme has been launched by the European Bank for Reconstruction and Development (EBRD) covering all countries of the Bank's operations in central and eastern Europe and the former Soviet Union.
The omnibus programme supplements five existing country programmes and increases the total amount of financing available by US$ 100 million, to US$ 350 million. Under the programme, the EBRD will be able to guarantee letters of credit provided by creditworthy banks throughout its region of operations, allowing them to build a reputation for reliability and increase their acceptance in international financial markets.
"The EBRD's trade facilitation concept supports the development of regional trade and is a strong example of the Bank's unique catalytic role in the sector," said Pierre Mellinger, Co-Director of the EBRD's Financial Institutions team. "As soon as the local banks started to work within the country programmes, they reported extensive increases in short-term trade finance services, such as unsecured letter of credit confirmation lines from major international banks, often at highly competitive rates. Over US$ 100 million of business to date has been covered by the EBRD since 1995."
The trade facilitation concept was launched with a Russian programme in December 1995. By 1996, the EBRD was also assisting banks in Lithuania, FYR Macedonia, Ukraine and Uzbekistan. Under the new omnibus programme, credit terms have been extended to cover the finance of imports of capital equipment for a period of up to two years and advance payments to local exporters up to 30 months.
Under the guarantee agreements, which normally run for two years, the EBRD becomes a guarantor of trade finance instruments, such as letters of credit. In the first year the EBRD will guarantee up to 80 per cent of the value of these instruments for the benefit of the local banks' foreign correspondent banks, which are proposed by them from their own network of correspondent banks. In the second year up to 60 per cent will be guaranteed.
By working with the EBRD, local banks wanting to develop and expand their trade finance capacity can increase their access to international correspondent banks. Costs of trade finance to importers and exporters in the region are lowered, as are the risks of international trade, while the availability of working capital for exporters in the region is increased.
All trade programmes are open to new participants, and, whenever possible, the EBRD will cooperate with local and Western export credit agencies to structure transactions and share in risks. Such cooperation is already under way: the EBRD signed a risk-sharing arrangement involving the Czech export credit agency, EGAP, in February 1997.
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