1. ABN AMRO bank Export Credits & Political Risks, London February 2003 Structured Trade & Investment Finance A Multilateral Emerging Market ECA: A Key Driver for Sustainable Development Paul Mudde Senior Vice President Reputation Management & Sustainable Development

2. ABN AMRO bank Export Credits & Political Risks, London February 2003 I.Introduction II.The Rationale for EMECA III.The Role of EMECA IV.EMECA & Co-operation with the Market V.Summary & Conclusions Agenda Structured Trade & Investment Finance

3. ABN AMRO bank Export Credits & Political Risks, London February 2003 Main Considerations: 1. Debt Constraints Emerging Markets 2. Official Flow Constraints 3. Ambitious UN new Millennium Goals 4. Importance of Private Capital Flows 5. Support for Exports from Emerging Markets 6. Support for Intra-Regional Trade 7. Level Playing Field OECD Exporters & Exporters Emerging markets 8. No Dedicated Program to support Trade between Emerging Markets II.The Rationale for EMECA

4. ABN AMRO bank Export Credits & Political Risks, London February 2003 Debt Constraints EM II.The Rationale for EMECA Source: OECD & World Bank Stock of Total Debt Developing Countries by Region in Bln. US$m

5. ABN AMRO bank Export Credits & Political Risks, London February 2003 Source: OECD & World Bank Composition of Debt of Developing Countries in Bln. US$m II.The Rationale for EMECA Debt Constraints EM

6. ABN AMRO bank Export Credits & Political Risks, London February 2003 Debt Constraints EM: Debt Indicators All Developing Countries EDT /XGS: NPV External Debt as a % of annual Exports Goods & Services EDT/GNI: NPV External Debt as a % of annual Gross National Income Source: World Bank II.The Rationale for EMECA

7. ABN AMRO bank Export Credits & Political Risks, London February 2003 35% Other Dev. Countries 8% HIPC 10% Brazil 4% India 3% Thailand 6% Russian Fed. 5% Korea Rep. 5% Turkey 6% China 6% Mexico 6% Indonesia 6% Argentina Top Ten Debtors in 2000 Percentage of Total Debt Developing Countries Total Debt US$ 2,492 Billion Heavily Indebted (HIPC) Severely Indebted Moderately Indebted Less Indebted II.The Rationale for EMECA Debt Constraints EM Source: World Bank

8. ABN AMRO bank Export Credits & Political Risks, London February 2003 Main Consequences of Debt Problem Emerging Markets: Financial Crises in various EM (Asia, Brazil, Russia, Turkey, Argentina) Local Currency Devaluation Payment Defaults & Private Sector Bankruptcies Loss of Jobs and large Social Damages EM Governments enhance process of Liberalisation & Privatisation Response of Financial Markets: Credit Crunch Increased Pricing London Club Rescheduling Commercial Work-outs Response IMF, ECAs, MLAs, Bilateral Donors IMF / MLA Support combined with Conditions re. Liberalisation & Privatisation Bilateral Aid Loans (e.g. Balance of Payment support) Technical Assistance Paris Club Rescheduling (Since 1983: 352 Agreements covering US$ 406 Bln.) HIPC Debt Relief & Chapter 11 for Sovereigns II.The Rationale for EMECA

9. ABN AMRO bank Export Credits & Political Risks, London February 2003 Net MLT Capital Flows to Developing Countries in Bln. US$ Source: World Bank Official Flow Constraints & Importance of Private Flows II.The Rationale for EMECA

10. ABN AMRO bank Export Credits & Political Risks, London February 2003 Source: World Bank Gross Official Flows to Developing Countries in Bln. US$ II.The Rationale for EMECA Official Flow Constraints Gross Official Flows in Bln. US$

11. ABN AMRO bank Export Credits & Political Risks, London February 2003 Source: IMF Source: OECD, BU & IMF Stock of Debt Developing Countries to IMF in Bln. US$m Official Flow Constraints (IMF) II.The Rationale for EMECA

12. ABN AMRO bank Export Credits & Political Risks, London February 2003 Total Aid all DAC Members in Mln US$ 11,739 10,886 1,839 11,358 7,789 32 Source: OECD Official Flow Constraints (OECD DAC) Bilateral Aid 2000: Total US$ 43.3 Billion II.The Rationale for EMECA 2000 Bilateral OECD DAC Aid by Income Group

13. ABN AMRO bank Export Credits & Political Risks, London February 2003 UN Target 0.7 OECD Average: 0.39 2000: Net ODA as a % of GNI II.The Rationale for EMECA Official Flow Constraints (OECD DAC) Source: OECD

14. ABN AMRO bank Export Credits & Political Risks, London February 2003 UN Millennium Development Goals: 1. Eradicate extreme Poverty & Hunger 2. Achieve universal Primary Education 3. Promote gender equality & empower Women 4. Reduce Child mortality 5. Improve Maternal Health 6. Combat HIV / AIDS 7. Ensure Environmental Sustainability 8. Develop Global Partnership for Development WB Estimate: US$ 40 - 60 Billion of additional Aid per Annum Internationally Agreed Aid Target:0.7% of GDP Actual Average OECD DAC Countries:0.39% of GDP (2000) To meet Millennium Goals:0.49% of GDP II.The Rationale for EMECA Ambitious Development Goals for the new Millennium

15. ABN AMRO bank Export Credits & Political Risks, London February 2003 Net MLT Private Flows to Developing Countries by Source in Bln. US$ Source: World Bank Importance of Private Capital Flows to Emerging Markets II.The Rationale for EMECA

16. ABN AMRO bank Export Credits & Political Risks, London February 2003 II.The Rationale for EMECA Key Developments re Private Capital Flows: Importance of FDI (approx. 30% mergers & acquisitions) Volatility of Debt Flows (Bank Loans / Bonds) Concentration in Financial Markets BIS II Solvency Rules (2006) Importance of Private Capital Flows to Emerging Markets

17. ABN AMRO bank Export Credits & Political Risks, London February 2003 Concentration in Financial Markets Mergers & Acquisitions in the: Bank Sector » Europe (e.g. Germany: Landesbanks) » Bad Loan problems (e.g. Japan) Insurance Sector » General Insurance: Allianz, AXA, AIG, ING » Credit Insurance: Gerling / NCM, Euler / HERMES, COFACE, Lloyds, ACE, CHUBB, AIG 1 + 1 = ? Concentration Constraints Less Competition Funding and Mitigation Capacity will likely become more expensive II.The Rationale for EMECA

18. ABN AMRO bank Export Credits & Political Risks, London February 2003 II.The Rationale for EMECA BIS II Solvency Changes for Sovereigns Borrowers

19. ABN AMRO bank Export Credits & Political Risks, London February 2003 Source: Unctad Exports from Developing Countries by Destination in Bln. US$ II.The Rationale for EMECA Supporting Exports from Developing Countries

20. ABN AMRO bank Export Credits & Political Risks, London February 2003 Composition of Exports Developing Countries in % of Total Exports 54% 66% Supporting Exports from Developing Countries II.The Rationale for EMECA Exports of Manufactures have become more Important ! Source: Unctad

21. ABN AMRO bank Export Credits & Political Risks, London February 2003 II.The Rationale for EMECA Supporting Exports from Developing Countries Focus on Private Sector Development in EM Private Sector is the engine for Sustained Economic Growth Private Sector is main source for job creation & employment Employment is main Route to combat Poverty & to Improve Living Standards Private sector is main source of (tax) income for Public Sector Expenditures in Health, Education, etc. Focus on the Support of Exports Exports Income is key for GDP Growth of Developing Countries Exports Income is key in solving Debt problem of Developing Countries By Supporting Exports Future Crises can be Prevented

22. ABN AMRO bank Export Credits & Political Risks, London February 2003 Berne Union Members MLT New Business Covered in Bln. US$ Source: Berne Union BU New MLT Business in Bln. US$ II.The Rationale for EMECA ECAs play a Key role in supporting Exports to EM & Development of EM

23. ABN AMRO bank Export Credits & Political Risks, London February 2003 II.The Rationale for EMECA Supporting Intra Regional Trade: Key for Regional Development % Source: World Bank 2000

24. ABN AMRO bank Export Credits & Political Risks, London February 2003 Bottlenecks for MLT Finance of exports from EM: MLT Finance in Local Currency Not Available MLT Finance in Hard Currency Hardly Available No adequate MLT Insurance / Guarantee Facilities for Financing Banks There is no ECA There is an ECA, but adequate cover is not Available. Most EM ECAs are only / mainly involved in ST Supplier Credits. II.The Rationale for EMECA Level Playing Field OECD Exporters & EM Exporters

25. ABN AMRO bank Export Credits & Political Risks, London February 2003 II.The Rationale for EMECA Level Playing Field OECD Exporters & EM Exporters ECA Counter- Party Risk: A Comparison of two ECAs United Kingdom: AAAArgentina: SD Philippines: BB+ Bank ECGDCASC Sovereign Buyer / Borrower Exporter

26. ABN AMRO bank Export Credits & Political Risks, London February 2003 Zero Solvency No Country Risk Provisioning 8% Solvency Country Risk Provisioning ECA Counter- Party Risk: A Comparison of two ECAs United Kingdom: AAAArgentina: SD Philippines: BB+ ECGDCASC Sovereign Buyer / Borrower MLT Finance Available MLT Finance Hardly Available or (too) Expensive II.The Rationale for EMECA Level Playing Field OECD Exporters & EM Exporters

27. ABN AMRO bank Export Credits & Political Risks, London February 2003 ECA Counter- Party Risk: A Comparison of two ECAs United Kingdom: AAA Philippines: BB+ Bank ECGD Sovereign Buyer / Borrower Exporter Result: No Level Playing Field Argentinean Exporter will not be able to win the Export Contract II.The Rationale for EMECA Level Playing Field OECD Exporters & EM Exporters

28. ABN AMRO bank Export Credits & Political Risks, London February 2003 Exporting EMImporting EM Exporter Bank ECA Importer EMECA 1. 2. 3. 4. 1. Export Contract 2. Export Finance Contract 3. Export Credit Insurance 4. EMECA Counter Guarantee 5. ECA / EMECA Co-operation Agreement 5. ECA Counter- Party Risk: EMECA as Counter-guarantor III.The Role of EMECA AAA rated Country

29. ABN AMRO bank Export Credits & Political Risks, London February 2003 Exporting EMImporting EM Exporter Bank Importer EMECA 1. 2. 3. 1. Export Contract 2. Export Finance Contract 3. Export Credit Insurance No ECA in EM: EMECA the Solution III.The Role of EMECA AAA rated Country

30. ABN AMRO bank Export Credits & Political Risks, London February 2003 II.The Rationale for EMECA No Dedicated Program to support Exports from Developing Countries Main Characteristics of the Official Financial Support to Developing Countries : Bilateral & MLA Support is mainly provided to Public Sector in Developing Countries Limited Support for Private Sector Development (Mainly IFC, MIGA) Some MLAs are explicitly not allowed to be involved in ECA Exports Business Examples: EBRD & MIGA

31. ABN AMRO bank Export Credits & Political Risks, London February 2003 III.The Role of EMECA Mandate: Act as ECA & provide insurance / guarantees to Banks, EM exporters, Capital Market Financiers to support Trade between EM Location: EMECA should be located in AAA rated country Main Business Principles: Support within framework International Rules (OECD Consensus, WTO Break even) No Competition, but active Co-operation with the Market (Banks, EM Exporters, PRIs, Capital Market Investors) Active Co-operation with other Official Agencies (MLAs, OECD ECAs & ECAs in EM, DAC Donor Agencies, Governments) Main Business Area: Non Marketable risks (MLT): Main Role act as Insurer / Guarantor Marketable risks (ST < 2 Year): Main Role act as intermediary for PRIs

32. ABN AMRO bank Export Credits & Political Risks, London February 2003 Benefits for Emerging Markets (EM): Trade is Sustainable Aid Support Private Sector Development (e.g. EM Exporters) Support Private Capital Flows to EM Borrowers Enhance Trade & Investments between Emerging Markets (e.g. Intra Regional Trade, South / South Trade) Increased Access to Stable MLT Finance Improvement of Financial Infrastructure in EM - Local ECA & Bank Business / Expertise - Implementation of sound commercial business practices Increase Local Knowledge re. Export Finance / Insurance Positive Developmental Impact in two EM Exporting EM: Increase Hard Currency Income, Sustainable Jobs, Additional Tax Income Importing EM: Decrease of Import Costs Increase Independence & Decrease Aid Dependency The main Benefits of EMECA III.The Role of EMECA

33. ABN AMRO bank Export Credits & Political Risks, London February 2003 Benefits for EM Exporters: Level Playing Field with OECD Exporters Financial Stability (exports = Hard Currency Income) Benefits for Banks: Allow Banks to Finance MLT Trade Transactions between EM Incentive for Banks to Originate Export Business in EM Improved RAROC for Business with EM clients Benefits for Private Risk Insurers: Co / Re - insurance opportunities with EMECA (e.g. MIGA CUP) Umbrella- Protection EMECA Benefits for OECD Donor Countries: Instrument to achieve Sustainable Development & UN Millennium Goals Increase Aid Efficiency III.The Role of EMECA The main Benefits of EMECA

34. ABN AMRO bank Export Credits & Political Risks, London February 2003 III.The Role of EMECA Ranking Emerging Markets & Capital Goods Exports No. 1 - 10 (Average Exports 1995 - 1999) Exports of Machinery and Transport Equipment in million US$ (SITC 7) Source: Unctad

35. ABN AMRO bank Export Credits & Political Risks, London February 2003 III.The Role of EMECA Ranking Emerging Markets & Capital Goods Exports No. 10 - 20 (Average Exports 1995-1999) Exports of Machinery and Transport Equipment in million US$ (SITC 7) Source: Unctad

36. ABN AMRO bank Export Credits & Political Risks, London February 2003 III.The Role of EMECA Ranking Emerging Markets & Capital Goods Exports No. 20 - 30 (Average Exports 1995-1999) Exports of Machinery and Transport Equipment in million US$ (SITC 7) Source: Unctad

37. ABN AMRO bank Export Credits & Political Risks, London February 2003 III.The Role of EMECA Source: OECD & IMF

38. ABN AMRO bank Export Credits & Political Risks, London February 2003 Some examples of Public & Private Sector risk Participation: 1. Equity participation by public & private sector 2. Treaty Re-insurance 3. Partial Credit Insurance 4. Partial Risk Insurance 5. Country risk specific risk sharing Public / Private Sector 6. Risk participation by the Insured (private sector) These risk sharing arrangements do show the Huge leverage potential of EMECA IV.EMECA & Co-operation with the Market

39. ABN AMRO bank Export Credits & Political Risks, London February 2003 EMECA Shareholders 1.Risk Participation: Equity. Public Sector: Emerging Market countries High Income countries (OECD) Multilateral Development Banks Bilateral Development Banks Private Sector: Banks Insurance companies Re-insurance companies Investors Exporting companies IV.EMECA & Co-operation with the Market

40. ABN AMRO bank Export Credits & Political Risks, London February 2003 1st re-insurance layer provided by Public sector participants 2nd re-insurance layer provided by Private sector (re-)insurers 3rd layer of risk takers: Equity EMECA Treaty Re-insurance 2.Risk Participation: Treaty Re-insurance. IV.EMECA & Co-operation with the Market

41. ABN AMRO bank Export Credits & Political Risks, London February 2003 3.Risk Participation: Partial Credit Insurance. Tenor of the loan Stretching the Market Tenor (syndicated loan / PRI market) Amount at Risk Private Sector Participation Public Sector Participation Year 4 Year 8 Can be arranged through: Re-insurance Co-insurance IV.EMECA & Co-operation with the Market

42. ABN AMRO bank Export Credits & Political Risks, London February 2003 Public Sector Participants Political Risks Private Sector Participants Commercial Risks EMECA 4.Risk Participation: Partial Risk Insurance. Can be arranged through: Re-insurance Co-insurance IV.EMECA & Co-operation with the Market

43. ABN AMRO bank Export Credits & Political Risks, London February 2003 5.Country risk specific risk sharing Public / Private Sector. OECD Country risk category % Share in Risk IV.EMECA & Co-operation with the Market

44. ABN AMRO bank Export Credits & Political Risks, London February 2003 EMECA Borrower 95% Insurance 6.Risk Participation: Participation by Insured (private sector). Bank EMECA Covered Loan Tied Commercial Loan (15% down payment) Total Risk Participation Bank: 5% uncovered portion of the EMECA loan 15% down payment loan IV.EMECA & Co-operation with the Market

45. ABN AMRO bank Export Credits & Political Risks, London February 2003 IV.Summary & Conclusions EMECA is Key for Sustainable Development of Emerging Markets

46. ABN AMRO bank Export Credits & Political Risks, London February 2003 ABN AMRO Bank

47. ABN AMRO bank Export Credits & Political Risks, London February 2003 Annex I

48. ABN AMRO bank Export Credits & Political Risks, London February 2003 Severely Indebted Low-Income Countries Debt in Billions US$m Annex I

49. ABN AMRO bank Export Credits & Political Risks, London February 2003 Debt Indicators: Severely Indebted Low-Income Countries EDT /XGS: NPV External Debt as a % of annual Exports Goods & Services EDT/GNI: NPV External Debt as a% of annual Gross National Income Annex I

50. ABN AMRO bank Export Credits & Political Risks, London February 2003 Annex II

51. ABN AMRO bank Export Credits & Political Risks, London February 2003 Severely Indebted Middle-Income Countries Debt in Billion US$ Annex II

52. ABN AMRO bank Export Credits & Political Risks, London February 2003 Debt Indicators: Severely Indebted Middle-Income Countries EDT /XGS: NPV External Debt as a % of annual Exports Goods & Services EDT/GNI: NPV External Debt as a % of annual Gross National Income Annex II

53. ABN AMRO bank Export Credits & Political Risks, London February 2003 Moderately Indebted Low-Income Countries Debt in Billion US$ Annex II

54. ABN AMRO bank Export Credits & Political Risks, London February 2003 Debt Indicators: Moderately Indebted Low-Income Countries EDT /XGS: NPV External Debt as a % of annual Exports Goods & Services EDT/GNI: NPV External Debt as a % of annual Gross National Income Annex II

55. ABN AMRO bank Export Credits & Political Risks, London February 2003 Annex III

56. ABN AMRO bank Export Credits & Political Risks, London February 2003 Moderately Indebted Middle-Income Countries Debt in Billion US$ Annex III

57. ABN AMRO bank Export Credits & Political Risks, London February 2003 Debt Indicators: Moderately Indebted Middle-Income Countries EDT /XGS: NPV External Debt as a % of annual Exports Goods & Services EDT/GNI: NPV External Debt as a % of annual Gross National Income Annex III