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BNDES Memo: EGF coverage of the operation with Mozambique

12/29/2017

The Export Guarantee Fund (EGF) is a budgeting and accounting fund of the National Treasury that aims to strengthen the guarantees of the Court of Accounts through the Export Credit Insurance (ECI). The ECI was created in 1999 to compensate Brazilian exporters and financers that do not receive the credits granted to the customer abroad, whether for commercial or political reasons (moratorium, wars, revolutions, among others). The ECI can cover financing granted to Brazilian exports by any public or private bank (Brazilian or foreign), without restrictions of goods or services or regarding the importing country. This is the instrument through which the financing for exports of goods and services is obtained for engineering projects in Latin America and in Africa and the part of the BNDES financing portfolio for exports of Embraer aircraft.

The ECI/EGF management is conducted by the Ministry of Finance, which collects premiums that reflect the risks to be incurred and require counter-guarantees to mitigate the risks involved. The fund’s management criteria are defined by the CAMEX Council, and the approval of each individual coverage shall be adopted by COFIG, the inter-ministerial collegiate group part of the CAMEX structure, based on the Arrangement on Officially Supported Export Credits of OECD, which establishes the premium minimum rates and risk charged by export credit agencies and Actuarial Note approved by the Council of Ministers of CAMEX.

The EFG performance is widely favorable: in 20 years, the fund has raised more than US$ 1.3 billion in premiums for the Treasury single account (US$ 60 million alone in 2017) and paid US$ 51 million in compensatory damages throughout its history.
The internal flow analysis by BNDES, through the several collegiate groups, until the approval by the Bank’s Directors, can only begin after the approval of merit and support conditions by CAMEX and of the insurance coverage by COFIG. The BNDES financing for exports follows the same approval procedures of other operations of the Bank in the domestic market.

All industrialized countries participating in the foreign trade present public support systems for exports. The assumption of credit risk is the most important principle in the analysis and approval dynamics of operations aimed at exports, in particular the long-term ones involving direct trade relations with foreign governments. The State is responsible for the insurance of these long-term operations, which basically protect against political risks. This insurance is good for the country and for the productive sector by enabling trade transactions, with the consequent generation of highly qualified jobs.
 

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