KredEx, Estonian state-owned credit guarantee fund came up with a new, long-term guarantee for the local exporters. The new service will protect Estonian companies from the uncertainty common for the countries where corruption and shady deals make the market economy.

Estonias export to CIS countries will likely rise again after the EU accession, and the overall export growth will roughly make 10 percent a year, according to Maive Rute, the CEO of KredEx.

 

Valid for deals with payment deadline from one to ten years, the new guarantee available since Oct. 8 covers the risks of a foreign company buying Estonian export goods. This helps the buyer to receive the necessary loan from the bank to purchase the goods. In case no bank is involved, the guarantee alleviates the risks of an Estonian exporter selling its products abroad.

 

The risk limit covered by the new guarantee developed in cooperation with Danish state export credit agency EKF is about two million euros.

 

Jako Kruuse, the underwriter of medium- and long-term guarantees in KredEx, said that because the capital commodities dominate Estonian export the main beneficiaries of the new guarantee will be the machinery producers and construction companies.

 

"The main difference between a short-term and a long-term guarantee is that the latter is a combination of insurance and buyer funding which is a major advantage. Without the necessary funding a potential buyer can often remain just a potential buyer," said Kruuse.

 

KredEx estimates the credit insurance market in Estonia as not developed. Local insurance companies do not offer credit insurance, and international credit insurers are not directly participating but available via brokers.

 

KredEx is a self-sustainable state-owned guarantee fund providing export guarantees, guarantees for SME and housing loans.

 

According to the State Export Guarantees Act, the limit for simultaneously valid state guarantees is set to 300 million kroons (20 million euros). Up to 100 percent of the export-related political risks and up to 90 percent of the commercial risks can be covered.

 

The political risks are mostly related to money transfer from abroad. For example, the government of the country from where the buyer comes can impose currency outflow restrictions like it has recently happened in Argentina. Although the buyer actually did transfer the money it has not reached the Estonian company because the government intervened. The same could have happened because of war, etc.

 

According to the Ministry of Economic Affairs and Communications, Estonia was ranked 6th in the global rating of economic freedom in 2002.

 

The countrys export has been dominated by machinery and equipment export (24.8 percent) since mid-nineties followed by wood products (15.1 percent), textile (12.1 percent) and furniture (8.8 percent). Most of the machinery and equipment export was made under subcontracting deals.

 

Finland, Sweden and Germany followed by Latvia and the UK remain the principal export destinations for Estonia. The top three positions in the import partners list are also taken by Finland, Germany and Sweden with Russia and China catching up.

 

The volume of Estonian export from January to September 2003 reached 2.5 billion euros.