Will OECD Governments Avoid the Path Towards a New Credit War?
| Date | 01 September 2019 |
| DOI | http://doi.org/10.1111/1758-5899.12726 |
| Author | Mariane Søndergaard‐Jensen |
| Published date | 01 September 2019 |
Will OECD Governments Avoid the Path
Towards a New Credit War?
Mariane Søndergaard-Jensen
EKF Denmark’s Export Credit Agency
Abstract
After 50 years of successfully avoiding a costly credit war, OECD governments find themselves back at a “race to the bottom”
crossroad. Will OECD governments succeed in maintaining a level playing field? Or will the allure of promoting national inter-
ests in this new world order with new global political priorities, increasing competition and a complex globalized world lead
governments to restart a race to the bottom and ultimately towards a new credit war? To avoid the path towards a credit war
not seen since the 1970s, a renewed commitment is required. Securing a level playing field for OECD exporters and business
should have high-level political priority. The OECD Arrangement for export credits is in need of modernization, but govern-
ments must also recognize that securing a level playing field in terms of government financing goes beyond export credits
and export finance. Official government involvement in international finance can be trade distortive regardless of the primary
purpose of financing. A whole-of-government approach to the provision of official international financing, regardless of
whether the primary purpose of financing is exports, development or climate, is necessary if OECD governments wish to avoid
starting down a costly and destructive path.
These are troubling, confusing and exhilarating times for a
practitioner in the field of official export credit policy work-
ing for the interests of a small, open economy. The job
description has hitherto been relatively simple: maintain a
transparent, responsible and operational framework for the
provision of public money and guarantees, promote free
and fair cross border trade, and avoid crowding out the pri-
vate financial sector. Times are troubling because a system
that has functioned well and delivered as intended is at risk
of disintegrating. It is confusing because ‘threats’to the sys-
tem come from multiple directions, including from within
OECD governments, and it is difficult to know which path to
follow. Nonetheless, it is also exhilarating because being at a
crossroads means that we can choose a path that may deli-
ver something better than what we had.
Diminishing US hegemony, increasing competition from
China and the increasing number of global official export
credit providers increase multipolarity and complexity. Insti-
tutional inertia arises when discussions touch upon the need
for systemic change, and fragmentation is visible in the
increasing number of institutions, public and private, dealing
with international finance and global capital flows. The four
signs of ‘gridlock’, multipolarity, complexity, institutional
inertia and fragmentation (Hale and Held, 2017) have
appeared gradually over the past few years. A race to the
bottom in the use of public funds for national exports and
interests should be in nobody’s interest (Laurent, 2015) and
it makes sense to deal with the changing balance of power
and loss of the US as hegemon by working to modernize
the existing export credit communities (Vassard, 2015).
Unfortunately, however, this view is not reflected in higher
level political interests. The interest in the OECD for
maintaining and adapting the regulatory framework for
export credits has weakened, and business involving inter-
national trade with government financing outside the regu-
latory framework is increasing together with a more
strategic use of the export financing (WTO, 2018).
In other words, the path towards a new credit war is not
as unlikely as one could hope. The contention of this article
is that discussions within the existing framework on export
credits alone are not enough to avoid OECD countries going
down this path. OECD governments need to reconsider the
basic pillars of the technical framework for financing of
trade (export credits) and more importantly re-establish
common ground on how to use official financing for differ-
ent international policy purposes.
1. The re-emergence of the ‘race to the bottom’
crossroad
Official agencies providing loans and financial guarantees in
support of trade i.e. export credits, have existed since the
beginning of the last century. The international framework
for export credits was, however, formed in a time of an oil
crisis, a surge in global capital flows and unchecked public
support for national exporters (Lubin, 2018; West, 2011). A
common interest in controlling the use of public financing
emerged in the OECD led by the US as the hegemonic
power. The primary aim was avoiding unfair competition
between exporters and nations but the wish to control capi-
tal flows added two distinct features of the export credit
framework: (1) export credits should be ‘lending of last
resort’; and (2) access to foreign exchange through export
credit financing of local expenditure should be restricted.
Global Policy (2019) 10:3 doi: 10.1111/1758-5899.12726 ©2019 The Authors. Global Policy published by Durham University and John Wiley & Sons Ltd.
This is an open access article under the terms of the Creative Commons Attribution License, which permits use,
distribution and reproduction in any medium, provided the original work is properly cited.
Global Policy Volume 10 . Issue 3 . September 2019 427
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