|                                                                                                                                                             |  | NEW EBRD PROGRAM SUPPORTS TRADE                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
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|**BISNISHome PageSearchBISNISEmbassyReportsCountryReportsIndustryReportsPublicationsSourcesof FinanceLeadsand EventsExchangeRatesState ExportsOtherSources** |  | May 1999by Philip H. de LeonSince the August 1998 Russian banking crisis, trade transactions have been hampered by two
interrelated factors: a lack of hard currency on the part of Russian banks and an unwillingness on
the part of U.S. banks to confirm letters of credit originating from the NIS. The collapse of the
GKO market and subsequent decisions on the part of the Central Bank of Russia to (1) not invest
more hard currency into the banking system, (2) repudiate outstanding trade credit, and (3) issue
a 90-day debt moratorium which was interpreted by some Russian private banks as tacit
permission to default on foreign debt all resulted in the Russian banking system becoming a
virtual pariah in the international trade finance community.The most common method of payment for export transactions is the letter of credit (L/C). An
L/C is a document issued by a bank on behalf of a buyer, whereby the bank commits itself to
honor
payments to the seller. This normally valuable and extremely common payment method becomes
less available as the Russian banking system  is facing a severe crisis and a loss of credibility. As
a result, U.S. banks now are unwilling to accept L/Cs and other forms of trade credit or
guarantees issued by Russian and NIS banks. Unfortunately, the other countries of the NIS have
inherited the reputation of their neighbor, Russia. The crisis has essentially left one option open
to U.S. exporters shipping to the NIS asking for cash in advance.The EBRD Program
In January 1999, the European Bank for Reconstruction and Development (EBRD) took steps to
improve the trade situation by launching the Extended Trade Facilitation Program (ETFP), which
restructures the EBRD's existing trade facilitation projects for local banks in Russia, Belarus,
Kazakhstan, Ukraine, and Uzbekistan into a single, streamlined program. The goal of the
program is to stimulate international and interregional trade among all 26 EBRD countries of
operations by providing a safe intermediary between banks. The EBRD will issue guarantees up
to
100 percent of the nominal value of the underlying trade finance instrument on behalf of banks in
the NIS for eligible trade finance transactions.Essentially, the EBRD is filling a major gap in export transactions by strengthening the
acceptability of the NIS  L/C by substituting its own creditworthiness for that of the NIS bank.
This
creates a safe, fiscally sound intermediary between an exporter's U.S. bank and the NIS
importer's local bank.  The ETFP program, while not directly intended for use by a company
exporting to the NIS, will assist export transactions by providing the guarantees desired by the
exporter's U.S. bank before it will work with an NIS bank. The EBRD's ETFP was described as
"an
innovative step by a multilateral bank to reestablish trading lines between nations" by Deborah
Conrad, a Small Business Administration (SBA) representative at the U.S. Export Assistance
Center in Baltimore.Can Your Bank Qualify?
The ETFP is open to banks registered in all countries of operations, including banks with
majority
foreign ownership and subsidiaries of foreign banks. All U.S. or foreign banks with an
established record of trade finance operations with banks in the NIS are eligible to join the
program as confirming banks. Generally, confirming banks must have a demonstrated track
record of trade finance transactions or have demonstrated the capability to process confirmations
of trade finance instruments with banks in the NIS. The participation of issuing and confirming
banks is subject to EBRD approval and the signing of appropriate legal documentation. ETFP
transactions are subject to various terms and conditions and a fee does apply.For detailed information on the ETFP, please contact Stephanie Crossley, tel: + 44 (171) 338-
6524, Fax: +44 (171) 338-7380, or email: [email protected], or visit the EBRD website at
www.ebrd.com.Philip H. de Leon covers finance for BISNIS in Washington, D.C.This report is provided courtesy of the Business Information Service for the Newly
Independent States (BISNIS)