_Eximbank._ For Eximbank, the state provides a guarantee up to an outstanding stock of HUF 75bn in 1998. The state is also the owner. Eximbank extends long-term loans and issues guarantees on behalf of the state with the objective to support Hungarian export activities. Until 1998, the state guarantee was called once, in 1996, in the amount of HUFlbn. Audited balance sheets imply that Eximbank is a fast-growing and financially sound institution. In 1997, Eximbank assets reached HUF 36bn, up from HUF13.6bn in 1996. The exposure of Eximbank to Russia, approximately HUF 3bn, may somewhat deteriorate its performance and increase its calls on the state budget in 199899. While only 5 percent of Hungary's exports go to Russia, 20 percent of Eximbank's portfolio is in Russian guarantees. The Eximbank's practice is to mark loans to market, so that its portfolio is revalued each year to reflect changing market conditions. Eximbank expects to draw HUF 1.5 bn from the 1999 budget.

_Export-Import Insurance Company (MEHIB)_ MEHIB operates as a marketbased credit and investment insurer covering either political or commercial risk."<sup>4</sup> The government is the owner of MEHIB and reinsures exclusively against political risks taken by MEHIB. There is an annual ceiling the amount of MEHIB-insured assets that are covered by the state reinsurance. The ceiling has been rapidly increasing since the establishment of MEHIB, reaching HUF 185bn in 1998. Similarly, MEHIB has increasingly utilized this ceiling from 36 percent use in 1995 to 66 percent in 1997.15 The limit has been raised to HUF250 bn for 1999, with a 44 percent utilization rate.

In its audited balance sheets MEHIB has reported slight profits. The recent explosive increase in new insurance issued by MEHIB may, however, raise its future costs. MEHIB's credit insurance goes to relatively high-risk transitional countries, as part of government policy to support trade with these countries. In its geographical distribution, MEHIB is exposed 45 percent to CIS countries (around HUF 22bn to Russia), which may negatively influence MEHIB's performance in 1998-99. MEHIB suggests a provision of HUF 5.6bn for its possible 1999 claim on the state budget.

_Credit Guarantee Co._ The state reinsures 70 percent of the obligations that emerge from guarantees issued by the Credit Guarantee Co., up to 70 percent of the company's reserves. The legal ceiling on guarantees outstanding is HUF 55bn in 1998. Shareholders of the Credit Guarantee Co. include mainly commercial banks and saving cooperatives. Guarantees issued by the Credit Guarantee Co. partially cover credits mainly to small and medium sized enterprises. The state budget paid relatively modest HUF 326m on guarantees triggered in 1997. In 1999 however, there are expectations of a total call of HUF 1.8bn due to the budget re-insuring a wider range of business activities of the company (risk capital investments) than before.

- 14 MEHIB is also insuring Eximbank's guarantees.

> _15_ Turnover data show a significantly smaller involvement in insuring against political risks. Use of the statutory limit is measured in terms of negotiated deals rather than actually closed contracts.

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