The effects of public export related investment guarantees and aval endorsements of bills of exchange

Trade credit is a regular feature in international trade. Due to longer distances and delivery time trade credit is used in about 80 percent of export cases. Austria supports domestic exporters by providing public export credit guarantees and investment guarantees. By mid 2016 Austria had effectively underwritten guarantees to the extent of 76.9 billion €. Of these some 27.6 billion € or 40 percent of the total referred to the coverage of foreign trade activities. One of the most important components are aval endorsements of bills of exchange which amounted to 13.7 billion € at year end 2015; this corresponded to half of outstanding public export guarantees. By providing investment guarantees (G4) the Republic of Austria guaranteed additionally 2.3 billion €; this corresponds to roughly a tenth of total export credit guarantees. In general public guarantees facilitate the financing of economic activities. If the premium for guarantees covers expected losses and administrative expenses, the public will not face medium to long-term net expenditures related to the underwriting activity. If the premium level is chosen too low, however, indirect subsidies will be provided to the insured exporting firms.