Tokyo has decided to provide Japanese exporters to Iraq with trade insurance to cover transactions with the new Trade Bank of Iraq (TBI).

The move follows a similar one announced late last month by the Export-Import Bank of the United States (US Ex-Im Bank) when it said it had notified the US authorities of its intention to provide a US$500 million facility that would provide the bank's short-term export insurance to cover TBI transactions.

Bandwagon

The Japanese scheme will offer companies cover for two-year periods. This is the first time a major government not involved in the coalition administration of Iraq has introduced an official export credit scheme for its companies.

Several export credit agencies across the world however are believed to be making plans to ensure companies in their countries receive official support in the competition for business in potentially lucrative Iraqi markets.

Export revival

Tokyo will be keen to break the dominance of the US and UK companies in the Iraqi market and restore Japan to its position as one of Iraq's more important trading partners.

Total annual Japanese exports to Iraq peaked in 1981 at about US$3 billion but fell away sharply as Iraq began to fall behind in its payments to Japan in the 1980s. During that decade Saddam Hussain ran up huge debts across the world, many of which remain outstanding, as the former-Iraqi regime ploughed millions of dollars into arms purchases for the Iraq-Iran war.

Iraqi debt to Japan is thought to stand at about 838.8 billion Japanese yen. Iraq has been off-cover for Japanese businesses since the 1990 Iraqi invasion of Kuwait.

Japanese bank connections

The J P Morgan led TBI is operated by a consortium that includes Japan's Bank of Tokyo-Mitsubishi and is expected to be up and running by the end of this month. A large part of the bank's business will be to provide letter of credit facilities for international transactions between Iraq and other countries.

The Japanese authorities launched a trade insurance service for orders for Iraq from the US government or international bodies in May but apparently no companies have so far applied for this facility.

This article represents the views of the author and not necessarily those of the ICC or any of the other partners in DC-PRO.