Despite signs of recovery in some Asian economies, credit rating agencies and export credit agencies remain cautious about recommending or backing transactions on open account terms and in the region's more depressed markets, they are tending to recommend deals supported by documentary credits.

Taiwan outlook gloomy

Taiwan has suffered a severe downturn. It's export-oriented industries have been hit hard by the effects of the recent typhoons that hit the island and the recent terrorist attacks in the US, according to Chang Yao-tsung, director general of the statistics department of the ministry of economic affairs (MOEA).

The value of export orders received in August 2001 amounted to US$11.41 billion, down 16.7 per cent from the level for the same month last year, according to MOEA statistics. Chang said that prospects for September in terms of export orders are even gloomier than the poor performance seen in August as Taiwan was hit hard by Typhoon Nari and the serious flooding that it caused around the island.

Confidence dented

GDP shrank 2.6 per cent quarter-on-quarter in Q2, the worst fall in the island's output in 25 years. The central bank has responded by cutting interest rates at least eight times since December 2000. Taiwan's economic performance is mainly suffering from the country's heavy dependence on electronics exports, which account for about 50 per cent of GDP.

But business and consumer confidence has also been dented by several domestic factors, including the fragility of the financial system, the political stalemate between President Chen Shui-bian and the opposition-dominated legislature, and the export of jobs and industry to China.

Open account considered

Credit risk has deteriorated in Taiwan. Credit ratings agency Dun and Bradstreet reports the proportion of companies paying over 90 days has risen to 8.5 per cent in the first quarter of this year from 3.1 per cent in the second quarter of 1999.

Australia's export credit agency, Export Finance and Insurance Corporation (EFIC) remains open for short-term cover based on its usual underwriting criteria and undertakes transactions ranging from open account to letter of credit (L/C) depending on the credit strength of the buyers.

Philippines

In trades with the Philippines, EFIC says it prefers transactions involving L/Cs. Noting a downturn in economic activity this year - and the consequent hit to government revenues - EFIC says it is open for short-term cover, subject to its usual underwriting criteria and has issued this statement:

"We prefer transactions involving L/Cs, especially for credit terms in excess of 90 days. But we will look at open account transactions case-by-case, considering issues such as the effect of peso volatility, high interest rates and high oil prices. Because of the global tech downswing, we scrutinise buyers dependent on exports of electronic components, particularly to the US."

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