UK to restore export cover for Argentina: Capital goods suppliers to benefit as final trade barrier is lifted

Britain will soon remove the last barrier to normal trade links with Argentina by restoring export credit insurance cover, which was cut during the 1982 Falklands crisis. This will allow UK capital goods suppliers to compete in what is seen as one of Latin America's best economic prospects.

Michael Heseltine, President of the Board of Trade, is visiting Buenos Aires at the end of next month, and City sources believe he will announce the re-establishment of cover before or during the trip. It will be provided by the state-owned Export Credits Guarantee Department, which insures suppliers of capital goods contracts against non-payment.

Although Argentine cover was withdrawn for political reasons, credit insurance brokers say it would have been removed anyway as the debt crisis hit. Most agencies stopped insuring Latin American risks in the early Eighties and have only recently become more positive towards them. Argentina, which has been squeezed by President Menem's radical free market reforms, is now regarded as one of the best risks. Last year the economy grew at 6 per cent, while inflation fell from 84 per cent to below 20 per cent. ECGD is believed to be the only important export credit agency not already offering cover.

Buenos Aires and London restored diplomatic relations in 1990, and since then both sides have made efforts to rebuild trade: for many years the UK was Argentina's biggest supplier, and commercial links have been maintained through the large Anglo- Argentine community. British exports were worth about pounds 140m last year, double the 1991 level but still well below the 1981 pre-Falklands figure of pounds 298m.

Argentina's privatisation programme is likely to provide opportunities to companies supplying heavy equipment for infrastructure projects. Without credit insurance cover, most UK involvement so far has been in investment. Last year British Gas bought a 29 per cent stake in the privatised Buenos Aires gas distribution company. It also confirmed early this month that it was negotiating with the Argentine state oil company to explore in the sea bordering the Falklands' territorial waters.

The move comes as British capital goods exporters are enjoying a surge in business. The total amount of business underwritten by ECGD in the financial year ending in March is believed to be more than pounds 3.5bn, compared with pounds 2.1bn in the previous year. Although brokers say the 1991 sale of the short-term credit insurance division to the Dutch company NCM means comparisons should be treated cautiously, they believe there has been a genuine increase in capital goods sales.

Two giant contracts accounted for 20 per cent of the total: the sale of British Aerospace Hawk trainer aircraft to Indonesia, which used up about pounds 350m, and the GEC-Alsthom contract to supply equipment for the Black Point gas-fired power station in Hong Kong. ECGD backed pounds 500m of export credits for this. ECGD sources say other business was spread across a wide range of developing countries: it is not normally involved in contracts in the industrialised world.

It is uncertain whether the very tight insurance limits and high premiums imposed by ECGD in 1991 will yet affect business levels: capital goods contracts take several years to come to fruition, and exporters suggest that some of last year's business could have been won before these restrictions were imposed.

(Photograph omitted)