A Pre-export Guarantee Facility in Moldova : Mitigating Political Risk in Transition

Moldovan firms wanting to export face severe financing constraints. The local banking system has neither the capital base nor the technical capacity to finance their working capital requirements. And export credit agencies either are not willing to provide cover, or, if they are, they require a full government counterguarantee covering both commercial and political risks. Thus, to enable viable local firms to attract private working capital, the government of Moldova asked the World Bank to help design a pre-export guarantee facility, with the proviso that the facility should not require the government to assume commercial risks. Under this facility, the Moldovan government guarantees financiers against political risk, and the World Bank provides a backstop guarantee of the government's claim payment obligations. A similar approach could be used in other transition economies, where firms face similar constraints. This Note describes the development of the facility and offers suggestions for designing a "line of guarantee" modeled on it as a way to help attract private finance for a relatively large number of small projects.