Type of Exposure
Suggested
Weighting
9
Aid Funded Business
10%
(where funds are paid to
the buyer country).
10
Bond Risks
5%
11
Aircraft Confiscation Cover
5%
12
Plant Cover
5%
Comparison
with Current Practice
Some
Current practice variable. cases have been counted against limits but others excluded. Difficult to say what relative effect would be but it should be marginal either way.
C
therefore a
Not currently counted more prudent approach under new system.
Not currently counted in line with agreement with Treasury therefore
-
a more prudent approach under new system.
Not currently counted therefore a more prudent approach under new system.
Comment
Less susceptible to political risks as funds in the currency of the contract will be made available by the aid agency. This category is very small with few cases, normally of relatively small value, being agreed each year.
May be affected by the political risks affecting most cases on the market. Experience to date has been that nearly all bond claims have been the result of specific problems on the contract rather than default across a wide range of cases as the market.
Residual political risk.
Equivalent to 11 above.
13
Aid Funded Business
5%
(funds disbursed direct
to exporter from aid agency).
Not currently counted therefore more prudent approach under new system.
14
Third Country and Local
5%
Procurement where payment is in
local currency.
Not currently counted therefore more prudent approach under new system.
Less susceptible to political risks than 9. above because funds do not go through buyer country.
No foreign exchange/rescheduling risk because local currency only involved. Risk that political events frustrate payment remote, eg local currency payments continue to be made under Egypt Cairo Wastewater project.