The US Department of Agriculture (USDA) has authorized $73 million in credit guarantees for sales of US agricultural products to Korea, in anticipation of a bullish Korean economy.
The credit guarantee program is an initiative of the Commodity Credit Corporation (CCC), USDA, which administers export credit guarantee programs for commercial financing of US agricultural exports. The programs, GSM-102 and GSM-103, aim at encouraging importers in countries where credit is necessary to maintain or increase US sales, but where financing may not available without a CCC guarantee.
The GSM programs work by underwriting credit extended by the private banking sector in the US to approved foreign banks that use US dollar denominated, irrevocable letters of credit to pay for food and agricultural products sold to foreign buyers. Up to 98% of the principal loan can be guaranteed, which encourages US banks to offer the foreign bank competitive credit terms.
Mike Henny, agricultural attachT for the US agricultural trade office in Seoul comments: "We expect that trading between the US and Korea will be bullish. The extension of the program indicates confidence in the Korean economy."
The US agricultural trade office expects Korea to import $3 billion worth of agricultural products from the US this year. Main imports to Korea are grains, soya beans, meat and citrus fruits, in addition to the value-add items such as grocery items. The allocation of credit guarantees will not favor any particular commodity or good, and will be applied on a first-come-first-served basis.
Seoul Bank is the latest Korean bank to join the program.
Second chance for Hong Kong and China
The USDA has also re-launched the same credit guarantee program to China and Hong Kong. The GSM-102 program was suspended in 1998, when GITIC, a holding company for Guangdong government investments went into liquidation. The USDA had extended its guarantees to cover GITIC letters of credit.
Due to optimistic sentiments about the Hong Kong and Chinese markets, however, the USDA announced last week that they would reinstate the program.
Howard Wetzel, spokesperson for the agricultural department of the US consulate in Hong Kong said that the USDA would authorize $300 million in credit guarantees for sales of US agricultural commodities to Hong Kong and the mainland. "Hong Kong, by itself, is the States' fifth largest market, importing $1.3 billion a year. China imports around $1 billion," Wetzel says.
The recipient bank or banks in Hong Kong and China of the guarantees is yet to be determined, according to Wetzel.
