Economic Cost and Benefits of Subsidizing Western Credits to the East

Executive Briefing

by Daniel F. Kohler


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In the hope of increasing sales for their export industries, Western governments subsidize credits extended to foreign purchasers of their export products in two ways: directly, by offering loans at rates below their own cost of funds, and indirectly, by guaranteeing repayment of loans, thus absolving the borrower of the need to pay a risk surcharge. This report summarizes research that estimates the value of these subsidies to the Soviet Bloc and analyzes the effects that they have on economic welfare in the exporting and importing countries. The analysis suggests that the costs to Western governments of subsidizing trade to the Soviet Bloc are substantial and probably exceed the benefits.

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