International credit: concept, principles, functions, types

International credit is the movement of loan capital in the  sphere of international economic relations in commodity or monetary form on the terms of urgency, payment and repayment.

The subjects of international credit (lenders and borrowers) can be banks, firms, state institutions, governments, international, regional monetary, financial and credit organizations.

International credit arose as one of the levers of the initial accumulation of capital. The basis of its development is the exit of production beyond national borders, the strengthening of the internationalization of economic ties, the international socialization of capital, the specialization and cooperation of production. The intensification of world economic relations, the deepening of the international division of labor led to an increase in the scale and lengthening of the terms of international credit.

The principles of international lending are:

urgency, i.e. repayment of the loan must be carried out within the agreed period; payment means remuneration for the right to use the loan, as well as the cost of its servicing; repayment means repayment of the loan amount by the borrower to the lender; material security means the existence of a guarantee of its repayment; target nature means the definition of the objects of credit.

International credit performs the following functions for:

redistribution of loan capital between countries to meet the needs of expanded reproduction. Through this function, international credit rushes to the priority areas of application; saving the cost of circulation in the field of international payments. Through this function, valid money (gold, silver) is replaced  by credit money (banknotes) and credit operations (non-cash settlements). On the basis of international credit, credit means of international settlement arose – bills of exchange, checks, certificates of deposit, transfers, etc .; accelerating the process of accumulation in the world economy as a whole by directing temporarily free funds of some countries to finance investment in others. By attracting foreign loans, the process of capitalization of surplus value is accelerated, the boundaries of individual accumulation are being pushed, the capitals of economic entities of one country are increasing due to the accession of funds of other countries to them.

International credit, on the one hand, is a product of production growth, and on the other hand, a necessary condition and catalyst for it. It contributes to the internationalization of production and exchange, serves as a source of financing foreign trade, contributes to the continuity of international settlements, accelerates the turnover of funds in foreign trade, is used as a tool for competition for sales markets, and also strengthens competition between countries.

At the same time, international credit exacerbates the contradictions of the market economy, contributes to the development of profitable industries to the detriment of those in which funds are not invested; accelerates the overproduction of goods, etc.

The classification of forms and types of international credit can be carried out on various grounds.

according to the subjects of credit relations, a distinction is made between state (provided by governments), private (provided by private individuals) and credit from international financial organizations; according to the terms of loans, short-term (provided, as a rule, for current purposes for a period of not more than one year), medium-term (provided for a period of 2 to 5 years) and long-term (from 5 years or more) are allocated; by loan currency: in the currency of the creditor country, in the currency of the debtor country, in the currency of the third country, in the collective currency.

In international trade, bank and commercial loans are widespread.

International commercial credit is a credit relationship between the subjects of foreign trade relations. It can come in the form of both export and import credits. Export credit implies lending to the importer by the exporter; import – is provided by the importer in the form of deferral of delivery of goods i.e. by making advance payments for the goods not yet delivered.

Export credits, which are of a short-term nature, are used mainly in the supply of raw materials, and medium- and long-term – in the supply of machinery and equipment.

The most common form of obligation on a commercial loan is a transferable (draft) or simple (solo) promissory note.

The promissory note form of the loan, as a rule, is issued by a draft issued by the exporter to the importer. After the shipment of the goods, the exporter submits to his bank the documents of title and draft, which are sent to the importer’s bank, and the latter, in accordance with the collection order, hands the documents to the importer against the acceptance (written consent to the payment of the bill) by the importer of the draft. If the term of the commercial loan is up to one year, then the draft, after its acceptance by the importer, remains in the bank of the latter, and if it is more than one year, the draft is usually sent to the exporter’s bank.

As a rule, medium- and long-term loans are used in the supply of machinery, ships and equipment, often guaranteed by the state authorities of the exporting country. In this case, part of the order is paid by the importer by advance payment and cash payment.

Commercial lending has both advantages, for example, the determination of conditions by the foreign trade counterparties themselves, relative independence from the state, etc., and disadvantages – the importer’s connection only with a specific exporter, the dependence of the amount and term of the loan on the financial position of foreign trade counterparties, the higher cost of a foreign trade contract compared to the purchase of goods on the terms of payment for cash, etc.

Given the negative aspects in international commercial lending, bank loans play an increasingly important role in financing foreign trade.

A bank loan is a loan that is issued by a bank on certain conditions and for a certain period. As a rule, it is limited in size, and a rigidly fixed period is established for the payment of interest.

If the term of commercial loans does not exceed 5 – 8 years, then for bank loans – it reaches 15 years or more. This order is important for the importer, because he has an additional opportunity to purchase goods without a strict reference to any particular exporter or product. The advantages of bank loans over commercial loans are, in particular, that they allow the recipient to use the money received more broadly to purchase any product.

One of the common forms of bank international lending is the provision of credit lines. Credit lines are a legally formalized obligation of a credit and financial institution to the borrower to provide him with loans within a certain period within the agreed limit. Credit lines are often provided within the framework of long-term intergovernmental agreements, specified later in interbank agreements. Credits for such lines are usually granted automatically when contracts for the supply of certain types of equipment are signed. For each such loan, the rules for performing transactions are established. Loans are provided either by individual banks or by banking consortia. Based on the terms of loan agreements, the bank receives either financial loans or bank loans. In the first case, he has the right to use the funds received at his discretion and without restrictions, and in the second case, the funds are provided for certain purposes, depending on the terms of the loan agreements.

In the Republic of Belarus, the beginning of international lending activities dates back to 1991, which was due to the lack of domestic sources of financing and the need to maintain the balance of payments of the republic, as well as to modernize and restructure the industrial potential.

For the period from 1991 to 2001, the total amount of credits actually received and used is shown in Table 11.1.

Table 11.1.

Attraction of foreign loans (as of 01.03.1999., in million US dollars).

The external public debt of the Republic of Belarus began to form in 1992. At that time, it was $ 52.1 million. UNITED STATES. This amount included loans issued to the Government of the Republic of Belarus in the amount of $22.8 million. U.S. dollars and loans issued under government guarantees, in the amount of $ 29.3 million.

As can be seen from the table above, the main creditors of Belarus are: Russia – 35.1% of all loans received; Germany – 18,4 %; IMF – 13.4%; EBRD – 7.7%; IBRD – 7,1 %.

The priority in the use of foreign loans is their targeted use in the implementation of investment projects in various sectors of the economy focused on the implementation of structural restructuring of industry, the creation of new industries and technologies, the strengthening of the export potential of Belarusian enterprises, the development of transport, communications, the solution of energy problems, the satisfaction of the primary needs of the population in food and medicines, the improvement of the system health and ecology.