Moldovan firms wanting to export facesevere financing constraints. The local banking system hasneither the capital base nor the technical capacity tofinance their working capital requirements. And exportcredit agencies either are not willing to provide cover, or,if they are, they require a full government counterguaranteecovering both commercial and political risks. Thus, toenable viable local firms to attract private workingcapital, the government of Moldova asked the World Bank tohelp design a pre-export guarantee facility, with theproviso that the facility should not require the governmentto assume commercial risks. Under this facility, theMoldovan government guarantees financiers against politicalrisk, and the World Bank provides a backstop guarantee ofthe government's claim payment obligations. A similarapproach could be used in other transition economies, wherefirms face similar constraints. This Note describes thedevelopment of the facility and offers suggestions fordesigning a "line of guarantee" modeled on it as away to help attract private finance for a relatively largenumber of small projects.
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