Rebuilding access to foreign financing in Argentina: Effects on export survival

The availability of foreign financing is linked to macroeconomic stability, sound financial conditions, and a policy environment that supports confidence. In recent months, Argentine firms have regained access to foreign financing after a prolonged period of restricted external credit. Risk spreads have narrowed, issuance windows have reopened for selected firms, and market conditions suggest a gradual normalization in access to other forms of foreign financing, including trade credit—such as that provided by related companies, clients, and suppliers—as well as cross-border bank lending.

Foreign financing is important in low- and middle-income countries, where firms face tighter credit conditions. In such environments, foreign credit can offer more favorable terms and provide funding when local banks are unwilling or unable to lend. In a paper published in the series of the Bank for International Settlements (BIS), [1] we examine whether foreign financing has historically been linked to better credit conditions than domestic financing in Argentina—and whether they help improve argentine firms’ export performance.

To do so, we use firm-level data on foreign financing from the Central Bank of Argentina. It established a comprehensive reporting regime—Sistema de Relevamiento de Pasivos Externos y Emisiones de Títulos de los Sectores Financiero y Privado no Financiero—requiring the reporting of external borrowing by financial and non-financial firms. The funding was provided by financial institutions located abroad, related companies, and clients and suppliers. We analyze five years of available data following the introduction of the regime in 2002. Data on domestic financing are from the Credit Bureau of the central bank (Central de Deudores), and we focus on loans extended by domestic banks to nonfinancial manufacturing firms. Export data were obtained from Argentine Customs records, and firm-level employment data from the national tax authority.

We find that exporters tended to borrow in countries where interest rates were lower than in Argentina, where foreign lenders may have faced easier financial conditions than argentine banks (Figure 1, Panel A). Indeed, when Argentine exporters are ranked according to an index that approximates their borrowing costs abroad—constructed using foreign interest rates—, a majority of them are below Argentina’s interest rates.^[2] This finding supports that Argentine exporters used foreign financing to obtain funding more cheaply abroad. The exception is 2004. In contrast to 2005, when private-sector credit began to expand amid improved macroeconomic conditions, in 2003-2004 the banking system was still stabilizing after the 2001–2002 crisis, banks maintained conservative lending policies, and domestic credit remained limited compared to pre-crisis levels (Figure 1, Panel B). Hence, in 2004 exportes likely used external credit because domestic funding was unavailable. Put simply, foreign financing allows argentine firms to both reduce borrowing costs and overcome credit constraints in the domestic banking system.

Given these advantages, we assess whether foreign financing improves export survival. We estimate a probit model of export exit. We include export-year indicators, which are commonly used in the literature; firm size, measured by the number of employees; the financing obtained by the firm from domestic banks; export levels in a firm’s first year as an exporter, which are typically included to account for unobservable trade-relationship characteristics; industry technology dummies; weighted gross domestic product growth of export destinations; and a Mercosur export-destination dummy.

The results are strong and consistent. The coefficient on foreign is statistically significant at the 1 percent level across all specifications and remarkably stable, ranging from −0.0769 to −0.0852 (Figure 2). The negative sign indicates that greater foreign financing reduces the probability of export exit. After controlling for industry-, trade-relationship-, export destination and firm-level characteristics that vary over time—such as firm size and a firm’s domestic financing—foreign financing lowers the hazard of ceasing exports and increases export survival rates. Moreover, the magnitude of the foreign financing effect is consistently larger than that of domestic financing: the corresponding domestic financing coefficients are smaller in magnitude (between −0.027 and −0.031) and only significant at the 5 or 10 percent levels. Using the most complete specification (Figure 2, Column 6), we calculate that the difference in hazard rates between the median firm and a firm with foreign financing at the 75th percentile declines from 2.7 percent in the first year to 2.1 percent in the fifth year. These results are robust to using a log-log model rather than a probit model.

Looking forward, these findings underscore the relevance of foreign financing for economic growth. In emerging economies such as Argentina, where domestic credit markets are shallow, foreign financing—through its different forms, including trade credit—can play an enabling role. By providing firms with alternative and, at times, better financing conditions, it can help sustain investment, production, and integration into global markets.

This role is particularly relevant through the channel of export survival. Firms that export are more productive, more innovative, and more integrated into international value chains. When foreign financing reduces the probability that these firms exit export markets, it helps preserve productive capacity and external competitiveness.

Figure 1. Foreign Financing and Argentine Exporters

Figure 2. Foreign Financing and Export Survival of Argentine Firms