ECGC had downgraded South Korea along with most other crisis-ridden economies of southeast Asian region early this year to the restricted list. Now only Thailand and Indonesia continue to remain under the restricted list while Malaysia and Philippines are already out of it.

According to an ECGC official, restricted status of Thailand and Indonesia is under review and as soon as ECGC gets enough positive signals about the economy, a revision to open category will be made.

While upgrading or downgrading a country, ECGC takes into consideration the stability of the particular country's banking system, balance ofpayment position and macro-economic stability, among other things.

Exports to South Korea had come to a halt for most of 1998 following the withdrawal of the automatic ECGC guarantee. Exports to South Korea are now expected to pick up. Nearly 95 per cent of all export credit is covered by ECGC. Banks generally take exposure to a country dictated by the cover available from ECGC.

Some banks are even known to slow down their credit exposure to certain countries even before these countries are downgraded by ECGC. Major banks like State Bank of India and Bank of India had reduced their exposure to South Korea early this year much before the ECGC downgrade.

The Reserve Bank India had also written to banks in early 1998 to exercise caution on their exposure to crisis-hit economies of southeast Asia.

With South Korea back in the open list, banks can now extend credit to exports to the country without reference to ECGC and at the same time avail of the risk cover.

Around 60-80 per cent of export financecomes under the ECGC risk cover, depending on the destination and export firms. At the height of the crisis in South Korea, many Indian banks had, on their own, refused to give credit, in spite of exporters having obtained prior guarantee cover approval from ECGC.

Indian banks reduced their exposure to Korean banks fearing the downfall of many of them following the financial crisis that pulverised Korean banking system. Some banks like Bank of India reduced their exposure to Korean banks from $440 million to $24 million in a months' time early this year.

The situation has changed now, with a number of bank mergers and a time-bound restructuring package of the country's banking system with the IMF's help. Indian bankers admitted that the situation in South Korea has improved considerably.