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WTO: Tackle trade finance or face “downward spiral”

WTO: Tackle trade finance or face “downward spiral”

WTO: Tackle trade finance or face “downward spiral”

Pascal Lamy, director-general of the World Trade Organization, said Wednesday after a meeting with representatives of private banks, international financial institutions and export credit agencies, that “the market for trade finance has severely deteriorated over the last six months, and particularly since September.”

   “The world economy is slowing and we are seeing trade decrease. If trade finance is not tackled, we run the risk of further exacerbating this downward spiral,” he said.

   “Two key problems were identified. One is a shortage of liquidity to finance trade credits. The second is a general reassessment of risks caused as much by the financial crisis as by the slowing down of the world economy. These problems are being felt most acutely by traders and banks in the emerging market economies,” Lamy said. “The view expressed this morning (Wednesday) by the trade finance practitioners is that the situation is likely to deteriorate further in the months to come.”

   Lamy said some steps are being taken to ease trade finance, including an announcement earlier this week by Robert Zoellick, president of the World Bank, that he intends to propose a tripling of the ceiling, to $3 billion, of the trade finance guarantees available under the International Finance Corp.’s trade finance facilitation program.

   “This is a remarkable example of quick reaction,” Lamy said. He also said the Berne Union, an association of export credit and investment insurance companies and agencies worldwide, says export credit agencies have been stepping in much more actively in recent months and have “increased their business by more than 30 percent in the last 12 months, with an acceleration since the summer. We had confirmation that this increase in activity is being backed by some national governments, for example Germany, Hong Kong, China and Japan.”

   There needs to be an effort to enhance trade finance capacity “to mitigate the effects of the increased perception of risks and to provide the market with earmarked liquidity for trade finance,” Lamy said. “International financial institutions and the export credit agencies have the possibility to expand their contributions to cover risk and provide additional liquidity under existing instruments. But this will not happen without public authorities stepping in to provide them with more support.”

   He said the market estimates the liquidity gap in trade finance at about $25 billion — “a sizeable sum, but not enormous relative to the amounts that central banks have found it necessary to inject into financial and banking markets in the past couple of months.” Private banks believe this gap could be filled through increased partnerships with international financial institutions and export credit agencies if they are supported by governments, he said.

   Lamy also called for improvements in information sharing, risk assessment techniques, and data collection on trade finance. ' Chris Dupin