While bailouts for banks and help for homeowners hit the
headlines daily, scant regard is given to the grit in the engine of
growth: access to trade finance. The narrow focus during this wave
of the financial crisis as it hits homes in developed markets
obscures the tsunami that threatens trade at a time when we simply
cannot afford to see trade flows stall.
About 90 % of the $13.6 trillion in world merchandise trade is
funded by trade finance. But we are now facing a crisis of cash and
confidence. Experts gathered at a World Trade Organization meeting
on trade and finance raised the alarm, pointing out that demand for
trade finance well outstrips supply. Regional development banks and
export-import banks that finance trade are facing funding
difficulties themselves, making it hard for companies to obtain
trade finance. Even with a letter of credit, banks remain reticent
to issue loans.
The crisis of confidence extends beyond obtaining trade finance
to a closer scrutiny of letters of credit. The International Trade
Center shares the concern of the International Chamber of Commerce,
that this practice not be used to avoid or delay financial
obligations. We are working together in rolling out a tool for
banks in developing countries to help them better assess risk of
small and medium-sized enterprises - those who will be hit hardest
in the fallout from the current crises.
Who must act? Governments as shareholders in the international
financial institutions need to put trade finance higher on their
agendas. Comfort can be taken in the fact that the history of
default on International Finance Corporation loans for trade
financing is very low. Trade finance offers excellent odds in the
current casino.
Patricia Francis
Executive Director, International Trade Centre
Editor's note: These views were first published in the
International Herald Tribune, Letters to the Editor section in
November 2008.