Keeping credit lines open for the financing of trade is one of the key topics at the IMF and World Bank meetings being held this week.
IMF’s managing director Dominique Strauss-Kahn spoke of his concerns about the impact of the financial crisis in the advanced economies on trade in the emerging markets. Speaking at a press briefing, he disputed that the theory of decoupling was ever a likely scenario, before adding: “But to the traditional channel of transmission of a crisis, namely trade, for instance, and the decrease in growth in advanced economy, we have now to add something different, and the different thing is the cut in credit lines, or even worse, the repatriation of capital that traditionally came to support the balance of payments of an emerging country. This situation creates a lot of imbalances in many emerging countries.”
In response to these mounting problems, Strauss-Kahn affirmed that the IMF was on hand to help with financing resources of up to US$200bn, adding that they are also in the process of building a new “liquidity facility” to fill the widening financing gap.
In response to an audience question, Strauss-Kahn added that the IMF has had some “preliminary discussions” with the IFC and private commercial banks on the possibility of creating a fund aimed at supporting the recapitalisation of banks in the developing world. He explained that perhaps the World Bank’s IBRD (International Bank for Reconstruction and Development) could also play a role in this fund, as it would involve public capital going into governments to recapitalise institutions.
He elaborated on the motivation behind these initial plans, remarking that there is a real need to “get ahead of the curve, and not necessarily for big banks in to the developing countries, but for some of the small banks that could be under stress, could take losses, need capitalisation.”
Strauss-Kahn’s comments follow a press briefing given the previous day by Guido Mantega, finance minister of Brazil and chairman of the G-20, who spoke of his country’s problems with accessing loans for exports. The Brazilian government has announced it will open new credit lines for exporters by tapping into its foreign reserves.
Mantega also discussed the need for emerging markets such as Brazil to maintain the growth of their economies, highlighting the importance of supporting a strong domestic market in the event of a retraction of world trade.
However, he also warned against the implementation of protectionist policies, remarking: “When I say that we should take advantage of our domestic markets that should not be done to the detriment of world trade. On the contrary, I think that global trade should continue to expand on a global scale, because it is good for all countries.”
Both press briefings were ahead of this year’s annual meetings of the IMF and World Bank Group which began on October 13.
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