World Trade Organisation’s (WTO) director-general Pascal Lamy sees market conditions for trade finance remaining “tense” with the increasing likelihood of payment defaults.
His comments were made in a report on protectionism issued this week. In a copy of the report obtained by GTR, it states: “Anecdotal evidence shows that the global market situation remains tense, with increased payment defaults and high costs of credit.”
It goes on to suggest that due to interventions from central banks in Brazil, China and India, local spreads have stabilised at around 150-200 basis points (bp) above policy rates. However, elsewhere the situation has far from improved.
Estimates from the African Development Bank suggest that trade finance transactions have collapsed by 50% since the beginning of 2009.
In Asia, countries are relying on support from the Asian Development Bank and the IFC to help their trade finance transactions due to deteriorating country risk.
In Latin America, the smaller Central American countries and the larger poorer nations are in need of increased support, while in Eastern Europe no new trade credit is being delivered, the report states.
It goes on to highlight problems in the developed world, citing spreads on opening letters of credit in the US have increased to between 100bp and 200bp.
Central banks in developed countries including the UK and Japan are beginning to re-open discount windows for receivables presented by local small-to-medium sized businesses.
WTO forecasts on world merchandise trade in 2009 have also been revised, with the organisation predicting volumes will decline by 10% rather than the previously forecast 9%. It adds that exports from developed economies are predicted to fall in 2009 by 14%.
To counter these negative trends, the report highlights the role of the Global Trade Finance Liquidity Fund (GTLP) created by the World Bank’s IFC, after pledges made by governments and multilaterals at the G-20 meeting in London in April.
In June, the various parties met to do a ‘reality check’ on whether the financial commitments made at G-20 were being achieved. It states that the pledged US$250bn will need to be mobilised before the next G-20 to be held in Pittsburgh in September this year.
The WTO report has been issued ahead of next week’s meeting on the WTO’s Aid for Trade initiatives (July 6-7), where it will be assessed how successfully aid flows into the developing world have been maintained despite a global recession.
“This Aid for Trade meeting is designed to support developing countries as they seek to better integrate into the multilateral trading system and to take advantage of export opportunities,” remarks Lamy.
“This is even more relevant today: Aid for Trade is needed to prepare poor countries to exit the crisis. This is no time to fail our development promises,” he says.
Timed with the Aid for Trade meeting in Geneva, the GTLP scheme will also be launched with an official ceremony, co-hosted by Lamy and the World Bank Group president, Robert Zoellick.
Those attending the event include the president of the African Development Bank Donald Kaberuka, the UK’s department for international development and the CDC group, the Opec Fund for International Development, Standard Chartered Bank, Standard Bank, Citi, and RaboBank.
The launch will recognise the new commitments from donors to the US$50bn GTLP programme and will trigger the first disbursements to importers and exporters in developing countries.
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