Key representatives from leading multilateral and regional financial bodies today presented a grim picture of the sharply worsening effects of the global financial crisis on trade finance, suggesting that the impact could be much worse than what the trade barriers can create in the coming months, trade diplomats said.
India’s trade envoy, Ambassador Ujal Singh Bhatia, warned about the growing “crisis of confidence and legitimacy in the global financial system”. He said it was important that the G-20 leaders, who would assemble in Washington this weekend, pave the way for creating “new structures” in which emerging economies could play an important role to address all finance-related issues, including trade finance.
At a specially convened meeting at the World Trade Organisation to gauge the impact of the ongoing financial turmoil, experts from the International Monetary Fund (IMF), the World Bank, the Asian Development Bank, among others, said the crisis was so severe that they were unable to forecast how long and deep it would be for the trading community, which depends on trade finance for conducting its daily operations.
It is estimated that about 90 per cent international trade take places on cash or short-term credit. Simple and stand-by letters of credit, overdrafts, open account operations, bills of exchange and bankers’ acceptances are also used.
WTO Chief Pascal Lamy convened the one-day meeting to assess the impact of the financial crisis as well as to take measures to ensure that normal trade was not unduly affected. The situation had deteriorated over the past six months and was expected to worsen further if immediate action was not taken on a war-footing, he said.
“The effects of the current banking and financial crisis on international trade have been felt directly through the tightening of the market for trade finance,” said a WTO note on trade financing and the financial crisis.
“Now the concrete point is how to ensure normal finance for trade, which has come under severe stress following the crisis,” said a representative from a South American regional financial organisation. “There was a consensus that both the IMF and the World Bank should step in to help trade finance but there were no concrete suggestions on how to address the problem,” the representative added.
Trade finance experts maintained that 4.5 per cent growth in global trade would not be achieved this year.
Apparently, the WTO chief said it was important to provide some policy prescriptions to the leaders from the G-20 countries who were schedued to assemble in Washington this weekend.
Though Lamy had invited the head of the World Bank, Robert Zoellick, and the chief of the International Monetary Fund, Dominique Strauss-Kahn, among others, none of them attended as the meeting was eclipsed by the coming G20 meeting.
Representatives from key banks active in trade finance such as HSBC, JP Morgan, Citigroup, Royal Bank of Scotland and Commerzbank also attended the meeting.
