Experts discuss problems of trade finance

12 November 2008

Representatives of international financial institutions, private banks and other experts met at the WTO, 12 November 2008, to analyze the shortage of credit to finance trade and discuss possible measures to address the problem.

In total, 30 people representing 19 international and regional financing institutions, private banks, credit insurance agencies and the WTO Secretariat participated at the meeting.

Participants first made a rapid stock-taking on current market conditions; then they focused on the measures that are being taken, and finally they shared proposals, initiatives and ideas that can contribute to mitigate the deterioration of the current situation.

Among the problems identified are the following:

The main one is the shortage of liquidity to finance trade credits. The market currently estimates the liquidity gap in trade finance at about $25 billion. The second is a general re-assessment of the risks caused by the financial crisis and by the slowing down of the world economy. These problems are being felt most acutely by traders and banks in the emerging market economies. Among the measures that are being taken or considered are the following: The World Bank/IFC is actively studying a tripling of the ceiling, to $3 billion, of the trade finance guarantees available under the IFC's trade finance facilitation programme. Export credit agencies have increased their business activities by more than 30 percent in the last twelve months. National governments, for example Germany, Hong Kong (China) and Japan, have actively being backing this increase. Among the solutions on a medium term basis are: Fill the gap of liquidity by increasing the opportunity for commercial banks to co-share risks with international financial institutions and export credit agencies.

Improve mechanisms of information sharing, risk assessment and data collection on trade and finance. Develop mechanisms to allow for more co-financing trade between private banks, export credit agencies and international financial institutions. The overall objective is to keep trade flowing as an important contribution to address the current economic crisis