Mostly Economics

WTO has set up a task force on financial crisis. WTO has noted that because of crisis, developing countries will find it difficult to get trade finance and this will have an impact on trade activities. WTO Chairman Lamy says:

Let me now come back in more detail to the financial crisis. I suggested at the informal TNC that this may also be having a direct impact on developing-country access to financing of imports and exports. As everyone is aware, we have held a number of meetings on this issue at the WTO with both multilateral institutions and private banks, the last one in April this year, to check availability of trade financing at affordable rates. Up until then, the situation seemed to be stable with volumes and rates at normal levels. But just this week Brazil brought this issue to the forefront.

Given the deterioration of the financial landscape, and despite the welcome announcement last week by the World Bank International Finance Corporation of an increase in its trade financing programme by $500 million, I have reconvened major providers of trade finance to a meeting on 12 November to examine this issue and find ways to alleviate the situation if it was to deteriorate. One third of the world economy, mainly in emerging countries, still has a big growth potential and we must try and make sure that this engine can work through trade.

I had analysed earlier in this paper, that US crisis will impact other economies via 2 channels- trade flows and finance flows. The concern on finance was felt even then (The paper was released on 7 Jan 2008). The real question was the impact on trade flows which looks set to decline as global economies shrink demand levels.

However, I didn’t analyse this inter-linkage between finance and trade that WTO points. The exporters and importers need finance as well and financial crisis will impact the flow of trade and finance as well. Tough times ahead for exporters and importers. This will impact the economies that depend on trade flows.