Transcript Trade and Finance Crisis - UNCTAD Virtual Institute

Trade and Finance Crisis
Economic Forecasting
was wrong:
decoupling hypothesis
rejected by the reality
•One year ago: decoupling between developed and developing
countries. Main factors of recession in developed countries:
domestic demand and credit crunch
• One year later: all institutions looking at a new set of
forecasts, see international trade as the main factor of
recession – less resilient than domestic demand. Why?
• Globalization works both ways, symetrically. The increased
economic interdependance leading to contagious contractions
of output
What are the main elements of
contagion?
 Financial sector to real economy: credit crunch – affecting
financing of output. Lack of trade credit starving trade flows. Low
interest rates = preference for liquidity/savings. Might actually
boost domestic demand. Crowding out effect: availability of
Government paper, crowds out bank lending
 Real economy to financial sector: demand-driven failures will
further deteriorate bank assets – which will further retard the
recover and might lead the world economy from crunch to
deflation.
 The trade link: at macro-level, if final demand is hurt in major
trading economies, request for exports and imports will shrink. At
micro-level, the density of forward and backward links between
economies, notably at regional level, is exercizing accelerating
effect on output and trade contraction through supply chains.
TRADE AND FINANCE AGENDA
OF WTO
• Important in financial crisis:
avoid contagion
– Maintain flows of trade
finance in line with demand
– Avoid protectionist reactions
– defeat the purpose of
recovery plans
– Consider DDA as a recovery
plan of its own
Task force on Trade and Financial
Crisis: increased surveillance
3 levels of action
 Push for the conclusion of the DDA
 Enhanced surveillance of Trade Policy
Developments, with and amongst WTO
membership
 Advocacy and mobilization in area of trade
finance to avoid trade finance to be an
additional factor of contraction of trade flows
DDA: for a rapid conclusion
Often argued that long way to go to conclude
DDA. Not so long. 80% ground covered in
NAMA and Ag.
No matter how one calculates gains of DDA:
$130 bn for tariff reductions, $250-500 for
welfare gains, DDA is a big as a recovery
plan with permanent effects
Hope to make progress by Spring/summer
2009
Tracking trade and trade policy
measures
 Improved system of forecasts and statistics
 Improved system of surveillance with quarterly
reports by Secretariat to WTO Members on
protectionist reactions. Two way track: confirmed
sources (by members) and free sources (press,
TPRs). Triggers a discussion inside WTO. Look
at all measures from a non-legalistic point of
view: border measures, subsidies, bail-outs, etc.
Trade Finance role
 Since WTO November 12 meeting – one step up
debriefing WTO Members, IMF and WB. Greater
level of mobilization, strong message to G-20
 Pb: shortage of liquidity and disporportionate
aversion to risk lead to shortfall in commercial
banks of $25bn. Credit price and insurance up to
three times normal circumstances
 Solution? One mean is for international and
regional leaders to shoulder some of the risk
through co-financing and thereby entice private
lender back into this market.
What is being achieved?
• Export credit agencies from OECD and non
OECD stepping in: provision of working capital
to SMEs; support of chain supply links (ECAs
are conducting operations regionally)
• RDB and IFC doubled ceilings on trade finance
facilitation programmes, up to 7-8 billion
(financing capacity of $30-40 bn of trade to low
income countries).
• Central Banks are providing forex to markets
• Integrated cooperation between a multilateral,
banks and ECAs = question of creating a
liquidity pool for banks, and measures for ECAs.
G-20 in London:
G-20 Leaders adopted a trade finance
package aimed at putting at least $250
billion at the disposal of the market,
though a menu of various instruments
provided by IFIs, ECAs and
governments. Implementation of that
package is underway.
Thank you for you
attention!