Restoring Trade Finance During a Period of Financial Crisis: Stock-Taking of Recent Initiatives

Abstract

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in AbstractThe paper discusses the efforts deployed in 2008 and 2009 by various players, Governments, multilateral financial institutions, regional development banks, export credit agencies, to mobilize sufficient flows of trade finance to off-set some of the "pull-back" by commercial institutions in the period of acute crisis that has characterized the financial sector in the past two years. Given that 80 to 90% of trade transactions involve some form of credit, insurance or guarantee, one can reasonably say that supply-side driven shortages of trade finance have a potential to inflict further damages to international trade. As an institution geared towards the balanced expansion of world trade, the WTO had been concerned with occurrences of market tightening throughout this period. Meetings, experts reported that more than the targeted amount had been mobilized. In the meantime, through the summer and the fall of 2009, the market situation seemed to have eased -although in many countries, access to trade finance by the smaller traders had become either significantly more expensive or had simply disappeared. One can expect the trade finance market to have its up and downs for some time, because lending for trade is a function of the general lending situation of commercial banks. The paper discusses longer-term initiatives aimed at improving the resilience of the trade finance market to short-term and longer-term shocks.

The Great Trade Collapse

“…The access of smaller firms to bank-intermediated finance seems to have been crowded out by larger firms that turned from using international to domestic banks during the crisis. Moreover, even for firms using non-bank finance, they suffered from delayed payments by buyers and shorter payment cycles with suppliers.40 See descriptions of policy measures in Asmundson et al,Auboin (2009), or various chapters inChauffour and Malouche (2011).41 For example, cash-in-advance terms are more often adopted for destinations with weak contract enforcement, so these underlying institutional differences across importers may play a role in explaining differential declines in trade across destinations.…”

What Do We Know About the Relationship between Access to Finance and International Trade?

“…Some estimates suggest that up to 90% of world trade relies on at least one trade finance instrument (Auboin, 2009), although as noted by Love (2011), the source of this figure is uncertain.…”

Inter‐Firm Trade Finance in Times of Crisis

“…With a restricted access to financing and an increased cost, these firms may find difficulties in maintaining their production and trade cycle. Fear that this could accelerate the slowdown of world trade has thus triggered a number of government initiatives in support of it (Auboin, 2009; Chauffour and Farole, 2009). 1…”

“…With a restricted access to financing and an increased cost, these firms may find difficulties in maintaining their production and trade cycle. Fear that this could accelerate the slowdown of world trade has thus triggered a number of government initiatives in support of it (Auboin, 2009;Chauffour and Farole, 2009). 1 The question that this paper aims to address is whether, in a general credit crunch context, trade finance presents features that distinguish it from alterna-I would like to thank an anonymous referee, Jean-Pierre Chauffour, Thomas Farole, Leora Klapper and Peter Simmons for valuable comments and suggestions on the first draft of the paper.…”