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Liquidity Gap in Global Trade

WTO's Lamy urges action by governments, banks, and export agencies.

GENEVA — World Trade Organization director-general Pascal Lamy is calling for steps to cope with the growing gap in global trade finance that is adversely affecting exporters, especially from poorer nations.

“The market currently estimates the liquidity gap in trade finance at about $25 billion — this is a sizable sum,” Lamy told WTO member countries at the end of a special meeting Wednesday with experts from the International Monetary Fund, the World Bank, major private banks such as J.P. Morgan Chase & Co. and Citigroup, and export credit agencies.

“If trade finance is not tackled, we run the risk of further exacerbating this downward spiral,” said Lamy, adding that access to such credit at affordable rates “must be maintained in such critical times to ensure that international trade can continue to play its shock-absorbing role.”

He said the view expressed by traders at the meeting is that “the situation is likely to deteriorate in the months to come.” More than 90 percent of global trade transactions involve some form of credit.

During the Asian financial crisis in 1997, the sudden cutoff in credit lines for the financing of imports and exports led to a collapse in trade at the height of the meltdown.

In the current crisis, Lamy said even though the slowdown in trade has seen a decrease in demand for trade financing, there has been an even bigger fall in the supply of credit liquidity.

The World Bank has announced that its private arm, the International Finance Corp., would boost its global trade finance program to $3 billion, up from $1.5 billion at present. But the World Bank predicted that world trade in volume will contract 2.5 percent in 2009, down sharply from the expected 5.8 percent expansion this year, as global growth is forecast to expand by only 1 percent, down from this year’s estimated 2.6 percent.

The contraction would be the biggest since the global recession in the early Eighties.

Rich nations are expected to see their international commerce shrink 0.1 percent, while real output in developing nations will expand by only 4.5 percent, down from a projection of 6.4 percent, the World Bank said.

By comparison, the IMF estimated this month that world output would gain 2.2 percent next year, with rich nations posting a decline of 0.8 percent, while emerging nations would boost output by 5 percent. The IMF said growth in the volume of trade in goods and services would slow to 2.1 percent, compared with this year’s expected 4.6 percent uptick.