Stalled trade finance threatens global economy

A seizure in trade financing threatens the world economy and big banks must begin lending again soon to avoid "horrendous" consequences, a senior official at the World Trade Organisation said yesterday.

Richard Eglin, director of the trade finance division of the WTO, said big banks like Citigroup and HSBC were preparing to gather in Geneva on Wednesday for a crisis meeting with WTO officials ahead of a Group of 20 advanced and emerging nations summit in Washington two days later.

Trade officials and the banks hope to reinvigorate a $10 trillion market for short-term lending used by exporters and importers to cover costs of shipping everything from soyabeans to auto parts.

"It is essential that liquidity is injected into this market," Mr Eglin said on the sidelines of a World Economic Forum meeting held in the Gulf Arab financial centre, Dubai.

"We've seen the cost of credit go up, and that's if you can even get ahold of it," he said. "That's causing real friction."

Banks and the WTO will assess the depth of the crisis and devise solutions, and may take a request to the Washington meeting, he said, where some European leaders hope to launch an overhaul of the global financial architecture.

The consequences to stalled trade finance are already apparent, Mr Eglin said, with shipments delayed and exporters struggling to find short-term loans.

"Trade stops. The conseqences of that are horrendous. It's clearly essential," he said.

Developing countries are suffering the most from the stalled trade finance market, which is concentrated in the hands of the world's biggest banks such as J.P. Morgan, Royal Bank of Scotland, Commerzbank and ING.