Bulletin Mar 10

To: Organizations addressing Trade-Finance Linkages

1) Trade dimensions of financial system should be factored into proposals to reform it, say CSOs 2) Position Paper on Trade-Finance Linkages- Call for volunteers 3) New York diplomats continue to debate modalities for UN Conference on Financial Crisis 4) LDCs hold Policy Reflection on Food crisis 5) Put Production over Trade and Finance-South Centre editorial 6) Multilateral regime on currencies needed to stop currency speculation, says UNCTAD 7) Trade -finance linkages in IMF note ahead of G20 Deputies meeting 8) Invitation March 12-- Industrializing amidst a Global Financial Crisis: Is it Possible?

1) Trade dimensions of financial system should be factored into proposals to reform it, say CSOs The Steering Committee of the International Working Group on Trade-Finance Linkages sent a submission to the Commission of Experts on Reforms of the International Monetary and Financial System. Last year, the President of the General Assembly set up a Commission of Experts whose mandate is to reflect on the causes of the crisis, assess impacts on all countries and suggest adequate responses as to avoid its recurrence and restore global economic stability. The Commission, chaired by Nobel Prize-winner economist Joseph Stiglitz will provide critical input for the substance of the High Level Conference on the World Economic and Financial Crisis and its Impacts on Development, to be held this year (this conference was called by the Doha Declaration on Financing for Development, last year, see commentary at http://www.coc.org/node/6282) The Terms of Reference of the Commission explicitly say that "in its deliberations, the Commission will also bear in mind that in an interdependent world, multilateral rules and regulations in trade, debt and finance will have to be mutually reinforcing if they are to underpin financial stability as well as sustainable and equitable development."

Between January 26 and February 13, the UN Non-Governmental Liaison Service coordinated a process for civil society inputs into the Commission. The International Working Group on Trade-Finance Linkages-Steering Committee submitted an input. In its opening lines, the submission argues that: "Trade is the main channel by which the financial crisis is making its impacts felt on the real economies of developing countries. No country can succeed in using trade to develop or reduce poverty without supportive internal and external financial structures. Thefast dissemination of the crisis shows that the fate of developing countries in the trade system does not lie so much in the achievement of enhanced market access as on meaningful reforms to the international financial architecture in which context such trade is conducted. Therefore the trade dimensions and impacts of financial reforms should be factored into any proposed reforms of the global financial system." For the full submission by the International Working Group-Steering Committee, visit http://www.coc.org/node/6349 The full summary developed by NGLS on the basis of all submissions that were received http://www.unngls.org/IMG/pdfNGLS_CS_Consultation_on_Work_of_the_President_s_Commission _on_Financial_Reforms.pdf More information on the Commission of Experts is available at http://www.un.org/ga/president/63/commission/background.shtml

2) Position Paper on Trade-Finance Linkages- Call for volunteers

Building on the submission sent to the Commission of Experts, the International Working Group is in the process of preparing a more complete position paper that can serve to inform advocacy around the linkages between the financial crisis and trade in ongoing processes that are discussing the reform of the global financial system (G20, UN High Level Conference, etc) and that can garner broad sign-ons. A small drafting committee is being formed to that purpose. If you 'd like to volunteer to be part of it please reply to this message by March 14. 3) New York diplomats continue to debate modalities for UN Conference on Financial Crisis As mandated by the Doha Declaration on Financing for Development, modalities towards the UN High Level Conference on the World Economic and Financial Crisis and its impact on Development should be decided by the end of this month. The General Assembly is actively discussing such modalities.

Below is a link to the latest available draft resolution on modalities of the conference. http://www.coc.org/system/files/UN+PGA-Lttr+%2526+Draft+Resolution02-09.pdf 4) LDCs hold Policy Reflection on Food crisis The report from the "Policy Reflection" on the food crisis organized by the LDC Group in the WTO in partnership with the Centre for Socio-Eco-Nomic Development (CSEND), last year in Geneva, is available. It can be found, alongside other materials delivered at the conference, visiting http://www.csend.org/KnowledgeConferences.aspx?id=38

5) Put Production over Trade and Finance-South Centre editorial In Putting Production over Trade and Finance, a reflection piece for the South Bulletin (Issue 31, February 2009) Dr. Yash Tandon says that "One of the most flawed logic of the neoliberal globalization paradigm of the last three decades has been the privileging of trade over industry, and finance over production." Indeed, "production must be financed," he says, but finance is one of several ingredients, including labor, natural resources, entrepreneurial skills. Indeed, markets are important for the distribution of goods. But natural resources, labor power and environmental costs of exploitation are seriously undervalued in the global market. To read the full article visit http://www.southcentre.org/index.php?option=com_content&task=view&id=916&Itemi d=1

6) Multilateral regime on currencies needed to stop currency speculation, says UNCTAD One of the most innovative ideas to reform the global monetary and financial architecture discussed at the Doha Financing for Development Conference was a new multilateral regime to stave off currency speculation and provide the policy space for all countries to pursue expansionary fiscal and monetary policies to protect jobs and their domestic economy (counter-cyclical measures) in the face of a recession or financial crisis. In an interview published by NGLS, Heiner Flassbeck, Head of the Macroeconomic Policy and Globalization division of UNCTAD, explains the proposal and how it would work. Visit http://www.un-ngls.org/spip.php?article670 for the full article appeared in NGLS quarterly newsletter Go Between 118 (December 2008-February 2009) released on 10 February 2009.

7) Trade -finance linkages in IMF note ahead of G20 Deputies meeting

Ahead of the G20 Meeting of Deputies last month, the IMF staff released a note with its assessment of the outlook for the global economy and crisis response measures. Below are excerpts from such note relevant to the linkage between finance and trade. For the full note visit http://www.imf.org/external/np/g20/020509.htm

Excerpts: "The application of substantially different conditions when supporting financial institutions should be avoided in order to prevent unintended consequences that may arise from competitive distortions and regulatory arbitrage. International coordination is also needed to avoid excessive "national bias" to the detriment of other countries." (page.3, 4th paragraph) "World trade and industrial activity are falling sharply, while labor markets are weakening at a rapid pace, particularly in the United States." (page.4, 1st paragraph) "Industrial production has fallen precipitously across both advanced and emerging economies, declining by some 15-20 percent in the last quarter of 2008. Merchandise exports have fallen by some 30-40 percent, at an annual rate, in the past 3 months. Labor markets are weakening rapidly, particularly in the advanced economies. At the same time, inflation is easing quickly across the globe, reflecting the sharp fall in economic activity and the collapse of commodity prices since mid-2008." (page.4, 2nd paragraph) "An easing of capital outflows and some new issues by sovereigns have provided support to weakening currencies. Exchange rates have appreciated in recent weeks and volatility has moderated. However, corporate spreads remain very high, and trade and other corporate finance lines have been cut as major lenders have sharply tightened credit limits or more generally scaled back their involvement in this business segment." (page.6, 4th paragraph) "The strengthening of the yen has been especially notable, as carry trades were unwound in the context of highly volatile markets. As a result, and despite recent weakness in the dollar and the yen, all three major currencies are now on the strong side relative to medium-term fundamentals." (page.7, #5) Tight financial conditions and rising unemployment are expected to dampen consumption and business investment, while falling house prices- particularly in Ireland and Spain-are taking a toll on consumption. (page. 9, 1st paragraph) Japan is experiencing a deep recession. While not at the epicenter of the crisis, Japan's exports have been hit hard by the slump in global demand, aggravated by the

sharp appreciation of the yen. This has contributed to a steep decline in business investment and consumer confidence.(page. 9, 2nd paragraph) "Notwithstanding commitments made by G-20 countries not to resort to protectionist actions, signs are emerging that several countries have raised tariffs and non-tariff barriers to imports and provided subsidies to their export sector. Going forward, if such actions gain greater momentum, economic prospects and recovery from the crisis would be undermined." (page.12, #16) "Some countries have gained access to cross-border liquidity and foreign exchange swap lines, while others have drawn down foreign exchange reserves to meet financing needs. Despite these steps, longer-term funding risks are still rising, especially for the corporate sector, given the drying up of external bond and syndicated loan markets, including with respect to trade credit. As a result, some emerging economies have taken steps to either provide direct financing or guarantee trade related lending." (page.16, 2nd paragraph) "Multipliers also depend on country circumstances, including type of instruments used, trade openness, constraints on borrowing, the response of monetary policy, and long-term sustainability." (page.19. 2nd paragraph) "Finally, the decline in commodity prices could have a sizeable impact on commodity exporters, most notably Brazil, Russia, and Saudi Arabia. Taken together, these effects had a limited impact in 2008, but could imply an estimated 1¼ percent of GDP rise in the fiscal deficits of G-20 countries, on average, in 2009." (page.21, #29) "Major central banks should continue to provide liquidity support to emerging economies with sound fundamentals, including through swap facilities and lines of credit for purposes of trade financing." (page.23, #36)

8) Invitation March 12-- Industrializing amidst a Global Financial Crisis: Is it Possible? If you are in Washington DC or its surroundings, please consider attending the event below (pdf flyer available at http://www.coc.org/node/6346) Center of Concern, Center for Economic and Policy Research and Heinrich Boell Foundation invite you to Industrializing amidst a Global Financial Crisis: Is it Possible? March 12, 2009 3 - 4:30 PM National Press Club, 529 14th St. NW, 13th Floor Featuring as a speaker: Prof. Ha-Joon Chang, Faculty of Economics, University of Cambridge Discussants Mr. Rogerio Studart, Alternate Executive Director for Brazil, World Bank

Mr. Mark Weisbrot, Center for Economic and Policy Research Moderator: Liane Schalatek, Heinrich Boell Foundation In the half-decade that preceded the start of the global financial turmoil, developing countries lived through a period of economic boom. This boom was fueled by an extraordinary increase in export income due, in a large number of cases, to skyrocketing prices for commodities. It did not necessarily reflect an increase in the value-added, or a substantial change towards more industrialized content, of production. Now that the financial crisis put an end to several bubbles, including the one around commodities, important challenges are faced by developing countries. On the one hand, a high degree of commodity dependence and lack of diversification, in economies shaped to strongly rely on exports, conspire to magnify the impact of trade trends on developing countries' revenue. On the other hand, such trends may intensify. In the light of global recession and lower revenue, escalating to products with higher industrial content might become even more difficult, while at the same time more necessary than ever before to secure developing countries' future. The panel seeks to analyze these trends and provide responses to the following questions: In which way does the financial crisis affect developing countries' space to implement an industrial policy? Do revenue losses from lower commodity prices make it harder for them to manage a move towards industrialization? Does the crisis open opportunities for building industrial capacity? Given the context, is it still recommendable that they move towards more industrialized production capacity? If so, what are domestic and external measures that could help them do so? In the light of growing protectionist threats, how relevant to the success of such measures is the degree of access to Northern markets? For any questions or comments please contact Aldo Caliari at (202) 635-2757, x 123 or [email protected] RSVP is not required, but appreciated, by email addressed to [email protected]

Aldo Caliari Director Rethinking Bretton Woods Project Center of Concern