Bulletin Mar 30

To: Organizations addressing Trade-Finance Linkages 1) Rules liberalizing financial services an obstacle to anti-crisis efforts 2) Accreditation for World Bank/ IMF Spring Meetings Open until April 10 3) Trade-finance linkages in G20 Finance Ministers Statement 4) Trade channels critical to the impacts of the crisis in low income countries 5) Big plans for trade finance expansion at the G20

1) Rules liberalizing financial services an obstacle to anti-crisis efforts Last year, at a time that the global financial crisis seemed to be still relatively contained, a large number of civil society organizations warned that "The proliferation of provisions that constrain the capacity of governments to manage the financial sector, the capital account and sovereign debt in a number of trade and investment agreements runs contrary to the interests of developing countries." The basis for this warning were that such constraints were not consistent with the flexibility needed to successfully implement prodevelopment fiscal, monetary and banking policies, such as employment- or exchange rate-targeting, where governments may deem them necessary. They also noted that painful financial crises were the product of exactly the type of policies that such provisions crystallized in legal rules and commitments. (See Benchmark Document, dated June 2008, at http://www.un.org/esa/ffd/doha/hearings/civilsociety/Benchmarks.pdf ) In the last few months, as more analysts agree on the undoubtedly global reach of the crisis, and estimate the crisis rivals the seriousness of the 1930s Great Depression, a growing number of reports is documenting the threat that financial services liberalization provisions in a number of treaties pose to the ability of countries to either counteract the crisis or even take the most minimal protecting measures to mitigate its effects. This evidence is all the more worrisome given the continued insistence by several high level officials of G20 countries in characterizing the trade elements on their agenda at the upcoming London Summit as one of generally "stopping protectionism" and "reviving the Doha Round at the WTO." Whenever these two items are mentioned, they often includesometimes quite explicitly- a holding and continuation of financial services liberalization. The issues raised by restrictions on capital controls are developed by Sarah

Anderson, of the Institute of Policy Studies, in a study called "Policy Handcuffs in the Financial Crisis: How U.S. Trade and Investment Policies Limit Government Power to Control Capital Flows." [1] The study quotes economist Joseph Stiglitz to argue that "the single most important factor leading to the troubles that several of the East Asian countries encountered in the late l990s-the East Asian crisis-was the rapid liberalization of financial and capital markets." Mr. Stiglitz is hardly alone on this, as demonstrated by a list of recognized economists quoted in the study that includes John Maynard Keynes, Robert Rubin and Jagdish Bhagwati among others. Yet, the US government has, if anything, deepened its support for restrictions to capital controls being made binding in all trade and investment agreements it has signed since the East Asian crisis. The current global economic crisis has brought to the fore in a more dramatic way the damaging consequences for countries of signing away their ability to establish capital controls. Some countries have needed to maintain capital controls (e.g., China and Thailand), while others have needed to impose or tighten them (e.g., Iceland, Ukraine, and Argentina). In several countries, the crisis was expressed in severe episodes of capital flight and currency devaluations. Countries that do not have the option of using capital controls are left with few other tools they can use to respond to such outflows. They may be forced to take the weakening step of spending, sometimes in a matter of days, precious foreign exchange reserves built over years of hard economic sacrifice. But capital controls are not the only tool necessary to mitigate impacts of the crisis that that governments may lose as they sign free trade deals. "Taking the Credit: How Financial Services Liberalization Fails the Poor"[2], a study by the World Development Movement, argues that foreign banks' entry and enhanced access in the financial markets of developing countries and the progressive elimination of controls on their activity vis a vis domestic providers has led to 1) Active selection or 'cherry-picking' of high value customers, 2) Benefits for high-value customers, but a decline in the ability of the wider financial sector to reach low-value customers, 3) Less credit available to the local private sector (as opposed to public sector or large firms) 4) Less credit for productive activities; credit for personal consumption increases 5) Distorted behaviour by local banks because of increased competitive pressure and 6) Overall loss of access to affordable and sustainable financial services for key groups and thus a decline in national welfare. More importantly, WDM argues that the ongoing global recession will aggravate the threat of financial exclusion, but that this will get broader and deeper if proposed trade deals between the EU and various developing economies are left unchallenged. In the face of the report's survey of lobbying interests that influence those trade negotiations, the shape of such and the negative distributional impacts

that the treaties will carry are hard to attribute to mere inadvertence. There are many organisations which seek to influence international trade negotiations on behalf of the banking industry and it is clear that the European Union's "Global Europe" strategy has been actively developed with, and supported by, a range of lobbyists working on behalf of the finance sector: the European Services Forum, British Bankers' Association, European Banking Federation, International Financial Services Federation, all in addition to the lobbying directly undertaken by some banks. A more detailed look into one ongoing negotiation that includes financial services, the EU-India FTA, can be found in "EU-India Free Trade Agreement, should India open up banking sector?", a report published by Madhyam and written by Kavaljit Singh.[3] The report states that the crisis, far from stopping European banks from entering the Indian market, is increasing their aggressiveness. "As a counter weight to ailing domestic markets, the big EU-based banks would like to get out of recession by exploring newer markets, where the engines of economic growth are located.... At present, there are very few growth spots in the world and India is still counted among one of them." But, is this good for India ? The report offers extensive documentation of the damage done by the entry of foreign banks in India: less bank branches in rural areas, greater financial exclusion, a rise in unbanked and underbanked regions, a sharp decline in agricultural credit, and a decline in bank lending to SMEs. In doing this, the report also compares those results with the results of a previous phase that involved nationalization of banks in India. Such period saw a dramatic expansion of bank branches in rural and unbanked areas, a growth that has no parallel in any developing country, and that directly owed to the licensing incentives provided under that regime. The credit and savings in rural areas also increased dramatically, lowering the traditional dependence that rural populations had on non-institutional moneylenders for the purpose of obtaining credit. It is worth noting that as the financial turmoil gets worse, the concept of bank nationalization is no longer the taboo that it used to be. Several countries both developed and developing -- are flirting with the concept of bank nationalization while others were forced to partially implement it. Yet, it is not at all clear that this newly-accepted concept would entail the same type of incentives and management measures that India, according to the report, implemented. Indeed, governments that talk about the likelihood of nationalizing banks often add the caveat that this would be done on a "temporary" basis, and the institutions would be quickly returned to the private sector once they have been "cleaned up" -presumably by a subsidy at the expense of taxpayers. The multiple provisions in trade agreements that can increase the likelihood of a financial crisis and make it more difficult to take the necessary measures to

deal with one once it occurs, are also the subject of a "Preliminary Note on Financial Crisis and Trade and Investment Treaties"[4], presented by Third World Network to the Commission of Experts on Financial and Monetary Reform set up by the President of the General Assembly. In addition to the restrictions on capital controls, this report expands on how usual provisions in agreements on trade or investment at all levels, may hamper the ability of states to implement bailout packages, stimulus measures and the regulation of financial instruments. In the light of the evidence, it would be hard not to agree with the study's call for "a blanket review of relevant existing FTAs, BITs and WTO provisions to see which provisions of these rules are now inappropriate given the new understanding we now have on financial liberalisation."and a freezing of all current FTA negotiations including economic partnership agreements (EPAs), until a review of their appropriateness in light of the current crisis conditions takes place. [1] Full study available at http://www.ips-dc.org/reports/#1056 [2] Full study available at Full study available at http://www.ipsdc.org/reports/#1056 [3] Full study available at http://www.madhyam.org.in/Special%20Report%20on%20IndiaEU%20FTA.pdf [4] Link to the full study available at http://www.coc.org/node/6366

2) Accreditation for World Bank/ IMF Spring Meetings Open until April 10

Below is a message from the World Bank/ IMF Civil Society teams, on the subject of reference. Dear Colleagues, The 2009 Spring Meetings of the World Bank and the International Monetary Fund will be held over the weekend of April 25 - 26 at the World Bank and IMF Headquarters in Washington, D.C. As in previous years, the Civil Society Policy Forum, a program of policy dialogues for civil society organizations (CSOs) will be organized on April 2326, 2009. Information about discussions being planned for the Forum will be found on our website closer to the date of the meetings. All CSO representatives interested in participating in the Spring Meetings are encouraged to apply for accreditation as soon as possible to give themselves enough time to obtain a US visa and make travel arrangements. The online

accreditation system accepting applications for civil society accreditation is now open and will close on April 10, 2009. More information about the 2009 Spring Meetings, accreditation procedure, as well as the Civil Society Policy Forum can be found at: http://www.worldbank.org/civilsociety. Please check back regularly for updates. Sincerely, World Bank and IMF Civil Society Teams 3) Trade-finance linkages in G20 Finance Ministers Statement On March 14, Finance Ministers of the G20 countries met in the UK in preparation for the Summit level G20 meeting of April 2 to address responses to the global financial crisis. Below are excerpts relevant to trade. Full communiqué issued in the occasion is available at http://www.g20.org/Documents/2009_communique_horsham_uk.pdf "We have taken decisive, coordinated and comprehensive action to boost demand and jobs, and are prepared to take whatever action is necessary until growth is restored. We commit to fight all forms of protectionism and maintain open trade and investment." "We are committed to helping emerging and developing economies to cope with the reversal in international capital flows. We recognize the urgent need to pursue all options for mobilizing International Financial Institution (IFI) resources and liquidity to finance countercyclical spending, bank recapitalization, infrastructure, trade finance, rollover risk and social support. "

4) Trade channels critical to the impacts of the crisis in low income countries Both the World Bank and the IMF released studies on the impacts of the Financial Crisis on Low Income countries. Below are relevant excerpts of such studies that speak to the important role that trade channels play in the spreading of the crisis to such countries. For the IMF study, please visit http://www.imf.org/external/pubs/ft/books/2009/globalfin/globalfin.pdf

For the World Bank paper , please visit http://siteresources.worldbank.org/NEWS/Resources/swimmingagainstthetidemarch2009.pdf

IMF's "The Implications of the Global Financial Crisis for Low Income Countries " Excerpts LICs are exposed to the current global downturn more than in previous episodes, as they are more integrated than before with the world economy through trade, FDI, and remittances. The crisis significantly impacts these countries through reduced demand for their exports. Since many are commodity exporters, they will be hard hit by the sharp decline in demand for commodities and in their prices. Many LICs are also hit by lower remittances and foreign direct investment (FDI) while aid flows are under threat. (Executive Summary, , 3rd paragraph)

There is a risk that the impact on LICs could be more serious-26 countries appear particularly vulnerable to the unfolding crisis. These include countries heavily dependent on commodity exports, such as oil exporters, as well as fragile states with little room for maneuver. (Executive Summary, , 1st paragraph) Commodity exporters, particularly in Latin America, Africa, and the Middle East, face a sharp decline in commodity prices, putting pressure on external accounts and government finances. (Page3, 2nd paragraph) For countries in emerging Asia-including China-terms of trade improvements from falling commodity prices and macroeconomic policy easing will not prevent a significant slowdown as export demand weakens and investment is cut back. (Page3,3rd paragraph) Near-term metals price prospects depend on construction and investment demand in key emerging and developing economies. (Page4, 1st paragraph) In this context, the fact that domestic rather than export-driven agriculture accounts for a large share of the economy in many countries (particularly in Africa) might help attenuate somewhat the impact of the crisis. (Page5, 1st paragraph)

Trade balance and current account projections are shaped by the collapse of commodity prices, and the anticipated adverse effects of the crisis on LIC exports and remittance inflows. While the net effect could be benign for some net food and fuel importers, the impact is decidedly negative for commodity

exporters.

Financial inflows are subject to large downside risks. For many LICs, current projections show a clear adverse effect of the crisis on inflows of foreign financial and direct investment, and on aid. (Page5, 4th~5th paragraph) Second, import demand will tend to drop, not only as a result of slower growth but also because some declining inflows (such as FDI) have a heavy import "content." And, third, import bills will shrink as a result of lower food and fuel prices. (Page8, 2nd paragraph)

But, the slowdown in global growth will reduce trade, remittances, foreign direct investment,... and these factors will have a major impact on LICs, including second-round effects on the financial sector. (Page8, 3rd paragraph)

As global liquidity conditions have tightened over the past few months, trade financing has been adversely affected. The financial crisis has constrained access to trade financing (e.g., Lesotho, Pakistan, and Sri Lanka) and put upward pressure on cost. LICs' volume of trade financing dropped by 18 percent in the last quarter of 2008. (Page12, 2nd paragraph)

LICs are heavily dependent on trade, which is shrinking because of lower global demand. Many LICs will also be hit by reduced remittances, .... For net importers of food and fuel, the negative impact of these factors will be in part mitigated by the recent drop in food and fuel prices. (Page15, 1st paragraph)

Trade has become a significant source of growth in LICs over the past 20 years. Trade openness, calculated as the ratio of the sum of exports and imports to GDP, has increased substantially since 1991 and has been accompanied by an acceleration of growth. Most LIC exports go to advanced economies, though this share has been declining. (Page15, 2nd paragraph)

The latest projections illustrate the significant negative impact that LICs are likely to face in 2009 via the trade channel. ......The terms of trade are also projected to deteriorate, reflecting the sharp drop in commodity prices. The impact of declining trade in services, by contrast, appears limited. (Page16, 2nd paragraph)

FDI flows to LICs are expected to shrink sharply.....The latest WEO projections show FDI inflows for 2009 falling by almost 20 percent from their 2008 levels, compared to over 10 percent growth that was projected in the April 2008 WEO. Multinationals' reduced profit margins, combined with difficult

financing conditions and volatile commodity prices (FDI in LICs in heavily concentrated in natural resource sectors), have already begun to trigger reduced FDI commitments for 2009-10. (Page20, 1st paragraph)

Lower revenue is a key source of fiscal risk. The slowdown in economic activity and trade will affect fiscal revenues directly, given the reliance of many LICs on trade taxes. (Page21, 5th paragraph)

While all commodity exporters are likely to be hit in 2009, the effect is expected to be particularly marked for oil and mental producers, where the recent price declines have been steepest (e.g., Angola, Chad, Republic of Congo, Mongolia, Nigeria, and Yemen). The downturn has exposed some commodity exporters that embarked on ambitious spending plans on the basis of optimistic revenue assumptions. (Page22, 2nd paragraph)

·Falling export revenue may exert pressure on government expenditures. Commodity export sectors that are hit by lower demand and falling prices may seek government transfers to offset part of the falling revenues. This will happen if commodity marketing boards or state-owned export enterprises are called upon to subsidize domestic producers by maintaining higher domestic prices than the corresponding export prices. (Page23)

·Poverty may increase with the slowdown in growth and falling commodity prices. .....However, in countries that export agricultural commodities, falling commodity prices would cut into rural employment and incomes, thereby increasing rural poverty. The urban poor, however, may benefit as food and energy prices decrease. (Page23)

Simulations of possible further shocks explore the balance of payments effects of lower prices of oil, commodities, and food; lower foreign demand for LIC manufacturing exports; and lower financial inflows. The simulations are simple partial equilibrium exercises to assess the immediate impact on the balance of payments and reserves of the assumed shocks to the trade balance (as a result of lower world market prices and export volumes) and to remittances, FDI, and aid. (Page 26, 3rd paragraph)

The most vulnerable countries are especially sensitive to trade, ... shocks, while FDI appears to be a less important transmission channel. (Page27, 2nd paragraph)

·

The fall in demand largely originates abroad and is transmitted to LICs

through foreign trade as a reduction in exports-mainly commodities-due to lower prices and volumes. (Page29)

Most LICs have pressing infrastructure needs, and protecting or increasing pending in MDG-related sectors such as health, education, water and sanitation, and social protection can help cushion the impact of the crisis on vulnerable household......Existing infrastructure should be preserved by protecting spending on operations and maintenance. (Page30, 1st paragraph)

Countries with fixed exchange rates may face different challenges, with pressure on these arrangements owing to lower net exports, together with, potentially, capital flight and a reduction in available external financing. (Page32, last paragraph)

Protectionist measures should be avoided. Limiting imports through tariffs or quantitative restrictions lowers welfare by distorting incentives, and new barriers can be hard to rescind when the current pressure subside. (Page33, 2nd paragraph)

World Bank's "Swimming Against the Tide: How Developing Countries are Coping with the Global Crisis" Excerpts: Evidence of the toll that the financial crisis is having on middle-income countries is mounting. ......For East Asia, the decline in external demand is partially offset by lower commodity prices and a large fiscal package in China, but the region's export dependence makes adjustment more difficult. In the Middle East, at least until recently, government spending in oil-producing states has been sustained despite a decline in oil prices. (Page 2) Most low-income countries were shielded from the direct impact of the sudden stop in private capital market flows because they have lower access to such flows. ......Many LIC governments rely disproportionately on revenue from commodity exports, the prices of which have declined sharply along with global demand. (Page 3) The dramatic fall in commodity prices is affecting different developing countries differently. ......Of the 39 countries for which the terms of trade improved in the first three quarters, all but two saw a partial reversal in the final quarter. Oil-importing emerging market countries-including many Asian countries-were the top

gainers from the oil price decline, receiving an income boost of some 2 percent of GDP, on average. Many oil exporters, faced with a sharp drop in prices, have been able to draw on saving and reserves accumulated when prices were at historically high levels and indeed many of the countries that gained from recently high prices have been prudent in saving more of their gains than in previous commodity price booms (e.g., Nigeria). (Page 4) Falling demand in advanced economies has had serious implications for global trade, with 2009 expected to experience the first yearly decline in world trade volumes since 1982, the largest decline in 80 years. Advanced country imports are projected by the IMF to contract by 3.1 percent in real terms compared to earlier expectations of no change in volumes, and further downward revision is likely. The counterpart to this is the expectation of a virtually unprecedented decline (of close to 1 percent) in exports from emerging and developing economies. Figure 2 gives some indication of the magnitude of the slowdown in OECD country imports. Although 70 percent of global trade is between advanced countries, developing economies are highly dependent on advanced country markets for their exports. South-South trade only represents about 10 percent of global trade. (Page 4) Deteriorating growth in global trade has been underway for some time. In the last quarter of 2008, trade growth turned negative, raising fears in many corners of a protectionist backlash (Annex 1). Of the 51 economies reporting fourth quarter data for 2008, 36 show double-digit declines in nominal exports relative to a year ago. Many European countries, including the United Kingdom and Spain, as well as developing countries such as Indonesia, Philippines and Turkey registered a drop in exports of 20 percent or more. In October, India registered its first every year-over-year decline in exports (of 15 percent), following growth of 35 percent in the previous five months. In December, Brazil reported its first trade deficit in almost eight years, as exports plunged 29 percent. Data for January are available for only a handful of countries but show a sharp drop in exports relative to levels a year ago. Longer data lags make it difficult to evaluate what is happening to LIC exports, but a partial picture can be obtained by looking at import data from advanced countries. Table 1 suggests that LIC exports are already being seriously impacted, with US imports from LICs in October-November 2008 down almost 6 percent from a year earlier. (Page 5) Weak global demand is compounded by a drying up of trade finance. Traditionally, some 80 percent of world trade is financed through open account transactions, leaving about US$2.8 trillion to be financed using various trade finance instruments. But with no comprehensive data available, an overall assessment of developments in trade finance is difficult. Emerging evidence suggests that the demand for traditional instruments such as letters of credit is strong as international traders, including in advanced economies, are increasingly requiring means of payment that are more secure than open account transactions. (Page 5)

Small and medium enterprises (SMEs) are especially challenged by the deteriorating risk landscape and are being crowded out by large firms who had previously financed international sales on "open account."11 At the same time, the collapse in the supply of trade finance has been compounded by a sharp increase in capital requirements associated with the move to Basel II capital adequacy standards. As a result, the cost of trade finance has increased across the board. According to Dealogic, global trade finance shrunk by about 40 percent in the last quarter of 2008 relative to 2007.13 In total, only 116 trade finance loans (excluding aircraft and shipping) were signed in the last quarter of 2008, the lowest quarterly deal count since 2004. Preliminary results from a recent IMF survey of 40 advanced economy and emerging market banks indicate that there was a widespread increase in pricing of all trade finance instruments relative to banks' costs of funds toward the end of 2008, with major traders paying 100 to 150 bps over trend. (Page 5 ~6) · Expansion of the Global Trade Finance Program (GTFP). The existing program, which offers banks partial or full guarantees on the payment risk in trade transactions, was doubled in size and can now support up to US$18 billion in short-term trade finance over the next three years. Since its inception in September 2005, US$3.2 billion in trade guarantees have been issued in support of 2,600 transactions. Of these, 48 percent were for banks in Africa, 70 percent involved small and medium enterprises, half supported trade with the world's poorest countries, and 35 percent facilitated trade between emerging markets. The expanded facility is expected to benefit participating banks in more than 65 developing countries. (Page 15) · Creation of a Global Trade Liquidity Pool (GTLP). While expansion of the GTFP greatly increases the potential to support trade finance through the use of guarantees, the severe shortage of liquidity has made it difficult for many companies to line up the basic financing to be guaranteed. IFC is therefore working with a number of partners to create a funded Global Trade Liquidity Pool and will seek Board approval for its adoption at the end of March. With the involvement of a number of global or regional banks active in trade finance, the GTLP will fund trade transactions for up to 270 days and will be self liquidating once conditions for trade finance improve. (Page 15) 2. Restore aggregate demand: Without restoring aggregate demand, job prospects will remain poor and unemployment will continue to rise, creating its own cycle of economic, social and political pressures. Key to this will be renewed growth in global trade, with the provision of trade finance a high priority. But one of the greatest threats to increased trade flows is protectionism and beggar-thy-neighbor policies, which need to be resolutely resisted. (Page 16~17) Annex 1: The Protectionist Tide Protectionism remains a serious threat in the current environment. Many

countries are contemplating, or have already implemented, increased protection, which may be difficult to reverse and will slow the recovery. Since the beginning of the financial crisis, roughly 78 trade measures have been proposed or implemented, of which 66 involved trade restrictions. Of these, 47 measures were actually implemented, including by 17 of the G20. In addition, anti-dumping claims and actions increased 20 percent in 2008 relative to 2007; and 55 percent in the second half of 2008 relative to the first half of 2008. Agricultural subsidies, not counted in these numbers, have increased automatically with the recent fall in commodity prices. In addition to changes in tariffs, nontariff barriers, such as licensing requirements and tighter application of product standards, are also being introduced. Governments are also taking measures to support specific industries through potentially tradedistorting measures, including by increasing subsidies as part of fiscal stimulus packages. While government financial support packages do not necessarily distort trade, public intervention targeted at specific exportoriented industries or competing import industries are akin to protectionism and run the risk of starting a subsidy race among nations. In addition, there is a risk that governments providing "bailouts" to domestic banks may exert pressure on those banks to use those resources within their countries rather than to provide trade finance that would go to foreign countries. (Page 18) 5) Big plans for trade finance expansion at the G20 Trade flows continue to decline due to the global financial crisis. As a response, the Group of 20 seems to be considering a big push to step up trade finance provision. Last month there were reports of the Head of the World Bank, Mr. Robert Zoellick, aiming to be able to bring together the World Bank, governments and private banks "to create a $25bn liquidity facility for relatively short 180-day financing for trade." The same reports indicated that the World Bank would underwrite the riskiest part of the lending, while private banks would provide the bulk of the less risky elements. Japan has already moved ahead and launched a USD 1 billion trade finance initiative, to be developed jointly with International Finance Corporation and the Asian Development Bank. This increase comes in addition to the one, reported earlier on this space, of the IFC Global Trade Finance Program, from $1.0 billion to $3.0 billion. But both initiatives may be dwarfed British Prime Minister, Mr. Gordon Brown's, calls for a total of 100 billion expansion of trade finance are heeded. Below find reproduction of more recent news clips referring to the ambitious plans for trade finance expansion in the G20.

TRADE FINANCE MAGAZINE BREAKING NEWS - 19 March 2009 World Bank trade finance fund on the table at G20 The G20 is considering a proposal by the World Bank to set up a $10 billion fund to support trade finance. Due to the global financial crisis, latest estimates suggest that the trade finance market is $100 billion short of demand levels - an increase from an estimate in November 2008 of $25 billion. Both estimates account for the fall in international trade caused by the economic downturn experienced in developed economies. The World Bank-led initiative is to create a $10 billion fund, which, as trade finance loans predominantly have short tenors for repayment, could provide as much $50 billion to the trade market in the course of a year. An agreement is likely to be announced at the G20 summit in London on 2 April. Some 90% of world trade is financed on credit. The $100 billion shortfall accounts for only 1% of the total trade finance transactions per year, but the emerging markets, especially sub-Saharan Africa, are being hit especially hard by the lack of credit. While pricing and availability for trade finance has improved slightly in some markets it remains both expensive and difficult to obtain in others as banks retreat to serving core clients. All material subject to strictly enforced copyright laws. © 2009 Euromoney Institutional Investor PLC. World News: U.S., U.K. Plan Trade Package for G-20 By Bob Davis 730 words 11 March 2009 The Wall Street Journal A8 English (Copyright (c) 2009, Dow Jones & Company, Inc.) WASHINGTON -- The U.S. and the U.K. are putting together a global plan to provide several hundred billion dollars in trade financing to fight the sharpest contraction in global trade since the Great Depression. Government officials in both countries said the initiative will be unveiled on April 2 at the London summit of the leaders of the world's biggest economic powers. It's unclear how much detail will be worked out by then. Under the proposal, the funds would come from the Group of 20 countries, which include industrialized nations and big developing countries. These countries would spend about half of the money to increase funding of their own trade-finance agencies, which help to underwrite exports. The other half would

go to the World Bank, regional development banks and the International Monetary Fund to help finance exports from the world's poorer nations, which often ship to the U.S. and Europe. "We have a framework that calls for everyone working together," a senior U.S. official said. On Friday and Saturday, G-20 finance ministers and central bankers will meet to pave the way for the heads of government. The global decline in trade shuts down a potential engine of growth as consumer spending and industrial production also fall. The effects are felt around the world, but especially in developing nations in Asia and Latin America that depend on exports to the U.S., Europe and Japan for growth. The initiative shows how President Barack Obama is trying to position himself on trade issues. While he campaigned as an opponent of many free-trade deals, he has governed differently, prodding Congress to modify "Buy America" provisions in the stimulus bill that gave preferences to domestic companies. At the London summit, he and other leaders plan a united front against protectionism. Leaders want the World Trade Organization to monitor and publicize protectionist measures, hoping that would embarrass countries into rolling back any new subsidies or other trade restrictions. Falling demand in wealthy countries is expected to produce the first yearly decline in world trade since 1982, the World Bank estimates, and the largest decline in 80 years. Of the 51 countries reporting fourth-quarter data for 2008, the World Bank said, 36 show double-digit declines in exports, compared with a year earlier, using figures that aren't adjusted for inflation. In October 2008, India had its first ever year-over-year decline in exports. In Cambodia, garment manufacturers have laid off 30,000 workers -- 10% of the work force -- in the nation's main export business. The global credit crunch has deepened the problem by raising the cost of trade finance and making it less available. The World Bank report, citing Dealogic data, said global trade finance shrank by about 40% in the last quarter of 2008 compared with a year earlier. Behlen Manfuacturing Co. in Columbus, Neb., said it has several big projects in Russia and Ukraine that are hung up over the lack of financing. The company, which makes grain elevators, said that in the past, customers there could secure financing from either European or domestic sources. "Credit is just much tighter," said Lyle Burbach, president of the company's international division. Dating back to ancient commercial hubs, trade finance -- credit lines, insurance policies and other guarantees -- enable firms in different countries to do business with each other. It's the oil that lubricates the $14 trillion or so in global trade. Export-credit agencies provide guarantees that government will share losses in trade deals that go sour. The World Bank and other development agencies provide similar guarantees in countries too poor to have such export financing. That is usually been sufficient to spur financing. In the current financial crisis, banks are wary of lending to one another, so different types of government financing are being rolled out. In the U.S., the Export-Import Bank has increased its direct lending to banks that use the funds

to finance export businesses. The World Bank is also starting a similar program for poorer nations. Under the U.S.-U.K. initiative, funding for both trade guarantees and direct lending would be greatly increased. --Jonathan Weisman and Timothy Aeppel contributed to this article.

Aldo Caliari Director Rethinking Bretton Woods Project Center of Concern