Move to ease credit crunch

The Straits Times
Nov 23, 2008 | 3:11 PM
Move to ease credit crunch

LIMA (Peru) - ASIA-PACIFIC leaders and the OECD, a forum of the rich nations, have sought to ease extremely tight trade credit for export-driven regional economies amid financial turmoil.

The move came on growing concerns the credit crunch will hit the mostly developing economies in the region which have to keep exports roaring to spur economic growth and help prevent a global recession.

US President George W. Bush, Chinese leader Hu Jintao and other heads of the 21 economies of the Asia-Pacific Economic Cooperation (Apec) forum on Saturday called for trade credit lines to remain open, as they met in Lima, Peru, to finds ways to contain the financial crisis that is taking a toll on economies.

The leaders backed efforts by export credit agencies, international financial institutions and private banks to 'ensure that adequate finance is available to business, including small and medium sized enterprises, and to keep trade and investment flowing in the region', a statement said.

Rapidly-growing East Asia's developing nations depend heavily on trade credit for finance which has been severely hit by a global liquidity crunch stemming from a financial market meltdown.

Experts speaking at a chief executives forum in conjunction with the Apec summit in Lima warned that a trade credit squeeze was threatening to freeze productive sectors of the economy, especially small and medium-sized businesses unable to rely on large balance sheets.

'The issue of trade credit has become an urgent issue of the global economy over the last eight weeks,' said Mr David Hale, a influential US-based global economist who advises investment management companies and multinational companies.

'If we don't address the issue of trade credit, we would see a worsening deterioration of the global trade in the next several months and will have an adverse effect on the Asian economies and large economies and will make this the worst, if necessary, global recession in 2009,' he said.

Ninety per cent of global trade valued at 14 trillion dollars is fueled by trade credit, he said.

The World Bank said recently it would double the limit on trade guarantees to three billion dollars to address the problem 'but the reality is we need' up to 50 billion dollars, Hale said.

'The only place that can come is from the rich nations,' he said, suggesting that US Treasury Secretary Henry Paulson should use a portion of a 700 billion dollar (S$1 trillion) rescue package to help banks ease the trade credit problem.

Mr Angel Gurria, secretary general of the Organization for Economic Cooperation and Development (OECD), said that the forum, which represents the world's richest developed countries, would on Monday reinforce its commitment on trade guarantees.

'We are going to come up with a statement - by all the members of the OECD - and we are going to have about, I hope, 10 of the largest emerging market economies also commiting to the statement,' he told the business forum in Lima.

'We are not going to backtrack on trade credit, on export credit...this is making a huge hole in the world economy and this is something which is very critical, especially for countries that have a high import content on their exports, where you need financing and there are not,' Mr Gurria said. -- AFP