Professional Documents
Culture Documents
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Debt and Trade: Making Linkages for the Promotion of Development, a book
co-published by Center of Concern and South Centre, is now available.
After a few years of improvement the debt situation in the developing world has,
under the global economic crisis 2008-09, again taken a turn for the worse.
Rather than an anomaly, this is consistent with the pattern of structural
interdependence between debt and trade that has historically constrained the
economic prospects of developing countries.
As the crisis exposes the fault lines throughout the current model that links
international trading and public debt, nationally and internationally, the material
in this book represents a useful roadmap to the issues that need to be
addressed. Indeed, only crisis recovery measures that dare to reshape the
paradigm linking trade and debt on the basis of the lessons learned can lead to
a more resilient and development-oriented global economy.
Like the previous volume in this series, this one jumps off from the premise that
a holistic approach to policy -making in trade and finance can bring substantial
improvements in ensuring systemic coherence and providing better
development outcomes than an approach that would take such areas in
isolation. This volume singles out debt as an area of finance and lays out the
key areas of concern in linking debt and trade from a development perspective.
It addresses the political and the technical dimensions of linking debt and trade,
the potential and limitation of market access, the problems related to the export
growth-debt repayment link, the effects on debt of foreign investment rules, the
impacts of domestic monetary policy on debt and trade, and issues in the
definition of debt sustainability and factoring trade performance into debt
sustainability assessments.
The publication and the event that it documents were made possible thanks to
the generous contributions of (in alphabetical order) the Agence Francaise de
Developpement (AFD), the Ford Foundation, the Forum for Environment and
Development (Norway), Oxfam Novib, the United Nations Conference on Trade
and Development, the United Nations Foundation and the Swedish Ministry of
Foreign Affairs.
For the full book, table of contents, as well as information on how to order your
own copy, visit http://www.coc.org/node/6530
Check out also the preceding book in the series: Trade-Finance Linkage for the
Promotion of Development, at http://www.coc.org/node/6428
A recent study, "The Implied Trade Revenue Losses from Trade Mispricing",
published by Global Financial Integrity, estimates that average tax revenue
losses to developing countries from trade mispricing that occurs through re-
invoicing was between US$98 billion and US$106 billion annually over the
years 2002 to 2006 (that represented an average loss of about 4.4% of the
entire developing worlds' total tax revenue).
Link: http://triplecrisis.com/category/ask-an-economist
The World Bank is about to draft, for the first time, a Strategy to guide its
engagement on trade issues. If you would like to be involved in a team effort to
produce a collective civil society input into the strategy please let me know by
May 15.
Please find below link to "Making the most of aid: Challenges for Africa's
agribusiness," a recent publication of the OECD Development Centre, POLICY
BRIEF No. 36.
http://www.oecdilibrary.org/docserver/download/fulltext/5kzdkqw5b5s3.pdf?expi
res=1272917075&id=0000&accname=freeContent&checksum=9DEBABC6B4F
AECEB761AD0BB94BD36F2
Summary
Trade and aid policies connect in different points. When it comes to balance
payments, aid flowing from an OECD country to an African country can either
increase or decrease trade between the countries involved, which is not always
probable unless aid is completely used for the purchasing of goods and
services from the donor country. The meaning of this is that aid can be of
positive influence when it comes to increasing saving and financing imports in
the recipient country and of negative influence when it aggravates the so-called
"Dutch disease" effect, which is when aid increases the recipient country`s real
exchange rate and depresses the latter`s non-traditional export as well the
destination of aid in the non-tradable sector, such as public service and
construction.
One of the reasons of the complexity between trade and aid is the non-
conversion of aid into higher payments for imports in African cases, especially
sub-Saharan Africa. A second reason is the causality that might run from trade
to aid flows, making it difficult to form any prior assumption about the sign of
correlation between bilateral aid and trade flows. However, it is important to
highlight the critical role of aid in trade expansion in a recipient country. East
Asia`s experience demonstrates that international assistance supports the
developing economies' trade and growth through financing economic
infrastructure and human resource development, as well as its positive effect on
the countries` policy frameworks and institutional fundamentals (e.g. the case of
China`s recent reform experience) and recently, the Vietnamese economic rise
even though their trade barriers remain higher for agricultural products. East
Asian economic performance has been outstanding comparing to African
economies due to the emergence of a "trade-FDI nexus`` in their trade
practices. Foreign direct investment (FDI) of an export-oriented type plays an
important role in the development of new export bases in investment-receiving
countries as well as in the expansion of trade flows and it also serves as a long-
term financial flow to finance current account deficits.
The experience of six African countries shows that greater and deeper
participation in the global trading system can be achieved through aid-trade
complementarities. On the other hand, for commodity-dependent African
countries, agro-based industrialisation and diversification into higher value-
added food products would appear more promising than moving into traditional,
labour-intensive manufacturing activities.
The latest Report on G20 Trade and Investment Measures, jointly prepared by
the WTO, the OECD and UNCTAD, was submitted last March. (The report is
the second to be prepared since the Group of 20 requested it at the Pittsburgh
Summit last year.)
According to the report, world trade fell in a 12 percent last year. While there is
evidence of a recovery in trade and output, the sustainability of a global
recovery remains uncertain.
In terms of the trade and investment measures taken in response to the crisis -
by this, it refers specifically to trade and investment restrictions of different
kinds-the report registers "no significant intensification." However it warns that,
on account of the job losses, which have taken the unemployment level to the
highest world level ever, the potential for restrictive policy-making remains high.
It quotes WTO Secretariat's research showing that new import restricting
measures since September 2009 would cover around 0.4 percent of total world
imports.
Like in the previous report, a trend towards continued openness and facilitation
of foreign investment flows, rather than the opposite, is noted, while speaking of
"significant risks of discrimination against foreign and non-resident investors
reside in the application of emergency measures." Trade restrictions are also
concentrated in relatively labour-intensive sectors such as minerals and textiles,
with the result that they harm mostly developing countries that have
comparative advantages in these categories of products. In addition, "most of
the fiscal and financial stimulus packages that were introduced to tackle the
crisis and that favoured the restoration of economic growth globally are still in
place" says the report.
In spite of a rather neutral tone that keeps in line with the G20-given mandate,
the report strays away from its neutrality in the recommendations, where it calls
for G20 Leaders to, among other things, "make concrete their many calls to
bring the Doha Round to a rapid conclusion."
BEIJING
Wed Apr 21, 2010 12:18pm EDT
BEIJING (Reuters) - Banking regulators should rethink the rules for trade
finance to prevent the market being suffocated as it recovers from the financial
crisis, the International Chamber of Commerce (ICC) said on Thursday.
The report said planned regulation changes could raise the cost of trade finance
or cut it off for some exporters.
"It is our contention that this approach is unjustified," said the report,which is
based on a survey of banks active in trade finance, the traditional instruments
and relatively secure instruments that keep global commerce flowing.
Banks argue that the current rules do not reflect the short-term self-liquidating
nature of most trade finance, while proposed tougher regulations would require
banks to set aside 100 percent of their value as off-balance-sheet assets,
compared to about 20 percent now.
"It appears that low-risk trade finance instruments are being lumped together
with higher risk off-balance sheet items, without an appreciation of unintended
consequences," the ICC report said.
REDUCED SUPPLY
The report and survey, commissioned by the World Trade Organization, are
aimed at the G20 summit in Toronto in June.
A similar survey ahead of the G20 summit in London in April last year drew
attention to strains in the sector and led to the group approving a $250 billion
two-year trade finance package.
But the financial crisis made banks unwilling to lend to each other and trade
finance was caught up in the panic.
As trade finance dried up, and the price of what was available spiraled,
policymakers feared the drought could choke off economic recovery by
intensifying the contraction in trade.
Economists now believe that trade finance accounted for only a small part of the
contraction in world trade last year, put at 12.2 percent by the WTO,but the fear
remains.
"The economic crisis has significantly reduced the supply of trade finance, both
in volume and value terms, raising fears that the lack of such finance may
prolong the recession," the ICC said.
The survey of 161 banks in 75 countries, one third more than last year, showed
trade finance contracted together with trade.
Although 96 percent said losses in traditional trade finance products were the
same or lower than losses for banking generally, 40 percent said they had cut
trade credit lines for companies and 42 percent had cut them to financial
institutions.
With trade rebounding this year -- the WTO forecasts a 9.5 percent rise -- 84
percent of respondents in the survey expect an increase in demand for
traditional trade finance products and 93 percent are confident they can meet
any increase in demand.
(Reporting by Jonathan
http://blogs.reuters.com/search/journalist.php?edition=us&n=jonathan.ly
nn& Lynn, editing by Lin Noueihed)
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Aldo Caliari
Director
Rethinking Bretton Woods Project
Center of Concern