**Value of trade transactions**

|% change,January|<br>2009 v October 2|008|
|---|---|---|
||Trade finance|Exports|
|Industrialized|-9%|-26%|
|Latin America|-9%|-45%|
|Central Europe|-11%|-40%|
|Eastern Europe|-13%|-55%|
|Middle East/Maghreb|-5%|-26%|
|EmergingE. Asia|-10%|-37%|
|South Asia|-9%|-13%|
|Sub-Saharan Africa|-8%|--|

In a World Bank survey of 60 global buyers and suppliers in early 2009, 40 percent of companies indicated that foreign sales have been delayed or cancelled due to drops in new orders and 30 percent due to difficulties in obtaining trade finance (Arvis & Shakya, 2009). Findings from two other World Bank surveys of 400 firms and some 80 banks in 14 developing countries across five regions<sup>10</sup> indicate that although a drop in demand played a central role in explaining the decrease in trade finance flows, 30 percent of firms, especially SMEs, stated that lack of finance on buyer’s or company’s part to explain the decline in exports (Malouche, 2009). Evidence of liquidity pressure on trade finance has also been reported by the banks participating in the IFC’s Global Trade Finance Program. Major international banks participating in the program have been unwilling to assume a portion of the risk in a particular transaction, leaving the underlying risk to the IFC alone.

Firms most affected are generally highly exposed to the international financial market (e.g., Brazil); SMEs that are being crowded out by large firms in accessing trade finance (e.g., Chile, Philippines); and firms that are highly integrated in global supply chains (e.g., Tunisia, Turkey, India, Indonesia). Firms that are least affected are those in low-income countries with underdeveloped domestic banking system, especially in Sub-Saharan Africa (e.g., Ghana). These developments are consistent with the data released by the Berne Union of export credit and investment insurance agencies, which indicate that, in the last quarter of 2008, new insurance commitments increased strongly for high-income countries and decreased for developing countries. However, the World Bank survey indicates that the biggest financing constraint – particularly for SMEs and firms operating in global supply chains (which generally work through open account methods) – is not access to trade credit (e.g. L/Cs) per se, but rather _pre-export finance_ . It is here where banks have become particularly stringent in their risk evaluation, particularly with regard to emerging market participants and SMEs. As exporters who normally self-finance are forced by the crisis to seek additional liquidity, this may become the most important inflection point of the trade finance “gap”.

Perhaps more important than supply alone, the price of trade finance and the need for securing transactions through guarantees and insurance have increased markedly. Tight credit conditions have allowed lenders to drive up interest rates for their loans in many countries, especially in emerging markets. When banks are under pressure, the capital needed for trade finance may be allocated elsewhere on balance sheets. With no secondary market to offload loans, balance sheets have been constrained. In addition, global currency volatility and more

> 10 Indonesia and the Philippines; Turkey and Ukraine; Brazil, Chile and Peru; Egypt and Tunisia; India; and Ghana, Kenya, Sierra Leone, and South Africa.

10