# **Introduction**

In the aftermath of the Lehman Brothers collapse in September 2008, Pascal Lamy, Director General of the World Trade Organization, warned the international development community about the drop in the supply of trade finance, a critical engine for trade transactions. These warnings were supported by the increase in spreads, the spilling of the financial crisis among both developed and developing countries, and by anecdotal stories reported by the press about developing country exporters constrained by trade finance. Tight credit conditions were driving up spreads for trade credits in many countries, especially in emerging markets. Banks were increasing pricing on all trade finance transactions to cover increased funding costs and higher credit risks. At the same time, trade was dropping drastically in most countries, and global trade was projected to decline in 2009 for the first time in decades.

Yet, little was known about the magnitude of any potential shortage or ‘gap’ in trade finance, whether it was mainly demand or supply driven, the real impact on developing country exports, and the type of policies governments and international organizations should put in place to mitigate the impact. To improve information on the impact of the crisis on developing countries, the World Bank has conducted a firm and bank survey on trade and trade finance developments in developing countries during the first quarter of 2009. In total, 425 firms and 78 banks were surveyed in 14 developing countries across five regions.<sup>4</sup> (See Annex 1 for more information on the sample).

The objective of the surveys was to collect field information on how exporters, importers, and banks in developing countries are being affected by the crisis. The analysis has proved to be very insightful, in particular in terms of who is being the most affected and why, as well as what are some of the long term constraints that policy makers should address to better support firms.<sup>5</sup> In addition to the firm and bank surveys, the surveyors collected information on governments’ policy actions put in place to mitigate the impact of financial crisis and global recession on trade finance and trade flows.

The remainder of the paper is organized as follows: Section I reports on trade developments globally and in the countries where the survey was conducted. Section II highlights some key findings from the survey at the firm level. Section III focuses on results from the bank surveys. Section IV reports on the governments’ actions to support trade and trade finance.

**I. Trade developments since September 2008**

According to the World Bank projections as of June 2009, the global economy will contract at an annualized rate of 3 percent and trade in goods and services will shrink by

> 4 The 14 countries are: Indonesia and the Philippines in East Asia; Turkey and Ukraine in Europe and Central Asia; Brazil, Chile and Peru in Latin America, Egypt and Tunisia in the Middle East and North Africa, India in South Asia; and Ghana, Kenya, Sierra Leone, and South Africa in Sub Saharan Africa.

> 5 However, the surveys do not to allow for a comprehensive and robust analysis of the firms’ constraints, and therefore, interpretation of the results should be cautious, including when drawing some generalization and policy recommendations.

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