How Is the Squeeze on Trade Finance, Export Guarantees Etc. Affecting LDCs?
32. LDCs are not alone in feeling the impact of the financial crisis through the constraints it has placed on trade credit. Exporters almost everywhere rely on trade finance which covers some 80 per cent to 90 per cent of global trade transactions. Traditionally, trade finance instruments (letters of credit, guarantees etc.) cover exporters for the period between shipment and receipt of payment. But trade finance requires that financial institutions in the exporting country (normally providing the trade finance) have confidence in financial institutions in the importing country (through which payment is made). The problem right now is that financial institutions everywhere have little confidence in each other. Thus, either liquidity is not present – a USD25 billion shortfall among the largest suppliers was estimated for 2008 out of a total market of USD10 trillion for trade financing [note 13] – or the finance available is expensive. Spreads on short-term trade credit facilities reache
