"Financial crisis wake-up call"- Pascal Lamy, WTO
Mr Pascal Lamy, DG, WTO
Speech of Mr Pascal Lamy, Director-General of World Trade Organisation delivered to WTO ambassadors on 12 November, 2008
"The world is experiencing one of the most severe financial crises in modern history, with its epicentre in the United States and spill-over effects for major financial centres around the world. The correction of asset values is so strong that it has systemic implications on the soundness and safety of the entire international financial system.
Governments, central banks and regulatory authorities are acting on several fronts, injecting liquidity, re-capitalizing and restructuring financial institutions, and stopping risky behaviour that could further precipitate markets into depression.
Beyond this, the realization that an over-grown financial system had developed “bubbles”, based on poor assessment of risk and questionable use of ample flows of liquidity, has been raising questions in countries and internationally about the need to provide a stronger skeleton to the international financial architecture.
The financial crisis that we experience is a wake-up call indicating that the world economy cannot grow above the limits of its real production, and that feeding it by debt and liquidity may only provoke severe corrections.
This is not the first shock witnessed by the multilateral trading system. Despite its young age, the WTO has already faced previous episodes of financial crises, and has shown resilience. By keeping markets open during periods of financial and external payments crisis, the multilateral trading system has shown that it can give a chance to crisis-stricken countries to recover through trade.
However, we have also learned from these periods that, to do so, access to trade finance at affordable rates must be maintained in such critical times to ensure that international trade can continue to play its shock-absorbing role.
After the Asian crisis and in other cases of an abrupt interruption of trade credit lines by international banks to some crisis-stricken countries, the WTO, in partnership with the IMF and the World Bank, formed an informal group of experts from regional development banks, credit insurance agencies and international banks involved in providing trade finance facilities of one kind or another.
Under the banner of “coherence”, the aim was to seek options to deal with the scarcity of trade finance during periods of crisis and what appeared to be a trend to withdraw from smaller developing countries' markets. Since then, the WTO has hosted meetings periodically to discuss how to address these shortcomings, the last one in April 2008. We sensed rising costs and liquidity shortages which were already hitting trade finance for particular developing countries and least-developed countries.
The meeting that I chaired this morning, with representatives of private banks, international financial institutions and exportcredit agencies, has confirmed that the market for trade finance has severely deteriorated over the last six months, and particularly since September. Two key problems were identified.