April 22, WORLD BANK INSTITUTE Promoting knowledge and learning for a better world

Transcription

1 WORLD BANK INSTITUTE Promoting knowledge and learning for a better world April 22, 2009 Trade Finance in the context of the Global Financial Crisis A World Bank Institute s Global Face to- Face Course 1 5 June, 2009 Washington, D.C. Course Type Face to Face Date June 1 5, 2009 Location World Bank Headquarters 1818 H Street, N.W., Room MC C2-131, Washington, D.C , USA Context Because firms rely heavily on bank-financed trade credit to support their exports and imports, trade finance has long been an important component of international financial flows in support of trade. Thanks in part to rapid expansion of traditional sources of financing (both short and long terms), trade has been a critical factor in the significant gains made by developing countries over the past decades. 1 The current global financial crisis threatens to significantly erode progress and global integration made in recent years. While until the 1997 Asian financial crisis trade finance used to be more resilient in period of financial stability, trade finance has become extremely sensitive to liquidity squeezes as shown in the current global financial crisis; 1 In terms of GDP growth and integration of developing countries into global markets

2 with trade credit contractions worldwide being one of the earliest signs of the impact of the global credit crunch on trade credits and overall trade. As the life line of trade, trade financing provides fluidity and security to the movement of goods and services worldwide. Trade financing encompasses simple and traditional forms of credits, some dating back to the middle ages to enable exporters and importers to fund their shipments. More than 90% of trade transactions involve some form of credit (mostly short term), insurance or guarantee. Although trade finance is one of the most secure modes of finance due in part to its short term maturity and other key factors (knowledge of the parties to each other and their bankers and loan against physical cargo funded), trade financing has been tightening following the ongoing global credit crunch. As is now well established from the financial crisis of several countries in recent times (Indonesia in 98, Brazil in 1999, Argentina in 2002, Turkey in 2001), a generalized credit crunch can affect imports and exports to the point of stoppage. The ongoing global financial crisis has impacted adversely on the ability of banks to offer trade credit in several ways: banks are overly cautious to lend due to capital constrain; borrowing cost have increased sharply; banks are reluctant to provide letters of credit to importers, resulting in the suffocation of normal trade; capital requirements under BASEL II are three times higher for emerging market credits than developed market borrowers. Because of shortage of funds, trade finance costs have soared and the costs of some deals are now more than six times what they were before the crisis. Against this background, the availability of trade finance and particularly short- term finance in periods of international crisis has become a matter of serious concern for developing countries trade policy makers and trading communities. Looking ahead, it is widely believed that contraction in trade credit will erode much of the trade progress made in developing countries in recent years with global trade projected to contract in 2009 for the first time since 1982; with exports and imports expected to be slowed considerably and many economies weakened. This course is offered by the World Bank Institute Poverty Reduction unit (WBIPR), and Finance and Private Sector unit (WBIFP) as part of their learning program to help countries understand the above challenges and possible mitigating policies. Objectives and Target Audience The course is targeted at senior trade finance policy makers in developing countries government and private sectors, as well as their advisors, private sector operators/ exporters and export Industry associations, representatives of export support institutions (e.g. export credit agencies, Ex-Im banks, Central Banks), and researchers. The course aims at providing participants with useful insights and better understanding of: (i) Rationale for Proactive public policies in trade finance. Drawing from the lessons of experience of successful exporting countries, proactive public policies could be fulfilled in terms of assistance and support to export financing and development of efficient financial markets in order to attenuate/alleviate the lack of trade finance in developing countries. Possible proactive public policies could also contribute to trade expansion and facilitation, by mitigating market failures and information asymmetries in developing countries with poor financial markets. (ii) Trade finance markets traditional and new tools used in both short term and long term in meeting the working capital and other needs of exporting companies. This could be 2

3 achieved by providing a better understanding of trade financing instruments (e.g. Documentary Letters of Credit, Counter Trade, Factoring, Pre-Shipment and Post-Shipment Financing, Buyers and Suppliers Credits), as well as hands-on practical exercises on Export Credit Insurance (to protect exporters and mitigate the financial impact of risks on the exporter) and Export Credit Guarantees (to protect export financing banks from losses they may incur stemming from the provision of funds to exporters). (iii) Implications and impact of the global financial crisis on trade finance based on recent country experience and previous financial crisis. (iv) Necessary policy actions and possible roles at the national, regional and international levels to mitigate the impact of the global financial credit crunch on trade finance. Course Fees Participants from Least Developed Countries (LDCs) and International Development Association (IDA) countries will be assessed a $100 tuition fee. Participants from other developing countries will be assessed a $200 fee, and participants from developed countries and donor agencies will be assessed a $400 fee. Travel and Accommodation Participants are expected to make their own individual travel and visa arrangements. WBI will provide assistance with hotel reservations near the Bank, but participants will be responsible for all accommodation and subsistence costs. WBI will also supply required information to U.S. consular offices abroad to facilitate visa applications. A very limited number of sponsorships are available to cover costs of travel and accommodation for exceptional candidates from developing countries. Application Follow the links below to apply for the course: For External Applicants, please go to: For World Bank Staff Members, please go to: Permanent address of the Event s webpage: Last day to Register: May 15,

4 Tentative Schedule Day 1 (June 1): Trade Finance Constraints in the context of the Global Financial Crisis 8.30 am 9.00 am: Breakfast 9.00 am 9:15 am: Opening remarks by WBI VP S. Pradhan Impact of the ongoing Global Financial Crisis on Trade Finance: Early Trade Policy responses. This session chaired by the International Trade Department/ PRMTR will provide an overview of the recent developments in trade finance and the global trade finance crisis and early policy responses from developed and developing countries. This session will be followed by a panel of major trade finance bankers in the US and representative of the US Bankers Association of Trade and Finance (BATF). Chair: Mona Haddad Donna Alexander, President BATF Michael F. Quinn, Managing Director, Global Trade Services, JPM Farhad Subjally, Director, Trade Finance, Standard Chartered Bank am am: Coffee Break : Role of Trade Finance in Export Development/ Diversification and Growth This session will provide an overview of the rationale for trade finance at the firm level, as well as the role played by trade finance in international capital flows. How has trade finance been financed in the world and what are the differences between developed and developing countries? How did trade finance evolve over time at the firm level and at the macro/global level, and what are the prospects in the years ahead? Chair: Ms. Roumeen Islam, Manager, WBIPR Professor Yoon-shik Park, School of Business, George Washington University And Ismail Dalla, Visiting Scholar, GEFRI, George Washington University am pm Luncheon 4

5 1.40-pm 3.40 pm: The Impact of Global Financial Crisis on Trade Finance This session will assess the impact of the global economic crisis on access to trade finance and review how trade opportunities and policies are undercut by a variety of national and international problems including unstable capital flows, unsustainable foreign exchange indebtedness, and threat of recurring financial crisis and loss of confidence. Chair: Ms. Roumeen Islam, Manager, WBIPR Mansoor Dailami, DEC Tom Dorsey, IMF Carmen Reinhart, Professor of Economics, School of Public Policy and Department of Economics, University of Maryland (tbc) pm-4.00pm: Coffee break 4.00 pm-5.30 pm: Companies Seeking to Export: Dealing with Export Finance Constraints and Gaps on Export Finance markets This session will review the types of constraints faced by exporters in accessing trade financing as credit constraints faced by exporters hold back their ability to contribute to economic recovery and growth. These constraints include: basic exporter creditworthiness, infant industry type of constraints, insufficient understanding among exporters about financial management, underdeveloped and/or non-competitive financial systems, poor skills among trade finance intermediaries, insufficient market information/sources for evaluating exporter creditworthiness, buyer risk, the secured lending and bankruptcy regimes, monetary and financial sector supervisory and prudential policies, differences between national legal and market practices and internationally accepted conventions, norms and practices in export contracting and export financing, the presence of high levels of different types of lending risk in all or some part of the export cycle, low outreach, lack of trained bank officers, limited skills in financing new areas of exports, e.g. music, professional services, and now, commodities, bureaucratic and administrative delays, lack of full understanding on the part of exporters / banks, regarding the functioning of export finance schemes and availability of export credit, concessional rates on export credit, limited understanding of risks associated with exports including credit risk, market risk, commercial risk, liquidity risk, exchange risk, political risk, policy risk etc. Chair: Arvind Gupta, Lead Finance Specialist WBIFP Lakshmipati Rao Viriyala, Professor of Economics, GITAM Institute of International Business (India) 5

6 Day 2 (June 2): Trade Finance: Old and New Tools and Practical Country Cases 8.30 am 9.00 am: Breakfast 9.00 am am: Overview and Practical Cases of Old Trade Finance Tools This session will present and discuss the range of old trade finance tools from the simple documentary collection and documentary credit (letter of credit), to open accounts, Counter Trade, Pre-Shipping and Post-Shipping Financing, Buyers and Suppliers credits) will also be reviewed. Because trade finance has been recognized as one of the important parameters helping export development and diversification from the developing countries, the session will discuss successful cases of the use of trade finance tools and best practices to draw lessons for the developing countries in their export effort. Given the need to focus on issues at the firm level, this session could also highlight: Main and special features of an export contract, export cash cycle, export profitability and export risks. What types of financing are required by firms to develop, execute and sustain an export sales strategy? How does trade finance fit in within the overall financial and financing structure of the firm? Business, operational and financial characteristics of exporters --- special features of exporters in comparison to non-exporters. What are the properties of the main trade financing instruments in terms of purpose, benefits, cost, timing, risk, organizational and legal structures, product categories, etc? Chair: Arvind Gupta, Lead Finance Specialist WBIFP Margrith Lutschg-Emmenegger President, FIMBANK plc, Malta, a global Trade Finance company am am: Coffee Break : Overview and Practical Cases of New Trade Finance Tools This session will provide an overview of new types of Trade finance tools frequently used. (e.g., Factoring, Forfeiting, structured trade, commodity finance, and supply chain finance. Hands-on practical exercises on new trade finance tools, as well as Export Credit Insurance (to protect exporters and mitigate the financial impact of risks on the exporter) and Export Credit Guarantees (to protect export financing banks from losses that may occur from providing funds to exporters, will also be presented. Chair: Arvind Gupta, Lead Finance Specialist WBIFP 6

7 Margrith Lutschg-Emmenegger President, FIMBANK plc, Malta, a global Trade Finance company am pm Luncheon 1.40-pm 3.40 pm: Overview and Practical Cases of New Trade Finance Tools This session will continue with a presentation of new trade finance tools frequently used in meeting the working capital and other needs of exporting companies like pre- and postshipments finance, structured trade and commodity finance, supply chain finance, and factoring and forfeiting. Margrith Lutschg-Emmenegger President, FIMBANK plc, Malta, a global Trade Finance company 3.40 pm-4.00pm: Coffee break 4.00 pm-5.30 pm: Practical Cases and Lessons of Experience of Successful Trade Finance Strategies in Developed Countries and Successful Emerging Economies The session will assess how trade finance tools are used in successful exporting countries, and draws lessons for export development and diversification effort of developing countries. The session will focus on hands on analysis and practical cases. The session will highlight measures to facilitate the financing of trade not only in times of crisis but also on necessary structural changes to enhance the efficiency of capital markets, diversify risks (i.e. risk sharing among ECAs, private insurers, and multilateral institutions) and improve the functioning of capital market structures for trade finance (i.e. development of country s legal infrastructure, asset backed securitization funding structures to reduce reliance on international commercial banks for trade finance; increase use of domestic liquidity to fund trade finance). Chair: Arvind Gupta, Lead Finance Specialist WBIFP Ricardo Coreces, World Bank Consultant Sergio R. Saichin, Vice President, Treasury Services, JP Morgan 7

8 Day 3 (June 3): Trade Finance: the Role played by Institutions and Practical Policy Recommendations 8.30 am 9.00 am: Breakfast 9.00 am am: The role of Domestic Institutions (Export-Import Banks, Export Credit Insurance and guarantee organizations / ECAs/ Central Banks, Export development and diversification into new products and new markets have been recognized as essential for the developing countries. This requires efforts on several fronts, including trade finance. Institutions at the national, regional, and international levels assist the developing countries with trade finance. This session will discuss the role played by export credit agencies (ECAs), which comprise export-import banks and export credit insurance and guarantee organizations, and Central Banks. Chair: Arvind Gupta, Lead Finance Specialist WBIFP Lakshmipati Rao Viriyala, Professor of Economics, GITAM Institute of International Business (India) am am: Coffee Break : The role of Regional and Multilateral Organizations in Trade Finance (AfDB, ADB, EBRD, Inter-American Development Bank (IDB), Islamic Development Bank (IsDB) This session will review the role played by Regional institutions such as Asian Development Bank (ADB), African Development Bank (AFDB), European Bank for Reconstruction and Development (EBRD), Inter-American Development Bank (IDB), and Islamic Development Bank (IDB), as well as the role of multilateral institutions such as World Bank, IFC, International Trade Centre (UNCTAD / WTO), UNCTAD, Berne Union and Prague Club, International Chamber of Commerce (ICC), and OECD. Chair: Daniel Bolschun, Principal Banker, EBRD Joao Vianei da Silva, Senior Trade Finance Officer, IADB Ismail Dalla, Lead Consultant, DECPG am pm Luncheon 8

9 1.40-pm 3.40 pm: Discussion panel with EX-IM Banks active in the Washington area (India, Korea, Japan, European EX-IM/ export support institutions (UK, Italy?) and US EX-IM Bank) John McAdams, Chief Operating Officer and Senior VP, Export Finance, US Exim (tbc) Steve Howlett, Senior Vice President, GE Capital Market Services Korea or Indian Ex-Im 3.40 pm-4.00pm: Coffee break 4.00 pm-5.30 pm How can Investors mobilize Trade Finance in Low Income countries to break into new geographic and products markets? This session will summarize what investors could do in the context of the ongoing global financial crisis to secure trade financing. What are options available and the potential role of various stakeholders (private sector, domestic and international commercial banks, Central Banks, ECAs, etc ) Michael Bickers, Managing Director of BCR Publishing Ltd, UK Day 4 (June 4): The Future of Trade Finance and Appropriate Policy Responses at the National, Regional, and International levels am 9.00 am: Breakfast 9.00 am am: Boosting Availability of Trade Finance: WTO rules and Trade Financing This session will provide an overview of areas where WTO rules and frameworks can help improve trade financing in periods of crisis (e.g. supply of financial services as defined in the GATS, implications of the Agreement on Subsidies and countervailing measures for credits, guarantees and insurance provided by government or public bodies of export credits, insurance or guarantees, implications of WTO discussions on investments and trade credits). Marc Auboin, WTO (from Geneva) am am: Coffee Break : Implications of the present Global Financial crisis on the Future of Trade Finance 9

10 This session will summarize the impact of the ongoing global financial crisis and prospects on directions of trade finance based on a market study and analysis of trade finance practices in the Philippines, Indonesia, Vietnam, Cambodia and Lao PDR, as well as on-site trade appraisals conducted for banks in each of these countries. Chair: Ricardo Coreces, World Bank Consultant John Ahearn, Managing Director, Citi Markets and Banking (tbc) Steve Tvardek, Director, Office of Trade Finance, Department of Treasury am pm Luncheon 1.40-pm 3.40 pm: Looking Forward: Lessons learned from previous financial crisis and Implication for ongoing and future financial crisis This session will draw lessons learned from preceding crises (The case of the 1997 Asian Financial crisis, Russia crisis, Brazil 1999, Turkey 2001, Argentina 2002) in dealing with disruptions of trade resulting from the drying up of trade finance during periods of financial crisis and Implications for ongoing and future financial crisis. These lessons include: macroeconomic adjustment policies, strength of domestic banking systems, support to pre- and post shipments export financing, role of key players, design of successful initiatives in term of timeliness, pricing, and flexibility. The session will overall focus on initiatives taken to deal with liquidity shortages, risks perceptions, confidence gaps and collective action problems and involving the private sector, governments, multilateral financial institutions, and official bilateral credit agencies. Carmen Reinhart, Professor of Economics at the School of Public Policy and the Department of Economics at the University of Maryland. (Tbc) Michael Bickers, Managing Director of BCR Publishing Ltd, UK 3.40 pm-4.00pm: Coffee break: 4.00 pm-5.30 pm Preparation of Country Cases and Lessons Learned by groups Day 5 (June 5): Presentations of Country Cases and Lessons Learned by 10

11 Participants 8.30 am 9.00 am: Breakfast 9.00 am am: Presentation of Country Cases and Lessons Learned by all Participants in small groups Part I (Africa, Latin America, Middle East) / with Q/A session, Feedback/ Inputs from Resource people/ Course presenters/ Moderators. Building on teaching materials covered during this course, this session will give the floor to participants organized in groups, to summarize how lessons learned in this course could be applied in their own countries. Speakers and Professors will be available to answer questions or clarify some policy recommendations. Professor Carmen Reinhart, Mansoor Dailami: Professor Lakshmipati Rao Viriyala, Margrith Lutschg- Emmenegger, Michael Bickers, Managing Director of BCR Publishing Ltd, UK am am: Coffee Break : Presentation of Country Cases and Lessons Learned by all Participants in small groups Part II (ECA, South Asia, East Asia)/ with Q/A session, Feedback/ Inputs from Resource people/ Course presenters/ Moderators. Building on teaching materials covered during this course, this session will give the floor to participants organized in groups, to summarize how lessons learned in this course could be applied in their own countries. Speakers and Professors will be available to answer questions or clarify some policy recommendations. Professor Carmen Reinhart, Mansoor Dailami: Professor Lakshmipati Rao Viriyala, Margrith Lutschg- Emmenegger, Michael Bickers, Managing Director of BCR Publishing Ltd, UK am pm Luncheon/ Distribution of Certificates and End of Course Chaired by WBI VP, S. Pradhan Course Stafff 11

12 Director: Salomon Samen, PhD, Poverty Reduction and Economic Management, World Bank Institute Coordinator: Raymond K. Boumbouya, Poverty Reduction and Economic Management, World Bank Institute Administrative Assistant: Vasumathi Rollakanty, Poverty Reduction and Economic Management, World Bank Institute For any question regarding this course, please contact: Salomon Samen, PhD Course Director WORLD BANK INSTITUTE Tel: ssamen@worldbank.org Raymond K. Boumbouya Vasumathi Rollakanty Course Coordinator Administrative Assistant World Bank Institute World Bank Institute Tel: Tel: rboumbouya@worldbank.org Vrollakanty@worldbank.org 12