Multilaterals promote single approach

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23 December 2004

Multilateral financial institutions and development banks face a number of impossible tasks. Ensuring commercial trade finance lines remain open in times of crisis is one mission that puts them under pressure to strengthen links with the private sector. When times are good, commercial banks and insurers are only too happy to help. But can multilaterals really persuade the private market not to abandon markets in turmoil?

No matter how popular trade finance may be, there will always be some things that commercial banks and private risk insurers simply cannot do. There will always be some countries off-cover; some tenors too long; some transactions too small. Export credit agencies ? where they exist ? are equally limited in their activities by official mandates and political risk. This creates a gap in supply where intervention is needed, and where multilateral development banks (MDBs) find their niche. These supranational organizations have traditionally played their part in trade finance through direct lending, political risk cover, and guarantees, even if individual strategies have been unclear. However, they have faced criticism for allowing trade finance lines to dry up in times of financial crisis and a concerted effort to counter these accusations has given rise to greater cooperation both between the various multilaterals and with the private markets. Finding the...

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