Citi supports IFC trade plan

CITIGROUP will today unveil a $1.25bn (&pound;760m) funding partnership with the International Finance Corporation (IFC) as it pledges to support attempts to unfreeze world trade flows.<br /><br />The tie up is part of the $50bn initiative announced by the IFC, the private sector arm of the World Bank, in April. <br /><br />It is understood that $750m of the funding will be channelled to banks in emerging markets in Asia, the Middle East and Latin America, with an additional $500m being invested by the IFC and other development groups.<br /><br />These banks should then be in a position to lend to trade clients &ndash; importers and exporters &ndash; opening up trading flows and helping to fuel recovery in their local economies.<br /><br />Citi&rsquo;s commitment to pump money into short-term loans is a positive sign that banks are willing to re-enter developing markets and gives the bank the lead over competitors in capitalising on the credit crunch.<br /><br />Up to 90 per cent of the $13-14 trillion in world merchandise trade is funded by trade finance &ndash; through letters of credit &ndash; traditionally one of the simplest and safest forms of credit. But during a credit crunch banks tend to reduce their exposure as a defensive measure, decreasing short-term trade lines.<br /><br />As cash flow problems at exporters and importers become more severe, and they are less able to access cheap short-term finance to cover immediate needs, banks may be less willing to extend trade credit and reluctant to agree alternative forms of finance.<br /><br />In times of crisis, imports are critical to a country and exports can generate supportive foreign exchange.