Trade's Lending Lifeline

World economic leaders will gather in Washington Saturday for a summit to address the global financial crisis. It is no coincidence that Brazil, China, India and other emerging-market nations have not only been invited to the summit but are expected to play meaningful roles. The credit crunch, which began in the United States, has quickly spread to the developing world. The summit agenda will be dominated by monetary policy coordination and new roles for international institutions such as the International Monetary Fund.

In his Nov. 3 op-ed, "Fairness for Emerging Markets," Kemal Dervis made the case for "making massive credit lines available" to most emerging-market economies. But if we are to limit the depth of the looming global recession, trade finance must also be on the agenda. Cross-border lending by banks based in developed countries fell at a record pace in the second quarter and continued its decline at an accelerated rate in the third quarter.

One casualty is the drying up of trade finance, the lifeblood of $14 trillion annually in global commerce. Wachovia's recent troubles, for example, have already led to a sharp reduction in short-term trade finance lines to Latin America. Other banks are reassessing credit lines for trading with Asia, Africa and Eastern Europe. The credit crisis has moved into trade finance as largely a funding problem.

If bank lines are shut off, it would be devastating for the economies of the developing world. It would also have a boomerang effect on the United States and Europe, as key export markets -- and the jobs that go with them -- disappeared.

Fortunately, there are institutions already built to promote trade finance: export credit agencies. The Export-Import Bank of the United States was established by President Franklin D. Roosevelt in 1934, in the midst of the Great Depression. It is a "lender of last resort" that provides credit lines when private financial markets are not lending. Last year, the bank authorized more than $12 billion in guarantees and insurance to support U.S. exporters.

Export credit agencies have helped mitigate a financial crisis before. In late 1997, banks were unwilling to provide credit to Asia after currency and equity markets there plunged. The U.S. Export-Import Bank confirmed letters of credit issued by 15 South Korean banks to support the purchase of raw materials and spare parts needed by Korean manufacturers. In February 1998, 20 official export credit agencies met in London to encourage each other to remain open and to offer new support to exports to Asia.

The U.S. Export-Import Bank played its part by initiating a new program for South Korea that month. Within nine months, it supported 2,460 transactions worth more than $1 billion for U.S. exporters to sell to Korean firms (up from only $40 million the year before). Similar trade credit programs were launched for Indonesia and Thailand. These special short-term lending and trade credit insurance lines played a catalytic role in helping to build confidence in Asia at a critical time -- and helped the region rebound quickly. None of the Korean banks defaulted, and the entire Export-Import Bank Korean program cost American taxpayers not one dime.

In the coming days, the U.S. Export-Import Bank and other export credit agencies should take the lead in getting trade finance flowing again.

First, the export credit agencies should convene to share information and confirm credit availability for the pivotal months ahead. The World Trade Organization has called a special meeting of trade finance players for Wednesday, and the subject will be a major topic of discussion at next Monday's meeting of the Organization for Economic Cooperation and Development. But Saturday's summit is the venue to push for decisive action.

Second, even though the Federal Reserve Bank's discount window is now available to non-bank institutions, the volume of credit needed suggests it is crucial to find a way for the Export-Import Bank to fund asset-based lenders who support thousands of small suppliers in connection to exports. The bank should institute a new and unprecedented, but temporary, program that provides short-term funding to intermediary lenders.

Third, with credit markets largely closed, traditional financing sources for medium- and long-term commercial export finance are not available. The Export-Import Bank must revitalize its direct-lending programs, but in ways that continue to engage the institutional skills and delivery capabilities of commercial lenders.

It is critical for global prosperity that trade financing -- be it keeping credit lines open, oiling the trade supply chain or direct funding -- remain vibrant during the financial crisis. A concerted effort by the U.S. Export-Import Bank and other export credit agencies can make a meaningful difference in how the real economy responds and recovers.

James A. Harmon, chairman of the Caravel Fund and president and chief executive of the Export-Import Bank of the United States during the Clinton administration.