Tuesday, July 8, 2008

Credit access

"Many studies (e.g. by the World Bank (12) and the IMF(13)) have shown that the opening of developing countries’ markets to the establishment of foreign banks often leads to the weakening of access to credit for small and medium sized industries, thus stifling domestic economic development. The EU has, in previous years, even made GATS requests that some developing countries remove existing requirement of mandatory lending to small and medium enterprises (SMEs).

Practice shows that small and poor farmers are also left behind by foreign banks and insurance companies. Such practice is in contradiction to a broad agreement in the international community, that increasing agricultural production in developing countries will be a key step towards addressing the root causes of the 2008 food crisis. (14) Improving farmers’ access to credit is one key measure to make that possible. In times of crisis and credit crunch, banks tend to lend less, especially to poor and “risky” farmers, thus further undermining food production and aggravating the food crisis. GATS National Treatment and Most Favoured Nation rules also forbid targeting incentives to those banks that are willing to support small farmers.

The promotion and use of futures trading in key agricultural commodities by the financial industry contributes to the high prices making food unaffordable to the poor. Over the past year, India has banned futures trading in key agricultural commodities over concerns that it has caused sharp increases in the price of food staples like lentils, wheat, and rice. However, such an intervention in financial markets to curb speculations on food staples by India or by any country that makes commitments on these financial services, could be challenged under the GATS dispute settlement. (15)"

From the latest TNI newsletter

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