Importers in countries where there is a high perception of risk have been unable to obtain the letters of credit (L/Cs) they need to buy coronavirus-related material equipment they need according to a counsellor in the World Trade Organisation's (WTO's) Economic Research and Statistics Division.

Mark Auboin was speaking at a new podcast posted by the European Bank for Reconstruction and Development (EBRD) during which panellists discussed how the coronavirus pandemic has broken supply chains, closed off borders and disrupted international trade routes.

Economic shock

Auboin said that when there is an economic shock - such as in the 2008/09 financial crisis - the very large financial institutions tend to retrench and to select their risk. "There is a so-called flight to quality, which means essentially that they serve their clients first," he says.

As a result, since the outset of the coronavirus crisis, countries where there is a high perception of risk have been cut off from international credit lines he says.

No L/C confirmation

"When they wanted to import Covid-related material and equipment, they could not get L/Cs confirmed by international banks.

Likewise, when they wanted to export, they could not get pre-export finance, which means they could not," Auboin concludes.

This article represents the views of the author and not necessarily those of the ICC or Coastline Solutions.