Abstract

Are declines in externally provided trade credits a serious problem for a country’s crisis resolution efforts? My answer, in short, is yes. Trade credit lines are short term in nature and routinely rolled over under normal circumstances. However, when a country enters into a crisis, foreign lenders tend not to renew such credit lines for fear of being caught up in some form of suspension, or simply because of concern about greater default risk by firms now facing more difficult circumstances. Similarly, official bilateral export credit agencies also tend to curb lending during crises following general prudential guidelines.