Credit crunch sees countries turning to barter
Updated
While money may be cheap it is no longer readily available.
The global credit crunch means that raising the money for international trade is increasingly difficult - forcing some countries to resort to bartering. Experts say the return of the barter system is a sign of desperation and brings with it a range of problems.
Presenter: Tito Ambyo
Speakers: Paul Risley, Spokesman for Asia, UN World Food Programme; Dr. James Ang, economics expert, Monash University; Professor Ann Caplin, trade policies expert, University of Melbourne
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AMBYO: The exchanges of goods and services without the use of money, or bartering, is a trading system that for most part of the world is known to belong to the past. But in facing credit crisis, individuals, businesses and even countries are resorting to this system.
Last week, Malaysia signed an international barter deal swapping palm oil for fertiliser and machinery with North Korea, Cuba and Russia.
Trade policy expert, Professor Anne Capling says that international bartering has not been used for a long time and that this is a sign of desperate times.
CAPLING: It's a very inefficient form of trading. It means that the market is not determining prices, the contracts take a really long time to negotiate and in many cases, the deals can't be consummated. And so for that reason, all the major international organisations, like the World Trade Organisation, the IMF, the World Bank have frowned on barter trade. On the other hand it's used when the market fails and clearly in the case of a global financial crisis, as the consequences continue to be felt, we are now likely to be seeing more of this kind of trade, rather than less of it.
AMBYO: And there are signs that we are going to see more of this. Malaysia has started discussions with other countries about other barter deals.
Dr James Ang is an expert on Malaysian economy and he agrees that this is showing that the country is facing a lot of difficulties.
ANG: It is a reflection that the country is struggling to raise finance, to purchase the essential commodities. This is not the first time, it has been done in the past and they continue to work in this direction more barter transactions than with other countries, like Morocco, Syria and Iran. In the short run, it may provide a solution to these credit constraints problem, but the impact in the longer run is very difficult to predict.
AMBYO: But Malaysia's economy is relatively strong. Many other countries in Asia are not only facing credit crisis, but also food crisis.
According to the spokesman for the UN's World Food Program, Paul Risley, these countries are facing even deeper problems.
RIESLEY: I think for relatively wealthy and developed countries, paying for food that is imported or bartering for some sort of product or whatever raw materials that country may have is a very wise move. For much poorer countries and for countries that are just struggling to feed their own populations, it's a very desperate situation when the funding and financing is not available to purchase food on global markets and when they have to resort to bartering basically for commodities, when they are not really sure of what the prices will be in advance and they are forced to essentially bargain with the future harvest of other kinds of crops and other products in exchange for food resources.
Now that's a very tricky situation and it makes it very difficult, but obviously it's a matter of last resort if money capital exchange is not available for those countries. And that's the case for poorer countries, such as Timor Leste, very much the case for the Philippines, which is looking for creative ways to continue importing and certainly for countries in Africa.
AMBYO: If these countries, which are already weakened by food and credit crisis resorted to bartering, the result could unfair, since in bartering system according to Professor Ann Capling, it is usually clear who is going to benefit more.
CAPLING: It's usually said that the stronger, the more powerful partner gets the better end of the deal in a way that is not usually the case when it's simply trade based on currencies.
