European Commission President Jose Manual Barroso on Monday called for a global push on trade finance after a meeting with British Prime Minister Gordon Brown in London.
"The voice of developing countries must be heard also in the G20 process. We need now a strong multilateral initiative on trade finance," Barroso said, addressing a key demand of India and other emerging economies at the Group of 20 (G20) nations.
Emerging economy members of G20, led by India, China, Brazil and Russia, say a combination of dwindling credit and protectionist steps by industrialised countries is impacting on global trade, hitting emerging economies particularly hard.
G20 finance ministers at a meeting in Britain last week stressed the need for tapping the resources of international financial institutions such as the International Monetary Fund (IMF) to put more money into trade finance - the oil that lubricates global trade.
India, whose delegation to the meeting was headed by Planning Commission Deputy Chairman Montek Singh Ahluwalia, has been worried by increasing evidence of financial protectionism in some of the world's leading industrialised countries.
These include steps to encourage their major banks to restrict lending to domestic markets.
Barroso's comments came ahead of a meeting of European heads of government next week, aiming to lay down a common European position for a summit of G20 leaders April 2, expected to be attended by Prime Minister Manmohan Singh.
According to a new IMF survey, the cost of trade financing has risen sharply, hitting emerging economies.
More than 70 per cent of banks surveyed by the IMF have increased costs connected with letters of credit and about 90 percent have increased prices of short- and medium-term loans in which goods being traded serve as collateral.
"Although higher costs of trade finance are global, the decline in availability has occurred more in the emerging markets, especially in Asia," Thomas Dorsey, the IMF's division chief for strategy, policy and review, wrote in the latest edition of its Finance & Development magazine.
He said emerging market banks reported on average a six percent decline in trade finance transactions in the closing months of 2008, compared to end-2007.
More than half the respondents said that financing exports to the Middle East and North Africa has actually increased. But a similar proportion of banks said that financing of imports from South Asia, Korea, and China has sharply decreased.
According to the World Bank, global trade financing decreased by about 40 per cent in the last quarter of 2008 compared with a year earlier.