Inadequate barter system in international trade
Name(s):
Underutilization of non-monetary foreign exchange
Nature
Barter, or countertrade as it has come to be known, is the oldest form of human commerce. It is growing worldwide. Shortages of hard currency, complex and sever exchange restrictions, the debt crisis, weak commodities prices, the collapse of the oil market -- all of these factors have contributed. In 1973 only 15 countries bartered regularly. Now 88 do so. Since barter is subject to much less regulation than monetary trade, no one knows for sure what proportion of global trade takes place in kind. Some experts estimate that the proportion could be as high as 30%. The revival of bartering is seen as a disaster by those who seek to promote free monetary trade. It is a declaration that the system is unviable. The World Bank opposes countertrade because it can deprive Third World nations of the cash and capital resources they need for development. The [General Agreement on Tariffs and Trade] (GATT) sees it as a major factor in the universal trend toward protectionism, in part because a countertrade deal can force one of its participants to accept goods it would not otherwise buy.
Background
Barter as a vehicle for contemporary world trade got its start in postwar Europe, where such trades as Austrian matches for Italian black-market coffee promoted reconstruction. Eastern Europe, long strapped for convertible currency, has long been unable to pay cash for Western-made goods but has offered home-made goods in exchange. The quality of these goods have been often too poor to sell in west European markets. Traders in western Europe have developed an ingenious system of trading and remanufacturing for using Eastern bloc merchandise. Many of these goods now find their way to Black Africa in return for raw materials.
Incidence
Since 1983, anyone selling more than $500,000 in goods to Indonesia is legally obligated to accept Indonesian products in payment. Ecuador, Malaysia, Thailand, Mexico, Brazil and South Africa strongly encourage such deals. The former USSR and Eastern bloc nations would not at that time buy foreign products unless the buyer took bloc goods as at least partial payment. Nigeria's bartering of its excess oil in recent years of declining oil prices has kept the economy from collapse. At the same time, however, it has made a sham of OPEC's ability to negotiate world oil prices.
Claim
Countries with liquidity or hard currency foreign exchange shortages are not able to increase trade quickly by bartering commodities, goods, services, and physical and economic resource development rights owing to the lack of development of common bartering standards and mechanisms. The process of bartering is susceptible to uncertainties and delays as a result.
Aggravates
Reduced by
Type
(E) Emanations of other problems