Debt Crisis Helping to Revive the World's Oldest Form of Trade--Barter

From Reuters

Someone, traders' folklore says, once bartered the skeleton of a Mongolian dinosaur for West German trucks.

The Saudis swapped oil for Tornado warplanes. Honduras exchanges bananas for Soviet fertilizer.

Barter, the world's oldest form of trade, is enjoying a new lease on life in the 1980s. And one reason, economists say, is that many nations are strapped for hard currency.

"The volume of counter-trade has a lot to do with the fact that everyone is owing money. They don't have the foreign exchange needed for cash deals," said Jonathan Bell, research manager for Batis Ltd., a London firm providing trade information and research.

Modern counter-trade is a complex business, involving not just bartering goods for goods the way people did before money was invented, but various other kinds of reciprocal trade agreement as well.

There is "buyback," for instance, where a firm gives a country technology and agrees to be paid in goods it produces.

"Offset" involves an exporter agreeing to incorporate in his final product some part or parts produced by the importing country.

The extent of counter-trade, long favored by Communist countries, is hard to measure. Depending who you ask, it could account for anything from 8% to 25% of world trade.

The debt crisis meant demand for counter-trade was increasing as Communist nations and Third World exporters faced the problem of how else they could fund imports.

"My view is that it is not going to get any better," the head of counter-trade at a large British company said.

"I believe that in the 1990s we shall all be searching for alternative ways to do business, not necessarily through counter-trade, but through more creative ways of selling--buyers helping sellers find outlets for their goods, more good will."

Traders often use barter to get around quota agreements, market sources said.

They said Uganda produces more than its annual International Coffee Organization export quota of 142,800 metric tons and barters the surplus with non-ICO countries in the Communist bloc and Third World.

Libya is supplying Uganda with $6 million worth of oil in exchange for 3,000 tons of coffee.

Members of the Organization of Petroleum Exporting Countries use barter to evade cartel-fixed pricing agreements.

Saudi Arabia bartered 400,000 barrels per day of crude oil to Shell and British Petroleum to pay for Tornado and other war planes from Britain worth $8 billion.

OPEC does not approve of barter, but many of its member countries do it, said Bell.

He said the International Monetary Fund is "on a downer on any kind of counter-trade, but they will give their tacit approval to offset deals.

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