ABSTRACT
The rising protectionist pressures that threaten world trade have some of their roots in a malfunctioning of the international financial system; yet trade must expand to safeguard the financial system and ensure longterm global economic growth. The distinction between trade and financial issues was always artificial, but until the late 1960s it worked fairly well. The growing importance of the links between trade and financial policy simultaneously creates new dangers and new opportunities. The chapter provides some of the linkages between trade and financial policy, the risks created by these linkages, and policy options for minimizing the risks. The International Monetary Fund, the banks, and both debtor and creditor country governments have nimbly worked out last minute financial compromises and made necessary domestic adjustments. The debtors have accepted more austerity for a longer period than at first seemed probable. The banks swallowed hard and were more forgiving to debtors—even to the extent of accepting substantial real losses—than at first expected.
