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COUNTER TRADE

Counter trade, a modern variant of the age old system of trade by barter, has emerged as a new feature of economic relationship. For a nation which is suffering from a drastic reduction in its foreign exchange earnings and trade arrears with Western export credit agencies, counter trade has the attraction of providing goods for the domestic market without draining the scarce foreign exchange. The low credit rating which the country has in the international capital market and the unwillingness of the government to adhere strictly to the international monetary fund's supervised adjustment programme also favour counter trade in the system.
    However, there are grounds for insisting that counter trade should be used with caution. Counter trade is a form of gambling. As with every other forms of trade by barter, one partner is inevitably going to be better off than the other in the end. This will be determined by what monetary value is assigned to the goods exchanged and how constant this remains within the duration of the transaction. For example, if the agreement is based upon the current price of oil, a subsequent price decrease will make Africa exchange more barrels of oil for the same value of goods, while an increase in price will yield the opposite effect.

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