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The recent decline in dollar price has brought a stir in the export trade of Pakistan.

Oct 08 - 14, 2001

Inquisitiveness generally brings the question to the minds of the people that whether it is the rupee which is getting strong or it is the dollar getting weaker in the context of the current ups and downs in the value of Rupee and Dollar respectively?

An active forex player however in reply to the question observed that neither the rupee getting strong nor the dollar getting weaker, the reason behind the fluctuation is nothing but the prevailing volatile conditions. Both the currencies will have to come to their natural course as soon as the weather was stormed.

The US tragedy played havoc on dollar which lost almost Rs5 in the kerb when it dipped from post 11-September position i.e. Rs67 to Rs62 in the kerb last week. The downward sliding of the dollar cautioned the forex dealers who are usually sitting with their fingers crossed to see the next change in the situation.

Owais Kalia, a leading player was of the view that the volatile conditions have made it difficult to tell about the future, hence the day to day position of the dollar is the name of the trade in the current situation.

Spelling out the factors which forced down the dollar value, another expert in the financial system was of the view that the panic divesting of dollar generally by a large number of individual dollar holders keeping the US currency in the hope to get a better price was one of the major factor to bring down the dollar price.

It may be mentioned that the economic recession in general and seriously depressed conditions in the real estate business, which was considered a haven for investors, investment in ever rising dollar was taken as the safest investment by the investors. They were of the view that investment in dollar needs no declaration, documentation and above all it is the easiest way for liquidation. Such type of investors off loaded their holdings in a state of panic to avoid further losses they smell in the air. This segment of the money holders generally in the range of $5000 to $10,000 flooded the market due to their offload due to fear of further decline.

The unusual increase of home remittances especially from the United States was another major factor behind increase in supply of the dollar in the market, which was instrumental in bringing down the dollar price.

According to reports, a quantum jump in home remittances was noticed especially from USA. People living in US remitted their bank savings due to fear of possible interrogation by the US officials about higher side dollar holdings of the immigrants.

Although the governor of SBP feels that it is not the dollar which is getting weaker rather it is the rupee which getting stronger, however the active players in the forex market feel that it is a temporary phase and the dollar would soon regain its pre-terrorist attack position. There are also fears that if the war comes against Afghanistan and it prolongs the dollar may further decline.

Although profit and loss is the part of the game, the recent decline in dollar price has brought a stir in the export trade of Pakistan who are asking for compensation from the State Bank of Pakistan. A leading textile exporter who requests not to be quoted said in a lighter mood that to cry over the loss is the characteristic of the business community. They keep silence whenever situation proves to be a windfall.

The export sector however justified to express their concerns over the problems they are facing in settling their duty drawback claims of imported ingredients based on dollar value before it started sinking and the reconciliation with the price on which they had booked orders with their buyers.

Exporters said that up to September 28, 2001, they had been accepting order from foreign buyers at Rs65.4064.70 parity for calculating their production cost but a sudden fall in dollar have taken away a margin of Rs2.20 to Rs3, the gap which could never be covered.

Exporters are presently faced with a situation where they have fined no way out for maintaining their products competitive particularly after last two days free fall of dollar up to 3.5 per cent in kerb and 1.5 per cent in inter-bank rate. Their problem is that they had paid price of imported ingredient of their export products on a price when dollar was sold in Pakistan at inflated price. We will file our rebate claims on dollar value, which is less by Rs2.20 to Rs3, a dollar.

The recent concessions announced by the State Bank for export trade were not sufficient to keep products competitive in the world market but last two days depletion in dollar value is going to make its suffer heavily.

The orders in the pipeline and those already shipped will render many exporters bankrupt as they would be suffering huge losses due to drop in dollar. Banking system in Pakistan has checked the free fall of dollar on the inter-bank market to cover their short positions and also help the central bank to build some forex reserves.