'NO CAPITAL FLIGHTS FROM THE COUNTRY'
INTERVIEW: PRESIDENT EXCHANGE COMPANIES ASSOCIATION OF PAKISTAN
TARIQ AHMED SAEEDI - firstname.lastname@example.org
Sep 1 - 7, 2008
Often people wonder what supporting role can be performed by the exchange companies in a situation when local currency receives continuous suppressions from foreign currencies and faces undercutting devaluation of its face value. In a national economy like of Pakistan whether or not exchange companies revitalize rupee value against greenback they somehow jack up foreign reserves in the country with their annual transaction volume of $6 billion. Compounded with the recent measures government adopted to spur rupee to appreciate its value by increasing import cash margin to 100 percent and up to 50 percent increment in the regulatory duty on import of luxurious items, injection of the foreign currencies by exchange companies in the inter bank system may be giving a sign of hope amidst foreign reserves downslide crisis. Market pundits look to other side however. "The capacity of exchange companies constitute a small portion of foreign reserves held by the State Bank of Pakistan, but we are giving our best in the mid of slowdown in economic activities," said Haji Haroon, President Exchange Companies Association of Pakistan. He says capital flight has been stopped in last two months; as inter bank rate is offering competitive margin.
Haji Haroon who also holds major stake in H&H Exchange Co. says sources of currencies for exchange companies are mainly overseas Pakistanis, those who are working in different nations like Saudi Arabia, Kuwait, etc. As we don't have well performing for instance tourist industry or other robust sectors which could earn foreign exchange for the national economy, we have left up with that essential tap in form of 'official or unofficial' remittances.
Exchange companies run their operations through trading in and exchanging of foreign currencies. Individual buyers constitute a major segment of customers of exchange companies. In last two or three months, individual buyers have considerably disappeared in the market. He said the national economic slow down was self evident and deflected attention of investors from all sectors such as real estates, stock exchange, etc. profitable to them for long. The two month moratorium spell has sent a shock wave in the individual trading side of exchange companies as well.
Government assigned exchange companies a task that they would deposit 10 percent in the inter bank system of total volume of currencies being exported from the country and 10 percent dollars in the central bank as SLR in return of rupee. At present the situation has starkly reversed. "I am not completely sure about other exchange companies, but only H&H is injecting currently 80 percent in the system" says he adding the percentage must be greater in case of other exchanges as well since there are no buyers in the market. He said only in one day last week H&H transferred $.4.5 million into inter bank. He told the amount happened to be an aggregate of a whole month transactions previously. Only his company recorded 40% business expansion following new policies.
Exchange companies in Pakistan are performing their due role in the economy. The annual volume or capacity of exchange companies is about $6 billion. This amount does not entirely saturate in the inter bank system because of quantifiable foreign currencies recede back to abroad from exchanges for example for education purposes, or traders dump currencies in personal coffers, thereby, they are of no use to the system. Besides, volume which has grown to this level year on year is just a small portion to fill the widening gap of foreign reserves, he says. He adds, however, this provides sustenance to a certain level.
According to president exchange association, except official flight of capital from Pakistan any other outward flow has manifestly been stopped. He says inflows of currencies from different nations in the country keep arriving. With absence of currency buyers and no capital flight certainly inflows are directed towards the bank reserves, he maintains.
No exchange companies would have been able to operate more than three days had window of inter bank to absorb dollars flows from exchanges not been opened. Appreciating the State bank policy after which money changers were renamed as exchange companies and they were permitted to participate in inter bank along with open market operation, he said the policy did augur well with performance and growth of exchange companies. žI am against the dollarisation regime which restricts current of currency valuable for the economic building," he underscored. Therefore, he thinks, inter bank window is a positive development.
The economic scenario in the country is somehow bleak but fortunately there is no panic like situation, says Haji. In contrast to few months ago when dollar was an unfound commodity there is now available abundance of dollars in the market. While exchanges are running out of buyers, they could sell currencies to inter bank market and could earn sometimes higher margin than one offered in open market. He says it is a rare instance where inter bank rate is equal or more than that of open market. Probably this is what drives currency flows into the system.
Closure of Nostro accounts has resulted in returning of particularly dollars back in the central bank. Dollars accounts in foreign banks have not factored in any special interest return, he uttered and added the return for one-day-hold is almost negligible. In addition, Nostro accounts were misused, he stated. But he did not explain the reason, "It would open a new debate," he suggested.
He believes foreign exchange department of SBP-BSC has a vigilant surveillance mechanism. "Monitoring is so strict that exchanges have to report to FED on daily basis. He also said ban over export of Euro, UAE Dirham, and Pound Sterling from the country was a good facilitating step forwarded by the central bank. He says exchange companies are bound to have 25 percent liquid currency in Pak rupee and they can not cross their exposure limit beyond 50 percent of their total capital.
H&H was the first exchange company issued license by the SBP and national bank of Pakistan was the second in line granted foreign exchange operation. He told the company had the largest capital formation of about 30 crore amongst its contemporaries.