TRADE WITHOUT CURRENCY

COOPERATION CAN HELP IN FINDING SUSTAINABLE SOLUTION TO PAUCITY OF FOREIGN EXCHANGE.

SHABBIR H. KAZMI
(feedback@pgeconomist.com)

Feb 27 - Mar 4, 20
12

Pakistan and Iran suffer from the same contentious problem 'little foreign exchange available to finance import'. Though the root causes are different, one of the remedies is that both the countries trade in local currencies. Both the countries also face volatility of exchange rate. In case of Iran, the situation is more precarious because of economic sanction spreading over more than three decades.

People of Iran have endured economic sanctions for more than three decades but have started feeling more uncomfortable because of soaring prices of food staples as a consequent of the sanctions that western powers have put on the country to give up its nuclear program. The latest sanctions imposed by the EU and the US are taking toll on the lives of ordinary citizens. These also make the business community jittery in doing any kind of business with outside world because of the volatility of exchange rate.

Iranian officials have started thinking about replacing Dollar, Pound and other European currencies. This may be helpful in short term in easing level of discomfort among the Iranian but long-term sustainable solution has to be found. There is a need to eliminate tariff and non-tariff barriers and provide incentives to the private sector for trade development. Pakistan and Iran had great potential to enhance their cooperation in various fields, particularly in energy, trade, and economy.

If India can import oil from Iran and pay in Indian rupee, technically there should also be no problem following the Indian business model. At present, imports from Iran and exports to Iran constitute a miniscule percentage of total foreign trade of Pakistan, though it is surprising that Pakistan imports crude oil and POL products from other countries and oil import bill has become backbreaking.

Pakistan is blessed with three ports, with Gwadar in the closed proximity with the Iranian ports. Pakistan imports nearly 80 per cent of its crude oil requirements and 60 per cent of POL products. This offers immediate opportunity to shift part of these imports to Iran. Since this will not involve payment in dollars, there will also be no fear of erosion of country's foreign exchange reserves.

At present, average capacity utilization of refineries operating in Pakistan is also low. The production of the refineries can be enhanced on Iranian oil with an objective to export surplus production of those items in which Pakistan has already achieved self-sufficiency and/or likely to achieve self-sufficiency in due course. In the recent past, Pakistan has been exporting POL products to Afghanistan and with the passage of time such exports could be diversified as well as quantum can be increased.

Any country can face disintegration due to paucity and high prices of food products. Though Iran has withstood over 32 years of economic sanctions and 10 year war with Iraq, yet it can't endure this indefinitely. Pakistan can supply various food products in exchange for crude oil and POL products. Iranians have a liking for Pakistani rice and bulk of the demand can be met by Pakistan.

Pakistan has an elaborate manufacturing infrastructure for textiles and clothing and can supply from raw cotton to all sorts of made-ups, towels, and bed linen. Along with textiles and clothing, Pakistan can also meet Iran's requirement of leather, leather garments and shoes.

Iran mainly imports rice, cotton and synthetic textiles and clothing products, ships and other floating structures and surgical instruments. It also exports crude oil and POL products, minerals, Iran and steel products, chemicals and plastic and plastic products. However, the share of import from and export to Iran is less than one percent of the total trade.

During the recent visit of Iranian President to Pakistan, the two countries have expressed commitment to boost trade. A point to be remembered is that the two countries enjoy common border, rail, and road links, which can make transportation swift as well as cost effective. The first step in this direction will be opening up branches of Iranian banks in Pakistan and vice versa.

One of the points of concern is that the opponents of Iran-Pakistan historic cordial ties are adamant at creating and widening the breach. These elements are supported and provided funds by the foreign intelligence agencies. That said it is the responsibility of the government and the people of Pakistan to identify the common enemies.

It is necessary to identify those elements present in Balochistan who are involved in cross border terrorism. One of the banned outfits, Jundullah wears two caps. In Pakistan, it is said to be fighting for the rights of Balochs and in Iran for the rights of Sunnis. It allegedly gets funds and arsenal from those who aim at creation of 'Greater Balochistan', taking one slice each from Pakistan, Afghanistan, and Iran. In the recent past, Iran had to close the border to contain movement of undesirable people.

Pakistan's trade with Iran is heavily tilted in Iran's favor. Bulk of Pakistan's export to Iran consists of rice and fruits but faces trade restrictions. There is also excessive intervention by the Iranian state in commercial activities, which denies Pakistani companies equal opportunities. Therefore, there is need that the government of Iran facilitates interaction of the private sector. To promote trade, there is also proposal for expanding the preferential trade agreement between the two countries and seeking mechanisms to formalize the informal, which is estimated at between $1 billion and $2 billion.

At the conclusion of the sixth meeting of Pak-Iran Joint Trade Commission recently held in Islamabad, Iranian Commerce Minister Mehdi Ghanzanfari and his Pakistani counterpart Makhdoom Amin Fahim signed a memorandum of understanding, a Press TV correspondent reported. Under the deal, the two countries aim to triple the level of bilateral trade. The two sides agreed on the need to formulate the five-year road map in order to boost bilateral trade, and form a joint working group comprising public and private sector representatives from both countries. According to the Iranian representatives, Tehran will host the first meeting of the joint working group shortly.