US dollars returning to market at snail’s pace

Artificially managing the currency will not mark the return of dollar export earnings, exporters say.

“Generally, most exporters carry retained earnings to their respective countries for global market promotions. The major portion of this is used as an operational expense. These earnings depend on the appreciation of foreign currency to be competitive in the world market. A free float would redirect export earnings to the host nation. The current exchange rate does not attract retained earnings,” an exporter told the Business Times on Tuesday.

This view was expressed a few days after mandatory export proceeds conversion were introduced for the next six months by the Central Bank (CB) in its Six-Month

Road Map for Ensuring Macroeconomic and Financial System Stability.

The exporter categorically stated that his company will not be bringing proceeds to Sri Lanka if the exchange rate is at Rs. 203. “If the US dollar exchange rate is at Rs. 240, we will be bringing our dollars within a matter of days. We can still sell at Rs. 240 in the informal market,” he said.

Exporters are willing to face the risk of being taxed higher in this situation. “We will request the government to tax profits of exporters at 28 per cent instead of 14 per cent wh e r e the foreign exchange is not repatriated and converted,” Ajith Nivard Cabraal, the new CB governor, now in his third term in this office, said on October 1.

Despite this, certain exporters are steadfast in their resolve. “With the managed exchange rate, we do not see the point in converting or bringing back our dollars,” a second exporter said.

After the gover nor’s presentation, US dollars are being released to the market by commercial banks ‘slowly but steadily,’ importers said noting that certain goods lying at the Colombo Customs are being cleared.

“Transactions between US$ 50,000 to $ 100,000 were done during most of last week,” a banking industry official told the Business Times. An import e r confirmed this noting that most banks are flexible in releasing dollars. “Most goods are being released from the Customs - all agriculture products are released, sugar was released partly, and the government has issued $ 1 million for milk powder product clearance. All my payments are coming on time,” he added.

Meanwhile, at a media conference on Thursday, the National Chamber of Exporters (NCE), perturbed by the CB accusation that exporters are ‘ hoarding cash overseas’, set out to explain their stance saying this is the obviously discriminatory treatment o f exporters and a disincentive to the export sector.

Exporters at the event told the Business Times that currency fluctuation is a big concern as the CB should not interfere in the currency exchange rate. “Fixing the rate will lead to panic and the CB should let the demand and supply factor in,” one exporter at the event said. He said a shortage of dollars is still an issue, but assurances have been given that dollars would be made available for exporters’ raw material imports.

NCE general secretary/ CEO Shiham Marikkar told the Business Times that export ear nings conversions are not an issue; the concern is the currency exchange when importing raw materials in US dollars for their r e s p e c t ive exports. “Already the cost of doing business for exporters is extremely high.”

Exporters were hurt and unhappy that they have not been appreciated and it is important to encourage and motivate them in their efforts, he added. “We need to encourage exports and discourage imports but what is happening is the reverse.”

The participants at the NCE media conference advocated a stable policy and called for support in a c c e s s i n g ove r s e a s markets.